""

Required Report - public distribution

**Date:** 10/9/2003

**GAIN Report Number:** CH3124

CH3024

**China, Peoples Republic of**

**Sugar**

**Semi-Annual**

**2003**

**Approved by:**

![](media/image1.wmf)Maurice W. House

U.S. Embassy, Beijing

**Prepared by:**

Jim Butterworth & Jiang Junyang

**Report Highlights:**

Total sugar production has been revised upward by 5.2 percent since the
initial forecast contained in FAS/Beijing's April 2003 sugar annual
report (CH3024). Most of the increase can be attributed to higher than
previously forecast yields for cane.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Semi-Annual Report

Beijing \[CH1\]

\[CH\]

**Production**

**Overview:** Total sugar production is 5.2 percent more than initially
forecast in FAS/Beijing's April 2003 sugar annual report (CH3024). Most
of the increase can be attributed to better than expected cane yields.
The cane area planted remains unchanged from the initial forecast -- 1.4
million ha. Regarding beets, both the area planted and production have
been reduced significantly from the previous forecast because of
unfavorable weather conditions and more profitable alternative crops.

**Cane:**

Planted area for MY04 remains the same as previously forecast -- 1.4
million ha -- which is essentially the same as the revised estimate for
MY03. The cane production forecast, however, has been increased 6.8
percent due to better than previously expected yields. Despite the low
purchase price paid by the mills in MY03 and an even lower price in
MY04, farmers in the main producing provinces of Guangxi and Yunnan
continue to grow cane, rather than switch to other crops.

The preliminary estimate of planted area for MY03 has been revised
upward slightly since the last report. Production has been revised
upward by 7.3 percent because crushing season in southern China extended
much longer than normal \-- until late May \-- and higher than normal
yields.

  ---------------- --------------- ---------- ---------- ---------- ---------- ----------
  **Country**      **China,                                                    
                   Peoples                                                     
                   Republic of**                                               

  **Commodity**    **Sugar Cane                                     (1000      
                   for                                              HA)(1000   
                   Centrifugal**                                    MT)        

                   2002            Revised    2003       Estimate   2004       Forecast

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

  **Market Year                    10/2001               10/2002               10/2003
  Begin**                                                                      

  Area Planted     1248            1248       1379       1393       1406       1406

  Area Harvested   1248            1248       1379       1393       1406       1406

  Production       75663           75663      83985      90107      84825      90557

  TOTAL SUPPLY     75663           75663      83985      90107      84825      90557

  Utilization for  75663           75663      83985      90107      84825      90557
  Sugar                                                                        

  Utilizatn for    0               0          0          0          0          0
  Alcohol                                                                      

  TOTAL            75663           75663      83985      90107      84825      90557
  UTILIZATION                                                                  
  ---------------- --------------- ---------- ---------- ---------- ---------- ----------

**Beet**

The beet planted area has been reduced 20 percent and production has
been reduced 38.7 percent both from the previous forecast. These
reductions can be attributed to an early spring drought in the major
beet producing regions of Xinjiang Province, Inner Mongolia, and
Heilongjiang. This delayed the planting season and precluded farmers
from planting the total area that FAS/Beijing had previously forecast.
It also reduced yields. Another reason for the reduction is, unlike the
sugar cane farmers in South China, a preliminary survey conducted by the
Ministry of Agriculture concluded that the beet farmers in the Northeast
are expected to respond to the falling price they receive for their
beets by switching to more profitable crops, namely soybeans, sunflower
seeds, and corn. The government's MY04 target price for beets is
RMB170/MT, down from RMB221/MT in MY03.

+-----------+----------+--------+----------+--------+-------+--------+
| **        | #        |        |          |        |       |        |
| Country** | ##### Ch |        |          |        |       |        |
|           | ina, Peo |        |          |        |       |        |
|           | ples Rep |        |          |        |       |        |
|           | ublic of |        |          |        |       |        |
+-----------+----------+--------+----------+--------+-------+--------+
| **Co      | **Sugar  |        |          |        | (1000 |        |
| mmodity** | Beets**  |        |          |        | HA)   |        |
|           |          |        |          |        | (1000 |        |
|           |          |        |          |        | MT)   |        |
+-----------+----------+--------+----------+--------+-------+--------+
|           | 2002     | R      | 2003     | Es     | 2004  | Fo     |
|           |          | evised |          | timate |       | recast |
+-----------+----------+--------+----------+--------+-------+--------+
|           | USDA     | Post   | USDA     | Post   | USDA  | Post   |
|           | Official | Es     | Official | Es     | Off   | Es     |
|           | \[Old\]  | timate | \[Old\]  | timate | icial | timate |
|           |          | \      |          | \      | \[    | \      |
|           |          | [New\] |          | [New\] | Old\] | [New\] |
+-----------+----------+--------+----------+--------+-------+--------+
| **Market  |          | 1      |          | 1      |       | 1      |
| Year      |          | 0/2001 |          | 0/2002 |       | 0/2003 |
| Begin**   |          |        |          |        |       |        |
+-----------+----------+--------+----------+--------+-------+--------+
| Area      | 406      | 406    | 422      | 424    | 413   | 330    |
| Planted   |          |        |          |        |       |        |
+-----------+----------+--------+----------+--------+-------+--------+
| Area      | 406      | 406    | 422      | 424    | 413   | 330    |
| Harvested |          |        |          |        |       |        |
+-----------+----------+--------+----------+--------+-------+--------+
| P         | 10889    | 10889  | 11433    | 12819  | 11090 | 6860   |
| roduction |          |        |          |        |       |        |
+-----------+----------+--------+----------+--------+-------+--------+
| TOTAL     | 10889    | 10889  | 11433    | 12819  | 11090 | 6860   |
| SUPPLY    |          |        |          |        |       |        |
+-----------+----------+--------+----------+--------+-------+--------+
| Ut        | 10889    | 10889  | 11433    | 12819  | 11090 | 6860   |
| ilization |          |        |          |        |       |        |
| for Sugar |          |        |          |        |       |        |
+-----------+----------+--------+----------+--------+-------+--------+
| Utilizatn | 0        | 0      | 0        | 0      | 0     | 0      |
| for       |          |        |          |        |       |        |
| Alcohol   |          |        |          |        |       |        |
+-----------+----------+--------+----------+--------+-------+--------+
| TOTAL     | 10889    | 10889  | 11433    | 12819  | 11090 | 6860   |
| UT        |          |        |          |        |       |        |
| ILIZATION |          |        |          |        |       |        |
+-----------+----------+--------+----------+--------+-------+--------+

**Sugar**

Sugar output for MY04 has been revised upward 5.2 percent since the
previous forecast. Most of this increase can be attributed to the higher
that previously forecast cane yields that were discussed above. Given
that about 90 percent of China's sugar production comes from cane and 10
percent comes from beets, the higher than previously forecast cane
yields more than offset the sugar output lost from the sharp reduction
in beet production.

  ------------------ --------------- ---------- ---------- ---------- ---------- ----------
  **Country**        **China,                                                    
                     Peoples                                                     
                     Republic of**                                               

  **Commodity**      **Centrifugal                                    (1000 MT)  
                     Sugar**                                                     

                     2002            Revised    2003       Estimate   2004       Forecast

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

  **Market Year                      10/2001               10/2002               10/2003
  Begin**                                                                        

  Beginning Stocks   1004            1004       1142       869        1538       2070

  Beet Sugar         1090            1090       1258       1241       1220       670
  Production                                                                     

  Cane Sugar         7215            7215       8230       9396       8312       9400
  Production                                                                     

  TOTAL Sugar        8305            8305       9488       10637      9532       10070
  Production                                                                     

  Raw Imports        1234            1234       450        480        500        475

  Refined Imp.(Raw   141             141        90         120        80         110
  Val)                                                                           

  TOTAL Imports      1375            1375       540        600        580        585

  TOTAL SUPPLY       10684           10684      11170      12106      11650      12725

  Raw Exports        9               9          10         10         10         10

  Refined Exp.(Raw   483             451        500        110        400        105
  Val)                                                                           

  TOTAL EXPORTS      492             460        510        120        410        115

  Human Dom.         9050            9355       9122       9916       9194       10263
  Consumption                                                                    

  Other              0               0          0          0          0          0
  Disappearance                                                                  

  Total              9050            9355       9122       9916       9194       10263
  Disappearance                                                                  

  Ending Stocks      1142            869        1538       2070       2046       2347

  TOTAL DISTRIBUTION 10684           10684      11170      12106      11650      12725
  ------------------ --------------- ---------- ---------- ---------- ---------- ----------

**Policy**

As stipulated in China's WTO accession agreement, the calendar year 2003
in-quota tariff for sugar is 20 percent. The in-quota quantity for the
same period is 1.852 MMT. On January 1, 2004, the in-quota tariff rate
will be reduced to 15 percent, and the in-quota quantity will be
increased to 1.945 MMT. These quantities are 18.7 and 19 percent of
domestic consumption in each of the respective years. In July 2003,
responsibility for administering the sugar TRQ switched to China's
Ministry of Commerce (MOC) from the State Development and Reform
Commission. (Note: On Sept 29, 2003, MOC announced the operating
procedures for administering the 2004 TRQs for all commodities subject
to a TRQ, including sugar. FAS/Beijing expects to publish a report in
the near future that explains those procedures.)

China's position in the new round of WTO agricultural negotiations with
respect to sugar reflects the Chinese industry's complaint that it was
forced to give more concessions in the WTO accession agreement than any
other agricultural sector, therefore it should not be asked to make
further concessions in the new Doha Round.

In August, before the new crushing season started, the China Sugar
Industry Association proposed that MY04 purchase prices for cane and
beet should be set at RMB130/ton and RMB170/ton (US\$1= RMB8.27)
respectively. As discussed in the annual report, the purchase price for
both beet and cane has declined sharply for the past three years.
However, this has forced farmers and mill operators to improve their
production efficiency.

**Stocks**

The ending stocks for MY04 have been revised upward 14.7 percent from
the initial forecast. That revision that can be traced to cane
production and yield being greater than initially estimated in MY03. In
MY04, any sugar import from Cuba likely will go into the government's
strategic stocks.

**Trade**

The MY04 forecast for sugar imports and exports both have been reduced
since the initial forecast. With greater than estimated production and
stock buildup in MY03, less sugar was re-exported in MY03. This
situation is expected carry over into MY04.

# Sugar Consumption and Saccharine

Saccharine and other sweeteners in recent years has been strictly
regulated or restricted by the government. The production for saccharine
in 2003 was set by the authority at 17,500 tons among which only 3,500
tons is permitted for domestic sale and the rest is all earmarked for
export. In the first seven months, total production and domestic sale
are 15,442 tons and 1,752 tons respectively. The restricted production
and sale of saccharine has made possible more consumption of sugar.
Actually, the low sugar price also helped the sugar maintain its market
share. Food processors are more inclined to use natural sugar than
artificial sweeteners. According to an industry source, in MY03
estimated sugar consumption grew about 5 percent in MY03.

Industry sources estimate that per capita sugar consumption in MY03 was
above 7 kg. As people's living standard improves in China, sugar
consumption is expected to continue increasing.