Required Report - public distribution

**Date:** 9/30/2004

**GAIN Report Number:** SF4038

SF4038

**South Africa, Republic of**

**Sugar**

**Semi-annual**

**2004**

**Approved by:**

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

U.S. Embassy, South Africa

**Prepared by:**

Herman Germishuis

**Report Highlights:**

South Africa\'s 2003/04 sugar season was a financial disaster. Both the
cane crop and sugar production declined while low world prices and a
strong SA Rand cut export income severely. The outlook for the current,
2004/05 season is also bleak. Sugar production is expected to drop a
further 7.6% to 2.37 million tons due to drought, while world prices are
still depressed and the SA Rand strong.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Unscheduled Report

Pretoria \[SF1\]

\[SF\]

**Summary**

South Africa's 2003/04 sugar season was a disaster. The net farm income
of cane growers declined by 33%. This was due to a 12% drop in cane
production and a 12.4% decrease in sugar production compared to the
previous season. A low world price and a strong SA Rand aggravated the
situation. The quantity exported fell by 17.4% while export earnings
dropped from R2.42 billion to R1.32 billion. Domestic sales also showed
a dramatic 22% drop

as a result of increased import competition from other producers in the
region.

The situation for the current, 2004/05 season, is also bleak. Production
is expected to drop a further 7.6% due to drought, while the world
market is still depressed and import competition is again affecting
domestic sales. The increased import competition is the result of SACU
(Southern African Customs Union) and SADC (Southern African Development
Community) free trade agreements. This led to the local industry's share
in the lucrative domestic market dropping from 95% to less than 80% over
the past few seasons. Any sugar not sold in the protected local market
must be exported into an oversupplied world market.

[www.sugar.org.za](http://www.sugar.org.za/)

[www.sacanegrowers.co.za](http://www.sacanegrowers.co.za/)

**Sugar Cane**

+-----------------+--------+-------+--------+-------+--------+-------+
| **Country**     | **S    | ###   |        |       |        |       |
|                 | outh** | ### A |        |       |        |       |
|                 |        | frica |        |       |        |       |
+-----------------+--------+-------+--------+-------+--------+-------+
| **Commodity**   | **S    | #     |        |       |        |       |
|                 | ugar** | ##### |        |       |        |       |
|                 |        |  Cane |        |       |        |       |
+-----------------+--------+-------+--------+-------+--------+-------+
| 1000 ha.        | 2003   | Re    | 2004   | Est   | 2005   | For   |
|                 |        | vised |        | imate |        | ecast |
+-----------------+--------+-------+--------+-------+--------+-------+
| 1000 mt.        | USDA   | Post  | USDA   | Post  | USDA   | Post  |
|                 | \      | \[    | \      | \[    | \      | \[    |
|                 | [Old\] | New\] | [Old\] | New\] | [Old\] | New\] |
+-----------------+--------+-------+--------+-------+--------+-------+
| **Market Year   |        | 04    |        | 04    |        | 04    |
| Begin**         |        | /2002 |        | /2003 |        | /2004 |
+-----------------+--------+-------+--------+-------+--------+-------+
| Area Planted    | 434    | 435   | 345    | 433   | 0      | 433   |
+-----------------+--------+-------+--------+-------+--------+-------+
| Area Harvested  | 328    | 329   | 330    | 325   | 0      | 325   |
+-----------------+--------+-------+--------+-------+--------+-------+
| Production      | 23013  | 23013 | 21270  | 20419 | 0      | 19157 |
+-----------------+--------+-------+--------+-------+--------+-------+
| TOTAL SUPPLY    | 23013  | 23013 | 21270  | 20419 | 0      | 19157 |
+-----------------+--------+-------+--------+-------+--------+-------+
| Utilization for | 23013  | 23013 | 21270  | 20419 | 0      | 19157 |
| Sugar           |        |       |        |       |        |       |
+-----------------+--------+-------+--------+-------+--------+-------+
| Utilizatn for   | 0      | 0     | 0      | 0     | 0      | 0     |
| Alcohol         |        |       |        |       |        |       |
+-----------------+--------+-------+--------+-------+--------+-------+
| TOTAL           | 23013  | 23013 | 21270  | 20419 | 0      | 19157 |
| UTILIZATION     |        |       |        |       |        |       |
+-----------------+--------+-------+--------+-------+--------+-------+

**Production**

The area under cane in South Africa has remained constant at around
430,000 to 435,000 hectares over the past few years. Since the general
droughts of the early and mid nineties, the industry has continued to
experience regional droughts from time to time. The 2003/04 season was
dry, while the 2004/05 season also had a dry start. Better rainfall in
February and March 2004 marginally improved crop prospects but by then
the damage was done and cane production for 2004/05 is currently
estimated at 19.2 million tons after 20.4 million tons were produced in
2003/04.

+-----------+-----------+-----------+----------+-----------+---------+
| Sugar     | Area      | Area      | Cane cut | Yield,    | Tons    |
| cane      | planted,  | h         |          | Mt./ha.   | cane/   |
|           | ha.       | arvested, | 1000 Mt. |           | ton     |
| Season    |           | ha.       |          |           | sugar   |
+-----------+-----------+-----------+----------+-----------+---------+
| 2000/2001 | 428,892   | 322,858   | 23       | 73.95     | 8.77    |
|           |           |           | ,876,162 |           |         |
+-----------+-----------+-----------+----------+-----------+---------+
| 2001/2002 | 431,771   | 325,704   | 21       | 64.96     | 8.83    |
|           |           |           | ,156,537 |           |         |
+-----------+-----------+-----------+----------+-----------+---------+
| 2002/2003 | 430,106   | 321,234   | 23       | 71.64     | 8.33    |
|           |           |           | ,012,554 |           |         |
+-----------+-----------+-----------+----------+-----------+---------+
| 2003/2004 | 432,986   | 325,141   | 20       | 62.80     | 8.44    |
|           |           |           | ,418,933 |           |         |
+-----------+-----------+-----------+----------+-----------+---------+
| 2004/05   | 432,500   | 325,000   | 19       | 58.94     | 8.57    |
| est.      |           |           | ,157,000 |           |         |
+-----------+-----------+-----------+----------+-----------+---------+

The area under irrigation has increased to 22% of the total area under
cane. This trend has lessened the risk of serious crop failures. As
shown in the table cane yields per hectare have remained relatively
constant, although the 2004/05 estimate shows severe drought damage. The
adoption of the Recoverable Value pricing system for cane payments,
which rewards good agricultural practices, has improved sugar yields per
hectare.

# Sugar

+-------------------+-------+-------+-------+-------+-------+-------+
| **Country**       | **    |       |       |       |       |       |
|                   | South |       |       |       |       |       |
|                   | Afri  |       |       |       |       |       |
|                   | ca,** |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| **Commodity**     | **Su  |       |       |       |       |       |
|                   | gar** |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| # 1000Metric tons | 2003  | Re    | 2004  | Est   | 2005  | For   |
|                   |       | vised |       | imate |       | ecast |
+-------------------+-------+-------+-------+-------+-------+-------+
| # Raw value       | USDA  | Post  | USDA  | Post  | USDA  | Post  |
|                   | \[    | \[    | \[    | \[    | \[    | \[    |
|                   | Old\] | New\] | Old\] | New\] | Old\] | New\] |
+-------------------+-------+-------+-------+-------+-------+-------+
| **Market Year     |       | 04    |       | 04    |       | 04    |
| Begin**           |       | /2002 |       | /2003 |       | /2004 |
+-------------------+-------+-------+-------+-------+-------+-------+
| Beginning Stocks  | 450   | 450   | 490   | 586   | 370   | 906   |
+-------------------+-------+-------+-------+-------+-------+-------+
| Beet Sugar        | 0     | 0     | 0     | 0     | 0     | 0     |
| Production        |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| Cane Sugar        | 2931  | 2931  | 2527  | 2560  | 0     | 2371  |
| Production        |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| TOTAL Sugar       | 2931  | 2931  | 2527  | 2560  | 0     | 2371  |
| Production        |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| Raw Imports       | 0     | 18    | 0     | 25    | 0     | 19    |
+-------------------+-------+-------+-------+-------+-------+-------+
| Refined Imp. (Raw | 269   | 251   | 253   | 273   | 0     | 287   |
| Val)              |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| TOTAL Imports     | 269   | 269   | 253   | 298   | 0     | 306   |
+-------------------+-------+-------+-------+-------+-------+-------+
| TOTAL SUPPLY      | 3650  | 3650  | 3270  | 3444  | 370   | 3583  |
+-------------------+-------+-------+-------+-------+-------+-------+
| Raw Exports       | 1215  | 914   | 1000  | 764   | 0     | 950   |
+-------------------+-------+-------+-------+-------+-------+-------+
| Refined Exp. (Raw | 350   | 382   | 300   | 307   | 0     | 350   |
| Val)              |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| TOTAL EXPORTS     | 1565  | 1296  | 1300  | 1071  | 0     | 1300  |
+-------------------+-------+-------+-------+-------+-------+-------+
| Human Dom.        | 1590  | 1760  | 1595  | 1460  | 0     | 1640  |
| Consumption       |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| Other             | 5     | 8     | 5     | 7     | 0     | 5     |
| Disappearance     |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| Total             | 1595  | 1768  | 1600  | 1467  | 0     | 1645  |
| Disappearance     |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| Ending Stocks     | 490   | 586   | 370   | 906   | 0     | 638   |
+-------------------+-------+-------+-------+-------+-------+-------+
| TOTAL             | 3650  | 3650  | 3270  | 3444  | 0     | 3583  |
| DISTRIBUTION      |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+

# Production

As a result of a drought, prospects for the 2004/05 season are poor. The
Sugar Association's August estimate is for 19,156,818 tons of cane
producing 2,234,414 Mt. Tell Quell (as is) sugar. Local sugar is
produced at about 99.5\*Pol. which is multiplied by 1.061 to get to 96\*
Pol. raw value.

+-------------+-------------+-------------+-------------+-------------+
| Season      | Cane cut    | Tell quell  | Raw value   | Tons        |
|             |             | sugar       | sugar       | cane/ton Tq |
| April/March | 1000 Mt.    |             |             | sugar, Mt.  |
|             |             | Prod. 1000  | Prod. 1000  |             |
|             |             | Mt.         | Mt.         |             |
+-------------+-------------+-------------+-------------+-------------+
| 2000/01     | 23,876,162  | 2,721,562   | 2,887,577   | 8.75        |
+-------------+-------------+-------------+-------------+-------------+
| 2001/02     | 21,156,537  | 2,403,243   | 2,549,841   | 8.83        |
+-------------+-------------+-------------+-------------+-------------+
| 2002/03     | 23,012,554  | 2,762,885   | 2,931,421   | 8.33        |
+-------------+-------------+-------------+-------------+-------------+
| 2003/04     | 20,418,933  | 2,419,287   | 2,566,864   | 8.44        |
+-------------+-------------+-------------+-------------+-------------+
| 2004/05     | 19,156,818  | 2,234,414   | 2,370,713   | 8.57        |
| est.        |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

# Consumption

Sugar supplies in the Southern African Customs Union (SACU) have changed
markedly since the early nineties, at which time South Africa was the
main supplier with over 95% market share. South Africa has since lost
market share to Swaziland (a customs union member), and to Southern
African Development Community (SADC) sugar producers. South Africa's
share of the SACU market is currently below 80%.

Due to low world prices, the Swaziland sugar industry increased its
2003/04 sales to South Africa, the biggest market in Southern Africa.
Over and above this, as part of the SADC Free Trade Agreement, it was
agreed that SADC producers would be allowed to sell sugar free of duty
into SACU based on a formula (about 45,000 tons). The number of
suppliers into the market has thus increased significantly.

The demand for sugar in the SACU region has continued to grow in the
order of 2% per annum, with demand closely related to growth in real
disposable income, growth in GDP and in population. The following table
shows the latest available data on South African sugar sales in the SACU
region:

+--------+--------+--------+--------+--------+-------+--------+-------+
| Season | White  | Brown  | Total  | Direct | \%    | Indu   | \%    |
|        | sugar  | sugar  | sugar  | sales  |       | strial |       |
| Metric |        |        |        |        |       | sales  |       |
| ton    |        |        |        |        |       |        |       |
+--------+--------+--------+--------+--------+-------+--------+-------+
| 1      | 1,0    | 1      | 1,2    | 8      | 66.3  | 4      | 28.1  |
| 998/99 | 72,230 | 48,150 | 20,380 | 08,884 |       | 11,496 |       |
+--------+--------+--------+--------+--------+-------+--------+-------+
| 1      | 1,0    | 1      | 1,2    | 8      | 66.0  | 4      | 34.0  |
| 999/00 | 69,494 | 60,551 | 30,045 | 11,591 |       | 18,454 |       |
+--------+--------+--------+--------+--------+-------+--------+-------+
| 2      | 1,1    | 1      | 1,3    | 8      | 67.1  | 4      | 32.9  |
| 000/01 | 40,308 | 70,788 | 11,096 | 79,529 |       | 31,567 |       |
+--------+--------+--------+--------+--------+-------+--------+-------+
| 2      | 1,0    | 1      | 1,2    | 8      | 66.8  | 4      | 33.2  |
| 001/02 | 66,168 | 61,047 | 27,215 | 19,273 |       | 07,492 |       |
+--------+--------+--------+--------+--------+-------+--------+-------+
| 2      | 1,2    | 1      | 1,4    | 9      | 65.4  | 4      | 34.6  |
| 002/03 | 18,766 | 94,029 | 12,795 | 24,416 |       | 88,649 |       |
+--------+--------+--------+--------+--------+-------+--------+-------+
| 2      | 9      | 1      | 1,1    | 5      | 53.1  | 5      | 46.9  |
| 003/04 | 26,951 | 74,651 | 01,602 | 85,157 |       | 16,445 |       |
+--------+--------+--------+--------+--------+-------+--------+-------+

In the 2003/04 season, domestic sales by the South African industry
plummeted to about 1.1 million tons Tell Quell compared to the 1.4
million tons sold in 2002/2003. Various reasons, such as fewer selling
days during the year, are given for the decline in sales. The main
reason is probably that the buyers decided that the price is likely to
come down during the new season and the need for stockpiling stocks in
anticipation of a domestic price increase diminished.

Total domestic consumption, including imports, thus only reached 1.467
million tons raw value after 1.768 million tons were sold in 2002/03.
Consumption is likely to rebound to about 1.65 million tons in 2004/05.

# Trade

  -------------------- ------------------- ----------------- -------------
  **Imports**                                                

  **Country**          South Africa                          

  **Commodity**        Sugar                                 

  Time Period          April-March         Units:            Metric tons

  Imports for:         2002/03                               **2003/04**

  U.S.                 3                   U.S.              48

  Others                                   Others            

  Malawi               9026                Malawi            14402

  Zimbabwe             17240               Zimbabwe          4343

  Zambia               8555                Zambia            9118

  Total for Others     34821                                 27863

  Others not Listed    168                                   1622

  Grand Total          34989                                 29485
  -------------------- ------------------- ----------------- -------------

The imports are the result of the SADC (Southern African Development
Community) Free Trade Agreement, which gave limited non-reciprocal
access to the SACU (Customs Union)

market. An initial allocation of 20,000 tons annually was made to SADC
member states with an exportable surplus after serving their domestic
market and their preferential export markets. Each year this access is
increased a share of the growth in the SACU market. The net result of
the formula for 2003/04 is that the non-SACU producers were allocated
44,687 tons of duty free access. Swaziland, as a SACU member, is not
included in the above but gets duty free access through its customs
union membership. The quantity has not been announced but is estimated
at about 234,000 tons in 2002/03 and 268,000 in 2003/04.

The general rate of import duty is currently R718/ton. The duty is based
on the difference between the reference price, \$333/ton and the current
world price. An example of the calculation follows: Reference price
\$330/ton

Less World price \$220/ton

Gives Import duty \$110/ton @ R6.5 to the US\$ = R715/ton.

The exchange rate of the Rand, which has been very variable, thus plays
a big role in the setting of the tariff.

We are now for the first time using the World Trade Atlas, based on SA
customs data, for our trade figures. The figures are lower than those
previously supplied by the Sugar Association but it gives a clear
indication of raw and refined exports, which are combined on a Tell
Quell (as is) basis in the trade matrix. The table shows exports to
Mozambique, but these are mainly transshipments using Maputo harbor.
Mozambique increased its own production to 253,000 tons this year, which
will allow exports again.

  -------------------- ------------------- ----------------- -------------
  **Exports**                                                

  **Country**          South Africa                          

  **Commodity**        Sugar                                 

  Time Period          April-March         Units:            Metric tons

  Exports for:         2002/03                               **2003/04**

  U.S.                 58 681              U.S.              23 646

  Others                                   Others            

  Mozambique           199 100             Mozambique        169 785

  Japan                166 015             Japan             145 040

  South Korea          230 000             South Korea       140 000

  Malaysia             43 053              Malaysia          80 000

  Syria                13 250              Syria             53 850

  Madagascar           47 479              Madagascar        46 076

  India                108                 India             49 500

  Kenya                42 805              Kenya             48 254

  Iran                 15 010              Iran              39 100

  Mauritius            52 181              Mauritius         30 857

  Total for Others     770 681                               823 587

  Others not Listed    448 888                               189 902

  Grand Total          1 219 569                             1 008 489
  -------------------- ------------------- ----------------- -------------

The raw exports, according to the WTA were:

  ----------------------- ----------------------- -----------------------
  Metric tons, raw sugar  2002/03                 2003/04

  USA                     58,650                  23,646

  Mozambique              185,751                 161,490

  Japan                   166,015                 145,040

  South Korea             230,000                 140,000

  Malaysia                43,053                  80,000

  India                   0                       49,500

  Egypt                   0                       33,250

  Iran                    0                       27,100

  Russian Federation      35,000                  24,000

  Others                  142,906                 35,657

  TOTAL                   861,375                 719,683
  ----------------------- ----------------------- -----------------------

Refined exports, according to the WTA, were:

  ----------------------- ----------------------- -----------------------
  Metric tons, refined    2002/03                 2003/04
  sugar                                           

  Syria                   13,250                  53,850

  Madagascar              43,239                  45,104

  Kenya                   41,697                  38,644

  Mauritius               27,117                  29,327

  Angola                  8,935                   12,822

  Tanzania                14,377                  12,778

  Ghana                   14,036                  12,277

  Nigeria                 7,815                   12,140

  Iran                    15,010                  12,000

  Other                   171,436                 57,923

  TOTAL                   356,912                 286,865
  ----------------------- ----------------------- -----------------------

# Policy

The 2003/04 season was a financial disaster. High freight rates and low
world sugar prices compounded the disappointment of low yields. The mean
New York No. 11 sugar price for the past season was 6.43 US cents per
pound, which was the lowest season average world price since the 1999/00
season. The mean average exchange rate for the season was R7.15/US\$,
again the strongest exchange rate since the 1999/00 season. The world
sugar price thus averaged \$144/ton or R1013/metric ton.

The cane price for the season was R169/ton while 8.44 tons of cane was
needed to produce a ton of sugar. The cane cost alone thus amounted to
R1426/ton of sugar. Payments to growers are on a recoverable value
basis, which is then converted to a cane price. Recent prices were:

  ----------------------- ----------------------- -----------------------
  Rand/metric ton         Recoverable value       Cane price

  2000/2001               1105.00                 130.50

  2001/2002               1352.14                 160.23

  2002/2003               1368.79                 171.78

  2003/2004               1357.01                 169.08

  2004/2005, August 2004  1278.47                 155.60
  ----------------------- ----------------------- -----------------------