Required Report - public distribution

**Date:** 4/27/2005

**GAIN Report Number:** EC5003

EC5003

**Ecuador**

**Sugar**

**Annual Report**

**2005**

**Approved by:**

![](media/image1.wmf)Melinda D. Sallyards

U.S. Embassy

**Prepared by:**

Rene A. Alarcon

**Report Highlights:**

Ecuador\'s sugar production in MY 2006 will be reduced by approximately
6 percent (29,000 MT) to 468,000 MT (Raw Sugar Value) due to the
prevalence of dry conditions in production areas during early-plant
development stages. PSD data for MY 2005 has been revised to represent
actual results from that period.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Quito \[EC1\]

\[EC\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Production 6](#production)

[Consumption 7](#consumption)

[Trade 8](#trade)

[Policy 9](#policy)

# Executive Summary

Cane sugar production for Marketing Year 2005 (June 2004/May 2005) has
reached 497,000 MT (Raw Sugar Value), slightly up from last year's
491,000 MT RSV. Marketing Year 2006 production is forecasted to reach
468,000 MT RSV due to adverse weather conditions. Consumption of sugar
in Ecuador is increasing slowly, mainly driven by demand of specialty
sugars for candy, chocolates and soft drinks. Ecuador has become a sugar
importer and exporter mainly from Colombia and to Colombia and Peru.
Some Asian countries also represent seasonal markets for Ecuadorian
sugar. If the trend continues, Ecuador will be importing some 15,000 MT
RSV of refined sugars, and exporting 61,000 MT RSV of sugar, including
some 11,500 MT or raw sugar to the U.S. sugar TRQ.

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

  **Country**       **Ecuador**                                                            

  **Commodity**     **Sugar Cane                                     (1000                 
                    for                                              HA)(1000              
                    Centrifugal**                                    MT)                   

                    2004            Revised    2005       Estimate   2006       Forecast   UOM

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

  **Market Year                     06/2003               06/2004               06/2005    MM/YYYY
  Begin**                                                                                  

  Area Planted      76              76         0          75         0          73         (1000 HA)

  Area Harvested    69              68         0          67         0          67         (1000 HA)

  Production        5300            5300       0          5145       0          4836       (1000 MT)

  TOTAL SUPPLY      5300            5300       0          5145       0          4836       (1000 MT)

  Utilization for   5300            5300       0          5145       0          4836       (1000 MT)
  Sugar                                                                                    

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

  TOTAL UTILIZATION 5300            5300       0          5145       0          4836       (1000 MT)
  ----------------- --------------- ---------- ---------- ---------- ---------- ---------- ---------

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

  **Country**          **Ecuador**                                                            

  **Commodity**        **Sugar,                                         (1000 MT)             
                       Centrifugal**                                                          

                       2004            Revised    2005       Estimate   2006       Forecast   UOM

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

  **Market Year                        06/2003               06/2004               06/2005    MM/YYYY
  Begin**                                                                                     

  Beginning Stocks     100             100        63         63         58         79         (1000 MT)

  Beet Sugar           0               0          0          0          0          0          (1000 MT)
  Production                                                                                  

  Cane Sugar           491             491        496        497        0          468        (1000 MT)
  Production                                                                                  

  TOTAL Sugar          491             491        496        497        0          468        (1000 MT)
  Production                                                                                  

  Raw Imports          0               0          0          0          0          0          (1000 MT)

  Refined Imp.(Raw     21              21         16         16         0          15         (1000 MT)
  Val)                                                                                        

  TOTAL Imports        21              21         16         16         0          15         (1000 MT)

  TOTAL SUPPLY         612             612        575        576        58         562        (1000 MT)

  Raw Exports          12              12         12         11         0          11         (1000 MT)

  Refined Exp.(Raw     85              85         50         36         0          50         (1000 MT)
  Val)                                                                                        

  TOTAL EXPORTS        97              97         62         47         0          61         (1000 MT)

  Human Dom.           452             452        455        450        0          452        (1000 MT)
  Consumption                                                                                 

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

  Total Disappearance  452             452        455        450        0          452        (1000 MT)

  Ending Stocks        63              63         58         79         0          49         (1000 MT)

  TOTAL DISTRIBUTION   612             612        575        576        0          562        (1000 MT)
  -------------------- --------------- ---------- ---------- ---------- ---------- ---------- ---------

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

  **Country**              Ecuador                       

  **Commodity**            Sugar,                        
                           Centrifugal                   

  Time Period              Jan-Dec       Units:          MT (raw val)

  Exports for:             2003                          **2004**

  U.S.                     22388         U.S.            0

  Others                                 Others           

  Colombia                 27174         Peru            57331

  Egypt                    12301         Venezuela       10700

  Sri Lanka                1992                           

  Italy                    23                             

  Total for Others         41490                         68031

  Others not Listed                                      1370

  Grand Total              63878                         69401
  ------------------------ ------------- --------------- ------------------

  ------------------------- ------------- -------------- ------------------
  **Import Trade Matrix**                                

  **Country**               Ecuador                      

  **Commodity**             Sugar,                       
                            Centrifugal                  

  Time Period               Jan-Dec       Units:         MT (raw val)

  Imports for:              2003                         **2004**

  U.S.                      0             U.S.           0

  Others                                  Others          

  Colombia                  8576          Colombia       17643

                                                          

                                                          

                                                          

  Total for Others          8576                         17643

  Others not Listed         214                          856

  Grand Total               8790                         18499
  ------------------------- ------------- -------------- ------------------

  ----------------------- ------------- ------------------------ ------------
  **Prices Table**                                               

  **Country**             Ecuador                                

  **Commodity**           Sugar,                                 
                          Centrifugal                            

  Prices in               USD           per uom                  50Kg

  Year                    2003          2004                     \% Change

  Jan                     22            22.17                    1%

  Feb                     22            22.17                    1%

  Mar                     22            22.22                    1%

  Apr                     22.17         22.22                    0%

  May                     22.17         22.22                    0%

  Jun                     22.15         22.22                    0%

  Jul                     22.15         22.22                    0%

  Aug                     22.15         22.22                    0%

  Sep                     22.17         22.25                    0%

  Oct                     22.2          22.25                    0%

  Nov                     22.2          22.25                    0%

  Dec                     22.2          22.25                    0%

  Exchange Rate           1             Local Currency/US \$     

  Note: Wholesale Price                                          
  Guayaquil                                                      
  ----------------------- ------------- ------------------------ ------------

# Production

Cane sugar production in Ecuador reached 497,000 MT, Raw Sugar Value
(RSV), in MY 2005 (June 2004/May 2005), representing a slight increase
of 6,000 MT compared to MY 2004. The increased production results from
of higher levels of sucrose content per metric ton of sugar cane: An
average of 203 pounds per MT and 11 pounds higher than the previous
year. This increase in concentration is given by a prevalence of drier
weather conditions and more sunlight hours during the later months close
to the start of the harvest season (May--June). This explains why sugar
production in MY 2005 was higher than that of MY 2004 despite reduced
harvested area and cane production.

For the upcoming MY 2006 starting in June of 2005, sugar production is
expected to decrease by approximately 6 percent to 468,000 MT RSV, due
to continued dry conditions during the early-growth stages of sugar cane
plants. On average, for the period December-March of 2005, rainfalls
reached 14.9 inches, while the average of the past four years has been
32.5 inches. In addition the current excess of rains will determine that
some 6,000 Ha will not be harvested due to excess of humidity and low
sugar content. The harvest season is expected to start in late June or
mid-July of 2005.

Sugar is a basic product and is considered one of the main products
referred to as "basic foods", which are used for the calculation of
inflation indexes. Because of its social significance, cane sugar prices
are fairly stable from year to year, with wholesale averages of \$22.12
and \$22.22 per 50-Kg bag for 2003 and 2004, respectively. Production
cost is \$15 on average, and sale price in the mills is \$21 per 50-Kg
bag. At the retail level, the price can be as high as 25 cents per
pound, or \$27.5 per 50-kilogram bag.

![](media/image2.wmf)

# Consumption

Domestic cane sugar consumption, including sugar for industrial
purposes, is currently placed at 450,000 MT RSV for MY 2005. For the
upcoming MY 2006, a small increase to 452,000 MT RSV is estimated. In
addition, there is a trend towards increased use of high quality refined
sugars for production of soft drinks, juices and other drinks. On the
other hand, consumption of the candy and chocolate industries, which use
some 60 percent of specialty sugars, has kept pace with the domestic
consumption of sugar. Sugar mills are aware of this market niche for
specialty sugars, and are currently producing these products for the
local industry. Additional demand for high quality sugars is also driven
by an increased demand by hotels, restaurants, and international food
franchises.

From Ecuador's sugar consumption, it is estimated that 82 percent of
sugar is consumed directly by humans in the form of white or brown
sugar, and the remaining 18 percent corresponds to industrial use.
Modernization of the retail sector followed by changes in consumer
preferences, comfort levels, as well as space limitations at Ecuadorian
homes has shifted demand towards smaller, lighter presentations of white
sugar for direct human consumption. Today, retailers make approximately
62 percent of sugar sales in smaller bags of 1, 2, 5 or 10 kilos. The
remaining 38 percent of sugar for direct human consumption is marketed
through wholesalers in 50-Kg bags.

## 

![](media/image3.wmf)

# Trade

Ecuador has become both a sugar importer and exporter. For MY 2005 (June
2004/May 2005), imports are forecasted at 16,000 MT RSV of refined
sugars, including specialty sugar INCUMSA 45 for beverage industries,
and white refined sugars for candy and chocolate industries. Roughly 98
percent of these imports originate in Colombia, since Ecuador grants 100
percent tariff preference to Colombia as a member of the Andean
Community. For the upcoming MY 2006, Ecuador is expected to import
15,000 MT RSV of refined and specialty sugars. This type of imports are
expected to continue decreasing as Ecuador's sugar industry has started
supplying industries with refined sugars during MY 2005.

![](media/image4.wmf)

As for exports, Ecuador is expected to have exported 47,000 MT RSV of
both raw and white sugar by the end of MY 2005 (May, 2005), which
includes 11,300 MT of raw sugar under the U.S. Sugar Quota. Given
increased sugar production and nonexistent exports to Colombia in MY
2005, Ecuador has stocks exceeding 79,000 MT, roughly two months of
national consumption.

For the upcoming MY 2006, total sugar exports are forecasted at 61,000
MT RSV. Ecuador will continue to export at least 30,000 MT RSV to Peru
under the Bilateral Agreement for Trade Promotion. Depending on prices
and stocks in Colombia, Ecuador may also export sugar for use in
Colombia's southern border. There is an additional opportunity for sugar
exports to Indonesia, and finally, Ecuador will manage to fill the U.S.
raw sugar quota of 11,500 MT.

# Policy

The Government of Ecuador allows duty-free imports from fellow Community
of Andean Nations (CAN) countries. Imports originating in countries
other than CAN are assessed a 15 percent base tariff, and a variable
"price band" levy. The variable levy for white sugar (17019900) ranged
from 0% to 25% during calendar year 2004. Sugar imports have a
WTO-approved bound tariff of 45%, including additional price band
duties.

Although sugar has been part of MERCOSUR negotiations, Ecuador has
excluded raw and white sugar from the 15-year tariff liberalization
process that started in March of 2005. In turn, there is a special
clause by which sugar could start a 15-year liberalization process only
if and when Ecuador agrees to do so with each of its MERCOSUR partners.
Even after tariff liberalization, sugar imports shall continue to pay
the variable levy born in the price band.

As an alternative to fuels from oil origin, Ecuador's sugar mills have
proposed a project to produce ethanol from sugar cane to mix with
gasoline and distribute for automotive use. This project proposal has
the intention of reducing pollution in cities like Quito and Guayaquil.
A first step has been taken and a Presidential decree authorized the
execution of the project. Sugar mills would produce 70,000 liters of
ethanol per day, which in Ecuador is mainly produced from molasses.
There is not a final decision on how to implement the project, so
results are not expected in the short term.

Sugar farmers and millers do not participate of any export subsidies or
price regulation programs. However, farmers can get loans from
Ecuadorian development bank with preferential interest rates to purchase
seeds and machinery.