Required Report - public distribution

**Date:** 10/1/2004

**GAIN Report Number:** CH4044

C

**China, Peoples Republic of**

**Sugar**

**Semi- Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Maurice House

U.S. Embassy, Beijing

**Prepared by:**

James Butterworth and Jiang Junyang

**Report Highlights:**

The MY2004/2005 sugar output forecast has been revised upward to 11.24
MMT (raw value) from Post's previous forecast of 10.57 MMT as a result
of higher cane acreage and better yields for both cane and beet. Despite
increased output, consumption continues to outpace domestic production.
Post's MY04/05 import forecast is unchanged from its April\'s report,
staying at the same level as during the previous marketing year.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Semi-Annual Report

Beijing \[CH1\]

\[CH\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Sugar Cane 3](#sugar-cane)

[Sugar beet 4](#sugar-beet)

[Stocks 5](#stocks)

[Trade 6](#trade)

[Tables 7](#tables)

[Production, Supply and Demand (PSD) Tables
7](#production-supply-and-demand-psd-tables)

[Table 1. Centrifugal Sugar 7](#table-1.-centrifugal-sugar)

[Table 2. Sugar Cane 8](#table-2.-sugar-cane)

[Table 3. Sugar Beet 8](#table-3.-sugar-beet)

# Executive Summary

The overall sugar output forecast for MY04/05 has been revised upward to
11.24 MMT (raw value) from Post's April forecast of 10.57 MMT. The sugar
output estimate for MY03/04 has been revised to 10.73 MMT from April's
estimate of 10.61 MMT. Because of favorable weather conditions in
MY04/05, the yields for both sugar cane and sugar beet crops are
expected to be higher than the previous year. Sugar consumption rises
steadily and continues to outpace domestic production. Because of the
expected increase in sugar output, sugar imports for MY04/05 are
forecast at 1.2 MMT, staying at the same level as the previous market
year.

Note: The exchange rate is fixed at RMB 8.26 per US\$1.

# Sugar Cane

The sugar cane area for MY04/05 is forecast at 1.45 million HA, which is
about 3 percent higher than Post's previous forecast. In the major
producing provinces, including Guangxi, Yunnan, and Guangdong, sugar
cane remains the most reliable income source on marginal lands
unsuitable for grain or vegetables. Guangxi province remains the
dominant producing province. Its sugar output accounted for nearly 60
percent of national total in MY03/04. The provincial government,
however, has proposed to reduce cane planted area by about 20 percent
over the next four years by encouraging farmers to shift to more
profitable crops. Farmers' choices, however, are limited due to
restraints, such as land fertility and a limited water supply. Industry
sources and government officials agree that sugar cane acreage in
Guangxi increased in 2004. Their estimates of growth, however, range
between 2 and 8 percent. According to the provincial agricultural
bureau, actual sugar cane acreage in 2004 reached a record high of
685,300 HA in the province.

In the major sugar cane production regions, local governments issue a
guidance purchase price for sugar cane each November before the crushing
season starts. As of the date of this report, local governments have not
announced any guidance price as a reference for millers. In anticipation
of a higher domestic sugar price in the coming market year, some millers
in Guangxi already have promised farmers that the purchase price for
sugar cane would be higher than RMB180/MT, or RMB10 higher than the
previous marketing year. Besides promising a higher floor price, some
millers also prepay some inputs, such as fertilizer, pesticides, and
transportation fees for the farmers to encourage more acreage.

Industry sources in Guangxi estimate that yield in MY04/05 will be
higher than recent years' average of 63 MT/HA. So far, weather
conditions in the major sugar cane producing regions have been favorable
for all the growth stages of the crop in Southern China.

The table below shows the guidance prices on sugar cane set by
provincial governments in the southern sugar cane production region

  ------------ ----------------- ----------- -------------- -----------------
  Purchase                                                  
  Price on                                                  
  Sugar Crops                                               
  in Major                                                  
  Production                                                
  Provinces                                                 

  (RMB Per                                                  
  Metric Ton,                                               
  USD 1.00 =                                                
  RMB 8.26)                                                 

               Guangxi           Yunnan      Guangdong      Hainan

  MY00/01      206               151         200            165

  MY01/02      186               139         175            170

  MY02/03      160               130         140            150

  MY03/04      170               145         175            150

  MY04/05      180               NA          NA             NA
  ------------ ----------------- ----------- -------------- -----------------

# Sugar beet 

The forecast for planted sugar beet area for MY04/05 has been revised to
220,000 Ha, 24 percent lower than Post's previous forecast made in its
April annual report. According to National Statistical Bureau data,
planted acreage for MY03/04 is also revised downward to 248,000 HA,
which is 27 percent lower that Post's April estimate. The continued
decline in sugar beet acreage in recent years is mostly attributable to
increasing profits for alternative crops, such as cotton, oil seeds and
vegetables in the northern production regions.

There has been no government-set guidance price for sugar beets in
northern China. The sugar beet market purchase price averaged RMB210/MT
in MY03/04. Industry sources expect that in MY04/05 the market sugar
beet purchase price will average about RMB240/MT in three major
production provinces including Xinjiang, Heilongjiang and Inner
Mongolia.

Sugar beet output in MY2004/2005 is forecast at 6.9 MMT, which is 15
percent lower than Post's April forecast. Industry sources estimate that
the sugar beet yield in MY04/05 will be higher than the recent average
of 30 MT/ha because of favorable weather in northern China this year.
According to preliminary estimate by the Ministry of Agriculture, the
sugar beet yield in MY03/04 dropped by 18 percent from 30 MT/ha to 25
MT/ha because of drought during the planting season and excessive rain
at harvest.

**Sugar**

The overall sugar production forecast for MY04/05 has been revised
upward to 11.24 MMT (raw value) from Post's April forecast of 10.57 MMT.
The total sugar output estimate for 03/04 has been revised to 10.73 MMT
from April's estimate of 10.61 MMT because cane sugar production has
been revised upward to 10.09 MMT from 9.97 MMT. Beet sugar output in
MY03/04 is unchanged from Post's April estimate.

Cane sugar output for MY04/05 has been revised upward to 10.56 MMT (raw
value), up by 6 percent from April's forecast of 9.97 MMT. Beet sugar
output for MY04/05 has been revised upward by 13 percent to 680,000 MT
(raw value) from April's forecast of 600,000 MT.

Industry sources expect that favorable weather conditions in both the
sugar cane and sugar beet producing regions will lead to increased
yields for the both crops. Consequently, Post has revised upward the
forecast for MY04/05 sugar output.

+------------+-----------------+------------------+--------------------+
| *          |                 |                  |                    |
| *Wholesale |                 |                  |                    |
| Price of   |                 |                  |                    |
| Grade One  |                 |                  |                    |
| Granulated |                 |                  |                    |
| Sugar at   |                 |                  |                    |
| Guangxi    |                 |                  |                    |
| Sugar      |                 |                  |                    |
| Exchange   |                 |                  |                    |
| Market**   |                 |                  |                    |
|            |                 |                  |                    |
| **RMB/MT ( |                 |                  |                    |
| US\$       |                 |                  |                    |
| 1.00=      |                 |                  |                    |
| RMB8.26)** |                 |                  |                    |
+------------+-----------------+------------------+--------------------+
| **Month**  | **2002**        | **2003**         | **2004**           |
+------------+-----------------+------------------+--------------------+
| *          | 2,858           | 2,280            | 2,548              |
| *January** |                 |                  |                    |
+------------+-----------------+------------------+--------------------+
| **         | 2,759           | 2,358            | 2,502              |
| February** |                 |                  |                    |
+------------+-----------------+------------------+--------------------+
| **March**  | 2,707           | 2,439            | 2,666              |
+------------+-----------------+------------------+--------------------+
| **April**  | 2,628           | 2,376            | 2,781              |
+------------+-----------------+------------------+--------------------+
| **May**    | 2,813           | 2,310            | 2,839              |
+------------+-----------------+------------------+--------------------+
| **June**   | 2,815           | 2,265            | 2,896              |
+------------+-----------------+------------------+--------------------+
| **July**   | 2,744           | 2,140            | 2,870              |
+------------+-----------------+------------------+--------------------+
| **August** | 2,616           | 2,120            | 2,943              |
+------------+-----------------+------------------+--------------------+
| **S        | 2,652           | 2,247            | 3,185              |
| eptember** |                 |                  |                    |
+------------+-----------------+------------------+--------------------+
| *          | 2,653           | 2,328            |                    |
| *October** |                 |                  |                    |
+------------+-----------------+------------------+--------------------+
| **         | 2,483           | 2,577            |                    |
| November** |                 |                  |                    |
+------------+-----------------+------------------+--------------------+
| **         | 2,331           | 2,598            |                    |
| December** |                 |                  |                    |
+------------+-----------------+------------------+--------------------+
|            |                 |                  |                    |
+------------+-----------------+------------------+--------------------+
| **Yearly   | 2,671           | 2,337            | 2,803 /to date     |
| Average**  |                 |                  |                    |
+------------+-----------------+------------------+--------------------+
|            |                 |                  |                    |
+------------+-----------------+------------------+--------------------+
| **Source:  |                 |                  |                    |
| Guangxi    |                 |                  |                    |
| Sugar      |                 |                  |                    |
| Exchange   |                 |                  |                    |
| Center**   |                 |                  |                    |
+------------+-----------------+------------------+--------------------+
| **Website: |                 |                  |                    |
| [w         |                 |                  |                    |
| ww.chinasu |                 |                  |                    |
| garmarket. |                 |                  |                    |
| com](http: |                 |                  |                    |
| //www.chin |                 |                  |                    |
| asugarmark |                 |                  |                    |
| et.com/)** |                 |                  |                    |
+------------+-----------------+------------------+--------------------+

**Consumption**

Consumption of sugar has risen steadily in recent years. Consumer
preference for natural sugar rather than artificial sugar is growing in
both urban and rural regions. The growth rate is estimated to be above 5
percent annually. Per capita sugar consumption in China in MY04/05 is
expected to exceed 8 kg.

China's soft drink output in the first six months of 2004 rose 24
percent from the same period last year to 14.23 MMT. Sugar containing
drinks rose 22.6 percent to 8.22 MMT, according to China Drinks and
Beverage Association.

# Stocks 

Ending stocks for MY03/04 are estimated at 2.31 MMT (raw value),
unchanged from the previous estimate. Stocks include state reserve and
provincial short-term reserve and those held by the industrial,
commercial and distribution sectors. The government-held stocks function
to keep the market stable. When commercial stocks are running low and
market price starts to rise high near the end of the market year,
government held stocks would be released.

In the second half of CY2004, the government decided to release 536,000
MT of granulated white sugar from state sugar reserves to curb the price
from rising further. The floor price, according to Ministry of Commerce
and National Development & Reform Commission is set at RMB 2,800/MT:
According to the regulation, whenever the market price falls below the
floor price (RMB2,800/MT), the government suspends auctions; in practice
this has never happened. Auctions are held each month from July to
September. The last or fourth auction of 2004 will be held in October
before the new crushing season starts.

**Saccharine**

Saccharine has been the major competitor for the marketing of natural
sugar. The government started strictly to control its production and
domestic sale since 2002. According to the China Sugar Association,
saccharine production target set by government is around 20,000 MT in
2004, of which 3,500 MT can be sold domestically. Each year, however,
the final actual domestic sale of saccharine has been higher than what
the government plans.

Figures from the Association show that saccharine production in the
first seven months of 2004 totaled 14,098 MT, of which 10,905 MT have
been exported. The final amount of domestic sale might again exceed the
government target by end of CY2004.

In coming years, as the government tightens enforcement on relevant food
additive regulations, misuse or overuse of saccharine in substandard
food or drinks is likely to decline.

# Trade

According to a longstanding trade agreement between Chinese and Cuban
governments, China imported 432,000 MT of raw sugar in 13 shipments from
Cuba by the end of July 2004. The last (14^th^) shipment (about 30,000
MT) will arrive later during this market year, according to trade
source. All the raw sugar from Cuba will enter the state reserves.

Sugar imports for MY04/05 are forecast at 1.20 MMT (raw value),
unchanged from Post's previous forecast. Although consumption continues
to exceed domestic production, MY04/05 imports are not expected to
increase significantly from MY03/04.

Customs data showed that China imported 1 MMT of sugar (raw value)
during Oct03-July04 period. Total sugar imports in MY03/04 are estimated
at 1.22 MMT, slightly higher than Post's previous estimate.

The Tariff Rate Quota (TRQ) for CY2004 was 1.95 MMT with a within-quota
tariff of 15 percent. CY 2004's TRQ is not expected to fill. The TRQ for
CY2005 and subsequent years will be unchanged from that in 2004 unless a
new agreement is reached between China and other countries in the WTO's
Doha Development Round.

(PSD tables follow on next page)

# Tables

## Production, Supply and Demand (PSD) Tables

### Table 1. Centrifugal Sugar

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

  **Country**       **China,                                                               
                    Peoples                                                                
                    Republic of**                                                          

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

                    2003            Revised    2004       Estimate   2005       Forecast   UOM

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

  **Market Year                     10-2002               10-2003               10-2004    MM/YYYY
  Begin**                                                                                  

  Beginning Stocks  869             869        2021       2021       2321       2311       (1000 MT)

  Beet Sugar        1327            1327       638        638        600        680        (1000 MT)
  Production                                                                               

  Cane Sugar        10053           10053      9972       10092      9970       10560      (1000 MT)
  Production                                                                               

  TOTAL Sugar       11380           11380      10610      10730      10570      11240      (1000 MT)
  Production                                                                               

  Raw Imports       710             710        800        1000       850        950        (1000 MT)

  Refined Imp.(Raw  132             132        400        220        350        250        (1000 MT)
  Val)                                                                                     

  TOTAL Imports     842             842        1200       1220       1200       1200       (1000 MT)

  TOTAL SUPPLY      13091           13091      13831      13971      14091      14751      (1000 MT)

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

  Refined Exp.(Raw  110             110        50         50         40         40         (1000 MT)
  Val)                                                                                     

  TOTAL EXPORTS     120             120        60         60         50         50         (1000 MT)

  Human Dom.        10950           10950      11450      11600      11965      12180      (1000 MT)
  Consumption                                                                              

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

  Total             10950           10950      11450      11600      11965      12180      (1000 MT)
  Disappearance                                                                            

  Ending Stocks     2021            2021       2321       2311       2076       2521       (1000 MT)

  TOTAL             13091           13091      13831      13971      14091      14751      (1000 MT)
  DISTRIBUTION                                                                             
  ----------------- --------------- ---------- ---------- ---------- ---------- ---------- ---------

### Table 2. Sugar Cane

  ----------------- --------------- ---------- ---------- ---------- ---------- ---------- ---------
  **Country**       **China,                                                               
                    Peoples                                                                
                    Republic of**                                                          

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

                    2003            Revised    2004       Estimate   2005       Forecast   UOM

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

  **Market Year                     10-2002               10-2003               10-2004    MM/YYYY
  Begin**                                                                                  

  Area Planted      1379            1393       1406       1409       1410       1450       (1000 HA)

  Area Harvested    1379            1393       1406       1409       1410       1450       (1000 HA)

  Production        83985           90107      84825      90235      90750      93800      (1000 MT)

  TOTAL SUPPLY      83985           90107      84825      90235      90750      93800      (1000 MT)

  Utilization for   83985           90107      84825      90235      90750      93800      (1000 MT)
  Sugar                                                                                    

  Utilization for   0               0          0          0          0          0          (1000 MT)
  Alcohol                                                                                  

  TOTAL UTILIZATION 83985           90107      84825      90235      90750      93800      (1000 MT)
  ----------------- --------------- ---------- ---------- ---------- ---------- ---------- ---------

### Table 3. Sugar Beet

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

  **Country**       **China,                                                          
                    Peoples                                                           
                    Republic                                                          
                    of**                                                              

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

                    2003       Revised    2004       Estimate   2005       Forecast   UOM

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

  **Market Year                10-2002               10-2003               10-2004    MM/YYYY
  Begin**                                                                             

  Area Planted      422        424        413        248        290        220        (1000 HA)

  Area Harvested    422        424        413        248        290        220        (1000 HA)

  Production        11433      12819      11090      6182       8100       6800       (1000 MT)

  TOTAL SUPPLY      11433      12819      11090      6182       8100       6800       (1000 MT)

  Utilization for   11433      12819      11090      6182       8100       6800       (1000 MT)
  Sugar                                                                               

  Utilization for   0          0          0          0          0          0          (1000 MT)
  Alcohol                                                                             

  TOTAL UTILIZATION 11433      12819      11090      6182       8100       6800       (1000 MT)
  ----------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------