""

Required Report - public distribution

**Date:** 10/20/2003

**GAIN Report Number:** AS3039

AS3039

**Australia**

**Sugar**

**Semi-Annual**

**2003**

**Approved by:**

![](media/image1.wmf)Andrew C. Burst, Agricultural Counselor

U.S. Embassy

**Prepared by:**

Mike Darby, Agricultural Specialist

**Report Highlights:**

Widespread drought across much of the Australian continent adversely
affected the outlook for Australia\'s sugar crop. Cane sugar production
in marketing year 2003/04 (July-June) is forecast to decline around 5
percent. Sugar exports are forecast to decline in 2003/04. The
Australian sugar industry remains in a state of financial hardship as
prices have fallen to their lowest levels in nearly 20 years. There has
been much public debate on sugar reform. However, little progress has
actually been achieved to date in terms of industry reforms.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Semi-Annual Report

Canberra \[AS1\]

\[AS\]

Table of Contents

[**SECTION I: SITUATION AND OUTLOOK
3**](#section-i-situation-and-outlook)

[SECTION II: STATISTICAL TABLES 4](#section-ii-statistical-tables)

[SECTION III: NARRATIVE ON SUPPLY, DEMAND, POLICY AND MARKETING
5](#section-iii-narrative-on-supply-demand-policy-and-marketing)

[Production 5](#production)

[Consumption 6](#consumption)

[Trade 6](#trade)

[Stocks 6](#stocks)

[Policy 7](#policy)

[Marketing 7](#marketing)

# SECTION I: SITUATION AND OUTLOOK

Widespread drought across much of the Australian continent, including
major sugar-producing areas in the State of Queensland, adversely
affected the outlook for Australia's sugar crop. Cane sugar production
in marketing year 2003/04 (July-June) is forecast to decline around five
percent compared to the previous year. However, Commercial Cane Sugar
(CCS) content is forecast at well above the five-year average and pushed
forecast production a little higher than previously expected (see GAIN
Report #AS3009, dated 4/11/03).

Sugar exports are forecast to decline in 2003/04, down eight percent on
the historically high estimate for the previous year, due to the smaller
crop. Malaysia, Japan and Korea remain Australia's top three export
destinations, taking nearly two-thirds of Australia's sugar exports,
with Canada the fourth largest export destination.

The Australian sugar industry remains in a state of financial hardship
as prices have fallen to their lowest levels in nearly 20 years.
Furthermore, pest and disease outbreaks reduced production in 2000/01
and 2001/02, while drought is expected to trim output in 2003/04.

Rainfall across much of Australia has returned to a more normal pattern.
Major sugar producing areas in Queensland, however, have yet to
experience a major break in the dry conditions.

There has been much public debate on sugar industry reform. The Federal
and Queensland state governments have signed a memorandum of
understanding, which outlines necessary industry reforms and
compensation. However, little progress has actually been achieved
to-date in terms of industry reform.

# SECTION II: STATISTICAL TABLES

+--------------------+-----+------+-----+------+-----+------+------+
| Australia          |     |      |     |      |     |      |      |
|                    |     |      |     |      |     |      |      |
| ######             |     |      |     |      |     |      |      |
|  Centrifugal Sugar |     |      |     |      |     |      |      |
+--------------------+-----+------+-----+------+-----+------+------+
|                    | **  | **R  | **  | **Es | **  | **Fo | **U  |
|                    | 200 | evis | 200 | tima | 200 | reca | OM** |
|                    | 2** | ed** | 3** | te** | 4** | st** |      |
+--------------------+-----+------+-----+------+-----+------+------+
|                    | **U | **   | **U | **   | **U | **   |      |
|                    | SDA | Post | SDA | Post | SDA | Post |      |
|                    | Of  | Esti | Of  | Esti | Of  | Esti |      |
|                    | fic | mate | fic | mate | fic | mate |      |
|                    | ial | \    | ial | \    | ial | \    |      |
|                    | \[O | [New | \[O | [New | \[O | [New |      |
|                    | ld\ | \]** | ld\ | \]** | ld\ | \]** |      |
|                    | ]** |      | ]** |      | ]** |      |      |
+--------------------+-----+------+-----+------+-----+------+------+
| #######            |     | **0  |     | **0  |     | **0  | #### |
|  Market Year Begin |     | 7/20 |     | 7/20 |     | 7/20 | #### |
|                    |     | 01** |     | 02** |     | 03** |  MM/ |
|                    |     |      |     |      |     |      | YYYY |
+--------------------+-----+------+-----+------+-----+------+------+
| **Beginning        | 634 | 634  | 657 | 507  | 743 | 463  | *(   |
| Stocks**           |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Beet Sugar       | 0   | 0    | 0   | 0    | 0   | 0    | *(   |
| Production**       |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Cane Sugar       | 4   | 4662 | 5   | 5371 | 4   | 5114 | *(   |
| Production**       | 662 |      | 350 |      | 900 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Sugar      | 4   | 4662 | 5   | 5371 | 4   | 5114 | *(   |
| Production**       | 662 |      | 350 |      | 900 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Raw Imports**    | 3   | 3    | 3   | 3    | 3   | 3    | *(   |
|                    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Refined Imp.(Raw | 2   | 2    | 2   | 2    | 2   | 2    | *(   |
| Val)**             |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Imports**  | 5   | 5    | 5   | 5    | 5   | 5    | *(   |
|                    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL SUPPLY**   | 5   | 5301 | 6   | 5883 | 5   | 5582 | *(   |
|                    | 301 |      | 012 |      | 648 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Raw Exports**    | 3   | 3499 | 4   | 4081 | 3   | 3753 | *(   |
|                    | 499 |      | 081 |      | 830 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Refined Exp.(Raw | 95  | 95   | 138 | 139  | 95  | 140  | *(   |
| Val)**             |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL EXPORTS**  | 3   | 3594 | 4   | 4220 | 3   | 3893 | *(   |
|                    | 594 |      | 219 |      | 925 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Human Dom.       | 1   | 1050 | 1   | 1200 | 1   | 1200 | *(   |
| Consumption**      | 050 |      | 050 |      | 050 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Other            | 0   | 0    | 0   | 0    | 0   | 0    | *(   |
| Disappearance**    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Total            | 1   | 1200 | 1   | 1200 | 1   | 1200 | *(   |
| Disappearance**    | 050 |      | 050 |      | 050 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Ending Stocks**  | 657 | 507  | 743 | 463  | 673 | 489  | *(   |
|                    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL            | 5   | 5301 | 6   | 5883 | 5   | 5582 | *(   |
| DISTRIBUTION**     | 301 |      | 012 |      | 648 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+

+------------------+------+-------+------+-------+------+-------+------+
| Australia        |      |       |      |       |      |       |      |
|                  |      |       |      |       |      |       |      |
| Sugar Cane for   |      |       |      |       |      |       |      |
| Centrifugal      |      |       |      |       |      |       |      |
+------------------+------+-------+------+-------+------+-------+------+
|                  | **20 | *     | **20 | **    | **20 | **    | **U  |
|                  | 02** | *Revi | 03** | Estim | 04** | Forec | OM** |
|                  |      | sed** |      | ate** |      | ast** |      |
+------------------+------+-------+------+-------+------+-------+------+
|                  | **   | *     | **   | *     | **   | *     |      |
|                  | USDA | *Post | USDA | *Post | USDA | *Post |      |
|                  | Offi | Est   | Offi | Est   | Offi | Est   |      |
|                  | cial | imate | cial | imate | cial | imate |      |
|                  | \    | \[Ne  | \    | \[Ne  | \    | \[Ne  |      |
|                  | [Old | w\]** | [Old | w\]** | [Old | w\]** |      |
|                  | \]** |       | \]** |       | \]** |       |      |
+------------------+------+-------+------+-------+------+-------+------+
| ####### M        |      | *     |      | *     |      | *     | #### |
| arket Year Begin |      | *07/2 |      | *07/2 |      | *07/2 | #### |
|                  |      | 001** |      | 002** |      | 003** |  MM/ |
|                  |      |       |      |       |      |       | YYYY |
+------------------+------+-------+------+-------+------+-------+------+
| **Area Planted** | 0    | 0     | 0    | 0     | 0    | 0     | *(   |
|                  |      |       |      |       |      |       | 1000 |
|                  |      |       |      |       |      |       | HA)* |
+------------------+------+-------+------+-------+------+-------+------+
| **Area           | 417  | 417   | 423  | 423   | 415  | 415   | *(   |
| Harvested**      |      |       |      |       |      |       | 1000 |
|                  |      |       |      |       |      |       | HA)* |
+------------------+------+-------+------+-------+------+-------+------+
| **Production**   | 3    | 32496 | 3    | 38062 | 3    | 36600 | *(   |
|                  | 2496 |       | 8062 |       | 6280 |       | 1000 |
|                  |      |       |      |       |      |       | MT)* |
+------------------+------+-------+------+-------+------+-------+------+
| **TOTAL SUPPLY** | 3    | 32496 | 3    | 38062 | 3    | 36600 | *(   |
|                  | 2496 |       | 8062 |       | 6280 |       | 1000 |
|                  |      |       |      |       |      |       | MT)* |
+------------------+------+-------+------+-------+------+-------+------+
| **Utilization    | 3    | 32436 | 3    | 38002 | 3    | 36540 | *(   |
| for Sugar**      | 2436 |       | 8002 |       | 6220 |       | 1000 |
|                  |      |       |      |       |      |       | MT)* |
+------------------+------+-------+------+-------+------+-------+------+
| **Utilizatn for  | 60   | 60    | 60   | 60    | 60   | 60    | *(   |
| Alcohol**        |      |       |      |       |      |       | 1000 |
|                  |      |       |      |       |      |       | MT)* |
+------------------+------+-------+------+-------+------+-------+------+
| **TOTAL          | 3    | 32496 | 3    | 38062 | 3    | 36600 | *(   |
| UTILIZATION**    | 2496 |       | 8062 |       | 6280 |       | 1000 |
|                  |      |       |      |       |      |       | MT)* |
+------------------+------+-------+------+-------+------+-------+------+

# SECTION III: NARRATIVE ON SUPPLY, DEMAND, POLICY AND MARKETING

## 

## Production

**Centrifugal Sugar:** Cane sugar production for 2003/04 is forecast at
5.1 million metric tons (MMT), up slightly from the previous forecast
(see GAIN Report #AS3009) and in line with the most recent figures from
the Australian Bureau of Agricultural and Resource Economics (ABARE). A
crop of this size would represent a five percent decline from estimated
production in the previous year.

Widespread drought across much of the Australian continent from late
2001 into the first half of 2003 affected some cane-growing regions by
reducing the cane crush. Industry sources report that a shortage in
irrigation water supplies in some growing areas will likely constrain
output in 2003/04. Post anticipates CCS content for 2003/04 at 13.7,
well above the five-year average of 12.6 percent derived from ABARE's
historical figures. While some regions in far north Queensland received
excellent precipitation, the Mackay area (traditionally one of the
largest producing areas) suffered from particularly severe drought.
These dry conditions still persist in some key sugar producing areas.

Cane sugar production for 2002/03 is estimated at 5.37 MMT, up slightly
on Post's previous forecast and in line with the most current ABARE
figures. This is well short of a record crop, but represents a return to
more normal production levels following the pest and disease outbreaks
in 2000/01 and 2001/02.

Post estimates cane sugar production in 2001/02 at 4.66 MMT, unchanged
from the previous estimate. This figure is in line with industry
figures, but below ABARE's estimate of 4.99 MMT. According to Post's
analysis, ABARE assumes a CCS level of 15.5 percent in 2001/02, an all
time record. While industry and government sources agree that CCS was
well above average in 2001/02, such a record raises doubts about the
level of raw sugar production. Post estimates CCS content at 14.3
percent in 2001/02, largely derived from industry figures.

ABARE's long-term projections have Australia's sugar production
increasing gradually to 5.85 MMT in 2007/08. ABARE expects this increase
to be contingent upon the Australian industry continuing to enact
various reforms, freedom from extreme weather conditions and continued
improvements in cane yield.

About 95 percent of Australia's sugar output is typically produced along
the east coast of the state of Queensland. The bulk of the remainder is
produced in New South Wales, with a small quantity produced in Western
Australia's Ord River region.

According to ABARE, Australia's largest sugar crop (since 1980/81) was
produced in 1997/98 (5.6 MMT) and the smallest in 1991/92 (3.0 MMT).

**Sugar Cane for Centrifugal:** The 2003/04 cane harvest is forecast at
36.6 MMT, down four percent from the previous year. Widespread drought
is responsible for the forecast decline in the cane harvest.

Post estimates the 2002/03 cane harvest at 38.1 MMT, unchanged from the
previous estimate. The cane harvest figure for 2001/02 remains at 32.496
MMT, in line with industry figures and also unchanged from Post's
previous report.

+---------------+--------+--------+--------+-------+-------+-------+
| **AUSTRALIAN  |        |        |        |       |       |       |
| SUGAR         |        |        |        |       |       |       |
| PRODUCTION    |        |        |        |       |       |       |
| STATISTICS**  |        |        |        |       |       |       |
|               |        |        |        |       |       |       |
| **(thousand   |        |        |        |       |       |       |
| metric        |        |        |        |       |       |       |
| tons)**       |        |        |        |       |       |       |
+---------------+--------+--------+--------+-------+-------+-------+
| **Category**  | **199  | **199  | **200  | *     | *     | *     |
|               | 8/99** | 9/00** | 0/01** | *2001 | *2002 | *2003 |
|               |        |        |        | /02** | /03** | /04** |
+---------------+--------+--------+--------+-------+-------+-------+
| **Cane        | 40,128 | 36,699 | 31,228 | 3     | 3     | 3     |
| Crushed**     |        |        |        | 2,260 | 8,062 | 6,600 |
+---------------+--------+--------+--------+-------+-------+-------+
| **Cane Price  | 26     | 24     | 22     | 30    | 26    | 22    |
| \$A/MT**      |        |        |        |       |       |       |
+---------------+--------+--------+--------+-------+-------+-------+
| **Sugar       | 4,998  | 5,448  | 4,162  | 4,987 | 5,371 | 5,114 |
| Prod.**       |        |        |        |       |       |       |
+---------------+--------+--------+--------+-------+-------+-------+
| **Total       | 3,961  | 4,131  | 2,966  | 3,594 | 4,219 | 3,893 |
| Exports**     |        |        |        |       |       |       |
+---------------+--------+--------+--------+-------+-------+-------+
| **Export      | 1,289  | 1,092  | 1,111  | 1,392 | 1,419 | 1,005 |
| Value Million |        |        |        |       |       |       |
| \$A**         |        |        |        |       |       |       |
+---------------+--------+--------+--------+-------+-------+-------+

Note: July-June years.

Source: ABARE

## Consumption

Post has revised consumption upwards across the time series to 1,200
TMT. Official statistics are not available for sugar stocks. Post
derives stocks and consumption numbers from production and export
figures.

Post assumes that any sugar not exported is consumed or manufactured
domestically. Consumption figures quoted by Post represent \"domestic\"
disappearance. Post expects that some sugar supplied to domestic
manufacturing industries is exported as food products; however, Post has
not included this component in sugar exports (as per reporting
instructions).

## Trade

Total sugar exports are forecast to fall around eight percent in 2003/04
to 3.89 MMT, in line with the forecast eight percent fall in production.
This forecast puts 2003/04 exports at the 4^th^ largest export level
according to ABARE's historical figures.

Estimated total exports for 2002/03 remain unchanged at 4.22 MMT, the
second largest export level on record and 15 percent higher than the
previous year. This export level reflects a return to more normal
production levels following the pest and disease outbreaks of 2000/01
and 2001/02, which limited supplies.

Post primarily relies on ABARE data for exports. Confidentiality
arrangements restrict provision of up-to-date export data by the
Australian Bureau of Statistics (ABS). Post estimates exports for
2001/02 at 3.59 MMT, in line with historic ABARE figures and the most
recent ABS figures. Korea, Japan and Malaysia are Australia's three
largest export markets receiving 21, 20 and 19 percent of Australia's
sugar exports, respectively.

## Stocks

Official figures on sugar stocks are unavailable in Australia and
figures provided by Post are derived from production and export numbers.
Industry sources indicate that while Australia has large storage
capacity, the costs associated with storing sugar discourage
accumulation of a large inventory. The Government of Australia does not
provide specific assistance for the storage of sugar.

## Policy

The Australian sugar industry remains under severe financial pressure
due to a combination of low prices, pest and disease outbreaks, adverse
weather conditions and prescriptive government regulation. The
Australian Federal Government and Queensland State Government have
signed a Memorandum of Understanding (MOU), essentially requiring the
state government to remove all regulatory impediments to sugar
production and processing. In exchange, the Federal Government has
agreed to provide adjustment funding, (see Report #AS3009). Since Post's
last report, little has been achieved in terms of dismantling
legislation.

In August 2003, the Research and Development sector within the
Australian Sugar industry was partially reformed. The Bureau of Sugar
Experimentation Station (BSES), previously a statutory authority that
conducted research within the sugar industry on behalf of growers and
millers, became a privately owned company. The BSES will continue to
conduct research and development services using voluntary contributions
from growers and millers. It is envisaged that breeding rights will also
provide funding in the future according to industry sources.

Raw cane sugar enters the United States under a tariff-rate quota (TRQ),
which permits countries to ship specified quantities to the United
States at a relatively low tariff rate, but subjects all other imports
to a higher tariff. Under the TRQ, Australia is allocated 87,402 MT of
raw cane sugar in fiscal year 2004. Australia's allocation is based on
the share of exports to the United States between 1975 and 1981.

Australia and the United States are in the process of negotiating a free
trade agreement (FTA). Part of Australia's objectives for the
negotiations is gaining increased access to the United States for raw
cane sugar.

The tariff rate applied to sugar imported into Australia is currently
set at zero. Australia imports small quantities of sugar, mostly
specialty sugar according to sources.

## Marketing

Under Queensland state government legislation, the "Sugar Industry Act"
provides the Queensland Sugar Corporation (QSC) with exclusive export
rights to market raw sugar produced in Queensland.

Over 90 percent of Australia's sugar is produced in Queensland,
effectively providing a "single desk" export monopoly for Australian
sugar. Despite much public discussion on the deregulation of the
Australian sugar industry, the "single desk" is not due for review
before 2006.