|food outlook||No.4, December 2005|
|global information and early warning system on food and agriculture(GIEWS)|
World sugar production in 2005/06 (October/September) is forecast by FAO to reach 147.8 million tonnes (raw sugar equivalent), which corresponds to an increase of 3.7 percent from the previous year, and just 156 000 tonnes short of the projected world sugar consumption of 148 million tonnes. The bulk of the growth in output will be accounted for by developing countries, where aggregated production is forecast to reach 106 million tonnes, led by a record harvest in Brazil, and a recovery in India. Aggregate production in developed countries is forecast at 42 million tonnes, about 3 percent down from the previous year due to lower production in the EU and Australia. With an anticipated supply deficit for the 2005/06 season, along with declining stocks in China, India, and the Russian Federation, world sugar prices are set to remain above their 2001-2004 average level.
Among the developing countries, in the Latin American and Caribbean region, Brazil is forecast to produce 30 million tonnes, an increase of 3.5 percent over 2004/05 levels, as a result of favourable weather condition, as opposed to 2004/05, when heavy rainfall during April and May hampered cane harvesting. Sugar output is also expected to rise in Mexico, following favourable weather conditions that resulted in higher yields. Output is forecast to reach 6.1 million tonnes, an increase of 200 000 tonnes over output obtained in 2004/05. Sugar exports from Mexico to the United States in 2005/06 should rise in line with the quota allocation of 276 000 tonnes under the terms of the North American Free Trade Agreement (NAFTA). The proposal for a new legal framework to regulate the sugar industry, promoting further liberalization of the sugar sector and cutting prices paid to cane growers, was recently defeated in parliament. The Government of Mexico is still to produce a comprehensive framework for the sugar sector, which would take into account the various national interests, and international trade commitments, particularly in light of a recent WTO arbitration panel ruling in favour of the claims by the United States that the 20 percent tax on high-fructose corn syrup (HFCS) was trade obstructing.
By contrast, sugar production in Cuba is expected to decline by 7 percent, falling to 1.3 million tonnes in 2005/06, due to severe drought in most growing regions and the restructuring of the sugar sub-sector. The supply shortfall in the domestic market will be compensated by imports from Colombia. In the face of declining production, rising input costs, and low international prices, more mills will be shut down adding to the 71 of the 156 state-run mills, which will be converted to processing of other products including chocolates, candy, soybean and corn. Workers that were made redundant after the closures are being retrained for employment in other areas of the agricultural sector. Changes in the country sectoral policies include diversification of sugar cane production into non-citrus fruit. About 1.6 million hectares have been earmarked for diversification into tropical fruits, roots and tubers, forestry, and livestock production. Within the sugar sub-sector diversification of sugarcane into ethanol and other by-products have been initiated.
Aggregate sugar production of the developing countries in Africa is forecast at 5 million tonnes for 2005/06, a decline of 4.2 percent, mainly due to smaller harvests in Swaziland, Kenya and Malawi. By contrast, Tanzania is expected to produce a record 237 000 tonnes of sugar, up from 229 000 tonnes in 2004/05 as a result of benefits derived from the rehabilitation programme initiated in 1998. Production is expected to decline in Mauritius, while it will remain relatively unchanged in Swaziland, Ethiopia, and Mozambique.
Table 10. World production and consumption of sugar (million tonnes, raw value)
A provisional forecast for the developing countries in the Far East indicates a sugar output of 43.7 million tonnes, substantially higher than the 2004/05 level, mainly reflecting a recovery in India. During the past two seasons, India has reduced stocks as production fell to about 13.9 million in 2004/05 from 14.6 million the previous season. However, during 2005/06, output is estimated to recover to 18.5 million tonnes, through substantial increase in plantings in response to improved prices. The 2005 monsoons provided ample rainfall in the cane growing areas of Karnataka, Gujarat and Uttar Pradesh, the main producing regions, where output is expected to reach 6.5 million tonnes. Sugar production in the key southern state of Maharashtra is also expected to recover to about 4 million tonnes, an increase of 2 million tonnes over 2004/05 levels. In the light of a positive outlook for 2005/06, the government has announced that raw sugar importers will have to re-export raw sugar after refining, as opposed to 2004/05, when raw sugar importers were allowed to sell refined sugar in the domestic market to meet supply shortages. Despite an expansion in production, it is likely that India will import sugar to meet domestic consumption and inventory demand for 2005/06.
In Thailand, sugar output is forecast at 4.6 million tonnes, a decrease of about 15 percent from 2004/05, due to consecutive droughts. Production is expected to be higher at 3.2 million tonnes and 2.5 million tonnes in Pakistan and the Philippines, respectively. Output in China is expected to increase by 6 percent to reach 10.7 million tonnes, reflecting the larger crop from the top sugar producing region of Guangxi, which produces about 60 percent of China’s total sugar output.
Sugar production in developed countries is forecast to decline by 1 million tonnes, reflecting lower output in the EU and the CIS countries. As a result of adverse weather and smaller plantings, output in the Russian Federation and Ukraine is expected to be lower by 252 000 tonnes and 207 000 tonnes, respectively. In the United States, sugar output is expected to be 7.9 million tonnes, relatively unchanged from the previous season. Both hurricanes Katrina and Rita caused substantial market disruptions. Hurricane Katrina forced the closure of two refineries in New Orleans, disrupting short-run domestic supply and forcing the USDA to raise its 2004/05 Overall Allotment Quantity (OAQ) to 8.6 million tonnes, which is the quantity of domestic sugar that can enter the market, in order to meet rising demand. The USDA raised the OAQ further for 2005/06 to about 8.8 million tonnes, shared between beet (4.796 million tonnes) and cane (4.09 million tonnes), as well as assigning a 276 000 tonnes to the Mexican TRQ, in line with the commitments under NAFTA. This sugar can enter the market during 2006 as either raw or refined sugar. In South Africa, sugar production is projected to rise to 2.7 million tonnes, a 23.5 percent increase over 2004/05.
Despite favourable weather and higher sugar content, sugar production in the EU is forecast to contract slightly, in 2005/06, to 20 million tonnes as a result of smaller crops in major producing areas. Many EU producers chose to reduce area planted in response to the proposed changes to the EU sugar regime, which, if approved by Member States, could come into effect in 2006/07 season. The reform proposal calls for a 36 percent price cut over four years, beginning in 2006/07, and a compensation package to farmers for 64.2 percent of the price cut through a decoupled payment, which will be linked to the respect of environmental and land management standards. Notwithstanding the expected decline in output, the EU recently announced a 1.8 million tonne cut in the quota production for the 2005/06 season. The objective is to limit export of sugar and sugar products which are eligible for refunds in an effort to comply with WTO commitments with respect to export subsidies. A recent ruling by a WTO panel gave the EU until 22 May 2006 to comply with a previous ruling in favour of Australia, Brazil and Thailand against the EU sugar export subsidy programme. Similarly, Sugar output in Australia, is expected to fall to 5.3 million tonnes.
Global sugar consumption in 2006 is forecast to reach 148 million tonnes, an increase of 2 percent from 2005, due to expected growth in consumption in the developing countries of the Far East and Latin America. Sugar consumption in developing countries is estimated to reach 100 million tonnes in 2006, in line with per caput GDP and population growth. Among developed countries, where demand had been relatively stable, consumption is forecast to remain relatively unchanged in the EU, the Republic of Korea, and the United States.
In India, the largest consuming country in the world, utilization is expected to increase to about 20.1 million tonnes. Two consecutive years of reduced production resulted in relatively higher domestic prices and lower demand, which eventually led to increased diversion of sugarcane for the production of gur and khandsari. However, the expected recovery in production should stimulate overall consumption in 2006. Sugar consumption in China is forecast to increase by 2.5 percent to reach 13.7 million tonnes, driven by increased demand from the processing food sector, combined with declining production of artificial sweeteners. Growing consumption levels are forecast for Latin America and the Caribbean where consumption is expected to reach 27 million tonnes. Most of the growth will be recorded in Brazil and Mexico where utilization is estimated at 11 million tonnes and 5.5 million tonnes, respectively.
The strengthening in world sugar prices continued in 2005, when the International Sugar Agreement (ISA) daily price averaged US cents 9.20 per lb between January and September, an increase of more than 30 percent over the same period in 2004. This increase was underpinned by the strong growth in consumption against slower growth in production, resulting in declining global inventories. Given that prices have been relatively stable for the past 2 months, it is likely that the market has already factored in much of the expected changes in the market fundamentals of the 2005/06 season, and unless a supply shock occurs, prices should remain firm and stable.