Voluntary Report - public distribution

**Date:** 10/24/2005

**GAIN Report Number:** UP5019

UP5019

**Ukraine**

**Sugar**

**October Update**

**2005**

**Approved by:**

![](media/image1.wmf)W. Garth Thorburn II, Agricultural Attaché

U.S. Embassy

**Prepared by:**

Dmitri Prikhodko, Agricultural Specialist

**Report Highlights:**

Lower beet sugar production will be insufficient resulted in continued
imports of raw cane sugar in MY 2005/2006. After a sharp decline in
sugar imports in MY 2004/2005 because of political reasons, Ukraine will
have to increase imports and decrease exports in MY 2005/2006 to meet
domestic consumption and to re-built stocks.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Unscheduled Report

Kiev \[UP1\]

\[UP\]

# Executive Summary

Sugar beet production in 2005 is forecasted lower than in 2004 but
unchanged from the current USDA estimate. A reduction in sugar beet area
planted this year will be partially compensated by higher yields and
higher sucrose contents as compared to 2004. Higher domestic sugar
production, however, will not allow Ukraine to decrease its dependence
on imports. Ukraine significantly reduced raw cane sugar imports in MY
2004/2005 due to political reasons associated with approving a
tariff-rate-quota. Although MY 2005/2006 beet sugar production will be
slightly higher than FAS-Kiev initially forecasted, it will still be
lower than in MY 2004/2005. Therefore, Ukraine will have to increase
imports to meet domestic consumption needs and to rebuild stocks in MY
2005/2006.

# Sugar Beet Production

  -------------- ---------- ----------------- ---------- ----------------- ---------- ----------------- ---------
  Ukraine                                                                                               

  Sugar Beets                                                                                           

                 2004       Revised           2005       Estimate          2006       Forecast          UOM

                 USDA       Post              USDA       Post              USDA       Post               
                 Official   Estimate\[New\]   Official   Estimate\[New\]   Official   Estimate\[New\]   
                 \[Old\]                      \[Old\]                      \[Old\]                      

  **Market Year             09/2003                      09/2004                      09/2005           MM/YYYY
  Begin**                                                                                               

  Area Planted   0          773               754        754               740        674               (1000 HA)

  Area Harvested 0          665               700        700               680        640               (1000 HA)

  Production     0          13391             16500      16500             15500      15500             (1000 MT)

  TOTAL SUPPLY   0          13391             16500      16500             15500      15500             (1000 MT)

  Utilization    0          13391             16500      16500             15500      15500             (1000 MT)
  for Sugar                                                                                             

  Utilizatn for  0          0                 0          0                 0          0                 (1000 MT)
  Alcohol                                                                                               

  TOTAL          0          13391             16500      16500             15500      15500             (1000 MT)
  UTILIZATION                                                                                           
  -------------- ---------- ----------------- ---------- ----------------- ---------- ----------------- ---------

Ukraine's sugar beet production estimate in 2005 remains unchanged.
Reduced area planted with sugar beets will be offset by higher than
anticipated yields. The area planted in Ukraine continued to shrivel as
was expected (GAIN Report [UP
5007](http://www.fas.usda.gov/gainfiles/200504/146119339.doc)).
According to final official planting statistics, farmers reduced the
area under sugar beets to 674,000 hectares this year -- the lowest level
registered since 1940 (!).

According to Ministry of Agricultural Policy of Ukraine information as
reported by
[APK-Inform](http://www.apk-inform.com/showart.php?id=29772), farmers
harvested 10.62 million tons of sugar beets from 429,900 hectares as of
October 11, 2005 compared to 9.92 million tons produced from 429,300
hectares by the same date the previous year. Therefore, the trend of
increased yields will likely continue in 2005 (refer to the graph below
-- left side).

While the area under sugar beets has declined dramatically in response
to low profitability of the crop in large-scale farms, yields have been
steadily increasing since 1999 (see right graph below). The main reasons
for increasing yields are believed to be better access to constantly
improving hybrids and plant protection technologies. Unlike large farms,
private households and farmers have increased sugar beet area; however,
they still rely predominantly on hand labor.

  ---------------------------------------------------- ----------------------------------------------------
  ![](media/image2.wmf){width="3.2506944444444446in"   ![](media/image3.wmf){width="3.7506944444444446in"
  height="3.160416666666667in"}                        height="3.1631944444444446in"}

  ---------------------------------------------------- ----------------------------------------------------

Prepared by FAS-Kiev based on the State Statistics Committee of Ukraine
data

\*2005 -- FAS-Kiev forecast

## Beet Sugar Production

  ----------------- ---------- ----------------- ---------- ----------------- ---------- ----------------- ---------
  Ukraine                                                                                                  

  Sugar,                                                                                                   
  Centrifugal                                                                                              

                    2004       Revised           2005       Estimate          2006       Forecast          UOM

                    USDA       Post              USDA       Post              USDA       Post               
                    Official   Estimate\[New\]   Official   Estimate\[New\]   Official   Estimate\[New\]   
                    \[Old\]                      \[Old\]                      \[Old\]                      

  **Market Year                10/2003                      10/2004                      10/2005           MM/YYYY
  Begin**                                                                                                  

  Beginning Stocks  496        496               181        181               181        151               (1000 MT)

  Beet Sugar        1580       1580              1900       1900              1750       1830              (1000 MT)
  Production                                                                                               

  Cane Sugar        0          0                 0          0                 0          0                 (1000 MT)
  Production                                                                                               

  TOTAL Sugar       1580       1580              1900       1900              1750       1830              (1000 MT)
  Production                                                                                               

  Raw Imports       495        495               350        180               500        300               (1000 MT)

  Refined Imp.(Raw  70         70                100        50                100        50                (1000 MT)
  Val)                                                                                                     

  TOTAL Imports     565        565               450        230               600        350               (1000 MT)

  TOTAL SUPPLY      2641       2641              2531       2311              2531       2331              (1000 MT)

  Raw Exports       0          0                 0          0                 0          0                 (1000 MT)

  Refined Exp.(Raw  310        310               200        60                150        50                (1000 MT)
  Val)                                                                                                     

  TOTAL EXPORTS     310        310               200        60                150        50                (1000 MT)

  Human Dom.        2100       2100              2150       2100              2200       2100              (1000 MT)
  Consumption                                                                                              

  Other             50         50                0          0                 0          0                 (1000 MT)
  Disappearance                                                                                            

  Total             2150       2150              2150       2100              2200       2100              (1000 MT)
  Disappearance                                                                                            

  Ending Stocks     181        181               181        151               181        181               (1000 MT)

  TOTAL             2641       2641              2531       2311              2531       2331              (1000 MT)
  DISTRIBUTION                                                                                             
  ----------------- ---------- ----------------- ---------- ----------------- ---------- ----------------- ---------

Although the estimate for sugar beet production in 2006 remained
unchanged, FAS-Kiev suggests increasing the estimate of beet sugar
production in MY 2005/2006 based on higher sucrose content compared with
the previous year. The Ukrainian Association of Sugar Producers reported
that as of October 10, 2005, 111 sugar beet processing factories
produced 614,000 tons of sugar from 5.03 million tons of sugar beets.
Approximately the same number of sugar factories that operated in MY
2003/2004 processed 3.87 million tons of sugar beets and produced
431,000 tons of sugar as of October 10, 2004. Estimated sugar output
from beets increased from 11% in MY 2004/2005 to 12% this marketing
year.

# Consumption

Sugar consumption in MY 2005/2006 will likely decline in response to
higher anticipated prices. Sugar prices in Ukraine are not expected to
return to levels registered in MY2003/2004 (see Price Section below)
following the price shocks during MY 2004/2005. FAS-Kiev decreased MY
2004/2005 consumption level to reflect lower imports. Since there is no
reliable way to estimate parallel imports of refined sugar from Poland,
Belarus and Russia that occurred in response to high domestic prices,
actual direct human consumption and utilization by the food processing
industry may have increased.

# Trade

### Imports

Sugar imports in MY 2005/2006 will likely be lower than the previous
forecast due to higher expected production and strong opposition to
sugar imports in Parliament that will pursist even after March 2006
elections. MY 2005/2006 imports, however, are expected to exceed the
revised MY 2004/2005 import level. Strong opposition in parliament was
the major reason for reduced MY 2004/2005 imports. Unlike in previous
years, legislators refused to adopt a tariff-rate-quota (TRQ) to allow
imports of raw cane sugar at a lower rate than a standard EUR300/1MT. In
the absence of a legally mandated TRQ, sugar imports declined
dramatically while parallel trade increased in response to high prices.
The revised MY 2004/2005 import estimate reflects only a reduction in
legal sugar imports and does not reflect smuggling.

**Imports of Raw Cane Sugar into Ukraine (HS  170111)**

  ----------------------- ------------- ----------------------- -------------
  **MY 2002/2004**        **MT**        **MY 2004/2005**        **MT**

  **Oct-03**              49,501        **Oct-04**              10,935

  **Nov-03**              56,285        **Nov-04**              10,110

  **Dec-03**              75,054        **Dec-04**              0

  **Jan-04**              51,810        **Jan-05**              0

  **Feb-04**              48,703        **Feb-05**              1

  **Mar-04**              27,167        **Mar-05**              0

  **Apr-04**              42,395        **Apr-05**              10,611

  **May-04**              18,829        **May-05**              0

  **Jun-04**              0             **Jun-05**              0

  **Jul-04**              113,901       **Jul-05**              0

  **Aug-04**              6,317         **Aug-05\***            150,000

  **Sep-04**              4,679         **Sep-04**              0

  ** Total**              **494,643**   ** **                   **181,656**
  ----------------------- ------------- ----------------------- -------------

*Source: State Statistics Committee of Ukraine*

*\*FAS-Kiev forecast*

After repeated failures in Parliament to approve a TRQ in May-July 2005
and pressured by significant retail sugar price increases, the Cabinet
of Ministers developed an innovative import scheme to allow some
duty-free imports in August 2005 without a mandate from legislators.
Companies affiliated with the State Committee on the Material Reserves
of Ukraine delivered raw cane sugar to Ukraine and refused their
ownership rights immediately prior to customs clearance in Ukraine. The
Committee, without the necessity to pay import tariffs and 20% VAT, took
possession of "nobody's" product. Ukraine's Natural Oil and Gas Company
*Naftogaz Ukrainy* was ordered by the government of Ukraine (GOU) to pay
\$75.5 million for "stabilization of the food market". Only government
owned companies were allowed to import using this method.

Considering the GOU conducted most of MY 2004/2005 imports in August
2005 at zero import tariff rate, **MY 2004/2005 applied tariff rate on
raw cane sugar was next to zero**. In MY 2003/2004, import quota was
auctioned at a minimum price (EUR 30/MT) on and an additional EUR 60/MT
auction fee.

## Exports

The refined sugar export estimate for MY 2004/2005 was reduced to
reflect decreased processing of imported sugar and high domestic prices.
The ban on tolling imports (for further processing) is expected to
continue to hamper Ukraine's ability to export refined sugar to
countries of the Former Soviet Union in MY 2005/2006. Therefore, the
export estimate for MY 2004/2005 and MY 2005/2006 were lowered.

Reportedly, the State Committee on the Material Reserves did not sell
all the sugar that was produced from refined imported cane sugar.
According to GOU reports, 110,000 tons out of the 150,000 tons that were
imported in August were sold in the domestic market by September 15,
2005. It is quite likely that GOU will export approximately
20,000-30,000 MT tons of refined sugar to traditional buyers from Former
Soviet Union countries in MY 2005/2006. However, at this point it is
unlikely that MY 2005/2006 exports will exceed the estimated provided in
the PSD table above.

# Monthly Exports of Sugar (HS 1701)

+-------------------+----------------+------------------+-------------+
| **Month**         | **MT**         | ###### Month     | **MT**      |
+-------------------+----------------+------------------+-------------+
| **Oct-03**        | 46,067         | **Oct-04**       | 14          |
+-------------------+----------------+------------------+-------------+
| **Nov-03**        | 33,144         | **Nov-04**       | 10,527      |
+-------------------+----------------+------------------+-------------+
| **Dec-03**        | 65,306         | **Dec-04**       | 5,148       |
+-------------------+----------------+------------------+-------------+
| **Jan-04**        | 12,316         | **Jan-05**       | 2,084       |
+-------------------+----------------+------------------+-------------+
| **Feb-04**        | 5,262          | **Feb-05**       | 3,727       |
+-------------------+----------------+------------------+-------------+
| **Mar-04**        | 38,965         | **Mar-05**       | 5,752       |
+-------------------+----------------+------------------+-------------+
| **Apr-04**        | 24,559         | **Apr-05**       | 2,204       |
+-------------------+----------------+------------------+-------------+
| **May-04**        | 18,535         | **May-05**       | 3,905       |
+-------------------+----------------+------------------+-------------+
| **Jun-04**        | 14,346         | **Jun-05**       | 2,657       |
+-------------------+----------------+------------------+-------------+
| **Jul-04**        | 12,118         | **Jul-05**       | 1,788       |
+-------------------+----------------+------------------+-------------+
| **Aug-04**        | 14,585         | **Aug-05\***     | 1000        |
+-------------------+----------------+------------------+-------------+
| **Sep-04**        | 1,356          | **Sep-05\***     | 1,000       |
+-------------------+----------------+------------------+-------------+
| **MY Total**      | 286,558        |                  | 39,804      |
+-------------------+----------------+------------------+-------------+

*Source: State Statistics Committee of Ukraine*

*\* FAS-Kiev Estimates*

# Exports of Refined Sugar (HS 170199), MT

  ------------------ ------------------ ---------------- ----------------
  **Country**        **Oct 02-Jul 03**  **Oct 03-Jul     **Oct 04-Jul
                                        04**             05**

                                                         

  Moldova            70,419             98,500           23,864

  Poland             0                  0                9,406

  Uzbekistan         0                  1,009            2,704

  Georgia            34,626             38,511           1,302

  Kazakhstan         19,747             9,354            400

  Russia             0                  2,884            44

  Latvia             68                 36               20

  Italy              0                  0                20

  Others Not Listed  136,977            120,320          38

  Grand Total        261,837            270,614          37,798
  ------------------ ------------------ ---------------- ----------------

Source: State Statistics Committee of Ukraine

# Prices and Stocks

Despite assurances that were made by the Ukrainian Sugar Producers
Association regarding availability of nearly 500,000 tons of sugar,
supply sharply decreased in May 2005 resulting in significant price
hikes. The GOU had no intervention stocks while the Parliament
repeatedly refused to allow raw cane sugar imports. Wholesale sugar
prices peaked at \$890/MT in mid-July and approached the threshold
beyond which sugar imports could have made sense even with paying the
prohibitive EUR300/MT import tariff. However, rumors of expected sugar
imports by the GOU turned the price trend on the bearish side and was
the major price stabilization factor in Ukraine (see the graph below).

**Wholesale Sugar Price and Raw Cane Sugar Imports into Ukraine**

![](media/image4.wmf)

*Prepared by FAS-Kiev based on APK-Inform
([www.apk-inform.com](http://www.apk-inform.com/)) price information and
State Statistics Committee of Ukraine data on imports*

There remains to be no reliable information on sugar stocks in Ukraine.
GOU does not disclose this information and there is no reporting system
to trace industry and trade-held stocks. FAS Kiev decreased estimates
for MY 2004/2005 ending stocks to reflect significant end of year price
increases that occurred as a result of falling supplies. MY 2005/2006
estimates remained unchanged as higher forecasted imports will
facilitate accumulation of stocks.