Voluntary Report - public distribution

**Date:** 4/1/2004

**GAIN Report Number:** CI4007

CI4007

**Chile**

**Sugar**

**Sugar Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Christine M. Sloop, Agricultural Attaché

U.S. Embassy Santiago

**Prepared by:**

Luis Hennicke, Agricultural Specialist

**Report Highlights:**

**Lower sugar prices and expected expansion of imports due to a
significant increase in duty free quotas, sugar beet planted area and
production will expand only modestly in MY2004/2005.**

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Unscheduled Report

Santiago \[CI1\]

\[CI\]

Table of Contents

[General 3](#general)

[Trade 3](#trade)

[Price Bands 3](#price-bands)

[Values of floor and ceiling prices for the following periods
4](#values-of-floor-and-ceiling-prices-for-the-following-periods)

[US -- Chile Free Trade Agreement 5](#us-chile-free-trade-agreement)

[PSD TABLE 7](#psd-table)

[PSD TABLE 7](#psd-table-1)

[IMPORT TRADE MATRIX 8](#import-trade-matrix)

[PRICE TABLE 8](#price-table)

# General

Increasing production yields and falling sugar consumption during the
last few years and a persistent fall in sugar prices from US\$0.60 per
Kg (average at consumer level) in 1999 to US\$0.51/Kg in 2003 resulted
in significantly higher stocks in 2002/2003, which were mainly in the
hands of the sugar industry (Iansa). Iansa, the sugar company who
effectively has a monopoly position, was able to reduce stocks by
contracting for a significantly smaller area of sugar beet plantings in
2003/2004. However, for the 2004/05 season, the industry increased
prices paid for sugar beets from US\$43.9 to US\$45 per ton, which
resulted in a moderate increase in planting contracts. In the near
future, industry sources expect total sugar beet planted area and
domestic sugar production to be even more closely related to the world
sugar price level and the constraints on sugar imports (quotas on duty
free imports). For example, if world prices fall, domestic production
will likely decline even further.

Industry sources report that although total sweetener consumption in
Chile has been increasing in the last few years, sugar consumption has
been falling as a result of substitution by other sweeteners, like
fructose. After a significant increase of over 700 percent in imports of
fructose during the previous 4 years, these fell 20 percent in CY2003
when compared to the year before. Industry sources report that demand
for HFCS fell, when the beverage manufacurers increased the usage of
sugar when IANSA significant reduced its prices. Chile does not produce
HFCS and almost all imports come from Argentina. Per capita consumption
of sugar is estimated to be close to 35 Kg.

## 

# Trade

Chile's sugar imports fell significantly in MY2003/2004, as a result of
the high domestic stocks accumulated during the previous two years.
Lower production and a significant increase in the duty-free import
quota from 60,000 to 105,000MT are expected to increase imports again.

# Price Bands

Chile supports its domestic sugar production with a price band system,
which has been in place since the mid eighties. The price band system
serves as Chile's principal price support tool. It promotes domestic
production and discourages imports by setting a minimum import price
that is normally higher than both international and Chilean domestic
prices. When international prices are below the floor of the price band,
a surcharge is applied to all imports based on the lowest quoted
international price from the referenced source, in order to bring the
CIF prices for the imported commodity up to the price band floor.
Rebates, in the form of a reduction from the normal import duty of 6
percent, theoretically also can be given when international prices
exceed the ceiling of the band. As a result of WTO case brought by
Argentina against Chile's price band system, the GOC published on
September 25, 2003, Law 19,897 modifying the old price band system. New
ceiling and floor prices were established and the mechanism for fixing
the reference price was clarified. The floor price in the case of sugar
was fixed at 310-dollar FOB level and the ceiling at 339 dollars FOB for
the years 2003 through 2007. Starting in 2008, the floor and ceiling
will be adjusted by 2 percent a year. The reference price will be a
fixed amount in US dollars per ton.

The floor and ceiling prices for the period of December 2003 through
November 2014 are the following:

+---------------------------+------------------+-----------------------+
| # Values of               |                  |                       |
| floor and ceiling prices  |                  |                       |
| for the following periods |                  |                       |
+---------------------------+------------------+-----------------------+
| Period                    | Floor Value      | Ceiling Value         |
|                           | (US\$/MT)        | (US\$/MT)             |
+---------------------------+------------------+-----------------------+
| Dec 1, 2003 -- Nov 30,    | 310              | 339                   |
| 2007                      |                  |                       |
+---------------------------+------------------+-----------------------+
| Dec 1, 2007 -- Nov 30,    | 304              | 332                   |
| 2008                      |                  |                       |
+---------------------------+------------------+-----------------------+
| Dec 1, 2008 -- Nov 30,    | 298              | 325                   |
| 2009                      |                  |                       |
+---------------------------+------------------+-----------------------+
| Dec 1, 2009 -- Nov 30,    | 292              | 319                   |
| 2010                      |                  |                       |
+---------------------------+------------------+-----------------------+
| Dec 1, 2010 -- Nov 30,    | 286              | 313                   |
| 2011                      |                  |                       |
+---------------------------+------------------+-----------------------+
| Dec 1, 2011 -- Nov 30,    | 269              | 294                   |
| 2012                      |                  |                       |
+---------------------------+------------------+-----------------------+
| Dec 1, 2012 -- Nov 30,    | 253              | 276                   |
| 2013                      |                  |                       |
+---------------------------+------------------+-----------------------+
| Dec 1, 2013 -- Nov 30,    | 238              | 259                   |
| 2014                      |                  |                       |
+---------------------------+------------------+-----------------------+

The surcharges or reductions for sugar will be determined twelve times
for each annual period from Dec 1 through Nov 30^th^ of the following
year, by a decree that will be published in the official gazette (Diario
Official) at least 5 days prior to the due date. The surcharge or
reductions will be applied to the following HTS numbers 1701.1100,
1701.1200, 1701.9100, 1701.9910, 1701.9920 and 1701.9990, cane or beet
sugar, with or without colorants and others.

The reference price for sugar will be the average of the daily prices
for a calendar month from the 16^th^ day of the month to the 15^th^ day
of the following month, at which time the decree will be published. The
relevant reference prices used will be from the following markets:

-   For raw sugar it will be the New York Exchange contract #11 price.

-   For product closest to contract #5 refined sugar on the London
    Exchange, the relevant market will be FOB Europe.

For refined sugar, the additional duty will be applied to Chilean sugar
grades 1 and. For other grades of refined sugar i.e. grades 3, 4 and
sub-standard, the additional duty will be increased by an extra 60
percent above these calculated rate for grades 1 and 2. Mixtures
containing more than 65 percent sugar content will be subject to the
sugar price bands.

The modification to the price band system also introduced a duty free
quota of 105,000 MT. Within the total duty free quota, 60,000 MT are for
the subheadings 1701.99 "other" which include items 1701.9910,
1701.9920, and 1701.9990. A duty free quota of 30,000 MT corresponds to
subheadings 1701.9100 and the remaining 15,000 MT to subheadings 1701.91
and 1701.99. No single importer may obtain more than 20 percent of the
duty free quota. The beneficiary of the quota must use the imported
sugar or sugar containing product as an input in another food product,
which comes under a different tariff heading.

Import quotas are also limited by country of origin:

  ------------------------ ----------------------------------------------
  Country of origin        Quota of 60,000 MT for the subheadings 1701.99

  Argentina                21,000

  Guatemala                16,700

  Brazil                   9,700

  Other                    12,600

  Other excludes           
  Argentina, Guatemala and 
  Brazil                   
  ------------------------ ----------------------------------------------

  --------------------- -------------------------------------------------
  Country of origin     Quota of 15,000 MT for subheadings 1701.99 and/or
                        1701.9100

  Bolivia               12,000

  Costa Rica            1,500

  El Salvador           1,500
  --------------------- -------------------------------------------------

## 

## 

The 30,000 MT quota is not assigned to a specific origin.

Duties paid for sugar imports during CY2003 and the first three months
of 2004 are shown below:

## 

**SUGAR PRICE BAND**

**REFERENCE PRICES, SPECIFIC SURCHARGE AND TOTAL DUTY PAID**

**2003-2004**

+-------------+-------------+-------------+-------------+-------------+
|             |             | Refined     |             |             |
|             |             | Sugar       |             |             |
|             |             | (Grade 2)   |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Month       | Year        | Reference   | Specific    | Total       |
|             |             | price US\$  | Surcharge   |             |
|             |             | / Ton       |             | Duty        |
|             |             |             | US\$/Ton    |             |
|             |             |             |             | \%          |
+-------------+-------------+-------------+-------------+-------------+
| Jan         | 2003        | 216.40      | 106.59      | 20.58       |
+-------------+-------------+-------------+-------------+-------------+
| Feb         | 2003        | 229.80      | 91.31       | 30.00       |
+-------------+-------------+-------------+-------------+-------------+
| Mar         | 2003        | 226.50      | 94.58       | 43.57       |
+-------------+-------------+-------------+-------------+-------------+
| Apr         | 2003        | 214.00      | 88.34       | 36.53       |
+-------------+-------------+-------------+-------------+-------------+
| May         | 2003        | 213.40      | 89.42       | 34.08       |
+-------------+-------------+-------------+-------------+-------------+
| Jun         | 2003        | 204.67      | 98.10       | 41.58       |
+-------------+-------------+-------------+-------------+-------------+
| Jul         | 2003        | 204.00      | 99.18       | 31.69       |
+-------------+-------------+-------------+-------------+-------------+
| Aug         | 2003        | 209.00      | 93.76       | 43.42       |
+-------------+-------------+-------------+-------------+-------------+
| Sep         | 2003        | 190.40      | 114.37      | 52.39       |
+-------------+-------------+-------------+-------------+-------------+
| Oct         | 2003        | 178.80      | 126.30      | 53.18       |
+-------------+-------------+-------------+-------------+-------------+
| Nov         | 2003        | 175.80      | 129.55      | 58.20       |
+-------------+-------------+-------------+-------------+-------------+
| Dec         | 2003        | 176.43      | 142.00      | 50.03       |
+-------------+-------------+-------------+-------------+-------------+
| **Average   |             | **203.27**  | **106.13**  | **30.07**   |
| 2003**      |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Jan         | 2004        | 192.29      | 125.00      |             |
+-------------+-------------+-------------+-------------+-------------+
| Feb         | 2004        | 187.55      | 130.00      |             |
+-------------+-------------+-------------+-------------+-------------+
| Mar         | 2004        | 189.15      | 128.00      |             |
+-------------+-------------+-------------+-------------+-------------+
| **Average   |             | **189.66**  | **127.67**  |             |
| 2004**      |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

## 

If market conditions do not change significantly, using current sugar
prices, industry sources estimate that the specific surcharge will stay
around US\$125 per ton for refined sugar, which combined with the add
value adds up to an estimated 60 percent total duty for imports.

Chile has agreed to a MFN rate of 98 percent for sugar.

## 

# US -- Chile Free Trade Agreement

Duties on sugar products will be lifted in accordance with the
provisions of staging category G that reads: "Duties will remain at
their base rate during years one through four. Duties will then be
reduced by 8.3 percent of the base rate on January 1 of year five, and
by 8.3 percent of the base rate each year thereafter through year eight.
Beginning January 1 of year nine, duties of these goods will be reduced
by 16.7 percent of the base rate annually through year twelve, and will
be duty free effective January 1 of year twelve (2015)".

Preferential tariff treatment for products under the previous paragraph
shall be accorded to a quantity of goods equal to the amount of the
United States' trade surplus, by volume, from all sources in the
following subheadings: HS1701.11, HS1701.12, HS1701.91, and HS1701.99.
The United States' trade surplus will be calculated using the most
recent annual data available.

The provisions refer to the following tariff lines:

1701.11, 1701.12, 1701.91, 1901.99, 1702.90.20, 1702.90.58, 1702.90.68,
2106.90.46, 2101.90.91 and 2106.90.94.

For sugar containing products, duties on these goods will also be lifted
in accordance with provisions of staging category G (see first
paragraph).

Preferential tariff treatment for products under the previous paragraph
shall be accorded to a quantity of goods equal to the amount of the
United States' trade surplus, by volume, from all sources in the
following goods: HS1702.20, HS1702.30, HS1702.90, HS1806.10, HS2101.12,
HS2101.20 and HS2106.90. The United States' trade surplus will be
calculated using the most recent annual data available.

The above-mentioned provision applies to the following tariff lines:

1702.20.28, 1702.30.28, 1702.40.28, 1702.60.28, 1704.90.68, 1704.90.78,
1806.10.15, 1806.10.28, 1806.10.38, 1806.10.55, 1806.10.75, 1806.20.73,
1806.20.77, 1806.20.94, 1806.20.98, 1806.90.39, 1806.90.49, 1806.90.59,
1901.20.25, 1901.20.60, 1901.90.54, 1901.90.58, 2101.12.38, 2101.12.48,
2101.12.58, 2101.20.38, 2101.20.48, 2101.20.58, 2103.90.78, 2106.90.72,
2106.90.76, 2106.90.80 and 2106.90.97.

# PSD TABLE

![](media/image2.wmf)

# PSD TABLE

![](media/image3.wmf)

# IMPORT TRADE MATRIX

![](media/image4.wmf)

# PRICE TABLE

![](media/image5.wmf)