Required Report - public distribution

**Date:** 4/14/2004

**GAIN Report Number:** AS4012

AS4012

**Australia**

**Sugar**

**Annual**

**2004**

**Approved by:**

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

U.S. Embassy

**Prepared by:**

Mike Darby, Agricultural Specialist

**Report Highlights:**

Australian sugar production and exports are forecast to increase in
2004/05 in line with a rise in forecast sugar cane production, despite a
strengthening exchange rate. Area of cane harvested is forecast to
decline, as the industry remains under severe financial pressure. A
strong Australian dollar is lowering local currency returns from sugar
exports.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Canberra \[AS1\]

\[AS\]

Table of Contents

[SECTION ONE: SITUATION AND OUTLOOK
3](#section-one-situation-and-outlook)

[SECTION TWO: STATISTICAL TABLES 4](#section-two-statistical-tables)

[SECTION THREE: NARRATIVE ON SUPPLY AND DEMAND, POLICY & MARKETING
6](#section-three-narrative-on-supply-and-demand-policy-marketing)

[Sugar Cane for Centrifugal 6](#sugar-cane-for-centrifugal)

[Centrifugal Sugar 7](#centrifugal-sugar)

[Prices 8](#prices)

[Exchange Rate 9](#exchange-rate)

[Cross Commodity Developments 9](#cross-commodity-developments)

[Consumption 9](#consumption)

[Trade 9](#trade)

[Stocks 11](#stocks)

[Policy 11](#policy)

[Marketing 12](#marketing)

# SECTION ONE: SITUATION AND OUTLOOK

Production of sugar cane is forecast to increase in 2004/05 due to
increased cane yield. A return to more normal weather conditions
following drought and disease outbreaks has boosted cane production to
the highest level since 1998/99. Sugar production is forecast to
increase in line with increases in expected cane production.

Sugar exports in 2004/05 are forecast to increase in line with
production, despite the negative impacts of the strengthening Australian
dollar. Closing stocks are also expected to increase due to the higher
production levels.

The sugar industry remains under severe financial pressure, with the
total value of the cane crop at its lowest level in over a decade,
despite relatively high production levels. Lower harvested area of cane
is forecast for 2004/05, and if realized, would represent the lowest
area since 1998/99. The area decline is due in part to the closure of
the Moreton Mill because of poor viability. According to official
government statistics, the number of cane growers is also falling.

Continued financial pressure has precipitated the introduction of
legislative changes for the sugar industry into the Queensland state
parliament. Although yet to be ratified by the Parliamentary legislation
process, these changes would essentially abolish current laws
determining the delivery of cane to mills. They would also result in
exemptions to Queensland Sugar Corporation's single desk trading rights
for sugar used for alternative purposes, such as plastics and ethanol.
Sugar exported in bags would also be exempt from single desk trading.

The appreciation of the Australian dollar has a dampening affect on
agricultural commodity prices generally. Although future fluctuations
will impact Australia's competitiveness in international markets and
returns to growers, currency movements are not expected to lead to any
significant switching between sugar and other exportable agricultural
commodities.

# SECTION TWO: STATISTICAL TABLES

+-------------------+-----+------+-----+------+-----+------+------+
| **Australia**     |     |      |     |      |     |      |      |
|                   |     |      |     |      |     |      |      |
| **Centrifugal     |     |      |     |      |     |      |      |
| Sugar**           |     |      |     |      |     |      |      |
+-------------------+-----+------+-----+------+-----+------+------+
|                   | **  | **R  | **  | **Es | **  | **Fo | **U  |
|                   | 200 | evis | 200 | tima | 200 | reca | OM** |
|                   | 3** | ed** | 4** | te** | 5** | 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\ | \]** |      |
|                   | ]** |      | ]** |      | ]** |      |      |
+-------------------+-----+------+-----+------+-----+------+------+
| **Market Year     |     | **0  |     | **0  |     | **0  | MM/  |
| Begin**           |     | 7/20 |     | 7/20 |     | 7/20 | YYYY |
|                   |     | 02** |     | 03** |     | 04** |      |
+-------------------+-----+------+-----+------+-----+------+------+
| **Beginning       | 507 | 507  | 463 | 662  | 489 | 583  | (    |
| Stocks**          |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **Beet Sugar      | 0   | 0    | 0   | 0    | 0   | 0    | (    |
| Production**      |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **Cane Sugar      | 5   | 5461 | 5   | 5023 | 0   | 5300 | (    |
| Production**      | 371 |      | 114 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Sugar     | 5   | 5461 | 5   | 5023 | 0   | 5300 | (    |
| Production**      | 371 |      | 114 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **Raw Imports**   | 3   | 6    | 3   | 3    | 0   | 3    | (    |
|                   |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **Refined         | 2   | 2    | 2   | 2    | 0   | 2    | (    |
| Imp.(Raw Val)**   |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Imports** | 5   | 8    | 5   | 5    | 0   | 5    | (    |
|                   |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL SUPPLY**  | 5   | 5973 | 5   | 5582 | 489 | 5780 | (    |
|                   | 883 |      | 582 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **Raw Exports**   | 4   | 3975 | 3   | 3767 | 0   | 3940 | (    |
|                   | 081 |      | 753 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **Refined         | 139 | 139  | 140 | 140  | 0   | 140  | (    |
| Exp.(Raw Val)**   |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL EXPORTS** | 4   | 4114 | 3   | 3907 | 0   | 4080 | (    |
|                   | 220 |      | 893 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **Human Dom.      | 1   | 1200 | 1   | 1200 | 0   | 1200 | (    |
| Consumption**     | 200 |      | 200 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **Other           | 0   | 0    | 0   | 0    | 0   | 0    | (    |
| Disappearance**   |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **Total           | 1   | 1200 | 1   | 1200 | 0   | 1200 | (    |
| Disappearance**   | 200 |      | 200 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **Ending Stocks** | 463 | 662  | 489 | 583  | 0   | 608  | (    |
|                   |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL           | 5   | 5973 | 5   | 5582 | 0   | 5780 | (    |
| DISTRIBUTION**    | 883 |      | 582 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)  |
+-------------------+-----+------+-----+------+-----+------+------+

+-----------------+------+-------+------+-------+------+-------+------+
| **Australia**   |      |       |      |       |      |       |      |
|                 |      |       |      |       |      |       |      |
| **Sugar Cane    |      |       |      |       |      |       |      |
| for             |      |       |      |       |      |       |      |
| Centrifugal**   |      |       |      |       |      |       |      |
+-----------------+------+-------+------+-------+------+-------+------+
|                 | **20 | *     | **20 | **    | **20 | **    | **U  |
|                 | 03** | *Revi | 04** | Estim | 05** | 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\]** |      |
|                 | \]** |       | \]** |       | \]** |       |      |
+-----------------+------+-------+------+-------+------+-------+------+
| **Market Year   |      | 07    |      | 07    |      | 07    | MM/  |
| Begin**         |      | /2002 |      | /2003 |      | /2004 | YYYY |
+-----------------+------+-------+------+-------+------+-------+------+
| **Area          | 0    | 0     | 0    | 0     | 0    | 0     | (    |
| Planted**       |      |       |      |       |      |       | 1000 |
|                 |      |       |      |       |      |       | HA)  |
+-----------------+------+-------+------+-------+------+-------+------+
| **Area          | 423  | 423   | 415  | 415   | 0    | 408   | (    |
| Harvested**     |      |       |      |       |      |       | 1000 |
|                 |      |       |      |       |      |       | HA)  |
+-----------------+------+-------+------+-------+------+-------+------+
| **Production**  | 3    | 37968 | 3    | 37111 | 0    | 38250 | (    |
|                 | 8062 |       | 6280 |       |      |       | 1000 |
|                 |      |       |      |       |      |       | MT)  |
+-----------------+------+-------+------+-------+------+-------+------+
| **TOTAL         | 3    | 37968 | 3    | 37111 | 0    | 38250 | (    |
| SUPPLY**        | 8062 |       | 6280 |       |      |       | 1000 |
|                 |      |       |      |       |      |       | MT)  |
+-----------------+------+-------+------+-------+------+-------+------+
| **Utilization   | 3    | 37908 | 3    | 37051 | 0    | 38190 | (    |
| for Sugar**     | 8002 |       | 6220 |       |      |       | 1000 |
|                 |      |       |      |       |      |       | MT)  |
+-----------------+------+-------+------+-------+------+-------+------+
| **Utilizatn for | 60   | 60    | 60   | 60    | 0    | 60    | (    |
| Alcohol**       |      |       |      |       |      |       | 1000 |
|                 |      |       |      |       |      |       | MT)  |
+-----------------+------+-------+------+-------+------+-------+------+
| **TOTAL         | 3    | 37968 | 3    | 37111 | 0    | 38250 | (    |
| UTILIZATION**   | 8062 |       | 6280 |       |      |       | 1000 |
|                 |      |       |      |       |      |       | MT)  |
+-----------------+------+-------+------+-------+------+-------+------+

+------------------+----------------+----------------+----------------+
| **Import Trade   |                |                |                |
| Matrix**         |                |                |                |
|                  |                |                |                |
| **Centrifugal    |                |                |                |
| Sugar**          |                |                |                |
+------------------+----------------+----------------+----------------+
| **Time Period**  | **Yr End Jun** | **Units:**     | **MT**         |
+------------------+----------------+----------------+----------------+
| **Imports for:** | **2002**       |                | **2003**       |
+------------------+----------------+----------------+----------------+
| U.S.             | 481            | U.S.           | 70             |
+------------------+----------------+----------------+----------------+
| Others           |                | Others         |                |
+------------------+----------------+----------------+----------------+
| China            | 2022           | New Zealand    | 2890           |
+------------------+----------------+----------------+----------------+
| New Zealand      | 654            | Malaysia       | 1932           |
+------------------+----------------+----------------+----------------+
| Singapore        | 256            | China          | 1613           |
+------------------+----------------+----------------+----------------+
| Mauritius        | 163            | Mauritius      | 661            |
+------------------+----------------+----------------+----------------+
| Malaysia         | 89             | Singapore      | 326            |
+------------------+----------------+----------------+----------------+
| Hong Kong        | 54             | Hong Kong      | 252            |
+------------------+----------------+----------------+----------------+
| Brazil           | 23             | France         | 17             |
+------------------+----------------+----------------+----------------+
| Paraguay         | 20             | United Kingdom | 17             |
+------------------+----------------+----------------+----------------+
| India            | 14             | Belgium-Lux.   | 10             |
+------------------+----------------+----------------+----------------+
| The Netherlands  | 6              | India          | 10             |
+------------------+----------------+----------------+----------------+
| **Total for      | **3301**       |                | **7728**       |
| Others**         |                |                |                |
+------------------+----------------+----------------+----------------+
| Others not       | 16             |                | 216            |
| Listed           |                |                |                |
+------------------+----------------+----------------+----------------+
| **Grand Total**  | **3798**       |                | **7944**       |
+------------------+----------------+----------------+----------------+

+------------------+----------------+----------------+----------------+
| **Export Trade   |                |                |                |
| Matrix**         |                |                |                |
|                  |                |                |                |
| **Centrifugal    |                |                |                |
| Sugar**          |                |                |                |
+------------------+----------------+----------------+----------------+
| **Time Period**  | **Yr End Jun** | **Units:**     | **MT**         |
+------------------+----------------+----------------+----------------+
| **Exports for:** | **2002**       |                | **2003**       |
+------------------+----------------+----------------+----------------+
| U.S.             | 83220          | U.S.           | 88025          |
+------------------+----------------+----------------+----------------+
| Others           |                | Others         |                |
+------------------+----------------+----------------+----------------+
| Malaysia         | 771072         | Malaysia       | 798833         |
+------------------+----------------+----------------+----------------+
| Japan            | 762594         | Rep of Korea   | 795400         |
+------------------+----------------+----------------+----------------+
| Rep of Korea     | 569750         | Japan          | 729000         |
+------------------+----------------+----------------+----------------+
| Canada           | 477515         | China          | 367700         |
+------------------+----------------+----------------+----------------+
| New Zealand      | 245550         | Canada         | 329271         |
+------------------+----------------+----------------+----------------+
| China            | 230000         | New Zealand    | 218600         |
+------------------+----------------+----------------+----------------+
| Saudi Arabia     | 169300         | Saudi Arabia   | 212000         |
+------------------+----------------+----------------+----------------+
| Taiwan           | 122700         | Indonesia      | 163700         |
+------------------+----------------+----------------+----------------+
| Indonesia        | 66603          | Taiwan         | 157500         |
+------------------+----------------+----------------+----------------+
| Fiji             | 463            | Iran           | 84000          |
+------------------+----------------+----------------+----------------+
| **Total for      | **3415547**    |                | **3856004**    |
| Others**         |                |                |                |
+------------------+----------------+----------------+----------------+
| Others not       | 60             |                | 30762          |
| Listed           |                |                |                |
+------------------+----------------+----------------+----------------+
| **Grand Total**  | **3498827**    |                | **3974791**    |
+------------------+----------------+----------------+----------------+

# SECTION THREE: NARRATIVE ON SUPPLY AND DEMAND, POLICY & MARKETING

## Sugar Cane for Centrifugal

[Sugar Cane Area (Cut for Crushing)]{.underline}

The total area of sugar cane cut for crushing in 2004/05 (July--June) is
forecast at 408,000 hectares. This figure is down from the estimate for
the previous year and in line with ABARE's most recent forecast.
According to ABARE reports, the closure of the Moreton Mill in southern
Queensland at the end of 2003/04 is expected to contribute to the
decline in area harvested in 2004/05.

The area of sugar cane cut for crushing in 2003/04 is estimated at
415,000 hectares, down slightly from the 423,000 hectares in 2002/03 and
in line with ABARE numbers. The record area of sugar cane cut for
crushing stands at 428,000 hectares in 1999/2000.

![](media/image2.wmf)

[Cane Yield]{.underline}

Post forecasts an average cane yield of 93 MT/hectare in 2004/05. A cane
yield of this level remains above the 89 MT/hectare estimated for the
previous year and well above ABARE's five year average of 85 MT/hectare.
Industry sources anticipate above average cane yields per hectare, due
to improved seasonal conditions.

![](media/image3.wmf)

[Sugar Cane Production]{.underline}

Sugar cane production in 2004/05 is forecast at 38,250 TMT, slightly
above ABARE's figure and in line with current industry expectations.
Improved climatic conditions following the drought in 2002/03 has
increased cane yields per hectare to above average levels. The higher
yields are partly offset by a reduced area of cane harvested.

Sugar cane production is estimated at 37,111 TMT in 2003/04, up slightly
from Post's previous report (Gain Report #AS3039). Excellent weather in
the lead up to harvest and good harvesting conditions boosted the crop
late in the season. Sugar cane production for 2002/03 has been trimmed
slightly to 37,968 TMT, in line with the most recent ABARE numbers.

![](media/image4.wmf)

## Centrifugal Sugar

[Production]{.underline}

Total sugar production in 2004/05 is forecast at 5,300 TMT, slightly
above ABARE's forecast and in line with industry expectations. The
return to normal weather conditions in 2003/04 has significantly
improved the prospects for the 2004/05 harvest. Post anticipates that
this increase will be driven by increased cane yield, which will be only
slightly constrained by reduced Commercial Cane Sugar (CCS) content.

ABARE forecasts production in 2004/05 at 5,247 TMT, up from the 5,023
TMT recorded for the previous year. If achieved, this would represent
the fourth largest crop on record according to ABARE's historical data.

ABARE's long-term projections have sugar production remaining at 5,247
TMT in 2005/06 and increasing incrementally to 5,568 TMT in 2008/09.

![](media/image5.wmf)

  ------------------ ------------- ------------- ------------- ------------- -------------
  **AUSTRALIAN SUGAR                                                         
  PRODUCTION                                                                 
  STATISTICS**                                                               

  **CATEGORY**       **2000/01**   **2001/02**   **2002/03**   **2003/04**   **2004/05**

  **Cane Crushed     31,228        32,260        37,968        37,111        37,825
  (TMT)**                                                                    

  **Cane Price       22            30            26            21            19
  (\$A/MT)**                                                                 

  **Sugar Prod.      4,162         4,987         5,461         5,023         5,247
  (TMT)**                                                                    

  **Total Exports    2,966         3,594         4,219         3,907         4,120
  (TMT)**                                                                    

  **Export Value     1,111         1,392         1,415         966           1,064
  (\$AMillion)**                                                             
  ------------------ ------------- ------------- ------------- ------------- -------------

*Note: July-June years.*

*Source: ABARE*

[Commercial Cane Sugar Content]{.underline}

Post cane production and sugar production forecasts for 2004/05 assume a
Commercial Cane Sugar (CCS) content of 13.87 percent. Although up
slightly on the 13.54 percent estimated for the previous year, this
level is considered by industry sources to be around average. According
to ABARE's historical data, the five-year average is 13.78 percent,
which includes two very below-average years.

Improved rainfall and higher cane yield per hectare, due to improved
growing conditions, are expected to keep CCS content at average levels.
However, in the event that cane production surpasses forecast levels,
CCS is likely to fall below the current forecasted level.

![](media/image6.wmf)

## Prices

Prices received by Australian sugar growers have received much publicity
of late. Preliminary pricing estimates for 2003/04 indicate that
Australian sugar farmers are receiving the lowest nominal prices since
1985/86. Lower world prices for sugar and a strengthening Australian
dollar have dramatically reduced prices received by Australian sugar
producers.

Preliminary ABARE estimates put the 2003/04 No. 1 pool price for sugar
at A\$228/MT, down significantly from the A\$276/MT received in the
previous year. According to ABARE's historical data, the five-year
average pool price stands at A\$295/MT. Industry sources suggest that
the cost of production for cane growers is around A\$250/MT.

ABARE's estimates place the value of the Australia cane crop at \$A733
million in 2003/04. This figure has been steadily declining since
2001/02, when value was estimated at A\$1,013 million.

![](media/image7.wmf)

## Exchange Rate

The Australian dollar has appreciated sharply against the currencies of
major trading partners over the past several years. For example, the
Australian dollar was valued at US\$0.75 in mid April 2004, up 15
percent from the average of US\$0.652 in 2003 and about 38 percent
higher than the average of US\$0.544 in 2002. Australia's
competitiveness in world agricultural markets and returns to domestic
producers are heavily impacted by the exchange rate of the Australian
dollar.

The appreciation of the Australian dollar has a dampening affect on
agricultural commodity prices generally. Although future fluctuations
will impact Australia's competitiveness in international markets and
returns to growers, currency movements are not expected to lead to any
significant switching between sugar and other exportable agricultural
commodities.

## Cross Commodity Developments

Current low sugar prices have generated much debate concerning other
potential uses for sugar cane. Ethanol production is an alternative use
that has been suggested as a means of diversifying the output of the
sugar industry.

Of late, the Government of Australia (GOA) has invested funds in the
development of ethanol as an alternate use for sugar cane, principally
in assisting the development of technology to blend ethanol with
petroleum. However, manufacturing ethanol from wheat starch is currently
attracting more interest from the industry.

## Consumption

Official statistics concerning total sugar consumption are unavailable.
Anecdotal evidence suggests that consumption remains relatively steady
at 1,200 TMT. Post derives sugar consumption numbers from production,
net exports and changes in stocks.

## Trade

[Exports]{.underline}

Total sugar exports are forecast at 4,120 TMT in 2004/05, just above the
revised estimate of 3,907 TMT for the previous year. Higher production
and increased stock levels are expected to increase the availability of
sugar suitable for export, despite the negative impact of a stronger
Australian dollar.

ABARE's long-term projections have sugar exports increasing over the
medium term reaching 4,533 TMT in 2007/08. ABARE has exports falling to
4,218 TMT in 2008/09.

Official ABS statistics for 2002/03 show Malaysia, South Korea and Japan
as Australia's top three export markets, receiving nearly two thirds of
total exports. China, Canada and the United States are the next three
largest markets with the U.S. receiving about two percent of total
Australian sugar exports.

![](media/image8.wmf)

[Free Trade Agreements]{.underline}

[Australia-US FTA:]{.underline} 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 (above quota) to a higher tariff.
Under the TRQ, Australia is allocated 87,402 MT of raw cane sugar in
U.S. fiscal year 2004. Australia's allocation is based on the share of
exports to the United States between 1975 and 1981.

Australia completed free trade agreement (FTA) negotiations with the
United States in February 2004, which would ultimately result in
duty-free trade for all Australian agricultural exports, except certain
dairy products and raw cane sugar. Under the negotiated FTA, Australian
sugar access to the United States would remain unchanged.

The Australian sugar industry reacted angrily to the omission of sugar
in the Australian-U.S. FTA. Industry reports claim that sugar was
excluded from the agreement in order to secure an overall agreement.
Sugar industry representatives were hopeful of increasing Australia's
access arrangements to the United States under the FTA.

Growers and millers have used their treatment under the FTA as
justification for a proposal put forward to the Australian Prime
Minister for assistance. The proposed package is valued at A\$600
million and would provide restructuring assistance, exit assistance,
productivity improvements and diversification. Industry reports suggest
that this package would replace the existing Sugar Industry Reform
Package, which was only recently put into place (see following Policy
section of this report).

[Australia-Thailand FTA:]{.underline} Australia completed FTA
negotiations with Thailand in October 2003, with formal ratification
pending. Although the final details are not yet available, the FTA is
reported to increase Australia's quota entitlements by 10 percent per
annum, with the quota and tariffs eliminated by 2020.

Australia has historically imported small amounts of sugar from
Thailand. Australia's applied tariff rate for sugar is zero.

## Stocks

Official data concerning sugar stocks is not available. The holding of
sugar stocks is not subsidized in Australia and Post believes that stock
levels reflect commercial conditions.

## Policy

[Industry Regulation]{.underline}

The "Sugar Industry Reform Bill 2004" was recently introduced into
Queensland state parliament. Although it is yet to be ratified,
enactment in its current form would provide significant changes to the
operating environment for Queensland's cane growers.

Traditionally, Queensland cane growers have produced sugar cane under
the "Cane Production Area" (CPA) system. This system essentially
required cane producers to deliver their cane to the nearest mill for
processing. It also required mills to take cane from all growers within
their area.

In its current form, the new Bill would abolish the CPA system and allow
growers to deliver cane to the mill of their choice. However, it would
also revoke requirements that mills receive all the cane from a
particular area. Growers would need new supply contracts in order to
supply mills after January 1, 2005. If growers and millers agree, they
can maintain the existing supply arrangements under the new contracts.

The new Bill would also phase out compulsory arbitration for dispute
settlement. From January 2005, disputes would be settled via an interim
dispute settlement process involving representatives of both millers and
growers.

[Industry Assistance]{.underline}

Australia announced a Sugar Industry Reform Program (SIRP) on September
10, 2002. A centerpiece of the program is regional adjustment,
diversification and industry rationalization. Under the SIRP, a total of
A\$150 million of assistance is to be provided to the sugar industry
over a four-year period. The Commonwealth is to provide A\$120 million,
funded by a levy on domestic sugar sales. Under an MOU with the
Commonwealth Government, the state of Queensland provides an additional
A\$30 million and repealed elements of the Queensland Sugar Act 1999.
Part of this program will likely be notified to the World Trade
Organization as 'Amber Box'.

Under the SIRP, cane farmers have an option to leave the industry,
diversify to other crops, or sell and leave agriculture. Cane farmers
can apply for an industry exit grant of up to A\$45,000, or receive an
interest rate subsidy on loans of up to A\$50,000 in 2002/03 and 2003/04
to replant or plant cane. The interest rate subsidy is equivalent to
about 50 percent of the commercial rate. Sugar farmers in New South
Wales, Western Australia and Queensland are eligible to participate.
Around 94 percent of Australian sugar is grown in Queensland.

The sugar levy, which began on January 1, 2003, will run for five years.
A levy of A\$0.03 per kilogram (A\$30/MT) is assessed on domestically
produced or imported sugar packaged for retail sale, and sugar that is
used as an ingredient in goods that are produced in Australia for human
consumption. Exports of refined sugar are exempt from the levy and there
is a rebate for exports of sugar-containing products. Imports of
sugar-containing products are also exempt from the levy.

Additional support to rationalize and restructure the sugar industry is
being considered, largely in reaction to sugar being excluded from the
recently negotiated FTA with the United States. The Australian sugar
industry has requested A\$600 million, which has been deemed excessive
by the Commonwealth Government.

## Marketing

[Statutory Marketing]{.underline}

Under current state legislation, Queensland Sugar Corporation (QSC) has
the exclusive right to market raw sugar produced in Queensland on both
the export and domestic markets. However, the "Sugar Industry Reform
Bill 2004" would make some small amendments to the existing
arrangements.

The Bill would also create exemptions for raw sugar used to manufacture
alternative products such as ethanol or plastics. This will apply from
July 2004. This exemption process would include growers as well as mills
or whomever may negotiate cane immediately prior to crushing. The new
Bill would also provide exemptions to single desk arrangements for the
export of sugar in bags, as opposed to bulk.

The 'Ministerial direction' that requires all vested sugar sold
domestically to be sold at export parity prices would remain intact
under the proposed new Bill. A previous proposal to exempt domestic
sugar from the single desk in return for the abolition of the
Ministerial direction was not included in the new Bill.