Required Report - public distribution

Date: 9/30/2005

GAIN Report Number: SF5035

SF5035

South Africa, Republic of

Sugar

Semi annual report

2005

Approved by:

![](media/image1.wmf)Scott Reynolds

#### **U.S. Embassy, South Africa**

Prepared by:

Herman Germishuis

Report Highlights:

South Africa's sugar production for the 2005/06 season is estimated at
2.7 million tons from 21.5 million tons of cane. This is better than in
2004/05 and is close to a 'normal' outcome. It will allow local sales of
about 1.6 million tons and exports of about 1.3 million tons. Imports
could, however, increase as the import tariff was recently cut from US\$
86.6/MT to US\$ 36.7/MT.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Unscheduled Report

Pretoria \[SF1\]

\[SF\]

# **Summary**

Sugar cane production for the current April 2005 to March 2006 season is
estimated at 21.5 million tons compared to the 19.1 million tons
produced in 2004/05. The increase in production is mainly due to more
favorable weather conditions. Sugar production is estimated at 2.5
million tons Tell Quell (2.7 million MTRV) compared to the 2.3 million
tons (2.4 million MTRV) produced in 2004/05. Domestic consumption in
2005/06 is estimated at 1.6 million tons compared to 1.5 million in the
previous season. Exports are expected to reach 1.3 million tons after a
little over 1 million tons were exported in 2004/05. Imports could
increase after the import tariff was recently decreased from US\$86.6/MT
to US\$36.7/MT.

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

US\$1=R6.35 (09/29/05)

# 

# 

# 

# **Sugar cane**

  ---------------- ---------- --------- --------- ---------- --------- ----------
  PSD Table                                                            

  Country          South                                               
                   Africa,                                             

  Commodity        Sugar Cane                                          

  1000 HA          2004       Revised   2005      Estimate   2006      Forecast

  1000 MT          USDA       Post      USDA      Post       USDA      Post
                   \[Old\]    \[New\]   \[Old\]   \[New\]    \[Old\]   \[New\]

  Market Year                 04/2003             04/2004              04/2005
  Begin                                                                

  Area Planted     345        427       435       429        438       430

  Area Harvested   330        326       327       322        330       325

  Production       21270      20419     19095     19095      20000     21492

  TOTAL SUPPLY     21270      20419     19095     19095      20000     21492

  Utilization for  21270      20419     19095     19095      20000     21492
  Sugar                                                                

  Utilizatn for    0          0         0         0          0         0
  Alcohol                                                              

  TOTAL            21270      20419     19095     19095      20000     21492
  UTILIZATION                                                          
  ---------------- ---------- --------- --------- ---------- --------- ----------

# **Production**

Since the general droughts of the early and mid 1990's, the industry has
continued to experience regional droughts from time to time. The table
below shows both cane and sugar production since 1994/95. Rainfall for
the 2004/05 season was below normal through the entire industry
resulting in the smallest crop since 1995/96.

At this stage prospects for the 2005/06 season are more favorable with
the sugar cane yield expected to exceed 65 tons per hectare yielding a
cane cut of about 21.5 million tons and sugar production of about 2.5
million MT (2.7 million MT raw value).

The following table contains production details:

+---------+---------+---------+---------+---------+---------+---------+
| **S     | **Area  | **Area  | **Yield | **Cane  | **Sugar | **Cane/ |
| eason** | pl      | harv    | (M      | cr      | produ   | sugar** |
|         | anted** | ested** | T/HA)** | ushed** | ction** |         |
|         |         |         |         |         |         | **Rati  |
|         | **HA**  | **HA**  |         | **MT**  | **MT    | o\*\*** |
|         |         |         |         |         | \***    |         |
+---------+---------+---------+---------+---------+---------+---------+
| **19    | **392   | **284   | **      | **15    | **1 657 | *       |
| 94/95** | 476**   | 237**   | 55,18** | 683     | 835**   | *9.40** |
|         |         |         |         | 277**   |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| **19    | **394   | **273   | **      | **16    | **1 658 | **      |
| 95/96** | 843**   | 122**   | 61,19** | 713     | 935**   | 10.02** |
|         |         |         |         | 649**   |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| **19    | **411   | **299   | **      | **20    | **2 259 | *       |
| 96/97** | 296**   | 655**   | 69,92** | 950     | 696**   | *9.23** |
|         |         |         |         | 894**   |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| **19    | **421   | **296   | **      | **22    | **2 403 | *       |
| 97/98** | 038**   | 575**   | 74,70** | 154     | 630**   | *9.18** |
|         |         |         |         | 775**   |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| **19    | **416   | **316   | **      | **22    | **2 638 | *       |
| 98/99** | 820**   | 357**   | 72,48** | 930     | 156**   | *8.67** |
|         |         |         |         | 324**   |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| **19    | **421   | **313   | **      | **21    | **2 524 | *       |
| 99/00** | 637**   | 294**   | 67,74** | 223     | 660**   | *8.38** |
|         |         |         |         | 098**   |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| **20    | **428   | **322   | **      | **23    | **2 721 | *       |
| 00/01** | 822**   | 858**   | 73,95** | 876     | 562**   | *8.75** |
|         |         |         |         | 162**   |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| **20    | **431   | **325   | **      | **21    | **2 403 | *       |
| 01/02** | 771**   | 704**   | 64,96** | 156     | 243**   | *8.83** |
|         |         |         |         | 537**   |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| **20    | **430   | **321   | **      | **23    | **2 754 | *       |
| 02/03** | 106**   | 234**   | 71,64** | 012     | 619**   | *8.33** |
|         |         |         |         | 554**   |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| **20    | **426   | **325   | **      | **20    | **2 412 | *       |
| 03/04** | 861**   | 956**   | 62,84** | 418     | 031**   | *8.44** |
|         |         |         |         | 933**   |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| **20    | **429   | **321   | **      | **19    | **2 226 | *       |
| 04/05** | 045**   | 571**   | 59,59** | 094     | 869**   | *8.54** |
|         |         |         |         | 760**   |         |         |
+---------+---------+---------+---------+---------+---------+---------+
| **20    | **430   | **325   | **      | **21    | **2 512 | *       |
| 05/06** | 000**   | 000**   | 65.13** | 492     | 000**   | *8.56** |
|         |         |         |         | 000**   |         |         |
+---------+---------+---------+---------+---------+---------+---------+

\* Tel Quell \*\* Metric tons cane per ton of sugar

# **Cane prices**

Through the revenue sharing arrangement between millers and growers,
growers are paid a share of industry proceeds. Outlined below is recent
recoverable value (RV) prices paid by millers to growers together with
the cane price at average recoverable values for the industry. Prices in
any year are determined 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 calculation and
smaller crops increase prices due to the smaller proportion of export
sugar. RV prices have lagged CPI and in recent seasons prices have been
flat due to the strength of the Rand. The lower prices are despite the
impact of the smaller crops and reduced exports in the calculation.

+-------------+-------------+-------------+-------------+-------------+
| SA Rand/MT. | RV Price    | ####        | #### Cane/  | ####        |
|             |             |  Cane Price | sugar ratio |             |
+-------------+-------------+-------------+-------------+-------------+
| 1998-1999   | 1 046,62    | 125,85      | 8.67        |             |
+-------------+-------------+-------------+-------------+-------------+
| 1999-2000   | 971,09      | 121,36      | 8.38        |             |
+-------------+-------------+-------------+-------------+-------------+
| 2000-2001   | 1 105,00    | 130,50      | 8.75        |             |
+-------------+-------------+-------------+-------------+-------------+
| 2001-2002   | 1 352,14    | 160,23      | 8.83        |             |
+-------------+-------------+-------------+-------------+-------------+
| 2002-2003   | 1 368,79    | 171,78      | 8.33        |             |
+-------------+-------------+-------------+-------------+-------------+
| 2003-2004   | 1 357,01    | 169,08      | 8.44        |             |
+-------------+-------------+-------------+-------------+-------------+
| 2004-2005   | 1 297,19    | 159,55      | 8.54        | R3,400\*    |
+-------------+-------------+-------------+-------------+-------------+
| 2005-2006   | 1 347.80    | 164.57      | 8.56        |             |
+-------------+-------------+-------------+-------------+-------------+

\*Constant in Rand terms since 2003 but US\$ value subject to big
variations in the Rand/Dollar exchange rate.

# **Centrifugal sugar**

  -------------------- --------- --------- --------- ---------- --------- ----------
  Commodity            Sugar                                              

  1000 MT              2004      Revised   2005      Estimate   2006      Forecast

                       USDA      Post      USDA      Post       USDA      Post
                       \[Old\]   \[New\]   \[Old\]   \[New\]    \[Old\]   \[New\]

  Market Year Begin              04/2003             04/2004              04/2005

  Beginning Stocks     586       586       950       870        765       920

  Beet Sugar           0         0         0         0          0         0
  Production                                                              

  Cane Sugar           2560      2560      2370      2360       2495      2665
  Production                                                              

  TOTAL Sugar          2560      2560      2370      2360       2495      2665
  Production                                                              

  Raw Imports          0         0         0         0          0         0

  Refined Imp. (Raw    284       230       255       245        260       250
  Val)                                                                    

  TOTAL Imports        284       230       255       245        260       250

  TOTAL SUPPLY         3430      3376      3575      3475       3520      3835

  Raw Exports          720       765       865       750        850       950

  Refined Exp. (Raw    305       305       325       270        350       350
  Val)                                                                    

  TOTAL EXPORTS        1025      1070      1190      1020       1200      1300

  Human Dom.           1452      1430      1615      1530       1650      1550
  Consumption                                                             

  Other Disappearance  3         6         5         5          5         5

  Total Disappearance  1455      1436      1620      1535       1655      1555

  Ending Stocks        950       870       765       920        665       980

  TOTAL DISTRIBUTION   3430      3376      3575      3475       3520      3835
  -------------------- --------- --------- --------- ---------- --------- ----------

###### Production

A sugar crop of 2,512 million tons Tell Quell (2.665 million MTRV) is
estimated for the 2005/06 season (2004/05 actual -- 2.27 million tons,
2.36 million MTRV), which extends from April 2005 to March 2006. This
increase is a return to 'normal' production. Sugarcane production is
estimated at 21.5 million tons for the current season (2004/05 -- 19.1
million tons).

With the 2006/07 growing season only commencing in spring, it is not
possible to provide a forecast for 2006/07 at this stage. The industry
expects that in a normal rainfall year 2.5 million tons of sugar will be
produced and the industry plans on this basis until the first estimates
are received, which for 2006/07 will be in April 2006.

There is interest in the manufacture of ethanol from sugarcane by the
South African sugar industry. With oil prices destined to remain at
historically high levels and the emphasis on environmentally friendly
fuels, future ethanol production is possible.

**Consumption**

Sugar supplies into the Southern African Customs Union (SACU) have
changed markedly since the early 1990's, when South Africa was the main
supplier in the region with over 95% of market share. In the meantime
the market was opened up and South Africa has lost market share to both
Swaziland 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 in the early
1990's increased its sales into the SACU market, in particular to South
Africa, being the major part of the market.

Over and above this, as part of the SADC Free Trade Agreement, it was
agreed that SADC sugar producers would be allowed to sell sugar free of
duty into SACU based on a formula (access of about 50 000 tons). The
number of sugar suppliers in the market has therefore increased
significantly. In addition, sugar can enter the market freely subject to
paying the import duty. The increased flow of sugar from the region into
South Africa has had a significant impact on the South African sugar
industry. The demand for sugar in the region has grown by roughly1% per
annum over 10 years, with demand closely correlated to growth in real
disposable income and growth in gross domestic product. Due to favorable
economic conditions during 2004/05, growth in demand was significantly
higher than the long term mean.

Trade

SADC sugar producers are net exporters of more than 2.5 million tons,
which includes preferential exports to the EU under the Contonou
Agreement. There is no shortage of sugar in the region and as a block of
internationally competitive sugar producers, SADC countries stand to
benefit from an anticipated improved international price in a hopefully
deregulated international sugar environment.

A significant development for the industry in recent years has been
exports through Maputo harbor, which provides a convenient port for the
Mpumalanga cane growing area. The industry is a shareholder in the
export facilities in Maputo, which serves the regional producers, i.e.
Mozambique, South Africa, Swaziland and Zimbabwe. STAM (the company
involved) is in the process of investing US\$10 million on the building
of a fourth silo.

  --------------------------- ---------------- --------------- -----------
  Import Trade Matrix                                          

  Country                     South Africa                     

  Commodity                   Sugar,                           

  Time Period                 March/April      Units:          MT

  Imports for:                2003/04                          2004/05

  U.S.                        0                U.S.            0

  Others                                       Others          

  Brazil                      1 338            Brazil          13 984

  Zimbabwe                    4 343            Zimbabwe        12 615

  Malawi                      14 402           Malawi          8 613

  Zambia                      9 118            Zambia          7 309

  Swaziland\*                 201 000          Swaziland\*     202 000

                                                                

  Total for Others            0                                0

  Others not Listed           0                                0

  Grand Total                 230 201                          244 521
  --------------------------- ---------------- --------------- -----------

> \*Estimate

  -------------------------- ---------------- ---------------- -----------
  Export Trade Matrix                                          

  Country                    South Africa                      

  Commodity                  Sugar,                            

  Time Period                April/March      Units:           MT

  Exports for:               2003/04                           2004/05

  U.S.                       23 646                            23 405

  Others                                      Others           

  Japan                      145 040          Japan            163 000

  South Korea                140 000          South Korea      140 000

  Mozambique\*               169 785          Mozambique       112 151

  Saudi Arabia               0                Saudi Arabia     79 000

  Kenya                      48 254           Kenya            74 229

  India                      49 500           India            73 822

  Malaysia                   80 000           Malaysia         49 000

  Tanzania                   16 157           Tanzania         37 325

  Mauritius                  30 857           Mauritius        37 059

  Madagascar                 46 076           Madagascar       33 731

  Total for Others           725 669                           799 317

  Others not Listed          259 174                           135 903

  Grand Total                1 008 489                         958 625
  -------------------------- ---------------- ---------------- -----------

\*Mainly exports to other markets through the port of Maputo.

## **Domestic prices**

Due to the international sugar market environment, 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 (DTI).

Sugar prices in SACU are established in a regulated environment driven
off a dollar based reference price system, which determines the duty
payable on sugar imports. This system was put in place by the Department
of Trade and Industry in 2000. Millers, who sell the sugar domestically,
compete against each other in the market, but also face competition from
SADC countries in terms of the SADC Free Trade Agreement, as well as
from Swaziland. The industry also faces world price imports under the
dollar based reference price system.

The dollar based reference price system was established by the DTI on
the basis of a 10 year average of the No. 5 world refined sugar price
adjusted for certain elements. Domestic sugar prices have historically
tended to increase at below the consumer price index. In 2003 sugar
prices decreased with millers reporting a 7% decline following the
strengthening of the Rand. In general, ex-factory sugar prices have
remained unchanged since 2003 due to the ongoing strength of the Rand.

The current ex-factory refined sugar price is about R3,400/ton or
R3.40/kg. or \$535/ton or 53 US cents/kg. at the exchange rate of
US\$1=R6.35. The world refined sugar price was about R1,940/ton in mid
July 2005.

**Policy**

The only protection the industry enjoys is the import tariff, which is
based on the price formula administered by the Department of Trade and
Industry. On September 23, 2005, the formula kicked in and the import
tariff for sugar was cut from 55 c/kg (R550/ton) to 23.3 c/kg
(R233/ton). In US\$ terms the tariff was \$86.6/ton which was cut to
\$36.7/ton.

The South African Sugar Association (SASA) is constituted in terms of
the Sugar Act. The Act provides for an Agreement to regulate the affairs
of the sugar industry, binding upon all those who grow sugarcane and
produce sugar and associated products.

The Sugar Industry Agreement covers the following:

Administration of cane production;

Co-ordination of the supply of sugarcane to the mills;

Dispute resolution structures;

> Disposal of the raw sugar available for export by SASA on behalf of
> the industry;
>
> Pooling of proceeds from the sale of sugar and molasses and the
> division of the net proceeds between the growing and milling sections.

The calculation of the price payable for cane deliveries;

> The imposition of levies to cover the cost of the administration of
> the industry by SASA;

The Division of Proceeds

The Division of Proceeds is the formula through which revenue is
allocated to the millers and growers as part of the partnership
arrangement. The proceeds from the sale of sugar in the national market,
raw export sugar and molasses comprise total industrial proceeds. Total
proceeds are determined by the size of the crop and the prices achieved
on the local and export markets. Prices for sugar and molasses are
dependent on market conditions both locally and abroad as well as the
Rand/dollar exchange rate.\
\
Industrial costs are the costs of administrating the Sugar Association
that include all the specialist services provided by SASA including
agricultural research, sugar exports and many more. Industrial costs are
a first charge against the industrial proceeds to determine the net
divisible proceeds that are then split based on a fixed percentage
between millers and growers.

The Division of Proceeds calculation is performed on a monthly basis
during the season based on estimates with a final calculation at the
conclusion of the season. Other than proceeds from the export of raw
sugar, revenues flow directly to the milling companies. Export proceeds
from the sale of raw export sugar, which is sold through the Sugar
Association, are paid to the milling companies shortly after receipt.
The milling companies then pay the growers based on cane delivered to
their mills.

The sugar cane prices table is repeated:

+-------------+-------------+-------------+-------------+-------------+
| SA Rand/MT. | RV Price    | ####        | #### Cane/  | ####        |
|             |             |  Cane Price | sugar ratio |             |
+-------------+-------------+-------------+-------------+-------------+
| 1998-1999   | 1 046,62    | 125,85      | 8.67        |             |
+-------------+-------------+-------------+-------------+-------------+
| 1999-2000   | 971,09      | 121,36      | 8.38        |             |
+-------------+-------------+-------------+-------------+-------------+
| 2000-2001   | 1 105,00    | 130,50      | 8.75        |             |
+-------------+-------------+-------------+-------------+-------------+
| 2001-2002   | 1 352,14    | 160,23      | 8.83        |             |
+-------------+-------------+-------------+-------------+-------------+
| 2002-2003   | 1 368,79    | 171,78      | 8.33        |             |
+-------------+-------------+-------------+-------------+-------------+
| 2003-2004   | 1 357,01    | 169,08      | 8.44        |             |
+-------------+-------------+-------------+-------------+-------------+
| 2004-2005   | 1 297,19    | 159,55      | 8.54        | R3,400\*    |
+-------------+-------------+-------------+-------------+-------------+
| 2005-2006   | 1 347.80    | 164.57      | 8.56        |             |
+-------------+-------------+-------------+-------------+-------------+

\*Constant in Rand terms since 2003 but \$ value subject to big
variations in the Rand/Dollar exchange rate.