Required Report - Public distribution

**Date:** 3/28/2008

**GAIN Report Number:** AS8015

AS8015

**Australia**

**Sugar**

**Annual**

**2008**

**Approved by:**

![](media/image1.wmf)Kathleen Wainio, Agricultural Counselor

U.S. Embassy

**Prepared by:**

Mike Darby, Agricultural Specialist

**Report Highlights:**

Australian sugar production for 2008/09 is forecast to increase as
significantly improved rainfall has increased yield potential of the
crop

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Canberra \[AS1\]

\[AS\]

Table of Contents

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

[Summary 3](#summary-1)

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

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

[Sugar Cane Area (cut for crushing)
5](#sugar-cane-area-cut-for-crushing)

[Cane Yield 5](#cane-yield)

[Centrifugal Sugar 6](#centrifugal-sugar)

[Sugar Production 6](#sugar-production)

[Exports 6](#exports)

[Prices 7](#prices)

[Policy 7](#policy)

[Sugar Levy 7](#sugar-levy)

[Sugar Cane smut 7](#sugar-cane-smut)

[Ethanol 8](#ethanol)

# SECTION ONE: SITUATION AND OUTLOOK

## Summary {#summary-1}

Australian sugar production for 2008/09 is forecast to increase
modestly. Slightly higher cane area and a higher yield will likely drive
the production increase. Post believes the 2008/09 cane harvest has
signaled recovery from drought and to a lesser extent other production
problems that have constrained sugar production in more recent times.

Despite long term downward pressure on the area planted to sugar cane,
recovery from recent production problems such as drought, rust, sugar
cane smut and somewhat improved yields have allowed a modest improvement
in production. However, it is generally acknowledged that the area
planted to sugar cane remains under constant pressure from urban
encroachment, competition from other crops, mill closures and other
restructuring issues.

Australian exports of sugar in 2008/09 are expected to rise in line with
increased production. Australia's dependence upon export markets
dictates that exports will likely continue to fluctuate in line with
production for the foreseeable future. Deregulation of sugar exports in
the state of Queensland, where about 95 percent of Australia's sugar is
produced, is expected to see a more diversified approach toward the
marketing of Australian sugar.

# 

# The competition for land to grow other crops will not likely dissipate for the foreseeable future. However, improved yields will likely prove a viable strategy to increase overall production. Plant breeding as well as other agronomic advances will likely command greater attention from industry participants in the future.

# 

# The Australian cane crop has received heavy rainfall and flooding in key production areas. At time of writing this report post believes that the heavy rainfall has been an overall benefit to cane production, as the production increase from improved rainfall will likely outweigh flood damage. However, post advises that should excessive rain persist into 2008/09, the production forecast will likely be revised downwards. Post has assumed average weather conditions in the lead up to, and during, the 2008/09 harvest. 

# SECTION TWO: STATISTICAL TABLES

<table>
<colgroup>
<col style="width: 20%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 10%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="11"><p><strong>PSD Table</strong></p>
<p>Sugar, Centrifugal</p></td>
</tr>
<tr class="even">
<td></td>
<td><strong>2007</strong></td>
<td><strong>Revised</strong></td>
<td></td>
<td><strong>2008</strong></td>
<td><strong>Estimate</strong></td>
<td></td>
<td><strong>2009</strong></td>
<td><strong>Forecast</strong></td>
<td></td>
<td><strong>UOM</strong></td>
</tr>
<tr class="odd">
<td></td>
<td><strong>USDA<br />
Official</strong></td>
<td><strong>Post<br />
Estimate</strong></td>
<td><strong>Post<br />
Estimate<br />
New</strong></td>
<td><strong>USDA<br />
Official</strong></td>
<td><strong>Post<br />
Estimate</strong></td>
<td><strong>Post<br />
Estimate<br />
New</strong></td>
<td><strong>USDA<br />
Official</strong></td>
<td><strong>Post<br />
Estimate</strong></td>
<td><strong>Post<br />
Estimate<br />
New</strong></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Market Year Begin</strong></td>
<td></td>
<td><strong>07/2006</strong></td>
<td><strong>07/2006</strong></td>
<td></td>
<td><strong>07/2007</strong></td>
<td><strong>07/2007</strong></td>
<td></td>
<td><strong>07/2008</strong></td>
<td><strong>07/2008</strong></td>
<td><strong>MM/YYYY</strong></td>
</tr>
<tr class="odd">
<td><strong>Beginning Stocks</strong></td>
<td>291</td>
<td>291</td>
<td>291</td>
<td>162</td>
<td>162</td>
<td>162</td>
<td>111</td>
<td>111</td>
<td>262</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td><strong>Beet Sugar Production</strong></td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td><strong>Cane Sugar Production</strong></td>
<td>4822</td>
<td>4822</td>
<td>4822</td>
<td>4700</td>
<td>4700</td>
<td>5031</td>
<td>0</td>
<td>0</td>
<td>5200</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td><strong>Total Sugar Production</strong></td>
<td>4822</td>
<td>4822</td>
<td>4822</td>
<td>4700</td>
<td>4700</td>
<td>5031</td>
<td>0</td>
<td>0</td>
<td>5200</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td><strong>Raw Imports</strong></td>
<td>4</td>
<td>4</td>
<td>4</td>
<td>4</td>
<td>4</td>
<td>4</td>
<td>0</td>
<td>0</td>
<td>4</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td><strong>Refined Imp.(Raw Val)</strong></td>
<td>5</td>
<td>5</td>
<td>5</td>
<td>5</td>
<td>5</td>
<td>5</td>
<td>0</td>
<td>0</td>
<td>5</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td><strong>Total Imports</strong></td>
<td>9</td>
<td>9</td>
<td>9</td>
<td>9</td>
<td>9</td>
<td>9</td>
<td>0</td>
<td>0</td>
<td>9</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td><strong>Total Supply</strong></td>
<td>5122</td>
<td>5122</td>
<td>5122</td>
<td>4871</td>
<td>4871</td>
<td>5202</td>
<td>111</td>
<td>111</td>
<td>5471</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td><strong>Raw Exports</strong></td>
<td>3700</td>
<td>3700</td>
<td>3700</td>
<td>3500</td>
<td>3500</td>
<td>3680</td>
<td>0</td>
<td>0</td>
<td>3780</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td><strong>Refined Exp.(Raw Val)</strong></td>
<td>160</td>
<td>160</td>
<td>160</td>
<td>160</td>
<td>160</td>
<td>160</td>
<td>0</td>
<td>0</td>
<td>160</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td><strong>Total Exports</strong></td>
<td>3860</td>
<td>3860</td>
<td>3860</td>
<td>3660</td>
<td>3660</td>
<td>3840</td>
<td>0</td>
<td>0</td>
<td>3940</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td><strong>Human Dom. Consumption</strong></td>
<td>1100</td>
<td>1100</td>
<td>1100</td>
<td>1100</td>
<td>1100</td>
<td>1100</td>
<td>0</td>
<td>0</td>
<td>1100</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td><strong>Other Disappearance</strong></td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td><strong>Total Use</strong></td>
<td>1100</td>
<td>1100</td>
<td>1100</td>
<td>1100</td>
<td>1100</td>
<td>1100</td>
<td>0</td>
<td>0</td>
<td>1100</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td><strong>Ending Stocks</strong></td>
<td>162</td>
<td>162</td>
<td>162</td>
<td>111</td>
<td>111</td>
<td>262</td>
<td>0</td>
<td>0</td>
<td>431</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td><strong>Total Distribution</strong></td>
<td>5122</td>
<td>5122</td>
<td>5122</td>
<td>4871</td>
<td>4871</td>
<td>5202</td>
<td>0</td>
<td>0</td>
<td>5471</td>
<td>(1000 MT)</td>
</tr>
</tbody>
</table>

# 

<table>
<colgroup>
<col style="width: 18%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 6%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 9%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="11"><p><strong>PSD Table</strong></p>
<p>Sugar Cane for Centrifugal</p></td>
</tr>
<tr class="even">
<td></td>
<td><strong>2007</strong></td>
<td><strong>Revised</strong></td>
<td></td>
<td><strong>2008</strong></td>
<td><strong>Estimate</strong></td>
<td></td>
<td><strong>2009</strong></td>
<td><strong>Forecast</strong></td>
<td></td>
<td><strong>UOM</strong></td>
</tr>
<tr class="odd">
<td></td>
<td><strong>USDA<br />
Official</strong></td>
<td><strong>Post<br />
Estimate</strong></td>
<td><strong>Post<br />
Estimate<br />
New</strong></td>
<td><strong>USDA<br />
Official</strong></td>
<td><strong>Post<br />
Estimate</strong></td>
<td><strong>Post<br />
Estimate<br />
New</strong></td>
<td><strong>USDA<br />
Official</strong></td>
<td><strong>Post<br />
Estimate</strong></td>
<td><strong>Post<br />
Estimate<br />
New</strong></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Market Year Begin</strong></td>
<td></td>
<td><strong>09/2006</strong></td>
<td><strong>09/2006</strong></td>
<td></td>
<td><strong>09/2007</strong></td>
<td><strong>09/2007</strong></td>
<td></td>
<td><strong>09/2008</strong></td>
<td><strong>09/2008</strong></td>
<td><strong>MM/YYYY</strong></td>
</tr>
<tr class="odd">
<td><strong>Area Planted</strong></td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 HA)</td>
</tr>
<tr class="even">
<td><strong>Area Harvested</strong></td>
<td>420</td>
<td>420</td>
<td>400</td>
<td>425</td>
<td>425</td>
<td>388</td>
<td>0</td>
<td>0</td>
<td>395</td>
<td>(1000 HA)</td>
</tr>
<tr class="odd">
<td><strong>Production</strong></td>
<td>36000</td>
<td>36000</td>
<td>36000</td>
<td>33000</td>
<td>33000</td>
<td>36000</td>
<td>0</td>
<td>0</td>
<td>37000</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td><strong>Total Supply</strong></td>
<td>36000</td>
<td>36000</td>
<td>36000</td>
<td>33000</td>
<td>33000</td>
<td>36000</td>
<td>0</td>
<td>0</td>
<td>37000</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td><strong>Utilization for Sugar</strong></td>
<td>36000</td>
<td>36000</td>
<td>36000</td>
<td>33000</td>
<td>33000</td>
<td>36000</td>
<td>0</td>
<td>0</td>
<td>37000</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td><strong>Utilization for Alcohol</strong></td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td><strong>Total Utilization</strong></td>
<td>36000</td>
<td>36000</td>
<td>36000</td>
<td>33000</td>
<td>33000</td>
<td>36000</td>
<td>0</td>
<td>0</td>
<td>37000</td>
<td>(1000 MT)</td>
</tr>
</tbody>
</table>

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

## Sugar Cane Area (cut for crushing)

Sugar cane area is forecast to increase in 2008/09 by 7,000 hectares,
reaching 395,000 hectares. Despite this forecast increase, this planted
area remains well below the 10 year average. Since Post's last report,
official estimates for sugar cane area have been revised downwards for
the past three years (2006/07, 2007/08 and 2008/09) in line with the
downward revision of official Australian government estimates.

![](media/image2.wmf)

Source: ABARE data (July/June)

For the Australian sugar industry, there remain a number of factors that
are combining to sustain downward pressure on area planted to sugar
cane. Urban encroachment, disease outbreaks, mill closures and
fluctuating sugar prices are placing long term constraints on area
planted to sugar cane. More recently, large timber industry ventures are
believed to have taken significant land area away from potential and
existing sugar cane area.

![](media/image3.wmf){width="6.167361111111111in"
height="2.4305555555555554in"}

The industry continues to improve agronomic practices with the inclusion
of break crops such as soybean which is not commonly grown in Australia.
Despite reports indicating that the recent inclusion of break crops
would likely lower the area planted to sugar cane, Post believes that
break crops tend to take place of fallow land.

## Cane Yield

Sugar cane yield in 2008/09 is expected to be just over 93 MT/ha, which
is above average. Despite reports of flooding, and the negative impact
this could potentially have on yield, post believes the overall effect
of above average rainfall will likely increase yield. Expected
commercial cane sugar (CCS) levels for 2008/09 are unknown at this
stage.

![](media/image4.wmf){width="6.250694444444444in"
height="1.6291666666666667in"}

Source: ABARE data (July/June)

## 

## Centrifugal Sugar

### Sugar Production

Australian sugar production for 2008/09 is forecast at 5.20 million
metric tones (MMT) using international polarization scale (IPS), up
significantly on the cyclone-affected production level achieved for the
previous year. This figure would roughly equal raw sugar production of
about 5.0 MMT in typical raw form using a conversion factor of 1.037.

Post believes that despite flood damage in some key sugar cane producing
regions, the overall affect of above average rainfall will likely see
production increase. Post advises however that a continuation of above
average rainfall and associated flooding in the lead-up to, or during,
the cane harvest, would likely see production for 2008/09 fall below the
current forecast.

![](media/image5.wmf)

Source: ABARE data (July/June)

### Exports 

Australian sugar exports for 2008/09 are forecast at 3.9 MMT, up
slightly from the 3.8 MMT estimated for the previous year. Australia
exports roughly 75% of its sugar production and therefore exports
fluctuate in line with production. According to ABARE's historic data,
exports of this level would be considered about average.

Perhaps the largest threat to Australian sugar exports at time of
writing this report would likely be a decline in production associated
with continued excessive rainfall and subsequent flooding in key
production areas.

![](media/image6.wmf)

Source: ABARE data (July/June)

### Prices

The Australian Bureau of Agricultural and Resource Economics (ABARE) has
forecast sugar prices to continue falling from US\$0.13 per pound in
2007/08 US\$0.12 per pound in 2008/09. Industry sources suggest that
growers can expect prices in the range of AU\$300-350 per MT for the
2008/09 harvest.

![](media/image7.wmf){width="6.501388888888889in"
height="1.7333333333333334in"}

Source: ABARE data (July/June)

## 

## Policy

### Sugar Levy

The domestic sugar levy has been abolished more than 12 months ahead of
schedule due to improved world sugar prices. The levy was introduced in
2003, when prices were low, to fund an exit and restructuring package
for growers and was abolished on December 1, 2006.

The levy was originally introduced in order to address structural and
financial difficulties in the Australian sugar industry following
historically low prices. The Government of Australia announced a Sugar
Industry Reform Program (SIRP) in September 2002. Under the SIRP, a
total of A\$444 million of assistance was allocated to the sugar
industry over a multiple-year period and was raised from the levy and by
the Federal government as well as the Queensland state government.

### Sugar Cane smut

Sugar cane smut, a fungus, was discovered in Childers area in June 2006.
This smut is primarily spread by wind born spores and infected sugar
cane cuttings, and can live for three months under wet conditions and
about a year under dry conditions. It can stunt the growth of sugar cane
and cause damage to the crops.

The Queensland government established that sugar cane smut cannot be
contained. A state wide surveillance program has been undertaken and
further detections have been made near Mackay and Ingham this past
season.

### Ethanol

Ethanol production has received widespread attention from both media and
government in Australia in recent times, driven by high fuel prices and
environmental concerns.

Ethanol production within the Australian sugar industry is currently
using only the poorest grade of molasses, which is not suitable for
crystal sugar production. While this process does not displace sugar
production, it is does not represent a large share of current ethanol
production.

Ethanol production using grain byproducts is expected to provide most of
the growth in ethanol production.

**Recent Reports from FAS/Canberra**

The reports listed below can all be downloaded from the FAS website at:
<http://www.fas.usda.gov/scriptsw/AttacheRep/default.asp>.

  ---------- ----------------------------------------------------- ----------
  **Report   **Title of Report**                                   **Date**
  Number**                                                         

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  AS8012     Livestock Semi-Annual                                 03/20/08

  AS8011     Commencement of IRA for U.S. Apples Announced         03/19/08

  AS8010     Wheat Industry Export Group Discussion Paper Released 03/18/08

  AS8009     Call for Comments on Quarantine & Biosecurity Review  03/17/08

  AS8008     Commencement of IRA for Stone Fruit Announced         03/14/08

  AS8006     Draft Wheat Export Marketing Bill Released            03/06/08

  AS8005     Wine Annual                                           02/26/08

  AS8004     Government Announces Review of Australia's Quarantine 02/21/08
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  AS8002     Productivity Commission Invites Further Submissions   01/23/08
             to Pork Safeguards Inquiry                            

  AS8001     Impact of Grain Prices on GOA Policy                  01/11/08

  AS7076     Productivity Commission Release Accelerated Report    12/21/07
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  AS7075     Bulk Wheat Export Applications                        12/13/07

  AS7074     Potato Report                                         12/11/07

  AS7072     Ag Down Under Vol. 14                                 12/06/07

  AS7071     GM Moratoria to be Lifted in Two States               11/29/07

  AS7070     Cotton Quarterly Update                               11/29/07

  AS7069     Ag Down Under Vol. 13                                 11/26/07

  AS7068     Fresh Deciduous Fruit Report                          11/21/07

  AS7067     Retail Sector Report                                  11/08/07

  AS7066     Citrus Annual                                         11/07/07

  AS7065     Ag Down Under Vol. 12                                 11/02/07

  AS7063     Dairy & Products Annual                               10/24/07
  ---------- ----------------------------------------------------- ----------