Required Report - public distribution

Date: 3/31/2006

GAIN Report Number: RH6004

RH6004

Zimbabwe

Sugar

Annual report

2006

Approved by:

![](media/image1.wmf)Rachel Bickford

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

Prepared by:

Herman Germishuis

Report Highlights:

Zimbabwe is expected to produce 3.5 million tons of sugar cane in
2006/07 compared to the 3.3 million tons produced in 2005/06. This
should produce 491,000 tons of sugar compared to the 475,000 tons
produced last season. Exports for 2006/07 are conservatively estimated
at 170,000 tons, after 149,000 tons were exported in the 2005/06 season.
Exports could increase once the final production figure is established.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Pretoria \[SF1\]

\[RH\]

Summary

The indicator year used in this report is the second year of the milling
season, which runs from April to March in the Southern Hemisphere. For
example 2007 denotes the milling and marketing season from 1 April 2006
to 31 March 2007.

Zimbabwe is expected to produce 3.53 million tons of sugarcane in
2006/07 after 3.34 million tons were produced in 2005/06. The crop
experienced favorable growing conditions. Sugar production is expected
to reach 491,000 MT, up from 475,000 MT in 2005/06.

Exports from the 2006/07 production are forecast at 170,000 MT, but this
may increase once the production figure is finalized. In 2006/07 the
country will supply all the preferential, quota and regional bilateral
trade arrangements in full.

Sugar Cane

  ---------------- ---------- --------- --------- ---------- --------- ----------
  PSD Table                                                            

  Country          Zimbabwe                                            

  Commodity        Sugar Cane                                          

  1000 HA          2005       Revised   2006      Estimate   2007      Forecast

  1000 MT          USDA       Post      USDA      Post       USDA      Post
                   \[Old\]    \[New\]   \[Old\]   \[New\]    \[Old\]   \[New\]

  Market Year                 04/2004             04/2005              04/2006
  Begin                                                                

  Area Planted     44         44        43        43         0         44

  Area Harvested   44         44        43        43         0         44

  Production       4121       4066      3290      3342       0         3530

  TOTAL SUPPLY     4121       4066      3290      3342       0         3530

  Utilization for  4121       4066      3290      3342       0         3530
  Sugar                                                                

  Utilizatn for    0          0         0         0          0         0
  Alcohol                                                              

  TOTAL            4121       4066      3290      3342       0         3530
  UTILIZATION                                                          
  ---------------- ---------- --------- --------- ---------- --------- ----------

Production

Sugar cane is grown in the southeastern Lowveld, a low rainfall area
that experiences a mean annual rainfall of about 400mm. The crop is
irrigated. The three estates Triangle, Hippo Valley and Mkwasine
currently produce 80% of the crop while commercial farmers account for
the remaining 20%.

The area under sugar cane increased marginally by 5% to 44,794 hectares
for the 2006/07 milling season compared to 42,589 hectares for 2005/06.
The cane crop for the 2006/07 harvesting season starting on 1 April is
estimated at 3,53 million tons, 5.6% higher than the 2005/06 crop of 3,3
million tons. While the area under sugarcane increased slightly, cane
production has declined substantially over the last two seasons due to
the limited availability if inputs, as shown on the table below.

+-------------+-------------+-------------+-------------+-------------+
| Milling     | Area (Ha)   | Cane        | Yield       | ERC % cane  |
|             |             | Production  | (MT/Ha)     |             |
| Season      |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| 2000/01     | 42 957      | 4 623 609   | 107.6       | 12.55%      |
+-------------+-------------+-------------+-------------+-------------+
| 2001/02     | 43 594      | 4 386 746   | 100.6       | 12.22%      |
+-------------+-------------+-------------+-------------+-------------+
| 2002/03     | 43 971      | 4 231 784   | 96.2        | 11.91%      |
+-------------+-------------+-------------+-------------+-------------+
| 2003/04     | 43 895      | 4 634 387   | 105.6       | 12.29%      |
+-------------+-------------+-------------+-------------+-------------+
| 2004/05     | 43 831      | 4 065 652   | 92.8        | 12.39%      |
+-------------+-------------+-------------+-------------+-------------+
| 2005/06     | 42 589      | 3 341 955   | 78.5        | 12.54%      |
+-------------+-------------+-------------+-------------+-------------+
| 2006/07     | 44 794      | 3 530 210   | 78.8        | 12.03%      |
+-------------+-------------+-------------+-------------+-------------+

The table shows that any future increases in production will have to be
through yield improvements.

With the supply dam levels of between 90 to 100% there is adequate water
for irrigation throughout the year. Climatic conditions were ideal for
cane growth. The growing season enjoyed long sunshine hours and high
heat units. The sugar growing area only received 66% of normal rainfall,
but it was well distributed.

Despite the slight increase in area planted and the favorable production
climate, cane production is lower. Newly resettled farmers practice poor
cane husbandry such as inadequate fertilizer application, under-watering
of the crop and poor disease control. Insecurity of land tenure by both
farmers and the estates has also contributed to the declining production
as it precludes long-term investments on the crop. The table below shows
the mean yields achieved by the three groups that produce sugar.

  ----------------- ----------------- ----------------- -----------------
  Group             2003/04           2004/05           2005/06

  Large Estates     100.9 MT/Ha       85.3 MT/Ha        89.7 MT/Ha

  Commercial        84.0 MT/Ha        71.0 MT/Ha        69.0 MT/Ha
  farmers                                               

  Resettled farmers 55.0 MT/Ha        49.2 MT/Ha        56.7 MT/Ha
  (A2)                                                  

  Mean yield        92.8 MT/Ha        78.5 MT/Ha        78.8 MT/Ha
  ----------------- ----------------- ----------------- -----------------

The cane price paid to producers is based on sugar percentage and is a
blend of proceeds from all the markets.

**Centrifugal sugar**

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

  1000 MT             2005      Revised   2006      Estimate   2007      Forecast

                      USDA      Post      USDA      Post       USDA      Post
                      \[Old\]   \[New\]   \[Old\]   \[New\]    \[Old\]   \[New\]

  Market Year Begin             04/2004             04/2005              04/2006

  Beginning Stocks    30        30        65        0          40        48

  Beet Sugar          0         0         0         0          0         0
  Production                                                             

  Cane Sugar          525       525       475       475        0         491
  Production                                                             

  TOTAL Sugar         525       525       475       475        0         491
  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        555       555       540       475        40        539

  Raw Exports         100       105       105       101        0         111

  Refined Exp.(Raw    55        61        60        48         0         59
  Val)                                                                   

  TOTAL EXPORTS       155       166       165       149        0         170

  Human Dom.          335       389       335       278        0         300
  Consumption                                                            

  Other Disappearance 0         0         0         0          0         0

  Total Disappearance 335       389       335       278        0         300

  Ending Stocks       65        0         40        48         0         69

  TOTAL DISTRIBUTION  555       555       540       475        0         539
  ------------------- --------- --------- --------- ---------- --------- ----------

## **Production**

Zimbabwe's output of raw sugar from the 2006/07 milling season is
estimated at 491,000 MT from a cane crop of 3.5 million tons. The
recovery rate is expected to be 12% or a 8:1 cane to sugar ratio.

## **Consumption** 

##  

## The annual human domestic demand is estimated at about 300,000 MT. Consumption patterns are more influenced by availability rather than price. Per capita consumption of sugar in 2005 is estimated at 25.34 kg raw sugar per person**.**

Sugar is a "price monitored" commodity in Zimbabwe, which implies that
the industry will only increase the price of refined sugar after
consultations with the government. The monitored domestic sugar prices
are not competitive when compared to the regional prices and they
encourage speculative activities. The latter has caused intermittent
shortages of sugar on the domestic market as traders sell the commodity
at more attractive prices in neighboring countries.

The domestic sugar sales for MY 2005/06 and the projection for MY
2006/07 are shown in the table below.

  ----------------------- ----------------------- -----------------------
  Sugar type              MY 2005/06              MY 2006/07

  Refined                 177,000                 180,000

  Semi-refined            101,000                 120,000

  Total                   278,000                 300,000
  ----------------------- ----------------------- -----------------------

Sugar prices have been reviewed six times since last year because of
surging inflation. Inflation that has been on an upward trend since
April 2005 and closed the year at 585% and in January 2006 rose to 613%,
reaching an all time high of 782% in February.

+---------+---------+---------+---------+---------+---------+---------+
| Date    | Raw     | \%      | Refined | \%      | Semi-   | \%      |
|         | sugar   | Change  | price   | Change  | Refined | Change  |
| Z\$/kg. | 98.7    |         |         |         |         |         |
|         | POL     |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| 2       | 38,050  | 45%     | 60,900  | 45%     | 54,840  | 45.1%   |
| 7/02/06 |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| 0       | 26,240  | 53.7%   | 42,000  | 53.7    | 37,800  | 53.7%   |
| 3/01/06 |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| 0       | 17,075  | 117.2%  | 27,320  | 117.2%  | 24,600  | 117.3%  |
| 7/12/05 |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| 1       | 7,863   | 105%    | 12,580  | 105.6%  | 11,320  | 105.4%  |
| 6/09/05 |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| 2       | 3,835   | 70%     | 6,120   | 66.7%   | 5,510   | 70.1%   |
| 9/07/05 |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| 1       | 2,255   | 15%     | 3,671   | 17.3%   | 3,240   | 21.8%   |
| 2/05/05 |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| 2       | 1,961   | 33.4%   | 3,130   | 31.4%   | 2,660   | 31.3%   |
| 6/11/04 |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| 1       | 1,471   | 35%     | 2,382   | 35%     | 2,025   | 35%     |
| 4/06/04 |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| 0       | 1,089   | 11.1%   | 1,765   | 11.1%   | 1,500   | 11.1%   |
| 1/05/04 |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| 0       | 980     | -10%    | 1,588   | -10%    | 1.350   | -19.5%  |
| 1/03/04 |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| 0       | 1,089   |         | 1,765   |         | 1,676   |         |
| 5/01/04 |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+

Exchange Rates:

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

December 2004 Z\$ 6200 = US\$1 (auction rate)

Z\$ 15 000 = US\$1 (parallel market)

June 2005 Z\$ 9 500 = US\$ 1 (auction rate)

Z\$ 26 000 = US\$1 (parallel market)

September 2005 Z\$ 25 500 = US\$1 (auction rate)

Z\$ 65 000 = US\$1 (parallel market)

December 2005 Z\$ 99 000 = US\$1 (official rate)

Z\$ 100 000 = US\$1 (parallel market)

Current Z\$100 000 = US\$1 (official rate)

Z\$200 000 = US\$1 (parallel market)

The official / auction exchange rate was around Z\$6,000 for the first
four months of 2005 and depreciated sharply thereafter to Z\$25,500 in
September. In October, the auction system for the allocation of foreign
currency was replaced with a system whereby customers and banks
formulate the exchange rate, now known as the inter-bank rate. The rate
suffered a massive depreciation from Z\$25,500 to Z\$60,000 in October
2005. Since then the official rate has continued to depreciate and in
February 2006 reached Z\$100,000 to US\$1.

These consultative price adjustments often lag behind production cost
increases resulting in shrinking in margins for all stakeholders in the
industry i.e. producers, millers and refiners.

## **Trade**

## Exports

The country's 2005/06 export quota markets comprised the US quota of
12,104 MT, the EU quota of 60,257 MT and the Regional bilateral
agreements.

The 2006/07 quota markets comprise the EU quota of 63,660 MT and the US
quota of 12,500 MT. Zimbabwe received an additional 2005/06 US quota
allocation of 7,500 MT should be in the USA by 30 September 2006.

The EU quota comprises two export preferential agreements, the ACP/EU
Sugar Protocol of 37,860 MT and the Special Preferential Sugar (SPS)
Agreement of 25,800 MT. Priority is given to servicing the quota
markets, the bilateral trade arrangements (with Namibia and Botswana)
and the domestic market before selling to other markets. The country
will supply all preferential and quota export markets in full during MY
2006/07.

A total of 149,458 MT comprising 101,297 MT of raw sugar and 48,161 MT
of refined sugar were exported in 2005/06.

Raw sugar was exported to the USA, EU, Namibia, Zambia, South Africa and
Angola. Refined sugar was exported to Botswana, Namibia, South Africa,
Kenya, Zambia and Angola as shown on the export matrix below.

  -------------------------- --------------- ---------------- -----------
  Export Trade Matrix                                         

  Country                    Zimbabwe                         

  Commodity                  Sugar,                           

  Time Period                April/March     Units:           MT

  Exports for:               2004/05                          2005/06

  U.S.                       11663           U.S.             12104

  Others                                     Others           

  EU                         44151           EU               60257

  Namibia                    44701           Namibia          41429

  Botswana                   15615           Botswana         24933

  South Africa               11484           South Africa     590

  India                      23000           Kenya            3930

                                             Zambia           3274

                                             Angola           2847

  Total for Others           138951                           137260

  Others not Listed          15037                            94

  Grand Total                165651                           149458
  -------------------------- --------------- ---------------- -----------

The 2005/06 export quantities for Namibia, Zambia, Angola and South
Africa include both raw sugar and refined sugar whose breakdown is shown
below.

  ----------------- ----------------- ----------------- -----------------
  Country           Raw Sugar         Refined Sugar     Total

  Namibia           25,960 MT         15,469 MT         41,429 MT

  Zambia            2,580MT           694 MT            3,274 MT

  Angola            66 MT             2,781 MT          2,847 MT

  South Africa      270 MT            320 MT            590 MT
  ----------------- ----------------- ----------------- -----------------

The EU will cut preferential prices for sugar from African, Caribbean
and Pacific producers (ACP) including Zimbabwe by 40%. The price
reduction will be with effect from July 2008 when prices will be cut by
25% and a further 15% price drop will be affected in July 2009.

Imports

Zimbabwe does not import raw or refined sugar.