Required Report - public distribution

**Date:** 4/11/2006

**GAIN Report Number:** GT6004

GT6004

**Guatemala**

**Sugar**

**Annual**

**2006**

**Approved by:**

![](media/image1.wmf)Stephen Huete, Agricultural Counselor

Office of Agricultural Affairs

**Prepared by:**

Karla Tay, Agricultural Specialist

**Report Highlights:**

Sugar production is expected to continue growing steadily at 2% per
year, as more area is planted. A new warehouse at Puerto Quetzal has
increased Guatemala's storage capacity to 64,000 MT of bulk sugar. China
has shot up to become a major export market. The U.S. quota was
increased from 50,546 MT in FY 2005 to 86,242 MT in FY 2006. Guatemala
will have a preferential quota (0% tariff) of 64,000 MT with Taiwan, as
part of a new bilateral free trade agreement.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Guatemala \[GT1\]

\[GT\]

Table of Contents

[**Executive Summary 3**](#executive-summary)

[Production 4](#production)

[Consumption 6](#consumption)

[Trade 7](#trade)

[Stocks 7](#stocks)

[Policy 7](#policy)

[Marketing 8](#marketing)

# Executive Summary

Guatemala's sugar industry is performing steadily with some technical
improvements in cane and sugar production expected. Neither policy nor
supplies are expected to show any significant change in the foreseeable
future. Production has grown slightly in proportion to increases in
planted area, which in turn are related to increases in international
prices. In MY 2007 area planted is forecast to reach 200,000 hectares.
Cane yields are expected to remain essentially unchanged.

Local demand increased 14% from MY 2004 to MY 2005 possibly due to
improvements in the economy following strengthening in international
coffee prices. Consumption is expected to grow at 4-5% per year, keeping
pace with population growth.

Trade has shown considerable changes, as China has established itself as
a major export market, together with the U.S.

Guatemala exports around 60% of its total production and is considered
the world's fifth largest exporter and the second largest in Latin
America, accounting for around 4% of net world exports. In CY 2005
Guatemala exported 1,569,251 MT, a 21% increase over the previous year.
In CY 2006 exports are expected to increase to 1,883,100 MT due to
higher production. The major destinations will be China, Korea, U.S.,
Canada, and Taiwan.

# Production

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

  Country               Guatemala                                                 

  Commodity             Centrifugal                                               (1000 MT)
                        Sugar                                                     

                        2005          Estimate   2006       Estimate   2007       Estimate

                        USDA Official Post       USDA       Post       USDA       Post
                        \[Old\]       Estimate   Official   Estimate   Official   Estimate
                                      \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  Market Year Begin                   Nov-04                Nov-05                Nov-06

  Beginning Stocks      188           212        223        159        0          101

  Beet Sugar Production 0             0          0          0          0          0

  Cane Sugar Production 1982          2103       2000       2145       0          2209

  TOTAL Sugar           1982          2103       2000       2145       0          2209
  Production                                                                      

  Raw Imports           0             0          0          0          0          0

  Refined Imp.(Raw Val) 0             0          0          0          0          0

  TOTAL Imports         10            0          0          0          0          0

  TOTAL SUPPLY          2170          2315       2223       2304       0          2310

  Raw Exports           1225          1263       1181       1315       0          1341

  Refined Exp.(Raw Val) 210           234        210        217        0          223

  TOTAL EXPORTS         1386          1497       1391       1527       0          1564

  Human Dom.            561           650        572        676        0          682
  Consumption                                                                     

  Other Disappearance   0             0          0          0          0          0

  Total Disappearance   561           650        572        676        0          682

  Ending Stocks         223           159        260        101        0          64

  TOTAL DISTRIBUTION    2170          2306       2223       2304       0          2310
  --------------------- ------------- ---------- ---------- ---------- ---------- ----------

+----------------+--------+--------+--------+---------+------+-------+
| PSD Table      |        |        |        |         |      |       |
+----------------+--------+--------+--------+---------+------+-------+
| Country        | Gua    |        |        |         |      |       |
|                | temala |        |        |         |      |       |
+----------------+--------+--------+--------+---------+------+-------+
| Commodity      | Sugar  |        |        |         | (    |       |
|                | Cane   |        |        |         | 1000 |       |
|                | for    |        |        |         | HA)( |       |
|                | Centr  |        |        |         | 1000 |       |
|                | ifugal |        |        |         | MT)  |       |
+----------------+--------+--------+--------+---------+------+-------+
|                | 2005   | Es     | 2006   | E       | 2007 | For   |
|                |        | timate |        | stimate |      | ecast |
+----------------+--------+--------+--------+---------+------+-------+
|                | USDA   | Post   | USDA   | Post    | USDA | Post  |
|                | Of     | Es     | Of     | E       | Offi | Estim |
|                | ficial | timate | ficial | stimate | cial | ate\[ |
|                | \      |        |        | \[New\] | \[O  | New\] |
|                | [Old\] | \      | \      |         | ld\] |       |
|                |        | [New\] | [Old\] |         |      |       |
+----------------+--------+--------+--------+---------+------+-------+
| Market Year    |        | Nov-04 |        | Nov-05  |      | N     |
| Begin          |        |        |        |         |      | ov-06 |
+----------------+--------+--------+--------+---------+------+-------+
| Area Planted   | 187    | 194    | 194    | 197     | 0    | 200   |
+----------------+--------+--------+--------+---------+------+-------+
| Area Harvested | 187    | 194    | 194    | 197     | 0    | 200   |
+----------------+--------+--------+--------+---------+------+-------+
| Yield (MT/HA)  | 95.1   | 91.7   | 90.7   | 90.5    | 0    | 90.5  |
+----------------+--------+--------+--------+---------+------+-------+
| Production     | 17781  | 17781  | 17587  | 17820   | 0    | 18106 |
+----------------+--------+--------+--------+---------+------+-------+
| TOTAL SUPPLY   | 17781  | 17781  | 17587  | 17820   | 0    | 18106 |
+----------------+--------+--------+--------+---------+------+-------+
| Utilization    | 17281  | 17281  | 17087  | 17320   | 0    | 17556 |
| for Sugar      |        |        |        |         |      |       |
+----------------+--------+--------+--------+---------+------+-------+
| Utilized for   | 500    | 500    | 500    | 500     | 0    | 550   |
| Alcohol        |        |        |        |         |      |       |
+----------------+--------+--------+--------+---------+------+-------+
| TOTAL          | 17781  | 17781  | 17587  | 17820   | 0    | 18106 |
| UTILIZATION    |        |        |        |         |      |       |
+----------------+--------+--------+--------+---------+------+-------+

Guatemala's planted sugarcane area for MY 2006 is forecast at 197,000
hectares. Usually in Guatemala, the increase or decrease of area planted
directly responds to sugarcane contracts offered by sugar mills, the
price formula for sugarcane and the relative profitability of crops like
bananas and palm. In this case sugarcane planted area is expected to
rise by about 2% thanks to the slight recovery of international prices.

Hurricane Stan of October 2005 reduced MY 2006 production by only 2%
(close to 40,000 MT) since the crop was mature enough and strong enough
to resist storm damage; harvest was about to start. If the storm had hit
young plantations, the impact would have been devastating. For the MY
2007 crop, sugarcane yields and sugar recovery rates are expected to
remain steady at the MY 2006 levels. Eventually, yields and production
will largely depend on climatic conditions. One fifth of the planted
area is renewed every year to lessen risks, as the sugar cane is a
5-year crop.

Average sugarcane yields and sugar recovery rates are summarized below:

YIELDS/RECOVERY RATES 2003/04 2004/05 2005/06

Sugarcane (MT/Ha) 91.6 91.7 90.5

Sugar (Kg/MT) 111 113 115

The Guatemalan Center for Sugarcane Research (CENGICAÑA) keeps
supporting the industry with research and technical assistance. Their
objective is to improve and increase sugarcane and by-products
production and yields, by generating, validating and transferring
quality technology for the profitable and sustainable development of the
industry. Their main goal is to increase sugar yields and to improve
varieties through research programs. CENGICAÑA's assistance has been
very valuable to the sugar industry in keeping yields at acceptable
levels through poor weather conditions. They are permanently developing
new varieties that may improve next year's harvest. Currently, the most
commonly planted sugar cane variety is CP722086, followed by 68P23,
CP781312, and CP731547. According to officials at CENGICAÑA the total
potential area that could be planted to sugarcane is 350,000 hectares,
which could yield up to 30 million MT of sugarcane. However it is
unlikely that all this land will be used for cane.

There are 15 sugar mills in the country. During 2004, two sugar mills
closed. Combined milling capacity for MY 2006 is around 125,000 MT per
day, down from last year's capacity of 129,000 MT per day. Sugar
production for 2005-06 is expected to reach about 2,145,000 MT due to
increased harvest area. Total sugar production for MY 2007 is forecast
to slightly increase due to additional planted area of 3,000 hectares.

There is only one sugar mill that currently produces alcohol. This mill
produces around 500 MT of alcohol. Most of the alcohol is exported to
the U.S. and Mexico. Other mills are adding alcohol refineries, and the
industry hopes to increase ethanol production for use as motor fuel. In
addition, six sugar mills are generating electricity, utilizing the
sugarcane bagasse. They are currently generating approximately 148
megawatts of electricity, which accounts for 20% of total electricity
produced in the country.

There are two methods of irrigation used in Guatemala, gravity flow and
aspersion. Approximately 40 percent of Guatemalan sugarcane is
irrigated. The sugar industry generates around 60,000 full-time jobs,
which support around 250,000 people. In addition, the sugar industry
generates employment indirectly for another 300,000 people.

The average cost of production for 2005 follows:

DESCRIPTION VALUE \$/HA ( Q7.65/\$1) PERCENTAGE

Land preparation 114.75 8.29

Planting 394.93 28.53

Weed control out of cane plantation 6.87 .50

Weed control inside of cane plantation 94.67 6.84

Fertilization 74.59 5.39

DESCRIPTION VALUE \$/HA ( Q7.65/\$1) PERCENTAGE

Irrigation 173.08 12.50

Maturing agents application 20.08 1.45

Experiments 7.05 0.51

Pest control 15.00 1.04

Harvesting 483.86 34.96

TOTAL 1384.88 100.00

The local sugar association "Associacion de Azucareros de Guatemala"
(ASAZGUA) through a price formula set sometime before the harvest season
starts, determines the price for sugarcane. The price is based on a
minimum of 87.5 kilos of sugar per metric ton of cane. For sugar content
above the basis, the producer receives a proportional adjustment.

Local sugar prices for 2006 have increased by 5%. The Government did not
approve the increase and is considering importing sugar from Brazil,
which is not profitable since local prices are very competitive. The
industry does not want to hold the line on local sugar prices. This
measure affects the independent sugarcane grower, since sugarcane prices
are determined by a formula based in part on the current domestic sugar
price. Due to this situation, independent sugarcane growers are trying
to discuss with sugar millers and government officials the possibility
of changing the formula so that domestic wholesale price movements do
not affect them; they would also consider receiving some type of
subsidy. Presently, the prices are as follows:

At Mill Wholesaler Retailer

\$0.20/lbs \$0.23/lbs \$0.26/lbs

## 

# Consumption

In 2005-06 local consumption is expected to increase slightly to 656,736
MT due to a growth in population. Per capita consumption of sugar is 48
Kg. MY 2005 consumption increased significantly from the previous year,
most likely due to a reduction in rural poverty as international coffee
prices rebounded. Local consumption has increased 14% in the last year,
experiencing major increases from May to July. May sugar consumption in
2004 was 46,103 MT and in 2005 was 56,334, accounting for an 18%
increase.

Distribuidora Azucarera de Guatemala S.A. (DAZGUA) maintains a legal
oligopoly on the domestic wholesale and retail markets, established by
decree in 1997. DAZGUA markets and distributes to retailers through 38
warehouses strategically located throughout the country. Competition
from other retailers has forced DAZGUA to come out with new marketing
strategies in order to compete with retailers offering lower prices due
to lower costs in packaging, transportation, and inaccurate weights.

In Guatemala almost all-wholesale sugar is sold through DAZGUA. There
are ways of buying wholesale from mills, but it is very difficult and
the amounts are very small. However, in the retail market, anyone can
sell.

Alternative sweeteners and other alternative sugar products are not a
detrimental or significant factor in total domestic sugar consumption.
Sugar confectionery imports and sugar smuggling from Mexico have had
some affect on sugar consumption but not to a significant degree.
Currently, domestic consumption is split as follows: 28% for industrial
and 72% for human. On the industrial side of domestic consumption, the
soft drinks industry is the major consumer of sugar. Other major sugar
consumers include confectioneries, bakeries, juices, wineries, dairy
products, and pharmaceuticals.

# Trade

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

  Country           Guatemala                              

  Commodity         Centrifugal                            
                    Sugar                                  

  Time period       Jan-Dec               Units:           Metric Tons

  Exports for:      2004                                   2005

  U.S.              200,500               U.S.             246,997

  Others                                                   

  South Korea       326,850               South Korea      350,316

  Canada            123,905               China            239,396

  Taiwan            62,026                Canada           175,723

  Malaysia          82,500                Venezuela        96,093

  Venezuela         61,993                Indonesia        81,268

  Ukraine           65,700                Taiwan           78,132

  Mexico            73,783                Malaysia         44,139

  Jamaica           29,955                Ukraine          39,216

  Chile             21,700                Jamaica          37,001

  Bulgaria          19,000                Chile            35,114

  Total for Others  867,412               Total for Others 1,176,398

  Others not Listed 367,343               Others not       392,853
                                          Listed           

  Grand Total       1,234,755             Grand Total      1,569,251
  ----------------- -------------- ------ ---------------- ---------------

Guatemala exports around three quarters of total production. Guatemala
is considered the fifth largest exporter in the world and the second
largest in Latin America. In CY 2005 Guatemala exported 1,569,251 MT, a
significant increase over the previous year thanks to the additional
area harvested. In CY 2006, Guatemalan exports will respond to
additional demand from the U.S. and Taiwan. The total U.S. quota
allocation for Guatemala in FY2006 is 86,242 MT, 41% above TRQ assigned
the previous year (50,546 MT). The Guatemalan Sugar Association expects
that around 84% of total exports will be in raw sugar, a slight increase
from the previous year due to an increase in the U.S. re-export market
and an increase of raw sugar imports by Canada, which will more than
compensate for a decrease in exports to Russia. For the MY 2006 crop, a
fair amount of sugar exports are expected to go to the U.S., Canada,
Venezuela, Taiwan, and China. The Far East Countries are starting to be
considered as the main export markets, together with U.S. Since June
2006, the new bilateral free trade agreement between Guatemala and
Taiwan will allow for 64,000 MT of raw sugar to enter free.

# Stocks

In November 2006 ending stocks are expected to be as low as 70,000 MT.
Domestic stocks are held in warehouses managed by DAZGUA throughout the
country. All sugar that is to be exported is held in warehouses managed
by EXPOGRANEL, located in Puerto Quetzal. Their warehousing capacity has
increased to 64,000 MT of bulk sugar, and 47,000 MT of sugar in sacks of
50 Kg (520,000 sacks). They have a loading capacity of 2,000 MT per
hour, comparable to Brazil and Australia.

# 

# Policy

Official decree 92-71 established the Sugar Board, which includes
representatives from the Ministry of Economy, sugarcane producers, and
sugar mills. The Board establishes production goals, sets sugarcane
prices, and also allocates Guatemala's production of the U.S. sugar
quota to the different sugar mills. The allocation to each mill is based
on past production performance, previous quotas, and milling capacity.

According to the law, all sugar mills have to add vitamin "A" to sugar.
The industry claims to invest \$3.5 million a year on vitamin "A".

Presently, Guatemala has no quotas for sugar, and all imports are
accessed a tariff of 20%. Furthermore, all imports must fulfill the
enrichment law.

# Marketing

ASAZGUA launched a new marketing strategy to maintain local sugar
consumption, as diet sugar tries to gain new niches. Both by radio and
visual media, the sugar industry is promoting its famous "just 16
calories per teaspoon". The industry is very confident on maintaining or
even increasing some 4-5% domestic consumption.