World Sugar News March 2007
World sugar production
World sugar production is expected to reach 162 million tonnes for 2006/07 crop year according to F.O Licht. It is expected that production in Europe will be at 27 MT, Africa 11 MT, North and Central America 20 MT, South America 41 MT, Oceania 6 MT and Asia 57 MT. The biggest increase will be in Asia where the crop is expected to increase to 57 MT from 47 MT in 2005/06.
In 2006, oil prices had a strong influence on sugar prices. In 2007, they are unlikely to save the sugar market for 2 reasons namely because the oil prices are forecast to be lower this year and Brazil is likely to produce sufficient quantities of cane to satisfy all demands for sugar and ethanol.
For the month of March price on the world market decreased to 10 US cts per pound on average. It is expected that prices would be around 9 to 10 cents for the coming months.
The World Bank can help Brazil export its technology for making sugar-cane ethanol to developing countries in Africa and elsewhere.
Brazil's ethanol technology has been generating worldwide excitement since gasoline prices spiked and evidence of global warming became more convincing a few years ago.
Brazil has already agreed to develop ethanol projects with several countries including China and Japan, and this week state oil company Petrobras signed a joint venture with Italy's Eni to develop biofuel initiatives in Africa, possibly biodiesel projects in Angola and Mozambique.
Ethanol producers are counting on governments around the world to mandate more renewable energy use to create growing demand for the fuel. Cars can be made to run on ethanol mixed with gasoline or on pure ethanol, which is considered renewable because the crops used to make it can be planted again and again.
Brazilian cane ethanol is competitive with gasoline as long as crude prices are trading above $35-$40 per barrel -- versus roughly $65 today -- and while it does emit heat-trapping carbon gases into the atmosphere when burned, sugar cane plants bind carbon back to earth as they grow.
The availability of renewable-energy technology has inspired the government of Mauritius to start a new chapter in the country's 367-year history of sugarcane production.
The government is redeveloping the cane industry to produce more white and special sugars, ethanol and other byproducts. The goal is to improve the energy security of the island while responding quickly to market demand.
Central to this development is Mauritius' relationship with the European Union. European states signed a trade protocol on sugar with African, Caribbean and Pacific countries in the 1970s. In the agreement, Europe committed itself to importing a minimum amount of sugar duty-free from these countries at a guaranteed price.
Mauritians have been content with the E.U. arrangement over the years. But the E.U. has decided to do away with the preferential treatment of African, Caribbean and Pacific states in trade relations. The price for sugar from these states will be cut by 36 percent in 2009. This step has forced the island state to reform its sugarcane industry.
The Mauritian government has developed a plan of action to this end: Mauritius will continue to produce 520,000 tons of sugar annually to utilize the remaining preferential benefits of the protocol.
Seven out of the 11 existing sugarcane factories will be closed. The remaining four will be transformed into flexi-factories with a production capacity of more than 100,000 tons of sugar per year.
Five bagasse and coal plants (co-generation) producing electricity all year round will be built. Two distilleries will be added to produce about 30 million liters of ethanol from 120,000 tons of cane molasses. The ethanol will be used with gasoline in a 20/80 ethanol-gasoline blend.
Mauritius is increasing the total acreage under sugarcane from 50 to 81 percent of total land cultivated. An additional 7,000 hectares will be placed under irrigation. Small farmers will be reorganized to increase their yield. A voluntary retirement scheme is available to support those factory workers who will lose their jobs.
Agro-industry minister Arvin Boolell said "these reforms will not only enable the Mauritian sugarcane industry to sail safely in the future -- it will also enable us to continue cultivating a crop that is an invaluable asset as a renewable, environmentally friendly energy source."
He added that the industry has the potential of becoming a "multi-product bio-factory for the generation of value-added produce, including pharmaceutical products, vaccines and textiles."
Boolell said a key concern is that Mauritius remains competitive. Sugar-producing countries such as Brazil are very aggressive in the world market. "Mauritius will have to find alternatives to stay in the race," he added.
The E.U. has asked Mauritius for a coherent energy policy for the production of electricity before disbursing the first installment of the accompanying measures, destined to Sugar Protocol countries affected by the EU sugar price cut. According to Mauritian finance minister Rama Sithanen. "Mauritius will have to adhere to a set of quantified selected performance criteria that will be established during the next six months. This includes the de-rocking of fields to increase productivity and the centralization of three factories before the 2007 harvest season that starts in July. We also have to quantify the number of workers that will be retrenched because of the centralization as well as the total number of people who will need the voluntary retirement scheme," Sithanen said.
The government is also planning to retrain and re-skill workers.
According to Mrs Wiedey-Nippold, Head of EU Delegation in Mauritius, the delegation has not yet received any official document from the government on the energy policy. An official at the Ministry of Public Utilities said a strategy has been drafted for the production of electricity until the year 2025, building on the current one that ends in 2010.
The USDA Foreign Agricultural Service last week announced an increase in the fiscal year 2007 specialty sugar tariff-rate quota of 20,000 short tons raw value, raising the total to 60,406 STRV. The increase is needed to accommodate a rapidly expanding market for organic sugar.
With the increase in the specialty sugar TRQ, the overall fiscal year 2007 refined sugar TRQ, previously established at a level of 62,832 STRV, is now at 82,832 STRV. Of the total increase announced today, 16,000 STRV will be eligible for entry beginning May 1, 2007. The remaining 4,000 STRV will be added to the previously announced tranche, which opens July 5, 2007, bringing the total of that tranche to 16,861 STRV.
This additional access will be reserved for organic sugar and other specialty sugars not currently commercially produced in the United States or reasonably available from domestic sources.
Fiji fined for low sugar quality
Fiji’s sugar industry has been fined about $547,000 for supplying a low quality of sugar to the United States.
According to the Fiji Sugar Marketing Company Ltd, 13,442 metric tones of sugar worth US$6.5 million was shipped to the U.S in August last year. This shipment did not meet the various quality specifications under the Sales contract between the U.S sugar buyer and Fiji
The Zambian government has finalized the process to develop a bio-fuel policy aimed at facilitating the production of ethanol in Zambia.
Energy and Water Development Minister Felix Mutati said the Zambian government had also put in place the Bio-fuel Act of 2007 which would provide guidelines on how stakeholders in the industry would operate, according to the paper.
Mutati said the development would help to reduce the amount of foreign exchange spent on the importation of crude oil.
He added that the bio-fuel policy which was finalized recently after consolations among the stakeholders was awaiting Cabinet approval before being launched.
The minister said the bio-fuel policy would clearly define standards in terms of production, distribution and cost.
It would also look at the issue of specifications and the percentage of mixing with other fuels such as petrol and diesel during production.
The development would enable companies such as Zambia Sugar to commence the production of ethanol from sugar cane which was a major raw material.
Zambia Sugar managing director Paul de Robillard said his company had the capacity to produce up to 13 million liters of ethanol at the present sugar production levels, which represents 15 percent of Zambia's total petrol consumption.
Tate and Lyle
Tate & Lyle announced on the 29 March 2007 that it has formed a joint venture with Eridania Sadam (“Eridania”), the Italian sugar producer. The joint venture, “Eridania Tate & Lyle”, will be exclusively responsible for the marketing and sales of all sugar products from the two parent companies into the Italian market. Tate & Lyle will hold 35% of the joint venture, for which it will invest £2 million (€2.8 million), with Eridania holding the remaining 65%. The net assets of Eridania Tate & Lyle are €5 million. The joint venture will operate commercially with effect from 1 April 2007.
Tate & Lyle has a long history of supplying the Italian market and has significant relationships with major European businesses in Italy. Eridania is a beet sugar manufacturer and is the market leader in the Italian sugar sector. Eridania recently surrendered 50% of their EU sugar quota and Tate & Lyle and Eridania will both supply sugar to the joint venture to satisfy Italian market demand.
Sudzucker believes its confirmed profit forecast for FY 2006/7 underlines the group's relative strength within a tough trading environment.
Based on group sales of €5.7bn and an expected group operating profit of about €420m in FY 2006/07, the firm believes it has coped well with the ongoing upheaval within the EU sugar sector.
"Group accounts (IFRS) will reflect the current development within the EU sugar regime with an extraordinary write-down on Goodwill (impairment loss) within the sugar segment of €0.5bn," said the company. "As a consequence the net loss for FY 2006/07 (FY end 28th of February) is expected to reach €0.2bn.
Sudzucker said that with an equity ratio exceeding 40 per cent, solid financial ratios will be maintained. To underpin this fact, net financial debt of Südzucker group (excl. hybrid bond) will be reduced (as of 28th of February 2007) to a level of about €0.8bn from €1.2bn in the previous year
"The reform of the sugar market regime and the subsequent change of the framework have already led to the closure of the refinery site in Marseille (France)," said the company.” Beyond our consistent structural improvements over the last years - e.g. pre-campaign 2006 closure of three sugar factories (Austria, Poland and Slovakia) - we currently elaborate on a substantial restructuring concept across the group to improve the sustainable profitability of the sugar segment.
Withdrawal of sugar on the EU Market: Preventive sugar withdrawal in 2007/08
Withdrawal of sugar on the EU Market: With a volume of 2.2 million tons until the end of marketing year 2007/08, the voluntary return of sugar quota to the EU restructuring fund has not reached the EU Commissions target of 5 million tons and therefore is insufficient and clearly below expectations.
Consequently, to reflect the emerging quota excess within the marketing year 2007/08 the EU Commission has decided - depending on the quota reduction so far - to temporarily reduce the production of quota sugar (pre-emptive temporary withdrawal).
The temporary withdrawal for member countries not having returned quota to the restructuring fund will amount for 13.5 per cent. In the event of doubts about a balanced market until October 2007, EU Commission has announced a further volume reduction for the marketing year 2007/08 (additional temporary withdrawal). In October 2007 the final figure for withdrawal will be fixed. If such a figure is higher than 13.5%, all sugar producers will have to reduce by the same additional percentage without regard to the renunciation of quota.
In the event of a continued EU Commission policy to levy a restructuring charge for non-produced quota sugar, profitability for the European sugar industry (in the next two years, but especially in 2007/08) will be significantly affected.