Required Report - public distribution

**Date:** 4/8/2005

**GAIN Report Number:** RH5003

RH5003

**Zimbabwe**

Sugar

**Annual Report**

2005

**Approved by:**

![](media/image1.wmf)Scott Reynolds

#### U.S. Embassy, South Africa

**Prepared by:**

Herman Germishuis

**Report Highlights:**

Zimbabwe is expected to produce 3.3 million tons of sugarcane during the
current April 2005 to March 2006 milling season. Sugar production is
expected to reach 475,000 tons after 525,000 tons were produced in the
previous season. Exports are expected to reach 165,000 tons after which
the domestic market will be serviced. The emphasis on exports is to
service preferential markets and to earn foreign exchange, which is in
short supply.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Unscheduled Report

Pretoria \[SF1\]

\[RH\]

### Summary

The marketing year used in this report is an April to March year. For
example, MY 2006 denote the milling and marketing season from 1 April
2005 to 31 March 2006.

Zimbabwe is expected to produce 3.3 million tons of sugarcane this year
compared to 4.1 million tons in MY 2005. This 20% drop in production is
mainly due to a learning-curve effect for new settler farmers who have
only started producing sugar cane in the last two years. This was a
result of the government's land reform exercise. Sugarcane yields have
declined steadily from 105 tons/hectare in 2002/03, 93 tons/hectare in
2003/04 to 77 tons/hectare in 2004/05. Again, poor agronomic management
by new settler farmers is the main reason for this decline. MY 2005
sugar production in the milling season just started is expected to reach
475,000 tons and will be used to supply preferential and regional export
sales of about 165,000 tons, and the domestic market.

The planned EU reforms on the sugar industry in 2006 and 2008 will
adversely affect the sugar industry. However, the effects of these
reforms would be minimized if Zimbabwe' exports to the EU are increased.
Currently the country has excess milling capacity.

###### Sugar cane

  ---------------- -------------- ---------- ---------- ---------- ---------- ----------
  **PSD Table**                                                               

  **Country**      **Zimbabwe**                                               

  **Commodity**    **Sugar Cane**                                             

  1000 HA          2004           Revised    2005       Estimate   2006       Forecast

  1000 MT          USDA Official  Post       USDA       Post       USDA       Post
                                  Estimate   Official   Estimate   Official   Estimate

  **Market Year                   04/2003               04/2004               04/2005
  Begin**                                                                     

  Area Planted     0              45         0          44         0          43

  Area Harvested   0              44         0          44         0          43

  Production       0              4533       0          4121       0          3290

  TOTAL SUPPLY     0              4533       0          4121       0          3290

  Utilization for  0              4533       0          4121       0          3290
  Sugar                                                                       

  Utilizatn for    0              0          0          0          0          0
  Alcohol                                                                     

  TOTAL            0              4533       0          4121       0          3290
  UTILIZATION                                                                 
  ---------------- -------------- ---------- ---------- ---------- ---------- ----------

###### Production

The area under sugar cane is estimated at 42,589 hectares compared to
43,831 hectares in 2004/2005. This decline was partly due to the failure
by some new cane farmers to plant the crop as a result of inadequate
funding and shortage of inputs. On the other hand, some cane farmers
could not plant the crop because their land had been earmarked for
compulsory land reform. The MY 2006 sugar cane crop now being cut is
estimated at 3.29 million tons, 20% lower than the 2004 crop.

Zimbabwe's sugarcane is grown in the southeastern Lowveld where the
three estates Hippo Valley, Triangle and Mkwasine produce 70% of the
crop whilst commercial farmers produce the remaining 30%. Land reform
has reached the sugar industry. The number of small-scale growers with
sugarcane fields less than 40 hectares has increased from 212 in
2002/2003 to 547 in 2004/2005. Conversely, farmers whose sugarcane
fields exceed 40 hectares in size have declined from 69 in 2002/2003 to
32 in 2004/2005.

The sugar cane crop is all irrigated. The prevailing climatic conditions
in December to early March, the period when peak vegetative growth
occurs, have been ideal for cane growth. This period was characterized
by long dry spells, with long sunshine hours and high heat units,
conditions that are perfect for sugar cane production. Although the
rainfall for the summer of 2004/2005 up to the end of March 2005 reached
about 40 to 60% of normal for the sugar growing area, the supply dams at
about 80% full have adequate water supply for two years. The intense
heat and the unlimited water supply from the supply dams were conducive
to production.

Cane yields have declined from 105 tons/hectare in 2002/2003 to 77
tons/hectare on the same land in 2004/2005. Poor agronomic practices by
new resettled farmers such as inadequate fertilizer application, poor
disease control and under-watering are the main reasons for this drastic
reduction in commercial farm yields. In addition, poor coordination of
transportation arrangements for cut cane by settler farmers resulted in
substantial losses of cane.

The Lower Mazowe Valley project to produce sugar in northeastern
Zimbabwe did not take off due to the land reform exercise. Thus, any
increases in sugar production in the foreseeable future will not be due
to increased area, but improved cane yields.

The price paid to sugarcane growers is a mill-door price based on
sucrose percentage and is a blend of proceeds from all markets.

###### Centrifugal Sugar

  ----------------- ------------ ---------- ---------- ---------- ---------- ----------
  **Commodity**     **Sugar,**                                               

  1000 MT           2004         Revised    2005       Estimate   2006       Forecast

                    USDA         Post       USDA       Post       USDA       Post
                    Official     Estimate   Official   Estimate   Official   Estimate

  **Market Year                  04/2003               04/2004               04/2005
  Begin**                                                                    

  Beginning Stocks  37           37         30         30         0          65

  Beet Sugar        0            0          0          0          0          0
  Production                                                                 

  Cane Sugar        508          508        450        525        0          475
  Production                                                                 

  TOTAL Sugar       508          508        450        525        0          475
  Production                                                                 

  Raw Imports       0            0          0          0          0          0

  Refined Imp. (Raw 0            0          0          0          0          0
  Val)                                                                       

  TOTAL Imports     0            0          0          0          0          0

  TOTAL SUPPLY      545          545        480        555        0          540

  Raw Exports       83           83         80         100        0          105

  Refined Exp. (Raw 43           43         25         55         0          60
  Val)                                                                       

  TOTAL EXPORTS     126          126        105        155        0          165

  Human Dom.        389          389        400        335        0          375
  Consumption                                                                

  Other             0            0          0          0          0          0
  Disappearance                                                              

  Total             389          389        375        335        0          375
  Disappearance                                                              

  Ending Stocks     30           30         0          65         0          0

  TOTAL             545          545        480        555        0          540
  DISTRIBUTION                                                               
  ----------------- ------------ ---------- ---------- ---------- ---------- ----------

#### 

#### Production

MY 2006 sugar production is expected to reach 475,000 tons. The quality
of the crop is expected to be good due to the favorable growing
conditions. The recovery rate is expected to be about 8:1. The raw
export quantity of 105,000 MT shown in the PS&D includes the 2003/04 USA
quota that was shipped in 2004/05.

The human domestic consumption is estimated at 375,000 tons in MY 2006.
In Zimbabwe, sugar is a "monitored" commodity, which means the industry
will only increase the price of refined sugar after consultation with
government. Domestic consumption patterns are more influenced by
availability rather than price.

The domestic sales of sugar for MY2005 and the projected sales for MY
2006 are as follows:

Zimbabwe Domestic Sugar Sales (1000MT)

  ----------------------- ----------------------- -----------------------
  Sugar type              MY 2005                 MY 2006

  Refined                 210,767                 240,000

  Semi-refined            124,928                 135,000

  Total                   335.695                 375,000
  ----------------------- ----------------------- -----------------------

Sugar prices were reviewed eight times since 2002. The price reviews
were necessitated by the galloping inflation. Inflation, which surged to
a peak of 622.8% in January 2004, was significantly reduced to 132.7% in
December 2004 through tight monetary control. It is projected to
decrease further in 2005. However, the economy still faces a number of
challenges, the most significant being the critical shortage of foreign
currency and the resurfacing of the parallel market since the beginning
of this year.

The table below shows the changes in sugar prices from 2003 to date.

+-------------+-------------+-------------+-------------+-------------+
| Date        | Z\$ Refined | \% Change   | Z\$         | \% Change   |
|             | factory     |             | S           |             |
|             | price per   |             | emi-refined |             |
|             | kg          |             | price/kg    |             |
|             |             |             |             |             |
|             |             |             | Factory     |             |
+-------------+-------------+-------------+-------------+-------------+
| Current     | 3 130.10    | 0.0         | 2 660.60    | 0.0         |
+-------------+-------------+-------------+-------------+-------------+
| 26/11/2004  | 3 130.10    | 31.4        | 2 660.60    | 31.3        |
+-------------+-------------+-------------+-------------+-------------+
| 14/06/2004  | 2 382.90    | 35.0        | 2 025.60    | 35.0        |
+-------------+-------------+-------------+-------------+-------------+
| 01/04/2004  | 1 765.10    | 11.1        | 1.500.34    | 11.1        |
+-------------+-------------+-------------+-------------+-------------+
| 01/03/2004  | 588.59      | -10.0       | 1 350.30    | -19.5       |
+-------------+-------------+-------------+-------------+-------------+
| 05/01/2004  | 1 765.10    | 103.0       | 1 676.86    | 103.0       |
+-------------+-------------+-------------+-------------+-------------+
| 09/10/2003  | 869.44      | 454.9       | 825.98      | 480.0       |
+-------------+-------------+-------------+-------------+-------------+
| 09/05/2003  | 156.68      | 204.7       | 142.40      | 219.4       |
+-------------+-------------+-------------+-------------+-------------+
| 15/07/2002  | 51.42       |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

Exchange rates

23 March 2003: Z\$322 = US\$1 (parallel market)

Z\$55 = US\$1 (official rate)

April 2003: Z\$1420 = US\$1 (parallel market)

Z\$55 = US\$1 (official rate)

April 2004: Z\$4 468 = US\$1 (auction rate)

Z\$824 = US\$1 (official rate)

Dec. 2004 to current: Z\$6200 = US\$1 (auction rate)

Z\$15000 = US\$1 (parallel market)

### Exports

Zimbabwe's export markets comprise four categories as follows: The
European Union (EU) quota, the USA quota, Regional bilateral agreements
and the world market. The EU quota comprises two export preferential
agreements, the ACP/EU Sugar Protocol of 31,000 MT and the Special
Preferential Sugar (SPS) Agreement of 25,800MT.

The USA quota of about 12,000MT should be shipped between October and
September. However, the 2003 quota was only shipped in January 2005
because the CQE was issued late.

Raw sugar was exported to the EU, USA, India and Namibia (26.749MT).
Refined sugar was exported to Botswana (15,615MT), Namibia (17,952),
SACU and other African countries such as Kenya, Angola, Zambia,
Mozambique and Democratic Republic of the Congo (DRC).

Preference is given to servicing the quota markets first and the local
market before selling to other markets.

  ---------------------- -------------- ------------------- --------------
  **Export Trade**                                          

  **Country**            Zimbabwe                           

  **Commodity**          Sugar                              

  Time Period            Jan-Dec        Units:              Metric tons

  Exports for:           2003                               **2004**

  U.S.                   0              U.S.                11633

  Others                                Others              

  Angola                 7500           EU                  44151

  Botswana               20160          India               23000

  Namibia                37196          Namibia             44701

  Portugal               26200          Botswana            15615

  UK                     31000          South Africa        11484

                                                             

                                                             

                                                             

                                                             

                                                             

  Total for Others       122056                             138951

  Others not Listed      4026                               15037

  Grand Total            126082                             165621
  ---------------------- -------------- ------------------- --------------

The export quantity for Namibia includes both raw sugar (26,749 tons)
and refined sugar (17,952 tons). Exports in 2004 were 165,621 tons
compared to 126,082 tons in 2003.

The planned EU sugar reforms will cut preferential prices for raw sugar
from ACP countries by 20% in 2006 and a further 17% in 2008. Zimbabwe's
export earnings would decline by US\$7 million in 2006 and US\$4.5
million in 2008 as a result of the reforms. To compensate for this
projected loss of revenues Zimbabwe could increase its sugar output by
up to 50% if it is allowed greater access to the EU. The industry's
milling capacity is 600,000 tons, and Zimbabwe could expand production
to that level if allowed to increase exports to the EU.