Sugar Annual

An Expert's View about Tropical and Subtropical Fruits, Sugar Cane in South Africa

Posted on: 27 Apr 2012

The report focuses on the supply and demand for sugar in South Africa.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 4/12/2012 GAIN Report Number: South Africa - Republic of Sugar Annual The report focuses on the supply and demand for sugar in South Africa Approved By: Ross Kreamer Prepared By: Dirk Esterhuizen Report Highlights: Growing conditions for sugarcane have improved in most production areas after consistent rains in late 2011. These rains come after the sugar industry endured two of the worst drought-affected production seasons in the past 20 years in South Africa. Hence, post forecasts that for the 2012/13 season, the South African sugarcane crop will increase by a million tons or by six percent to 17.9 MMT. Sugar production for the 2012/13 season is estimated at 2.1 MMT Tell Quell (2.2 MMTRV), 15 percent more than in the 2011/12 season due to a higher sugarcane crop. As a result, sugar exports are expected to almost double to 600,000 MTRV in the 2012/13 season. Executive Summary: Good rains over most of the sugarcane producing areas of South Africa have set the foundation for an expected higher crop in the 2012/13 season. Hence, post forecasts that the 2012/13 season (April 2012 to March 2013) sugarcane crop will increase by about a million tons or by six percent to 17.9 MMT. This comes after enduring two of the worst drought-affected production seasons in the past 20 years. The 2011/12 season (April 2011 to March 2012) sugarcane crop was finalized at 16.8MMT, only about five percent higher than the previous season?s 16.0MMT. Sugar production for the 2012/13 season is forecast to be 2.1 MMT Tel Quell (2.2 MMTRV), 15 percent more than the previous season on better climatic conditions. In the 2011/12 season, South Africa produced its lowest sugar crop the past 15 years at 1.8 MMT (1.9 MMTRV) due to the secondary impacts of 2010/11 season?s drought. Sugar exports are expected to increase by 80 percent to 600,000 in the 2012/13, as sugar production significantly rebounds from previous years of low production. Hence, South Africa is expected to deliver on a possible United States tariff rate sugar allocation in the 2012/13 season. Post expects South Africa?s sugar exports declined by about 20 percent in 2011/12 season to 330,000 MTRV due to lower domestic sugar production. It is expected that South Africa exported 160,000 MT of raw sugar and 160,000 MT (171,200 MTRV) of refined sugar during the 2011/12 season. Sources: http://www.sasa.org.za http://www.illovo.co.za http://www.huletts.co.za http://www.tsb.co.za http://www.sacanegrowers.co.za US$1=R7.94 (04/10/2012) Sugarcane Production After enduring two of the worst drought-affected production seasons in the past 20 years, the South African sugar industry is expected to benefit from a combination of improved sugarcane climatic growing conditions and a higher international raw sugar price. Good rains over most of the KwaZulu- Natal, where 75 percent of South Africa?s sugarcane is produced, were welcomed by cane growers. The rains came at an ideal time as most growers had commenced fertilizer and planting operations for the 2012/13 season, setting the foundation for an expected higher crop in the 2012/13 season. Hence, post forecasts that the 2012/13 season (April 2012 to March 2013) sugarcane crop will increase by about a million tons or by six percent to 17.9 MMT. However, a 17.9 MMT sugarcane crop is still more than 2.5 MMT lower than South Africa?s average sugarcane crop for the past 15 years of 20.4 MMT. In addition to unpredictable weather conditions in recent years, South African sugarcane growers have faced decreased profit margins, uncertainty over land reform, urbanization, high crime levels and infrastructure constraints. These factors have lead to a reduction in area planted to sugarcane since the 1990?s. Figure 1 illustrates the trend in sugar production over the past 15 years in South Africa. The sugar area to be harvested in the 2012/13 season is expected to be on the same level as the previous two years at around 280,000 hectares. Figure 1: The trend in sugarcane production in South Africa The 2011/12 season (April 2011 to March 2012) sugarcane crop was finalized at 16.8MMT, only five percent higher than the previous season?s 16MMT. Drought and secondary impacts of drought, such as cane root mortality and the forced harvest of young cane, were the major reasons for South Africa having two of the lowest sugarcane production seasons in a row. For the 2012/13 season, sugar production is estimated at 2.1 MMT Tell Quell (2.2 MMTRV), 15 percent more than in the 2011/12 season on a higher than expected sugarcane crop. The estimated 1.8 MMT Tell Quell (1.9 MMTRV) sugar that was produced in the 2011/12 season is the lowest the past 15 years in South Africa. The relatively high cane-to-sugar ratio of 9.22 for the 2011/12 season illustrates the impact of drought on sugarcane yields. In the 2010/11 season, 1.92 MMT Tell Quell (1.99 MMTRV) sugar was produce. Table 1 illustrates the production of sugar in South Africa for 2010/11 (actual), 2011/12 (estimate) and 2012/13 (forecast) marketing years. Table 1: The production of sugar in South Africa Season Area Area Yield Cane Sugar Cane/sugar planted harvested (MT/HA) crushed production ratio (HA) (HA) (MT) (MT*) 2010/11 382,721 279,535 57.3 16,015,649 1,919,116 8.35 2011/12 383,000 280,000 60.0 16,800,000 1,822,000 9.22 2012/13 380,000 280,000 63.8 17,850,000 2,100,000 8.50 *Tel Quell x 1.035 = Raw value, Refined x 1.07 = Raw value The structure of the sugar industry in South Africa There are approximately 29,130 registered sugarcane growers in South Africa, covering the provinces of Kwazulu-Natal, Mpumalanga and the Eastern Cape. Of the 29,130 sugarcane growers, more than 27,580 are small-scale growers producing eight percent of the total crop. Large-scale growers (approximately 1,550) produce approximately 85 percent of the total sugarcane crop, while milling companies, with their own sugar estates, produce approximately seven percent of the crop. The bulk of the sugar belt receives sufficient rainfall to grow cane without irrigation; however, parts of northern Kwazulu-Natal and Mpumalanga regions cannot produce cane without irrigation (approximately 30 percent of total production). Cane growers are represented by the South African Cane Growers Association. There are 14 sugar mills in South Africa. Four mills are each owned by Illovo Sugar Ltd and Tongaat Hulett Sugar Ltd. Three mills are owned by Tsb Sugar RSA Ltd, while Umfolozi Sugar Mill (Pty) Ltd, UCL Company Ltd and Gledhow Sugar Company (Pty) Ltd each own one mill. Only two mills are located in the Mpumalanga province, while the remainders are located in the Kwazulu-Natal province. The sugar millers are represented by the South African Sugar Millers? Association Limited. Four of the mills are known as ''white end'' mills and produce their own refined sugar. Part of the raw sugar produced by Tsb Sugar RSA Ltd is refined at the Malelane ''white end'' mill, and the balance is exported via the sugar terminal in Maputo, Mozambique. The raw sugar produced at the remaining mills that is not used by the milling companies for exports of bagged refined sugar or direct consumption raw sugar, is routed to the coastal city of Durban. In Durban it is either refined at the central refinery of Tongaat Hulett Sugar Ltd. or stored at the South African Sugar Association sugar terminal prior to export. The South African sugar industry is regulated to facilitate the relationship between growers and millers and to protect the industry against international trade-distorting measures. The South African Sugar Association (SASA) is constituted in terms of the Sugar Act (Act 9 of 1978), which provides for the Sugar Industry Agreement to regulate the affairs of the industry. SASA is an autonomous organization and operates free of government control. Due to the interdependence of millers and growers in the sugar industry, SASA has been structured on the basis of a partnership. The South African Cane Growers Millers 27,580 Small scale growers 6 milling companies 1,550 Large scale 14 sugar mills growers SA Cane Growers SA Sugar Milers? Association Association Growers? Association and the South African Sugar Millers? Association Ltd are equal partners in the SASA and are represented by equal numbers of members on the Council of SASA, where decisions are reached on a consensus basis (see also Figure 2). South African Sugar Association Figure 2: Organization of the South African sugar industry Cane prices The South African sugar industry is a net exporter of sugar. In order to distribute exposure to the world market equitably among growers and millers, SASA has implemented a Division of Proceeds. The Division of Proceeds is the formula where revenue that accrues to the sugar industry is allocated to millers and growers under a partnership arrangement. The Sugar Act and the Sugar Industry Agreement provide regulatory support for the Division of Proceeds. Industry revenues earned from domestic and export sales of sugar and molasses are accounted for by SASA. After the deduction of administration costs, the net proceeds are shared between growers and millers at a predetermined percentage of net proceeds (see also figure 3). Cane growers are thus paid for their sugarcane according to the quality of the cane delivered to the mill through this revenue sharing arrangement. Cane quality is measured by the Recoverable Value (RV) formula, which estimates the amount of sugar and molasses that can be produced from a delivery of cane. A provisional Recoverable Value (RV) price is declared monthly during the season which is applied to all cane delivered to date. A final RV price for the season is declared in March of each year. The final RV price for sugar in the 2011/12 season was declared at R3,018 per ton, 14 percent higher than the previous season and reflects higher international prices and relative low domestic sugar production. Final RV prices paid the past three years to growers are shown in Table 2. Table 2: Final Recoverable Value and cane prices RV Price Cane Price Average R/$ Exchange rate Year (Apl ? Mrt) (Rand) (Rand) 2009/10 2 284.20 284.15 7.80 2010/11 2 572.14 331.55 7.15 2011/12 3 017.51 350.00 7.45 Sugarcane for Centrifugal South Africa 2010/2011 2011/2012 2012/2013 Market Year Begin: April 2010 Market Year Begin: April 2011 Market Year Begin: April 2012 USDA Official New Post USDA Official New Post USDA Official New Post Area Planted 405 383 383 380 Area Harvested 301 280 280 280 Production 18,670 16,016 16,800 17,850 Total Supply 18,670 16,016 16,800 17,850 Utilization for Sugar 18,670 16,016 16,800 17,850 Utilizatn for Alcohol 0 0 0 0 Total Utilization 18,670 16,016 16,800 17,850 1000 HA, 1000 MT Sugar Production Sugar production for the 2012/13 season is forecast to be 2.1 MMT Tell Quell (2.2 MMTRV), 15 percent more than the previous season on the back of better climatic conditions. In the 2011/12 season, South Africa produced its lowest sugar crop the past 15 years at 1.8 MMT (1.9 MMTRV) due to the secondary impacts of 2010/11 season?s drought. Consumption The South African Customs Union (SACU) is the primary market for the South African sugar industry. The SACU market comprises South Africa, Botswana, Lesotho, Namibia and Swaziland. Access to the market is regulated by the Southern African Development Community Sugar Cooperation Agreement. South Africa and Swaziland are the only sugar producers in SACU and together produce in excess of the region?s sugar demand, which is estimated at two MMT or 34kg per capita. The demand for sugar is expected to grow by only two percent in the 2012/13 season. High sugar prices and a slower than expected economic growth rate of only 2.7 percent for South Africa in 2012 are the main reasons for dampening regional demand for sugar. However, the long-term prospects for increased sugar consumption remain good as the South African economy is expected to accelerate by 3.6 percent in 2013 and by 4.2 percent in 2014, led by robust household consumption and stronger public and private sector investments. It is expected that the South African sugar industry will supply 1.6 MMT and Swaziland about 340,000 MT to the SACU market in the 2012/13 season. From South Africa?s SACU sales, approximately 44 percent is sold to industrial customers, with the balance sold directly to consumers at retail. Approximately 80 percent of sugar sold to customers is refined sugar and the balance brown sugar. For the 2011/12 season, South African sugar sales in the SACU market are expected to increase by three percent to 1.6MMT. Table 3 contains South African sugar sales into the SACU market for the 2010/11 (actual), 2011/12 (estimate) and 2012/13 (forecast) marketing years. Table 3: South African sales of sugar into the SACU market MT * 2010/11 2011/12 2012/13 White sugar 1,230,945 1,276,000 1,300,000 Brown sugar 319,132 319,00 330,000 Direct sales 861,273 883,200 910,000 Industrial sales 675,882 701,800 720,000 Total sales 1,550,077 1,595,000 1,630,000 MTRV 1,658,582 1,706,650 1,744,100 *Refined x 1.07 = Raw value Trade Sugar exports are expected to increase by 80 percent to 600,000 MT or almost 28 percent of production in the 2012/13 season on increased sugar production. South Africa will be able to deliver on a possible United States tariff rate sugar allocation in the 2012/13 season, and could likely supply more than their allocation if unfilled allocations become redistributed. Post expects South Africa?s sugar exports will decline by about 20 percent in 2011/12 season to 330,000 MTRV on the back of lower domestic sugar production. It is expected that South Africa will export 160,000 MT of raw sugar and 160,000 MT (171,200 MTRV) of refined sugar during the 2011/12 season. The 2011/12 sugar exports only represented about 17 percent of total production, whereas the average percentage of production being exported the past ten years was almost 45 percent. Figure 3 illustrates the declining trends in sugar production and exports by the South African sugar industry since the 1997/98 season. However, there is an increasing trend in sugar sales to the SACU market since the 1997/98 season, illustrating the South African sugar industries? competitive advantage in supplying the SACU market with sugar. Exports and imports for raw sugar and refined sugar for the 2010/11 season and 2011/12 season (April to December) are shown in the trade matrixes below. Japan (30,000 MT raw sugar), Mozambique (22,225 MT raw sugar and 39,536 MT refined sugar) and Angola (20,980 MT raw sugar and 6,315 MT refined sugar) were the major export destinations, outside the SACU market, for South African sugar in the 2011/12 season so far. Sugar imports are expected to increase by about 10 percent to 220,000 MTRV, due to a decline in production, in the 2011/12 season, which represent almost 12 percent of local production. Sugar imports are mostly from Brazil. Post expects that sugar imports will fall back to the normal six percent of local production in the 2012/13 season, due to the increase in local sugar production based on more favorable growing conditions.. Figure 3: Trends in South Africa?s sugar production and sugar sales to the local and export markets Export Trade Country South Africa, Commodity Cane Sugar (HS170111) Time Period My Units: Mt Exports to: 2010/11 2011/12* U.S. 1,848 U.S. 14,565 Others Others Japan 71,336 Japan 30,000 Mozambique 38,039 Mozambique 22,225 Zimbabwe 27,980 Angola 20,980 Angola 24,230 Madagascar 8,147 Tanzania 10,710 Zimbabwe 7,661 Madagascar 8,849 Congo 4,114 Sudan 5,313 Sudan 2,317 Kenya 5,060 Kenya 1,036 Total for Others 191,517 96,480 Others not Listed 9,753 1,901 Grand Total 203,118 112,946 *April 2011 to December 2011 Export Trade Country South Africa, Refined sugar** Commodity (HS170199) Time Period My Units: Mt Exports to: 2010/2011 2011/2012* U.S. 0 U.S. 0 Others Others Mozambique 66,887 Mozambique 39,536 Madagascar 28,562 Zimbabwe 17,487 Kenya 19,654 Uganda 14,283 Uganda 17,860 Kenya 11,329 Indonesia 10,403 Madagascar 7,775 Mauritius 10,008 Angola 6,315 Sudan 7,344 Tanzania 6,027 Ghana 8,167 Comoros 2,595 Total for Others 168,885 105,347 Others not Listed 25,811 7,142 Grand Total 194,696 112,498 *April 2011 to December 2011 **Refined x 1.07 = Raw value Import Trade Country South Africa, Commodity Cane Sugar (HS170111) Time Period My Units: Mt Imports form: 2010/11 2011/12* U.S. 0 U.S. 0 Others Others Brazil 49,108 Brazil 50,288 Thailand 2,000 Zambia 1,442 Total for Others 49,108 53,730 Others not Listed 317 966 Grand Total 49,425 54,696 *April 2011 to December 2011 Import Trade Country South Africa, Commodity Refined sugar** (HS170199) Time Period My Units: Mt Exports to: 2010/11 2011/12* U.S. 0 U.S. 0 Others Others Brazil 52,621 Brazil 54,682 United Arab Emirates 2,808 India 1,590 United Arab Emirates 938 Total for Others 55,429 57,210 Others not Listed 2,568 191 Grand Total 57,997 57,401 *April 2011 to December 2011 **Refined x 1.07 = Raw value Sugar, Centrifugal South Africa 2010/2011 2011/2012 2012/2013 Market Year Begin: Apr 2010 Market Year Begin: Apr 2011 Market Year Begin: Apr 2012 USDA Official New Post USDA Official New Post USDA Official New Post Beginning Stocks 70 70 200 175 245 Beet Sugar Production 0 0 0 0 0 Cane Sugar Production 1,985 1,985 2,000 1,885 2,175 Total Sugar Production 1,985 1,985 2,000 1,885 2,175 Raw Imports 50 50 50 70 50 Refined Imp.(Raw Val) 150 150 100 150 70 Total Imports 200 200 150 220 120 Total Supply 2,255 2,255 2,350 2,280 2,540 Raw Exports 205 205 230 160 300 Refined Exp.(Raw Val) 225 210 250 170 300 Total Exports 430 415 480 330 600 Human Dom. Consumption 1,620 1,660 1,670 1,700 1,740 Other Disappearance 5 5 5 5 5 Total Use 1,625 1,665 1,675 1,705 1,745 Ending Stocks 200 175 195 245 195 Total Distribution 2,255 2,255 2,350 2,280 2,540 1000 MT
Posted: 27 April 2012

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