With the establishment of new refineries and the adoption of improved technologies, the sugar industry in China has expanded rapidly over the past two decades into a highly integrated industry. Consumption has also increased, and domestic requirements have been met from both domestic production and imports. Although some amounts of sugar are also exported, China is a substantial net importer of sugar. An alternative sweetener industry has also been developed, making China one of the worlds major producers and consumers of saccharin, however, in recent years health concerns have led to reductions in use.
Sugarcane accounts for about 80 percent of sugar production in China, and sugarbeet makes up the balance. About 80 percent of Chinas sugarcane crop is grown in the South and Southwest regions, including Guangxi, Guangdong, and Yunnan provinces. Production in Guangxi accounts for about 40 percent of the national total, and for the first time in 1993, overtook Guangdong as the leading supplying province. The general trend is for a move from Guangdong to Guangxi, and from eastern Guangxi to its west and Yunnan, as sugarcane gives way to diversification into more profitable crops.
Over 95 percent of sugarbeet production is concentrated in the Northeast and Northwest regions, with Heilongjiang, Xinjiang, and Inner Mongolia contributing about 75 percent of the total. Within this, Heilongjiang and eastern Inner Mongolia account for around 55 percent of total area. However, beet production is facing increased pressure from competing crops in the traditional Northeast area of Heilongjiang, Jilin, and Inner Mongolia. For example, in Heilongjiang the area under beet has shrunk to an average of 319 000 hectares in recent years, compared with a record 426 000 hectares almost a decade ago. Maize is the principal substitute crop, which gives returns twice those of sugarbeet. In Xinjiang, however, production continues to expand with price support and input subsidies to growers from the provincial government.
Producers are free to plant the crops of their choice. The State Planning Commission establishes "guidance" prices for sugar crops and refined sugar, but often neither the industry nor buyers trade at these prices, and the actual price is influenced by local market conditions. Returns from sugarcane are, on average, not as competitive as those from fruits, vegetables, grains, and oilseeds. For this reason, diversification into other crops is pushing sugarcane production from the east to the west of southern China where there is less competition from alternative crops.
Over the last ten years, sugarcane yields have increased somewhat from about 53 tonnes/ha to a peak at 59 tonnes/ha in 1993. During 1990-95, yields averaged 58 tonnes/ha. Yields in the traditional growing areas (Guangdong and Fujian) are generally higher, than those in Guangxi (the main cane-producing province). The higher yields of the former are attributed mainly to irrigation. In 1996, adverse weather and changes in the procurement procedure for sugarcane, from being based on sugar content to total weight of the cane, resulted in a reduction in yields to 51.8 tonnes/ha.
During the past decade, sugarbeet yields have fluctuated along an upward trend, averaging about 19 tonnes/ha over the 1990-95 period. This yield is exceptionally low by world standards. For example, yields in the United States and Europe have averaged 50 tonnes/ha in recent years. Some of the reasons given for the lower yields include drought, plant disease, shorter sunshine hours and smaller differences in temperature between day and night in key growing areas.
Over the last 3 years, sugar production in China averaged 6.6 million tonnes, raw value, which was significantly lower than the record 8.5 million tonnes production in the early 1990s. Sugarcane production during 1994-96 amounted to 65 million tonnes, while beet production was about 14 million tonnes. The decline in sugar production reflected both smaller sugarcane and sugarbeet crops compared to the early eighties.
The number of sugar mills in China is estimated at approximately 500 (400 for sugarcane and 100 for sugarbeet), with an annual processing capacity of 8.5 million tonnes. The average processing capacity per mill is estimated at 1 500 tonnes/day. The largest mill (in Guangxi) has a processing capacity of 10 000 tonnes/day and the smallest mill only 200 tonnes/day. There are approximately 150 sugar mills with a processing capacity of less than 1 000 tonnes/day. Average recovery rates over the last 3 years has been estimated at between 8.3 percent and 10 percent for sugarcane processing, and 9.1 percent and 12 percent for sugarbeet processing.
While sugar is the major sweetener used in China, saccharin also plays an important role. Chinas sugar consumption is normally about 7.0 million tonnes, and over the last decade has grown at average annual rates close to 2.0 percent. HFCS and glucose are also produced in China, but do not play a major role.
Per caput sugar consumption averaged 5.9 kg (raw equivalent) in 1995 and 1996. This level is significantly below the world average of around 20 kg. It is also much lower than the consumption in neighbouring Asian countries (51 kg in Malaysia, 20 kg in Republic of Korea, 26 kg in Thailand, 13 kg in Indonesia). The low per caput consumption can be attributed to traditional eating habits, relatively low per caput GDP and the use of substitutes.
Traditionally, the Chinese diet utilizes less sugar in meal preparations. Direct sugar consumption by households accounts for about 50 percent of the total consumption, with the remainder being used industrially for manufactured foods. In comparison with the eighties, the share of direct sugar consumption by households has increased in the nineties, while the share of industrial use has fallen (from its previous level of 65 to 70 percent to the currently estimated 50 percent).
Even within China itself, regional dietary differences affect sugar consumption. For example, sugar consumption in the north is generally lower than in the south, as northerners tend to eat salty rather than sweet foods. In the southern regions, per caput sugar consumption is about 20 percent higher than the nation-wide average. Also, in rural areas, per caput consumption levels, at only around 1.34 kg, are lower than in urban areas. However, in recent years, sugar consumption in urban areas has shown a declining trend, while consumption in rural areas has been trending upward.
Sugar consumption is also affected by the widespread replacement of sugar with saccharin, a high-intensity sweetener. However, in 1991 the safety of saccharin was queried, and stricter regulations were introduced on maximum levels that could be used in various products. In 1993, the Government took further steps to control the manufacture and use of non-nutritive sweeteners. It announced the reduction of cyclamate output by 20 to 30 percent, the halt in construction of new factories, limits on the import of all non-nutritive sweeteners and strict control on their use in food and drink. In recent years, saccharin consumption is estimated at 4 000 to 6 000 tonnes per year, mainly by industry. At this level of consumption, about 1.5 million tonnes to 2 million tonnes of sugar were replaced, which was about 25 percent of normal sugar consumption.
The goal of Chinas sugar policy is self-sufficiency, but this is becoming ever more difficult to achieve as returns from sugar are often lower than the returns from competing crops, and comparative advantage incentives are increasingly influencing planting decisions as the Chinese economy opens up to the world.
China imports sugar primarily from Thailand, Cuba, Australia, Brazil, and Guatemala. Thailand and Cuba accounted for about two-thirds of total imports in 1995. In September 1994, the Government appointed CEROILS, a state-owned company, to be the sole importer. The bulk of the sugar is imported in raw form and processed for domestic consumption. A small proportion is processed and re-exported. Major export destinations include the Russian Federation, Saudi Arabia, Kazakhstan, and the Yemen Republic. In 1993, these countries accounted for about 70 percent of total exports.
Demand for imports and exports fluctuates widely, and makes China a volatile player in the world market. For instance, in 1995 imports rose dramatically to nearly 3.0 million tonnes, and then in 1996, they dropped to 1.4 million tonnes. There are many factors that contribute to this volatility, including incompatibilities resulting from a liberalized sugar market existing alongside the persistent regulatory measures of state institutions. After liberalizing sugar production and marketing in 1992, import and export decisions continued to be made without taking full account of the responses of consumption and production in the liberalized market. In addition, since the prices of major grain crops are still under government regulation, price policies for these crops have an important impact on sugar production because many of them compete with sugar crops.
In 1986, the Government relaxed price controls on most crops, except grains and sugar. The immediate effect was a sudden decline in sugar production as many farmers switched to other crops, with a 1 million tonne drop in production in the following year alone. The competitive situation, which developed, has set the tone for potential sugar shortages in the coming decade.
The State Planning Commission sets guidance levels for producer procurement and mill (ex-factory) prices for sugar. These prices can be adjusted up or down depending on changes in the market during the previous year. However, the actual producer procurement and mill prices may deviate from the guidance prices, depending on current local market conditions. This can contribute to imbalances in domestic supply and demand, as producers react to uncertainty in sugar prices when making planting decisions, also taking into account the often more stable returns from other commodities. For grains, procurement prices for grains are guaranteed by the Central Government, which may be more assuring than the procurement prices offered by sugar mills. In cases where sugar mills are unable to pay producers in cash, payment with promissory notes may also dampen producers intentions to grow sugar crops.
Chinas mill (ex-factory) prices of sugar are linked to the world price at the port of entry for imports, after adding a 30 percent tariff and a 17 percent value-added tax (VAT) is applied post-tariff. During periods of imports, mill prices at the ports should be about 50 percent higher than the world price.
Towards the year 2000, China is expected to remain a net importer to fill the shortfall of domestic production. Although net imports could stabilize around 1.0 to 2.0 million tonnes over the next few years, the longer-term outlook is for further increases in imports.
Continued competition from alternative crops is expected to reduce sugar area in traditional growing regions. For sugarcane, production areas are likely to continue shifting from the east towards the west, as land may be diverted to vegetables, fruits, grains, and oilseeds. Despite the guidance prices set for sugar crops, producers may continue to find procurement prices for grains to be more attractive, in addition to the higher returns often obtained from the cultivation of crops not subject to price controls.
The growth in area planted to sugar in regions that are undertaking agricultural expansion may also be limited due to the relatively low returns. For example, the Governments 5 Year Plan in Guangxi calls for an expansion of sugarcane area from 453 300 hectares in 1995 to 466 700 hectares by the year 2000. Even if the plan is fulfilled, the annual growth rate of sugarcane area would only be 0.5 percent, while the average annual increase in sugarcane yields is about 1 to 2 percent.
Thus, domestically produced sugar supplies are not expected to keep pace with the growth in domestic consumption. The population expansion rate has averaged 1.4 percent over the last decade, and this is likely to continue. T here has also been significant income growth during the last decade, which is expected to accelerate in the future. The ongoing growth will most likely increase consumer demand for sugar-based processed foods, beverages, snacks, and desserts. Some analysts believe the growth rate of sugar consumption could be as high as 8 percent annually over the next few years. With increasingly focused government efforts to enhance productivity and improve returns from domestic production, the growth rate of imports may be slowed, but over the longer run China will still need to import large amounts of raw sugar.
Table 1 : China sugarcane and sugarbeet area, yield and production
Table 2 : China sugar production, trade and consumption