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: 2/4/2010 GAIN Report Number: ZZZ01 Argentina Sugar Annual Poonam Test report Approved By: Mahaveer Challa Prepared By: Poonam Jagga Report Highlights: In the final MY 2009/10 of the implementation of the sugar reform, EU sugar production is forecast to increase almost 2 million MT as a result of record beet sugar yields. This will put EU processors before a dilemma as EU sugar exports are limited by its WTO export commitment limit and conversion to ethanol is expected to be uneconomical as a result of high world prices for sugar and low EU domestic cereal prices. EU sugar imports are forecast to increase minimally despite duty free, quota free market access for least developing countries under the Everything But Arms agreement. MT 2009/10 ending stocks are forecast to increase by 1 million MT. In MY 2008/09, limited EU sugar production had led to increased sugar imports and below average sugar exports, while inventories ended at pipeline lows. Executive Summary: Marketing year (MY) 2009/10 production increases when the European Union is making efforts to reduce sugar subsidies will create challenges to newly enacted sugar policy. MY 2009/10 ending stocks are forecast to increase by 1 million metric tons (MT). As a result, MY2009/10 EU sugar imports are forecast to increase only 8 percent despite duty free, quota free EU market access for least developed countries under the Everything But Arms agreement. Other non-EU destinations are expected to be more appealing under current high world market sugar prices. EU exports of sugar are bound by the EU WTO ceiling despite abundant availability. A slight decrease in EU domestic sugar consumption in MY 2009/10 is forecast. Ethanol production from beet sugar is expected to moderately increase only, because of competitive EU cereal prices. MY 2008/09 was the first year that EU sugar markets operated under a fully reformed sugar policy. The reduction in the amount of sugar beet that could be processed into white sugar at subsidized prices allocated to member states resulted in a net sugar production decrease of 2 million MT. Imports increased, while MY 2008/09 sugar exports were hampered by limited supplies and the absence of export subsidies. Commodities: Grapefruit Juice Kiwifruit Grapes, Table, Fresh Production: For marketing year (MY) 2009/10, a bumper EU sugar production is forecast of 15.5 million MT, of which 15.2 million MT from sugar beet, with the remaining from cane sugar production in the French Overseas Territories (DOM) including Guadalupe, Martinique and Reunion, as well as in the Azores. This would be 14 percent higher than the MY 2008/09 sugar crop of 13.6 million MT. The production increase results from a 3 percent increase in sugar beet acreage, combined with a 1.5 percent increase in average beet yield per hectare and a more than 5 percent increase in beet sugar content. The largest beet and sugar yield increases are noted in the Northwestern continental Europe, while other areas seem to have more average yields. Southeastern Europe, including Hungary and Romania, are expected to have lower yields than the 2008 crop. Sugar beet acreage increased partly as farmers re-adjust farm acreage management after the large decrease in sugar beet acreage in 2008 in response to the sugar reform and partly because some increases in sugar beet contracting were concluded for ethanol production. For more details on ethanol production, see GAIN EU27 Biofuels-Annual report 2009 [1] MY 2008/09 EU sugar production decreased 2 million MT from the previous year because of reduced plantings prompted by efforts of the EU to reduce the amount of sugar processed into white sugar. In 2005, the EU adjusted its sugar policy with a goal to reduce the amount of sugar beets processed into white sugar that would be sold above a guaranteed price by 6 million MT. However by 2007, member states had only given up a total of 2.2 million MT out of the targeted 6 million MT. In February 2007, EU ministers agreed to another 2 million MT cut for the MT 2007/08, but the decision was too late to impact plantings. (See GAIN E47014 [2] ) In September 2007, EU Ministers agreed to further restructure its sugar policy. (See GAIN E47087 [3] ). This resulted in a further reduction of 3.3 million MT. Some of the beets that would have gone to sugar production instead went for ethanol production. The sugar produced above the quotas set for the member states were not subject to the guaranteed floor price. As a result of the limited supplies during MY 2008/09, imports increased and exports decreased. Factors of EU27 Sugar Beet Production Area, thousands of Hectares Sugar beet yield in MT per Hectare Sugar content in percentage 06/07 07/08 08/09 09/10 06/07 07/08 08/09 09/10* 06/07 07/08 08/09 09/10* Austria 39.4 42.3 43.0 43.9 63.3 62.1 71.8 67.5 17.85 16.60 16.96 17.00 Belgium 82.9 82.7 64.0 63.8 66.2 68.3 68.6 77.1 16.73 17.00 17.82 19.00 Denmark 41.4 39.4 36.3 38.5 56.7 57.3 64.2 16.70 17.80 17.80 Finland 23.9 16.0 13.6 16.5 40.0 41.9 34.6 15.49 16.80 16.48 France 379.3 393.5 350.0 371.2 71.3 70.4 71.7 76.5 17.30 18.50 18.80 19.50 Germany 357.6 402.7 369.3 379.6 57.7 64.2 61.8 67.6 17.64 17.50 18.04 17.95 Greece 26.9 13.6 13.8 0.0 61.3 56.7 62.0 13.15 13.40 14.00 Ireland 0.0 0.0 0.0 0.0 Italy 91.2 85.6 62.7 61.7 52.4 59.0 56.2 15.30 16.60 15.48 Netherlands 82.0 82.1 72.2 73.0 66.9 66.6 71.6 16.31 17.40 17.21 Portugal 4.3 3.0 0.3 0.3 65.1 66.7 16.00 16.10 Spain - beet 85.5 73.9 52.3 45.0 74.3 75.8 77.9 16.80 17.60 17.01 Sweden 44.2 40.7 36.8 39.0 49.6 52.5 53.5 15.50 17.70 17.40 U.K. 131.0 125.0 120.0 117.0 67.2 63.0 75.0 16.67 18.00 17.66 Czech R. 61.0 54.3 51.0 53.0 53.6 54.7 57.2 18.76 17.10 18.04 Estonia 0.0 0.0 0.0 0.0 Cyprus 0.0 0.0 0.0 0.0 Latvia 12.7 0.0 0.0 0.0 38.0 37.0 17.60 15.60 Lithuania 18.5 16.9 8.7 15.1 42.0 47.3 39.0 15.52 17.50 18.13 Hungary 46.8 41.2 6.5 13.7 48.5 45.8 59.7 16.86 15.90 17.14 Malta 0.0 0.0 0.0 0.0 Poland 262.0 247.4 170.0 180.0 48.6 46.6 46.5 16.60 17.10 17.20 Slovenia 6.7 0.0 0.0 0.0 39.2 15.52 15.60 Slovak R. 27.7 18.9 11.0 15.0 48.1 47.5 61.0 17.16 16.20 17.21 Bulgaria 0.0 0.0 0.0 0.0 Note: EU sugar production statistics include numbers for thick juice further processed into ethanol and other fermentation products. Sources: Beet area: EU census numbers on Eurostat; Sugar beet yields and sugar content: estimates based EC and EU sugar industry data * Harvest 2009 estimates based on beet test sampling results EU Guaranteed Sugar Prices July 2006-September 2010 Pre-reform 2006/07 (july-sept) 2007/08 (oct-sept) 2008/09 (oct-sept) 2009/10 (oct-sept) Reference Price for white sugar 632 505 458 428 404 (?/MT) Reference Price raw sugar 524 497 497 449 335 (?/MT) Restructuring Aid (?/MT of 730 730 625 520 - renounced quota) Quota renounced (Cumulative) - 1,469,612.5 2,178,379.6 5,512,174.2 n.a. (MT) Production of sugar and - 17,658,000 14,913,000 13,675,000 n.a. isoglucose (Yearly) (MT) Data collected from Agra Informa CAP Monitor and DG Agriculture Prices for out-of-quota sugar move with world market prices. The price processors pay for the sugar beet used to produce sugar over the quota allocated a member state is based on a weighted average of sugar export prices during the marketing year. An exception to this is for sugar beet produced under private delivery contracts for ethanol production. [1] http://gain.fas.usda.gov/Recent%20GAIN%20Publications/General%20Report_The%20Hague_Netherlands- Germany%20EU-27_6-15-2009.pdf [2] http://www.fas.usda.gov/gainfiles/200702/146280286.pdf [3] http://www.fas.usda.gov/gainfiles/200709/146292554.pdf Consumption: EU human domestic sugar consumption for MY 2009/10 is forecast to decrease to its MY 2007/08 level, after increasing 1 percent in MY 2008/09 and a reduction in sugar needed for exported products due to the economic crisis and a high euro exchange rate. Ethanol production from beet sugar is forecast to increase less than 10 percent because world sugar prices are high while EU domestic cereal prices are low and cereals therefore are currently the most economic feedstock for ethanol production. In MY 2007/08 and MY2008/09 several new ethanol processing plants came online after sugar refineries converted to ethanol processing in response to the reform of EU sugar policy. As a result, plant capacity for conversion of beet sugar to ethanol is estimated to have increased by 50 percent. EU Ethanol Production Beet/Molasses Starch Wine alc. Other Total 1998 7.170 2.500 2.190 1.130 12.990 1999 6.730 2.910 2.050 1.150 12.840 2000 6.880 3.740 2.670 0.800 14.090 2001 7.720 4.240 2.870 0.310 15.140 2002 7.170 5.220 2.940 0.320 15.650 2003 7.620 6.100 2.020 0.420 16.160 2004 6.900 9.290 1.860 0.530 18.580 2005 7.800 10.185 3.227 0.547 21.759 2006 8.764 14.468 3.247 0.582 27.061 2007 12.792 14.250 3.470 0.640 31.152 2008 13.5 18.3 3.4 0.6 35.8 Source: European Union of Ethanol Producers (UEPA) - http://www.uepa.be/attachments/module_news/40_TRADE13-09.doc Trade: EU sugar imports in MY 2009/2010 are expected to increase compared to MY 2008/09. This mainly because of the implementation of the Everything But Arms agreement, which guarantees quota free and duty free access to the EU sugar market for least developed countries. Also, the enlargement compensation agreement [1] with Brazil, following the 2007 EU accession of Bulgaria and Romania, increases the amount of sugar that can be exported to the EU at a reduced tariff rates with an additional 550,000 MT, of which 300,000MT is dedicated to Brazil. In addition, new full-time refiners in Bulgaria, Italy, Romania, and Slovenia allowed in Article 153 of Council Regulation (EC) No 1234/2007 [2] , will encourage an increase in imports. The EU decreased the reference sugar price to ?404/ MT for white sugar and ?335/MT for raw sugar in MY 2009/10. The increase in imports will therefore be limited because of the small difference between EU guaranteed prices and world market prices. Record high world market sugar prices may make EU sugar markets less appealing. The situation prompted refiners in Portugal to lobby the EC to lower in-quota import duties, despite the expected abundance of EU out-of-quota supplies. Portugal abandoned sugar beet production as a result of the Sugar Reform and has been given a preferential allotment for sugar imports to help refiners meet sugar demand in the local market. EU sugar imports increased in MY 2008/09 compared to MY2007/08. MY2007/08 imports had decreased below previous levels as the result of consecutive cuts in EU guaranteed reference prices for sugar from pre-reform levels of ?632/MT for white sugar and ?524/MT for raw sugar with unchanged import duties, as well as the expiration on December 31, 2007 of privileged EU market access for the African, Caribbean, and Pacific countries under the 2000 Cotonou Agreement (See GAIN E49042 [3] ). Also in MY2008/09, some exporters regained the Bulgarian and Romanian markets lost immediately after accession. Stocks: EU sugar stocks are forecast to increase to over 3 million MT in MY 2009/10 creating a dilemma for processors. Given high world market prices, it would not be economically viable for the EU processors to sell sugar into intervention storage. However, if they allow this sugar surplus to largely inflate carry-over into MY 2010/11, this sugar becomes the first quota sugar, thus lowering the remaining production quota. This would hurt future sugar processing margins, especially if the EC were to decide to cut sugar at the member state level again. EU sugar stocks at the end of MY 2008/09 are believed to be limited to pipeline stocks, only at 1-1.5 month consumption level. End of MY 2007/08 sugar stocks still included 319,000 MT of white sugar in intervention, all of which was used for EU internal food aid. Policy: Sugar reform almost meets quota reduction goal, but not entirely. MY2009/10 is the last year of the Sugar Reform, which was first agreed in 2005 (See GAIN E35225 [1] ) and adjusted in 2007 (See GAIN E47087 [2] ). For MY 2009/10 and onwards, the total EU quota for sugar production decreased further, when Spain agreed to reduce production another 132,000 MT in 2008, bringing the total to 13.3 million MT (Annex VI of Council Regulation (EC) No 1234/2007 [3] ). As a result of the EU Sugar Reform, EU member states agreed to limit the amount of sugar processed into white sugar by 5.7 million MT, compared to the 6 million reduction envisioned by the European Commission. The EU made 1.1 million MT of new quota available to the most competitive processors resulting in a net reduction of only 4.6 million MT refined sugar value. It remains to be seen whether the European Commission will cut quotas further. Side effect from sugar reform contributes to lower prices for field crops. The reduction in quota reflects the equivalent of nearly 1 million hectares of arable land. The largest cut in sugar quota occurred in the same crop year as the end of the set-aside. Since both decisions were finalized after the winter cereal seeding season, many farmers planted increased planting of several spring crops in 2008. This in turn led to an increase in supplies and significant price decreases for some field crops, particularly corn, potatoes and various field vegetable crop. Intra-EU market imbalances distort EU sugar market management Several EU member states significantly reduced or abandoned sugar production altogether in the sugar reform process. Although seemingly not included in the original sugar reform proposals, the EU allowed the creation of new ?full-time refiner? actors in several member states to supply local markets. To supply these new actors, Article 153 of Council Regulation (EC) No 1234/2007 [4] set aside a 2,424,735 MT white sugar import preference mechanism by member state to supply these full-time refiners as follows: 198,748 MT Bulgaria; 296,627 MT France; 100,000 MT Italy; 291,633 MT Portugal; 329,636 MT Romania; 19,585 MT Slovenia; 59,925 MT Finland; 1,128,581 MT United Kingdom These provisions give full-time refiners access to preferential sugar imports, be it import TRQ?s or duty free imports under the Everything But Arms agreement. Nevertheless, the current high world market prices for sugar have made sugar imports under the reduced duty quota or out-of- quota economically unviable, with the biggest impact on imports from Brazil. [1] http://www.fas.usda.gov/gainfiles/200512/146131717.pdf [2] http://www.fas.usda.gov/gainfiles/200709/146292554.pdf [3] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2007R1234:20090701:EN:PDF [4] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2007R1234:20090701:EN:PDF Production, Supply and Demand Data Statistics: EU27 Sugar, Centrifugal 2007/2008 2008/2009 2009/2010 Market Year begin October 2007 October 2008 October 2009 USDA New USDA New USDA Old Post Old Post Old Post New Post Official Post Official Post Official Beginning Stocks 4,005 4,005 2,720 4,769 4,769 3,130 3,668 3,668 2,175 Beet Sugar Production 17,400 17,400 15,350 16,586 16,586 13,320 16,686 16,686 15,200 Cane Sugar Production 340 340 264 314 314 250 314 314 285 Total Sugar Production 17,740 17,740 15,614 16,900 16,900 13,570 17,000 17,000 15,485 Raw Imports 2,950 2,950 2,451 3,350 3,350 2,665 3,856 3,856 2,900 Refined Imp.(Raw Val) 700 700 597 644 644 585 644 644 600 Total Imports 3,650 3,650 2,948 3,994 3,994 3,250 4,500 4,500 3,500 Total Supply 25,395 25,395 21,282 25,663 25,663 19,950 25,168 25,168 21,160 Raw Exports 5 5 11 5 5 5 5 5 5 Refined Exp.(Raw Val) 1,381 1,381 1,645 1,690 1,690 1,100 1,500 1,500 1,470 Total Exports 1,386 1,386 1,656 1,695 1,695 1,105 1,505 1,505 1,475 Human Dom. Consumption 17,740 17,740 16,496 18,800 18,800 16,670 18,800 18,800 16,500 Other Disappearance 1,500 1,500 0 1,500 1,500 0 1,500 1,500 0 Total Use 19,240 19,240 16,496 20,300 20,300 16,670 20,300 20,300 16,500 Ending Stocks 4,769 4,769 3,130 3,668 3,668 2,175 3,363 3,363 3,185 Total Distribution 25,395 25,395 21,282 25,663 25,663 19,950 25,168 25,168 21,160 Author Defined: EU Sugar Prices for Quota and Industrial Sugar The linked image cannot be displayed. The file may have been moved, renamed, or deleted. Verify that the link points to the correct file and location. Attachment Name Attachment Link Download Test Cases.xls Download AMG Application Management Process.docx