Required Report - public distribution

**Date:** 4/8/2004

**GAIN Report Number:** SF4012

SF4012

**South Africa, Republic of**

**Sugar**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Rachel Bickford

U.S. Embassy, South Africa

**Prepared by:**

Herman Germishuis

**Report Highlights:**

South African sugar production dropped from a record 2.9 million tons in
2002/03 to 2.6 million tons in 2003/04, mainly due to drought.
Production in 2004/05 is forecast to drop even further to 2.3 million
tons, again mainly due to a dry early summer. Exports are expected to
exceed 1.2 million tons in 2004/05 compared to the 1.3 million tons
exported in 2002/03.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Pretoria \[SF1\]

\[SF\]

**Summary**

After record sugar production of 2.93 million tons raw value in 2002/03,
production declined to 2.56 million tons in 2003/04 when cane
cultivation dropped from 23 million tons to 20.4 million tons. The
cutback was mainly due to seasonal drought. The early part of the
current, 2004/05, season was also dry but conditions improved in the
first quarter of 2004. Cane production is expected to reach about 20.25
million tons this year, producing 2.55 million tons of sugar.

According to the South African revenue Service, (SARS), exports amounted
to 1.15 million tons in CY 2002 and 989,000 tons in 2003. South Africa
exports raw sugar mainly to China, Japan, the Middle East and South
Korea and refined sugar mainly to East Africa. The local industry also
enjoy a US sugar quota. Imports mainly originate from South Africa's
South African Development Community (SADC) partners.

[www.sugar.org.za](http://www.sugar.org.za/)

[www.sacanegrowers.co.za](http://www.sacanegrowers.co.za/)

# Sugar cane:

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

  **Country**       **South                                                
                    Africa**                                               

  **Commodity**     **Sugar                                                
                    Cane**                                                 

  1000 Hectares     2003          Revised   2004      Estimate   2005      Forecast

  1000 Metric tons  USDA l        Post      USDA      Post       USDA      Post
                    \[Old\]       \[New\]   \[Old\]   \[New\]    \[Old\]   \[New\]

  **Market Year                   04/2002             04/2003              04/2004
  Begin**                                                                  

  Area Planted      434           430       435       433        0         433

  Area Harvested    328           321       330       325        0         325

  Production        23013         23013     21270     20419      0         20250

  TOTAL SUPPLY      23013         23013     21270     20419      0         20250

  Utilization for   23013         23013     21270     20419      0         20250
  Sugar                                                                    

  Utilizatn for     0             0         0         0          0         0
  Alcohol                                                                  

  TOTAL UTILIZATION 23013         23013     21270     20419      0         20250
  ----------------- ------------- --------- --------- ---------- --------- ----------

# Production

The area under cane in South Africa has remained constant at around
430,000 hectares over the past few years. The area expanded in the mid
nineties, primarily as a result of the establishment of the Komati Mill
in Mpumalanga and the relocation of the Illovo Mill to its current site
in the Natal midlands. The mill was moved as development was constrained
by urbanization at its previous coastal location. Since then no further
significant expansion has taken place.

Since the general droughts of the early and mid nineties, the industry
has continued to experience regional droughts from time to time. In the
2003/04 season, some areas were devastated by drought, while the 2004/05
season had a dry start. Better rainfall in February and Match improved
crop prospects and cane production for 2004/05 is currently estimated at
20.25 million tons after 20.4 million tons were produced in 2003/04.

+-------------+-------------+-------------+-------------+-------------+
| Sugar cane  | Area        | Area        | Cane cut    | Yield,      |
|             | planted,    | harvested,  |             | Mt./ha.     |
| Season      | ha.         | ha.         | 1000 Mt.    |             |
+-------------+-------------+-------------+-------------+-------------+
| 2000/2001   | 428 8922    | 322 858     | 23 876 162  | 73.95       |
+-------------+-------------+-------------+-------------+-------------+
| 2001/2002   | 431 771     | 325 704     | 21 156 537  | 64.96       |
+-------------+-------------+-------------+-------------+-------------+
| 2002/2003   | 430 106     | 321 234     | 23 012 554  | 71.64       |
+-------------+-------------+-------------+-------------+-------------+
| 2003/2004   | 432 986     | 325 141     | 20 418 933  | 62.80       |
| est.        |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| 2004/2005   | 432 500     | 325 000     | 20 250 000  | 62.30       |
| for.        |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

The area under irrigation has increased to 22% of the total area under
cane. With the relocation of the Eston mill to the midlands, the
geographic spread of the industry has broadened to encompass a favorable
balance of coastal, midlands and irrigation areas. This trend has
lessened the risk of serious crop failures. As shown in the table cane
yields per hectare has remained relatively constant. The adoption of the
Recoverable Value pricing system for cane payments, which rewards good
agricultural practices, has improved sugar yields per hectare.

# Sugar

+-------------------+--------+-------+-------+-------+-------+-------+
| **PSD Table**     |        |       |       |       |       |       |
+-------------------+--------+-------+-------+-------+-------+-------+
| **Country**       | **S    | ## A  |       |       |       |       |
|                   | outh** | frica |       |       |       |       |
+-------------------+--------+-------+-------+-------+-------+-------+
| **Commodity**     | **S    |       |       |       |       |       |
|                   | ugar** |       |       |       |       |       |
+-------------------+--------+-------+-------+-------+-------+-------+
| 1000 Metric ton   | 2003   | Re    | 2004  | Est   | 2005  | For   |
|                   |        | vised |       | imate |       | ecast |
+-------------------+--------+-------+-------+-------+-------+-------+
|                   | USDA l | Post  | USDA  | Post  | USDA  | Post  |
|                   | \      | \[    | \[    | \[    | \[    | \[    |
|                   | [Old\] | New\] | Old\] | New\] | Old\] | New\] |
+-------------------+--------+-------+-------+-------+-------+-------+
| **Market Year     |        | 04    |       | 04    |       | 04    |
| Begin**           |        | /2002 |       | /2003 |       | /2004 |
+-------------------+--------+-------+-------+-------+-------+-------+
| Beginning Stocks  | 450    | 450   | 490   | 460   | 370   | 345   |
+-------------------+--------+-------+-------+-------+-------+-------+
| Beet Sugar        | 0      | 0     | 0     | 0     | 0     | 0     |
| Production        |        |       |       |       |       |       |
+-------------------+--------+-------+-------+-------+-------+-------+
| Cane Sugar        | 2931   | 2931  | 2527  | 2559  | 0     | 2546  |
| Production        |        |       |       |       |       |       |
+-------------------+--------+-------+-------+-------+-------+-------+
| TOTAL Sugar       | 2931   | 2931  | 2527  | 2559  | 0     | 2546  |
| Production        |        |       |       |       |       |       |
+-------------------+--------+-------+-------+-------+-------+-------+
| Raw Imports       | 0      | 0     | 0     | 0     | 0     | 0     |
+-------------------+--------+-------+-------+-------+-------+-------+
| Refined Imp. (Raw | 269    | 249   | 253   | 251   | 0     | 254   |
| Val)              |        |       |       |       |       |       |
+-------------------+--------+-------+-------+-------+-------+-------+
| TOTAL Imports     | 269    | 249   | 253   | 251   | 0     | 254   |
+-------------------+--------+-------+-------+-------+-------+-------+
| TOTAL SUPPLY      | 3650   | 3630  | 3270  | 3270  | 370   | 3145  |
+-------------------+--------+-------+-------+-------+-------+-------+
| Raw Exports       | 1215   | 1215  | 1000  | 1000  | 0     | 1000  |
+-------------------+--------+-------+-------+-------+-------+-------+
| Refined Exp. (Raw | 350    | 350   | 300   | 300   | 0     | 250   |
| Val)              |        |       |       |       |       |       |
+-------------------+--------+-------+-------+-------+-------+-------+
| TOTAL EXPORTS     | 1565   | 1565  | 1300  | 1300  | 0     | 1250  |
+-------------------+--------+-------+-------+-------+-------+-------+
| Human Dom.        | 1590   | 1600  | 1595  | 1620  | 0     | 1640  |
| Consumption       |        |       |       |       |       |       |
+-------------------+--------+-------+-------+-------+-------+-------+
| Other             | 5      | 5     | 5     | 5     | 0     | 5     |
| Disappearance     |        |       |       |       |       |       |
+-------------------+--------+-------+-------+-------+-------+-------+
| Total             | 1595   | 1605  | 1600  | 1625  | 0     | 1645  |
| Disappearance     |        |       |       |       |       |       |
+-------------------+--------+-------+-------+-------+-------+-------+
| Ending Stocks     | 490    | 460   | 370   | 345   | 0     | 250   |
+-------------------+--------+-------+-------+-------+-------+-------+
| TOTAL             | 3650   | 3630  | 3270  | 3270  | 0     | 3145  |
| DISTRIBUTION      |        |       |       |       |       |       |
+-------------------+--------+-------+-------+-------+-------+-------+

**Production**

As a result of an early summer drought, prospects for the new, 2004/05
season, are not very promising. The first Sugar Association estimate
will be available in late April, but at this stage indications are that
a little more than 20 million tons of cane will be cut producing about
2.4 million tons of sugar.

+-----------------+-----------------+-----------------+-----------------+
| Season          | Cane cut        | Tell quell      | Tons cane/ton   |
|                 |                 | sugar           | sugar, Mt.      |
| April/March     | 1000 Mt.        |                 |                 |
|                 |                 | Prod. 1000 Mt.  |                 |
+-----------------+-----------------+-----------------+-----------------+
| 2000/01         | 23 876 162      | 2 721 562       | 8.75            |
+-----------------+-----------------+-----------------+-----------------+
| 2001/02         | 21 156 537      | 2 403 243       | 8.83            |
+-----------------+-----------------+-----------------+-----------------+
| 2002/03         | 23 012 554      | 2 754 619       | 8.33            |
+-----------------+-----------------+-----------------+-----------------+
| 2003/04         | 20 418 933      | 2 412 031       | 8.47            |
+-----------------+-----------------+-----------------+-----------------+
| 2004/05 est.    | 20 250 000      | 2 400 000       | 8.44            |
+-----------------+-----------------+-----------------+-----------------+

# Consumption

Sugar supplies into the Southern African Customs Union (SACU) have
changed markedly since the early nineties, at which time South Africa
was the main supplier with over 95% market share. South Africa has since
lost market share to Swaziland (A SACU member with Botswana, Lesotho and
Namibia), and to Southern African Development Community (SADC) sugar
producers. South Africa's share of the SACU market is currently below
80%. Due to

low world prices, the Swaziland sugar industry increased its sales into
the SACU market, particularly South Africa, the biggest market in
Southern Africa. Over and above this, as part of the SADC Free Trade
Agreement, it was agreed that SADC producers would be allowed to sell
sugar free of duty into SACU based on a formula (about 50,000 tons). The
number of suppliers into the market has thus increased significantly.

The demand for sugar in the SACU region has continued to grow in the
order of 2% per annum, with demand closely related to growth in real
disposable income, growth in GDP and in population. The following table
shows the latest available data on South African sugar sales in the SACU
region:

+---------+---------+---------+---------+---------+---------+---------+
| Season  | White   | Brown   | Direct  | \%      | Ind     | \%      |
|         | sugar   | sugar   | sales   |         | ustrial |         |
| Metric  |         |         |         |         | sales   |         |
| ton     |         |         |         |         |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| 1998/99 | 1072230 | 148150  | 808884  | 66.3    | 411496  | 28.1    |
+---------+---------+---------+---------+---------+---------+---------+
| 1999/00 | 1069494 | 160551  | 811591  | 66.0    | 418454  | 34.0    |
+---------+---------+---------+---------+---------+---------+---------+
| 2000/01 | 1140308 | 170788  | 879529  | 67.1    | 431567  | 32.9    |
+---------+---------+---------+---------+---------+---------+---------+
| 2001/02 | 1066168 | 161047  | 819273  | 66.8    | 407492  | 33.2    |
+---------+---------+---------+---------+---------+---------+---------+
| 2002/03 | 1218766 | 194029  | 924416  | 65.4    | 488649  | 34.6    |
+---------+---------+---------+---------+---------+---------+---------+

# Policy

Due to the international environment in which the industry operates, the
industry is regulated to ensure its survival. Industry regulation has
undergone regular reviews over the past decade and the Sugar Act is
again under review by the Department of Trade and Industry. The sugar
industry is the only formally regulated agricultural industry left in
South Africa, the industries falling under the Department of Agriculture
have all been de-regulated and are operating in a free market system.

Sugar prices in SACU are established in the regulated environment based
on a US Dollar based reference price, which determines the import duty.
The dollar based reference price system of \$330 per ton was established
on the basis of a 10 year average of the No. 5 world or refined sugar
price adjusted for certain elements.

The current import duty is 101.8 SA cents per kg. or R1,018 per metric
ton.

SADC members can supply about 50,000 tons free of duty, while Swaziland,
as a SACU member can also deliver a set quantity free of duty.

Producer prices:

Through the Division of Proceeds calculation taking local and export
sales as well as molasses sales into account, and the revenue sharing
arrangement between millers and growers, growers are paid a share (about
63%) of industry proceeds. Prices in any year are affected by revenues
earned in the various markets but are also impacted by the size of the
crop whereby larger crops depress prices due to the larger portion of
export sugar in the pool and smaller crops increase prices due to the
smaller proportion of export sugar.

In 2000/2001 the recoverable value (RV) payment system replaced the
sucrose payment system. The RV system recognizes the effect of Sucrose %
cane, Non-sucrose % cane and Fiber % cane on sugar production. It, in
effect, the RV system rewards quality cane production.

The following table contains recent recoverable value (RV) prices paid
by millers to growers and the cane price at average recoverable values
for the industry.

  ----------------------- ----------------------- -----------------------
  Season                  RV price: SA Rand       Cane price

  1999/2000               971.09                  121.36

  2000/2001               1105.00                 130.50

  2001/2002               1352.14                 160.23

  2002/2003               1368.79                 171.78

  2003/2004               1357.01                 165.25 est.
  ----------------------- ----------------------- -----------------------

For more details on the payment system see:
[www.sacanegrowers.co.za](http://www.sacanegrowers.co.za/)

# Trade

As the industry expanded, and as growth in the SACU market has been
taken up by non South African production, the industry is exporting an
increasing share of production to overseas markets at world market
prices. These are often well below the cost of production of even the
most cost effective producers. South Africa exports raw sugar mainly to
China, Japan, Korea, the Middle East, the Black Sea area and the US and
exports refined sugar mainly to East Africa.

  -------------------- -------------------- ----------------- -------------
  **Exports**                                                 

  **Country**          South Africa                           

  **Commodity**        Centrifugal Sugar                      

  Time Period          Jan -Dec             Units:            Metric tons

  Exports for:         2002                 2003              **2003**

  U.S.                 58 678               U.S.              23 656

  Others                                    Others            

  Mozambique           196 469              Mozambique        177 792

  Japan                161 015              Japan             145 040

  South Korea          230 000              South Korea       140 000

  Malaysia             43 053               Malaysia          80 000

  Russia               0                    Russia            59 000

  Madagascar           27 941               Madagascar        56 208

  Syria                13 250               Syria             53 850

  Kenya                50 851               Kenya             46 050

  Egypt                                     Egypt             33 250

  Mauritius            48 102               Mauritius         32 387

  Total for Others     770 681                                823 587

  Others not Listed    321 556                                141 403

  Grand Total          1 150 915                              988 916
  -------------------- -------------------- ----------------- -------------

The high figure for Mozambique is misleading. The Komati and Lomati
mills in Mpumalanga use Maputo in Mozambique as an export port and sugar
shipped through the port are shown as exports to Mozambique. The sales
to Mozambique itself are small.

  -------------------- -------------- -------------------- --------------
  **Country**          South Africa                        

  **Imports**          Centrifugal                         
                       Sugar                               

  Time Period          Jan-Dec        Units:               Metric tons

  Imports for:         2002                                **2003**

  U.S.                 3              U.S.                 49

  Others                              Others               

  Malawi               3929           Malawi               14619

  Zimbabwe             12780          Zimbabwe             12607

  Zambia               5510           Zambia               10492

  Total for Others     22219                               37718

  Others not Listed    140                                 800

  Grand Total          22362                               38518
  -------------------- -------------- -------------------- --------------

Malawi, Zambia and Zimbabwe are SADC members and the imports shown are
thus duty free. The high import duty basically prohibits imports from
outside the SADC. Imports from Swaziland are not shown, as it is a
member of the SACU customs union.