Sugar Annual Report

An Expert's View about Vegetables and Melons, Roots and Tubers in Ukraine

Posted on: 13 May 2012

Domestic beet sugar production in Ukraine has increased to over two million metric tons, creating an exportable surplus.

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: 5/4/2012 GAIN Report Number: UP1216 Ukraine Sugar Annual Sugar Annual Report Approved By: Randall Hager Prepared By: Yuliya Dubinyuk, Agricultural Specialist Report Highlights: Domestic beet sugar production in Ukraine has increased to over two million metric tons, creating an exportable surplus. Domestic stocks are high as Ukraine could not export refined beet sugar as expected to Russia due to high import tariffs. Finding export markets for Ukraine is an issue that will have a significant impact on the developments in the industry in the near future. Cane sugar imports to Ukraine are on hold while domestic producers lobby the Government to cancel the cane sugar import quota preferential tariffs. Sugar beet production continues to be a profitable business in Ukraine. Sugar Beet Area Planted and Average Yields in Ukraine 1990-2010 Thous. tons Tons/ha 1800 40.0 36.3 35.6 1600 35.0 31.5 29.4 1400 28.5 27.9 27.6 30.0 24.8 1200 23.8 25.0 20.5 20.1 18.3 1000 18.9 17.7 20.0 800 15.0 GA 600IN Report – UP1216 – Sugar Annual Report Page 2 of 11 Commodities: 10.0 Sugar Beets 400 Production: Sugar beet production area is expected to stay relatively unchanged in Marketing Year 2012/13 (MY 2012/13) and approach 550,000 planted hectares (ha), compared to 530,000 ha in the previous year. Ukraine observed an increase in average sugar been yields mainly due to improvements in the quality of planting seeds. Some of this increase is also attributed to a better use of fertilizer and other chemical treatments. 5.0 200 About one-half of the sugar beet production companies also own sugar refineries and belong to large agri- holdings (corporations). Formation of such vertically integrated businesses allows the owners to benefit from economies of scale, while better investment options are available to the companies that they use to improve production technology and refinery facilities. (For more information on the current trend in the industry developments, please see KAS-Kyiv’s 2011 Annual Sugar Report). S 0 0.0ugar beet production in Ukraine has approached the level that can fully satisfy domestic demand for refined sugar. Further production increases would be dependent on export markets for refined sugar, or utilization of sugar or sugar beets for production of bio-ethanol. Additional discussion on this topic is provided in the Policy section of this report. Area Planted (1000 tons) Yield (tons per hectare) Source: State Statistics Committee of Ukraine UNCLASSIFIED USDA Foreign Agricultural Service 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Profitability & Area Planted under Main Agricultural Crops in Ukraine Thous. Ha ROI 20,000 100% Grains & Pulses Area, 18,000 80% ha Sunflower 16,000 60% Area, ha 14,000 40% Sugar Beets 12,000 20% Area, ha 10,000 0% Grains & Table 1. Profitability and Area Planted under Main Agricultural Crops in Ukraine (Hectares, %, Calendar Years) Pulses ROI 8,000 -20% GAIN Report – UP1216 – Sugar Annual Report Page 3 of 11 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011* The new season’s yields are expected to be above the 5-year average but lower than that in the previous season. In the summer of 2011, weather conditions and a number of other factors related to production technology resultedG in record higha yields of sugar beets for Ukraine – 36.3 tons per hectare. in & Pulses Area, ha 14,583 14,152 13,646 15,005 14,515 15,115 15,636 15837 15090 15724 6,000 -40% P Sunflower rofitabGility of surgar baeet production remains quite attractive for producers regardless of the increase in fuel and i s & P l s ROI 275% 86% 65% 3% 7% 29% 16% 7% 14% 25% fertilized costs this season. See comparison of profitability for various groups of agricultural crops below. Sunflower Area, ha 1,636 2,020 2,943 3,743 3,964 3,604 4,306 4232 4572 4739 Seed ROI Sunflower Seed ROI 237% 171% 52% 25% 21% 76% 18% 41% 65% 58% Sug4a,r000 -60% Beets Area, ha 1,607 1,475 856 652 815 610 380 322 501 532 Sugar Beets ROI 30% 31% 6% 5% 11% -11% 7% 37% 17% 37% Souce: State Statistics Committee of Ukraine, * - preliminary data Sugar Beets 2,000 -80% ROI 0 -100% 2000 2005 2006 2007 2008 2009 2010 2011* Source: State Statistics Committee of Ukraine (2011* - Preliminary Data) Consumption: UNCLASSIFIED USDA Foreign Agricultural Service USDA Offic ia l and FAS-Kyiv Fo recast Production Supp ly and Demand Sta tis tics 2010/2011 2011/2012 2012/2013 GAIN Report – UP1216 – Sugar Annual Report S Page 4 of 11 ug r Beets M arket Year B egin: Oct 2011 M arket Year B egin: Oct 2012 M arket Year B egin: Oct 2013 Ukraine R e v ised Estimate Forecast Sugar beets in Ukraine were not used for alcohol production, and this information is reflected in the PSD table below. Sugar beets produced in the country were fully utilized for sugar production less transportation and USD A USD A USD A storage losses and occasional minor exports. N ew P o st N ew P o st N ew P o st Off icial Off icial Off icial ProAductiorn, Seupply and De maPnd Datal Statisticns: ted (1000 HA) 532 530 550 Area Harvested (1000 HA) 516 510 530 Production (1000 MT) 18,740 18,500 18,800 Total Supply (1000 MT) 18,740 18,500 18,800 Utilization for Sugar (1000 MT) 18,740 18,500 18,000 Utilizatn for Alcohol (1000 MT) 0 0 0 Total Distribution (1000 MT) 18,740 18,500 18,800 Commodities: Sugar, Centrifugal Production: Sugar beet sugar production in Ukraine has increased in MY 2011/12 by about 50 percent year-to-year, and reached 2.3 Million Metric Tons (MMT). It is expected to remain at this level in the next season. This increase for the most part was stimulated by the following factors: 1. Domestic market demand for refined sugar. Domestic production in the last years did not produce enough to satisfy domestic needs and thus some sugar was imported to Ukraine. 2. Consolidation of sugar production by the large agricultural corporations that allows these companies to utilize larger production areas and benefit from the economies of scale of the own sugar production. 3. Ukraine was hoping to open up sugar export markets in Russia and other members of the Customs Union (CU). Domestic refined sugar prices stayed relatively low in 2011/12 that made sugar production in Ukraine almost unprofitable. As of September 2011, market price of one kilogram (kg) of sugar in Ukraine was on average 8.5 UAH, which translates roughly into $1.06/kg. However, industry experts project the price to drop to $0.81-0.88/kg by the end of the current MY. The average breakeven price of sugar for producers in Ukraine in the current season is estimated by the industry experts to be $810-900 per MT. However, the larger producers, who are UNCLASSIFIED USDA Foreign Agricultural Service GAIN Report – UP1216 – Sugar Annual Report Page 5 of 11 usually a part of the vertically integrated agri-holding companies, enjoy much lower input costs and are said to have positive profit margins. Individual company cost of production and sales data is not available. The average selling price of refined sugar at the refineries in Ukraine was about $630/MT in midseason. This price is projected to increase by about 10-15 percent by late spring 2012 due to a customary increase in demand on the local market with the approach of the summer canning season. Consumption: Sugar consumption in Ukraine in MY 2011/12 is anticipated to increase by about seven percent, mainly due to an abundant supply in the domestic market from the local production and in part due to the attractiveness of the price, compared to the last season. Trade: Imports Raw sugar imports in Ukraine in the current season remained at minimal levels due to an increase in domestic production. Imports of cane sugar are expected to decrease significantly, compared to the previous year and not exceed 10,000 MT, while a year prior Ukraine imported 245,000 MT cane sugar for refining and sale in the domestic market. Sugar industry lobbying groups in Ukraine have been advocating for cancelation of the current cane sugar quota import tariffs. In the current season costs of domestic production of sugar from sugar beets has increased due to the growth in energy costs. As a result some smaller sugar producers were pressed had to break even while large corporation still have some safety margin to spare. There is more sugar produced in Ukraine than the local market can consume and so larger producers are holding stocks, not dumping on to the local markets, to keep the prices at still profitable levels. However, imports of cheaper cane sugar would further the oversupply of sugar and result in complete drop of the retail prices below economically feasible levels for the local producers. Thus, imports of sugar are expected to remain minimal in Ukraine in the current and the following year. Exports Because Ukrainian sugar production exceeds its domestic needs at present, Ukraine is looking for markets for its refined sugar. Russia was once a promising destination. However, sugar import tariffs that Russia set for Ukrainian sugar of $340/MT make this business completely unattractive for Ukraine. So, Ukraine started exporting Georgia, Kazakhstan and some other members of the Commonwealth of Independent States (CIS). In addition, some shipments were recently made to Lebanon and Syria in the Middle East and to Slovakia. Exportable potential for sugar in Ukraine is estimated at 400,000 – 500,000 MT a year. However, whether or not this potential is realized in the near future depends on the GOU’s ability to negotiate agreements with potential UNCLASSIFIED USDA Foreign Agricultural Service USDA Offic ia l a nd FAS-Kyiv Fo re ca st Pro d uctio n Sup p ly a nd De ma nd Sta tis tics 2010/2011 2011/2012 2012/2013 Sugar M arket Year B egin: Oct 2010 M arket Year B egin: Oct 2011 M arket Year B egin: Oct 2013, Centri fugal Ukra ine R evised Estimated Forecast USD A USD A USD A N ew P o st N ew P o st N ew P o st Off icial Off icial Off icial Be 80 80 116 52 367ginning Stocks (1000 MT) Beet Sugar Pro ,300 2,360duction (1000 M 1,685 1,540 2,300 2T) Cane Sugar Production (1000 M 0 0 0 0 0T) 685 1,540 2,300 2,300 2,360 Total Sugar Production (1000 M 1,T) R 240 245 0 10 0aw Imports (1000 MT) R 120 48 0 38 15efined Imp.(Raw Val) (1000 MT) 360 293 0 48 15 Total Imports (1000 MT) 2,125 1,913 2,416 2,400 2,742 Total Supply (1000 MT) GAIN Report – UP1216 – Sugar Annual Report Page 6 of 11 R 0 0 0 0 0aw Exports (1000 MT) buyers among the CIS countries. Other possible markets for Ukrainian sugar, according to the industry experts, may exist in the Middle East and in the Far East. R 109 1 350 33 450efined Exp.(Raw Val) (1000 MT) Production, Supply and Demand Data Statistics: 109 1 350 33 450 Total Exports (1000 MT) Human Dom. Consum 1,900 1,860 1,900 2,000 2,000ption (1000 MT) Other Disappearance (1000 M 0 0 0 0 0T) 1,900 1,860 1,900 2,000 2,000 Total Use (1000 MT) En 116 52 166 367 292ding Stocks (1000 MT) 2,125 1,913 2,416 2,400 2,742 Total Distribution (1000 MT) Commodities: Sugar Beets Sugar, Centrifugal Policy: Sugar production has been traditionally regulated by the Government of Ukraine. The policy has not changed much in the current marketing season. However, Ukrainian sugar producers hope that the GOU will cancel the tariff rate quota (TRQ) of 260,000 MT on imports of cane sugar that has been hanging like a dark cloud over the domestic producer’s profits in the current season. The terms of the TRQ and the process of its administration was discussed in detail in the previous year’s Annual Sugar Report by FAS-Kyiv. There is some possibility that Ukraine may start producing bio-ethanol from sugar beets in the future. This spring, the GOU redrafted legislation on bio-fuel use in the country that may result in significant local demand for bio- ethanol in the local fuel industry. UNCLASSIFIED USDA Foreign Agricultural Service GAIN Report – UP1216 – Sugar Annual Report Page 7 of 11 Ethanol in Ukraine can be produced from corn or from sugar beets/sugar. A number of older alcohol producing plans have not been operating full capacity and may offer an investment opportunity to interested parties should the local demand for ethanol increase significantly. Some remodeling of these facilities would have to be made to accommodate bio-ethanol production technology. On the other hand, corn production has increased dramatically in Ukraine in the last two years and the GOU is looking for an opportunity to process some of the crop domestically. Bio-ethanol production may be an answer. Economies of this production are still to be examined and discussed by local potential producers but an attractive opportunity is believed to exist, according to the industry experts. Thus, change in the GOU Policy that may impact sugar beet and sugar production in Ukraine in the not so distant future is possible. UNCLASSIFIED USDA Foreign Agricultural Service Raw Cane Sugar Imports to Ukraine by Origin, by Mont, MT (HS 170111) % Change Oct. Sept. Sept-Feb. 11/12 Origin 2010-Feb. Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 2011-Feb. to 2011 2012 Sept.-Feb. 10/11 World 16380.0 2,809.0 2.0 2.0 0.0 56.0 5676.0 -65.3 Belgium 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 Raw Cane Sugar Imports to Ukraine by Origin, MY, MT (HS 170111) Brazil 16347.0 2,809.0 0.0 0.0 0.0 0.0 5614.0 100.0 GAIN Report – UP1216 – Sugar Annual Report Page 8 of 11 AuCthor Doefined:l ombia 25.0 0.0 2.0 0.0 0.0 53.0 55.0 100.0 MY 2008/ 9 M Y 2 0 0 9 / 1 0 M Y 2 0 1 0 / 1 1 % Change Statistical Tables Ge (October 08- Sept. 09) (October 09- Sept. 10) (October 10- Sept. 11)rmany O 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0rigin MY 2010/11 to MY 2009/10 Mauritius 3.0 0.0 0.0 2.0 0.0 3.0 7.0 100.0 Quantity % Share Quantity % Share Quantity % Share WParaguay 5.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0orld 13,695.0 100.00 254,895.0 100.00 244,749.0 10 .00 - 3.98 Brazil 13,695.0 100.00 196,215.0 76.98 244,577.0 99.93 24.65 Philippines 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 Colombia 0.0 0.00 0.0 0.00 145.0 0.06 0.00 MSoauurcreit:i uSstate Customs Committee of U0k.r0aine 0.00 13.0 0.01 22.0 0.01 66.98 Paraguay 0.0 0.00 0.0 0.00 5.0 0.00 0.00 Germany 0.0 0.00 0.0 0.00 1.0 0.00 0.00 Guatemala 0.0 0.00 8,269.0 3.24 0.0 0.00 - 100.00 Cuba 0.0 0.00 15,977.0 6.27 0.0 0.00 - 100.00 Argentina 0.0 0.00 34,420.0 13.50 0.0 0.00 - 100.00 Source: State Customs Committee of Ukraine UNCLASSIFIED USDA Foreign Agricultural Service Refined Sugar Imports to Ukraine by Origin, by Month, MY 2011/12, MT (HS 170199) % Change Oct. Sept. Sept-Feb. 11/12 Origin 2010-Feb. Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 2011-Feb. to 2011 2012 Sept.-Feb. 10/11 World 14382.0 4,597.0 1,513.0 980.0 35.0 34.0 8522.0 -40.7 Austria 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 Belarus 14208.0 4,576.0 1,467.0 938.0 0.0 0.0 8293.0 100.0 Belgium 0.0 0.0 0.0 0.0 8.0 0.0 8.0 100.0 China 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 Denmark 100.0 0.0 0.0 0.0 20.0 20.0 40.0 100.0 France 2.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 Germany 19.0 0.0 2.0 7.0 0.0 7.0 23.0 100.0 India 6.0 0.0 0.0 0.0 0.0 0.0 0.0 -100.0 Italy 0.0 0.0 0.0 0.0 1.0 0.0 1.0 100.0 Mauritania 1.0 0.0 0.0 0.0 0.0 0.0 0.0 -100.0 Mauritius 0.0 0.0 22.0 0.0 0.0 0.0 22.0 100.0 Netherlands 3.0 0.0 0.0 0.0 5.0 4.0 9.0 200.0 Russia 0.0 0.0 0.0 1.0 0.0 1.0 2.0 100.0 Sweden 0.0 0.0 0.0 1.0 0.0 0.0 1.0 100.0 GAIN Report – UP1216 – Sugar Annual Report Page 9 of 11 Switzerland 0.0 0.0 0.0 12.0 1.0 0.0 13.0 100.0 Turkey 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 United Kingdom 40.0 20.0 20.0 20.0 0.0 0.0 100.0 150.0 United States 2.0 1.0 1.0 1.0 1.0 2.0 10.0 400.0 Source: State Customs Committee of Ukraine UNCLASSIFIED USDA Foreign Agricultural Service Refined Sugar Imports to Ukraine by Origin, MY, MT (HS 170199) MY 2008/09 M Y 2 0 0 9 / 1 0 M Y 2 0 1 0 / 1 1 % Change (October 08- Sept. 09) (October 09- Sept. 10) (October 10- Sept. 11) Origin MY 2010/11 to MY 2009/10 Quantity % Share Quantity % Share Quantity % Share World 58,751.0 100.00 91,057.0 100.00 43,866.0 100.00 - 51.83 Belarus 57,944.0 98.63 90,440.0 99.32 43,493.0 99.15 - 51.91 United Kingdom 407.0 0.69 223.0 0.25 140.0 0.32 - 37.30 Denmark 278.0 0.47 180.0 0.20 120.0 0.27 - 33.33 Germany 13.0 0.02 38.0 0.04 62.0 0.14 63.69 United States 0.0 0.00 0.0 0.00 12.0 0.03 ∞ India 0.0 0.00 0.0 0.00 12.0 0.03 ∞ Netherlands 0.0 0.00 0.0 0.00 11.0 0.03 0.00 Belgium 2.0 0.00 10.0 0.01 6.0 0.01 - 40.71 Refined Sugar Exports from Ukraine by Destination, by Month, MY 2011/12, MT (HS 170199) France 0.0 0.00 2.0 0.00 4.0 0.01 56.10 Russia 0.0 0.00 0.0 0.00 3.0 0.01 0.00 % Change Sweden Oct. 20.0 0.03 0.0 0.00 0.0Sept. 0.00 0.00 Sept-Feb. 11/12 Destination 2010-Feb. Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 2011-Feb. Switzerland 0.0 0.00 0.0 0.00 0.0 0.00 to 0 . 0 0 2011 2012 GAIN Report – UP1216 – Sugar Annual Report Page 10 of 11 Sept.-Feb. 10/11 Paraguay 9.0 0.02 0.0 0.00 0.0 0.00 0.00 WPoolarlndd 163.0 10,.7005.0 2 0,1.0407.0 1,42124.0 2,00 2 0.0.01 3,961.0 0.011890.0 0.00 7,194 -. 5100.00 Georgia 1.0 1,701.0 1,056.0 1,185.0 1.0 0.0 4593.0 459,200.0 Colombia 75.0 0.13 149.0 0.16 0.0 0.00 - 100.00 Kazakhstan 0.0 0.0 0.0 0.0 0.0 1,455.0 1455.0 100.0 Italy 2.0 0.00 1.0 0.00 0.0 0.00 - 100.00 Kyrgyzstan 135.0 0.0 0.0 0.0 0.0 331.0 331.0 145.2 LSeobuarcneo: n State Customs Committee o0f.0 Ukraine 0.0 0.0 0.0 1,000.0 2,127.0 3127.0 100.0 Slovakia 0.0 0.0 1,000.0 44.0 0.0 0.0 1044.0 100.0 Syria 0.0 0.0 0.0 0.0 1,000.0 0.0 1000.0 100.0 Uzbekistan 0.0 0.0 64.0 136.0 0.0 0.0 200.0 100.0 Other 22.0 3.0 28.0 58.0 0.0 46.0 137.0 522.7 Source: State Customs Committee of Ukraine UNCLASSIFIED USDA Foreign Agricultural Service Refined Sugar Exports from Ukraine by Destination, MY, MT (HS 170199) MY 2008/09 M Y 2 0 0 9 / 1 0 M Y 2 0 1 0 / 1 1 % Change (October 08- Sept. 09) (October 09- Sept. 10) (October 10- Sept. 11) Destination MY 2010/11 to MY 2009/10 Quantity % Share Quantity % Share Quantity % Share World 1,218.0 100.00 33,910.0 100.00 1,164.0 100.00 - 96.57 Moldova 151.0 12.36 3,438.0 10.14 1,015.0 87.23 - 70.48 Kyrgyzstan 116.0 9.51 17,791.0 52.47 131.0 11.26 - 99.26 Cambodia 2.0 0.17 0.0 0.00 4.0 0.35 0.00 St. Kitts & Nevis 0.0 0.00 0.0 0.00 2.0 0.14 0.00 Russia 25.0 2.06 2,959.0 8.72 1.0 0.13 - 99.95 United States 6.0 0.47 4.0 0.01 1.0 0.10 - 73.19 Panama 0.0 0.02 0.0 0.00 1.0 0.09 3446.00 Canada 0.0 0.00 2.0 0.01 1.0 0.08 - 56.38 Virgin Islands (British) 0.0 0.01 0.0 0.00 1.0 0.08 1711.58 Unidentified Country 1.0 0.05 1.0 0.00 1.0 0.08 - 1.79 Germany 0.0 0.00 0.0 0.00 1.0 0.07 ∞ Turkey 1.0 0.04 0.0 0.00 1.0 0.05 3077.00 Singapore 1.0 0.05 0.0 0.00 1.0 0.04 42.86 Azerbaijan 121.0 9.94 0.0 0.00 0.0 0.00 0.00 Belarus 0.0 0.00 22.0 0.06 0.0 0.00 - 100.00 Georgia 0.0 0.01 997.0 2.94 0.0 0.00 - 100.00 Cook Islands 0.0 0.00 0.0 0.00 0.0 0.00 0.00 Croatia 0.0 0.00 207.0 0.61 0.0 0.00 - 100.00 Kazakhstan 336.0 27.58 1,368.0 4.03 0.0 0.00 - 100.00 New Zealand 0.0 0.00 0.0 0.00 0.0 0.00 0.00 Lithuania 0.0 0.00 830.0 2.45 0.0 0.00 - 100.00 Tajikistan 0.0 0.00 2,387.0 7.04 0.0 0.00 - 100.00 GAIN Report – UP1216 – Sugar Annual Report Page 11 of 11 Turkmenistan 0.0 0.00 324.0 0.95 0.0 0.00 - 100.00 Slovakia 0.0 0.00 22.0 0.06 0.0 0.00 - 100.00 Uzbekistan 458.0 37.59 3,558.0 10.49 0.0 0.00 - 100.00 Other 1.0 0.0 0.0 0.0 0.0 0.0 0.0 Source: State Customs Committee of Ukraine UNCLASSIFIED USDA Foreign Agricultural Service
Posted: 13 May 2012