""

Required Report - public distribution

**Date:**10/21/2003

**GAIN Report Number:** RS3034

RS3000

**Russian Federation**

**Sugar**

**Semi-Annual**

**2003**

**Approved by:**

![](media/image1.wmf)Allan Mustard

U.S. Embassy, Moscow

**Prepared by:**

Mark Petry and Mikhail Maximenko

**Report Highlights:**

Raw sugar imports lower than in 2002 reduced sugar stocks and caused
prices to increase this spring. Imports of raw sugar will continue
falling under pressure of sugar processors and heavy yields of the 2003
harvesting season. Domestic sugar beet producers are demanding a
reduction of the TRQ or a significant high flat import duty on raw sugar
for 2004.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Semi-Annual Report

Moscow \[RS1\]

\[RS\]

**Table of Contents**

[Executive Summary 3](#executive-summary)

[Production 3](#production)

[Refined sugar production 3](#refined-sugar-production)

[Agricultural machinery 4](#agricultural-machinery)

[Consumption 4](#consumption)

[Trade 5](#trade)

[Table 1: Raw sugar imports and export prices, January 2001-June 2003.
5](#table-1-raw-sugar-imports-and-export-prices-january-2001-june-2003.)

[Prices 5](#prices)

[Table 2. Retail sugar prices\*, January 2001-August 2003
5](#table-2.-retail-sugar-prices-january-2001-august-2003)

[Stocks 5](#stocks)

[Policy 5](#policy)

[Cooperation within the Commonwealth of Independent States (CIS).
6](#cooperation-within-the-commonwealth-of-independent-states-cis.)

# Executive Summary

Russian raw sugar imports decreased significantly this year. Russia
imported about 3 MMT of raw sugar in the first nine months of FY2003
according to the Russian State Statistics Committee. That is 35 percent
less than in the same period of 2002. Beet sugar production in FY2004
(planted in the spring of 2003 and processed in October --December 2003)
is expected to exceed significantly last year level because of increased
sugar beet acreage and good yields this season. Nevertheless it will not
compensate for fall of raw sugar imports, and white sugar stocks
significantly decreased as a result. No new plans issued with regard to
sugar imports regime for 2004 up to now. Imports of raw sugar will
continue to fall under pressure of sugar processors lobbing for reduced
imports, and heavy yields. Domestic sugar producers, many of them
foreign owned, and Ministry of agriculture are demanding a reduction of
the TRQ or a significant high flat imports duty on raw sugar.

Raw sugar imports lower than in 2002 reduced stocks, and retail sugar
prices increased this spring as a result.

# Production

Sugar beet acreage increased in the planting season of 2003 up to one
million hectares or by eleven percent over 2002. In part this increase
was explained by winter wheat replanting after the cold winter.

By the beginning of October 66 percent of sugar beet area had been
harvested and 14MMT collected. Average yield was 23.1 MT/hectare, which
is 1.9 MT/ha more than the last year.

Refineries pay about 1,000 rubles per/MT of sugar beets.

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

  **Country**      **Russian                                                             
                   Federation**                                                          

  **Commodity**    **Sugar                                         (1000                 
                   Beets**                                         HA)(1000              
                                                                   MT)                   

                   2002           Revised    2003       Estimate   2004       Forecast   UOM

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

  **Market Year                   09/2001               09/2002               09/2003    MM/YYYY
  Begin**                                                                                

  Area Planted     930            930        900        900        1000       1000       (1000 HA)

  Area Harvested   910            910        800        800        920        950        (1000 HA)

  Production       16300          16300      15500      15500      17000      18000      (1000 MT)

  TOTAL SUPPLY     16300          16300      15500      15500      17000      18000      (1000 MT)

  Utilization for  16300          16300      15500      15500      17000      18000      (1000 MT)
  Sugar                                                                                  

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

  TOTAL            16300          16300      15500      15500      17000      18000      (1000 MT)
  UTILIZATION                                                                            
  ---------------- -------------- ---------- ---------- ---------- ---------- ---------- ---------

## Refined sugar production 

Sugar production was 12 percent lower in Russia in the first half of
2003 in comparison with the same period of 2002. Russia produced 4.5
million tons of sugar from raw sugar and 1.6 million tons from sugar
beet in CY 2002, compared to respectively 4.9 million and 1.6 million
tons in CY 2001. The country\'s sugar needs are estimated at 5.5 million
to 5.7 million tons per year.

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

  **Country**      **Russian                                                              
                   Federation**                                                           

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

                   2002            Revised    2003       Estimate   2004       Forecast   UOM

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

  **Market Year                    10/2001               10/2002               10/2003    MM/YYYY
  Begin**                                                                                 

  Beginning Stocks 3100            3100       2130       2130       1350       1050       (1000 MT)

  Beet Sugar       1630            1630       1580       1580       1700       1800       (1000 MT)
  Production                                                                              

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

  TOTAL Sugar      1630            1630       1580       1580       1700       1800       (1000 MT)
  Production                                                                              

  Raw Imports      4600            4600       4100       3500       4100       3500       (1000 MT)

  Refined Imp.(Raw 250             250        400        400        300        300        (1000 MT)
  Val)                                                                                    

  TOTAL Imports    4850            4850       4500       3900       4400       3800       (1000 MT)

  TOTAL SUPPLY     9580            9580       8210       7610       7450       6650       (1000 MT)

  Raw Exports      10              10         10         10         10         10         (1000 MT)

  Refined Exp.(Raw 400             400        250        250        200        100        (1000 MT)
  Val)                                                                                    

  TOTAL EXPORTS    410             410        260        260        210        110        (1000 MT)

  Human Dom.       7040            7040       6600       6300       6200       6000       (1000 MT)
  Consumption                                                                             

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

  Total            7040            7040       6600       6300       6200       6000       (1000 MT)
  Disappearance                                                                           

  Ending Stocks    2130            2130       1350       1050       1040       540        (1000 MT)

  TOTAL            9580            9580       8210       7610       7450       6650       (1000 MT)
  DISTRIBUTION                                                                            
  ---------------- --------------- ---------- ---------- ---------- ---------- ---------- ---------

Production cost per one hectare of sugar beets was 12,391 rubles (
\$400) in 2002. Production cost per 1MT of sugar beets was 630 Rubles
(\$20) the same year.

## Agricultural machinery 

Production of sugar beets in Russia was barely profitable last year
though preliminary reports indicate, that sugar beets will be the most
profitable crop for farmers this season. Nevertheless agricultural
machinery in Russian agriculture as a whole, and in beet farming in
particular, is extremely worn out on the majority of farms. Most loans
to buy machinery are extended for a maximum of three years. Therefore,
in order to update the machinery of Russian agriculture and bring it to
a qualitatively new level, five to seven years will be needed with a
high degree of protection from imports for the sugar industry, sugar
market expert believe.

Big refining companies reported significant improvement in availability
of sugar beet planting and harvesting machinery on beet supplying farms.
That is helping them to manage harvesting in a timely manner despite the
heavy sugar beet production this fall.

# Consumption

Sugar consumption decreased as a result of price increases. Some home
sugar utilization became unprofitable (fruit processing and production
of homemade alcohol).

# Trade

Russian State Customs Committee reported that sugar imports in the
period of October 2002 --June 2003 were about three million metric tons.
That is 35 percent less than in the same period of 2002.

## Table 1: Raw sugar imports and export prices, January 2001-June 2003.

  ---------- ---------- ---------- ---------- ---------- ---------- ----------
  Quarter    2001                  2002                  2003       

             1,000MT    Price,     1,000MT    Price,     1,000MT    Price,
                        \$/MT                 \$/MT                 \$/MT

  QI         1,337      243        1,006      195        812        222

  QII        2,009      226        2.302      216        1,489      217

  QIII       980        220        709        186        N.a        N.a

  QVI        1,083      189        413        198        N.a        N.a
  ---------- ---------- ---------- ---------- ---------- ---------- ----------

Source: Russian State Customs Committee Publications

## Prices 

After a long period of stability, white sugar prices on the Russian
market have grown from 15 rubles per kilo in May 2002 tol 20.70 rubles
per kilo in March 2003. Since then prices declined to some extent and
reached 19.90 rubles in August 2003.

## Table 2. Retail sugar prices\*, January 2001-August 2003

  ----------------- ----------------- ----------------- -----------------
                    2001              2002              2003

  January           15.91             15.18             19.83

  February          no data           15.15             20.42

  March             15.97             no data           20.70

  April             no data           15.03             20.62

  May               no data           14.96             20.39

  June              15.44             no data           20.16

  July              15.58             17.71             20.08

  August            15.72             no data           19.90

  September         no data           17.23             Not applicable

  October           15.20             17.99             Not applicable

  November          14.92             18.91             Not applicable

  December          14.88             19.47             Not applicable
  ----------------- ----------------- ----------------- -----------------

Source: Russian "Trade Newspaper"

\*Exchange rate ranged between 30.30-32.00 rubles/\$

# Stocks

The decrease in raw sugar imports reduced sugar stocks in Russia to more
reasonable levels.

# Policy

Russia may introduce a fixed tariff for imports of raw sugar in 2004
instead of a tariff rate quota system. The Ministry of Economic
Development and Trade proposed to set a flat tariff for raw sugar
imports beginning in 2004. The proposal is being discussed with
interested departments and sugar producers. The final decision would be
reached during a meeting of the government commission for trade
protection and tariff policy. A tariff rate quota currently restricts
supplies of raw sugar to Russia. This amounted to 3.65 million tons in
2001 and 2002 and this year to 3.95 million tons. Meanwhile, delays in
deciding on a sugar regime for 2004 are seriously complicating the
situation on the country's sugar market.

Most sugar market operators favor the tariff rate quota that should be
distributed among sugar beet processors in accordance with their share
in sugar beet processing. Sugar processors and traders met with Minister
of Agriculture Aleksey Gordeyev, and agreed, that there should be a 3-4
year transition period, and that the 2004 quota would be 3.0-3.2MMT. The
customs duty within TRQ is proposed to be 170-180 Euro/MT , while raw
sugar will be subject to a 230 Euro/MT imports duty. If no government
resolution is issued on raw sugar imports, the tariff on raw sugar will
be 90 Euro/MT beginning January 1, 2004 versus 230Euro/MT now.

Commenting on the possibility that companies from Belarus might
participate in the Russian sugar auction, sugar experts believe that it
is necessary to ensure equal rules of the game for all participants,
which presupposes the absence of any preferences or special concessions
on the part of the Belarus government for its companies. The Russian
Sugar Producers Union favors a draft governmental resolution that
envisions the participation of Belarus companies in auctions in case
they happen. Sugar made from quota raw material could be sold on both
countries' markets and the quota presupposes a volume of raw material
that would allow for eliminating both countries' deficits in sugar.

## Cooperation within the Commonwealth of Independent States (CIS).

CIS member states are trying to harmonize production and sugar trade.
The proposal for putting together a program for a unified sugar market
in the CIS includes unification of customs laws and the creation of
mutually advantageous customs regimes, a single tariff policy for
product transport, unifying the systems of taxation, standardization and
certification. The CIS countries produced 8.9 million tons of sugar last
year, including 3.4 million tons from sugar beet. There was a 1.1
million-ton sugar shortfall, as need for the commodity was estimated at
10 million tons annually.