Required Report - public distribution

**Date:** 4/18/2004

**GAIN Report Number:** ES4002

ES4002

**El Salvador**

**Sugar**

**Annual**

**2004**

**Approved by:**

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

AgSanSalvador

**Prepared by:**

Miguel Herrera

**Report Highlights:**

Sugarcane planted area stagnated at approximately 66,000 hectares in
2003/04. Sugar recovery yields have increased in the 2003/04 harvest,
mainly due to added investment, which has increased efficiency in the
milling process. The Salvadoran Sugar Council (CONSAA) is in charge of
regulating sugar trade. Most sugar exports are destined to Russia and to
the re-export market. Canada is a new export destination. The sector
continues to get tariff protection by the Government of El Salvador
(GOES). The Salvadoran sugar industry is very optimistic due to Central
America Free Trade Agreement (CAFTA), which includes additional access
to the U.S. market of approximately 22,000 MT with a 2 percent annual
growth. The Ministry of Agriculture (MAG) continues efforts to shift
traditional agricultural production into more profitable non-traditional
export crops.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

San Salvador \[ES1\]

\[ES\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Production 6](#production)

[Consumption 6](#consumption)

[Trade 6](#trade)

[Stocks 7](#stocks)

[Production Policy 7](#production-policy)

[Price Policy 8](#price-policy)

# Executive Summary

Higher yielding sugarcane varieties, diversification of industry to
produce energy and alcohol/ethanol, investment in milling equipment to
improve sugar yields and additional access to the U.S. market due to
CAFTA provide a positive outlook for El Salvador's sugar industry in the
3 to 5 year term. A National Sugar Law that regulates sugar production,
distribution and marketing is an important component to the
reengineering process that the industry is currently undergoing. In
addition, the sector seems to be recovering financially after facing
debt complications due to natural disasters and lack of government
policies to assist sugar farmers. However, ultimately the success of the
industry will rely on compliance with the Sugar Law by all parties
involved, continued improvement in sugarcane and sugar yields, and
increased diversification either into additional energy co-generation
projects or of excess production land into non-traditional crops that
can provide higher incomes to sugar farmers.

Sugarcane production for the 2003/04 harvest is estimated at 4.54
million MT, 1.8 percent higher than the USDA database. The 2002/03
production number has been increased to 4.46 million MT mainly due to
favorable weather during harvest.

Increased sugar production and lower ending stocks have increased sugar
exports in 2003/04. New data provided by the Salvadoran Sugar
Association shows exports increasing by 17,000 MT compared to the
2002/03 harvest. Sugar production is expected to reach 506,000 MT in
2003/04, up 26,000 MT from previous reports. Sugar production for
2004/05 is expected to be similar to 2003/04. However, weather
conditions will play a major role in future production output. Droughts
are becoming more frequent in El Salvador causing extensive damage
throughout the agricultural sector. The Ministry of Agriculture (MAG) is
working on programs to ease the impact of this type phenomenon.

El Salvador only exports raw sugar. The GOES continues to control
wholesale sugar prices. The current average retail price for white sugar
is \$ 0.28 per pound plus a 13 percent value-added-tax.

The Salvadoran sugar industry seems to be reaching a stable production
scenario, which provides similar sugarcane production numbers in
2003/04, as was the case in the 2002/03 harvest. Sugarcane production is
only expected to be slightly lower in 2004/05 reaching approximately
505,000 MT. Area planted is expected to remain at approximately 66,000
Has.

USDA continues to work closely with MAG and non-government organizations
to coordinate the development of value-added crops that bring back
profitability to farmers that are used to plantation agriculture.

# 

+------------+-------+-------+------+-------+------+-------+-------+
| **El       |       |       |      |       |      |       |       |
| Salvador** |       |       |      |       |      |       |       |
|            |       |       |      |       |      |       |       |
| ######     |       |       |      |       |      |       |       |
| **Sugar Ca |       |       |      |       |      |       |       |
| ne for Cen |       |       |      |       |      |       |       |
| trifugal** |       |       |      |       |      |       |       |
+------------+-------+-------+------+-------+------+-------+-------+
|            | **2   | *     | **20 | **    | **20 | **    | **    |
|            | 003** | *Revi | 04** | Estim | 05** | Forec | UOM** |
|            |       | sed** |      | ate** |      | ast** |       |
+------------+-------+-------+------+-------+------+-------+-------+
|            | *     | *     | **   | *     | **   | *     |       |
|            | *USDA | *Post | USDA | *Post | USDA | *Post |       |
|            | Off   | Est   | Offi | Est   | Offi | Est   |       |
|            | icial | imate | cial | imate | cial | imate |       |
|            | \[Ol  | \[Ne  | \    | \[Ne  | \    | \[Ne  |       |
|            | d\]** | w\]** | [Old | w\]** | [Old | w\]** |       |
|            |       |       | \]** |       | \]** |       |       |
+------------+-------+-------+------+-------+------+-------+-------+
| Market     |       | 11    |      | 11    |      | 11    | MM    |
| Year Begin |       | /2002 |      | /2003 |      | /2004 | /YYYY |
+------------+-------+-------+------+-------+------+-------+-------+
| Area       | 66    | 66    | 66   | 66    | 0    | 66    | (1000 |
| Planted    |       |       |      |       |      |       | HA)   |
+------------+-------+-------+------+-------+------+-------+-------+
| Area       | 64    | 64    | 64   | 64    | 0    | 64    | (1000 |
| Harvested  |       |       |      |       |      |       | HA)   |
+------------+-------+-------+------+-------+------+-------+-------+
| Production | 4457  | 4468  | 4460 | 4547  | 0    | 4550  | (1000 |
|            |       |       |      |       |      |       | MT)   |
+------------+-------+-------+------+-------+------+-------+-------+
| TOTAL      | 4457  | 4468  | 4460 | 4547  | 0    | 4550  | (1000 |
| SUPPLY     |       |       |      |       |      |       | MT)   |
+------------+-------+-------+------+-------+------+-------+-------+
| U          | 4457  | 4468  | 4460 | 4547  | 0    | 4550  | (1000 |
| tilization |       |       |      |       |      |       | MT)   |
| for Sugar  |       |       |      |       |      |       |       |
+------------+-------+-------+------+-------+------+-------+-------+
| U          | 0     | 0     | 0    | 0     | 0    | 0     | (1000 |
| tilization |       |       |      |       |      |       | MT)   |
| for        |       |       |      |       |      |       |       |
| Alcohol    |       |       |      |       |      |       |       |
+------------+-------+-------+------+-------+------+-------+-------+
| TOTAL      | 4457  | 4468  | 4460 | 4547  | 0    | 4550  | (1000 |
| U          |       |       |      |       |      |       | MT)   |
| TILIZATION |       |       |      |       |      |       |       |
+------------+-------+-------+------+-------+------+-------+-------+

# 

# 

# 

# 

+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| **El Salvador**         |     |     |     |     |     |     |     |
|                         |     |     |     |     |     |     |     |
| Centrifugal Sugar       |     |     |     |     |     |     |     |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
|                         | 2   | R   | 2   | Es  | 2   | Fo  | UOM |
|                         | 003 | evi | 004 | tim | 005 | rec |     |
|                         |     | sed |     | ate |     | ast |     |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
|                         | U   | P   | U   | P   | U   | P   |     |
|                         | SDA | ost | SDA | ost | SDA | ost |     |
|                         | Of  | Es  | Of  | Es  | Of  | Es  |     |
|                         | fic | tim | fic | tim | fic | tim |     |
|                         | ial | ate | ial | ate | ial | ate |     |
|                         | \   | \   | \   | \   | \   | \   |     |
|                         | [Ol | [Ne | [Ol | [Ne | [Ol | [Ne |     |
|                         | d\] | w\] | d\] | w\] | d\] | w\] |     |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| Market Year Begin       |     | 1   |     | 1   |     | 1   | M   |
|                         |     | 1/2 |     | 1/2 |     | 1/2 | M/Y |
|                         |     | 002 |     | 003 |     | 004 | YYY |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| Beginning Stocks        | 37  | 37  | 28  | 28  | 27  | 27  | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| Beet Sugar Production   | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| Cane Sugar Production   | 479 | 480 | 480 | 506 | 0   | 505 | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| TOTAL Sugar Production  | 479 | 480 | 480 | 506 | 0   | 505 | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| Raw Imports             | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| Refined Imp. (Raw Val)  | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| TOTAL Imports           | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| TOTAL SUPPLY            | 516 | 517 | 508 | 534 | 27  | 532 | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| Raw Exports             | 263 | 264 | 256 | 281 | 0   | 280 | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| Refined Exp. (Raw Val)  | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| TOTAL EXPORTS           | 263 | 264 | 256 | 281 | 0   | 280 | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| Human Dom. Consumption  | 225 | 225 | 225 | 226 | 0   | 226 | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| Other Disappearance     | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| Total Disappearance     | 225 | 225 | 225 | 226 | 0   | 226 | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| Ending Stocks           | 28  | 28  | 27  | 27  | 0   | 26  | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+
| TOTAL DISTRIBUTION      | 516 | 517 | 508 | 534 | 0   | 532 | (1  |
|                         |     |     |     |     |     |     | 000 |
|                         |     |     |     |     |     |     | MT) |
+-------------------------+-----+-----+-----+-----+-----+-----+-----+

# Production

New production numbers compiled by the Foreign Agricultural Service
(FAS) office in San Salvador revealed that the 2003/04 sugar cane
harvest is expected to reach 4.54 million MT. Sugar production is
estimated to reach 506,000 MT in 2003/04. According to the Salvadoran
Sugar Association, sugar recovery yields continue to improve and are
averaging 111.83 Kgs. per MT. This improvement of approximately 4
percent in recovery yields compared to 2002/03 is attributed to
controlled sugar cane burning during harvest, new sugar cane varieties
that are more resistant to pests and diseases and to efficiencies in the
sugar milling process. Sugar production is expected to remain at similar
levels in 2004/05 reaching 505,000 MT.

Area planted continues to remain unchanged and is expected to remain at
66,000 has. in 2004/05. The Sugar Association does not foresee growth in
area planted in the near future. The GOES continues programs to
encourage Salvadoran farmers to shift production away from plantation
agriculture into value-added non-traditional crops such as tropical
fruits.

Grower prices continue to be set according to sugar content of the cane.
With the new Sugar Law, producers are to receive 54.5 percent of total
sugar sales and sugar mills 45.5 percent. Privatization of all mills has
helped reduce downtime during the milling process, as well as increase
sugar recovery rates to a more competitive position within the region.
However, some mills are facing financial restructuring and in some cases
are being monitored by financial institutions that want their loans to
be honored.

# 

# Consumption

Consumption remains relatively stagnant and is expected to reach
approximately 226,000 MT in 2003/04. The continued effect of a worldwide
recession on the Salvadoran economy has deeply contributed to the
decline in consumer purchasing power. In 2004/05, consumption numbers
are expected to remain at the same level as in 2003/04. The recently
negotiated Central America Free Trade Agreement (CAFTA) might increase
sugar consumption in El Salvador because sugar-containing products such
as candy and juices will have immediate duty-free access to the U.S.
market. The Sugar Association is also carrying out a national marketing
campaign to bolster local sugar consumption.

# Trade

Exports for 2003/04 are expected to reach 281,000 MT. A larger crop, and
increased sugar yields are expected to push this increase. The Sugar
Association expects no refined exports for the 2003/04 season. The
export forecast for 2004/05 is 280,000 MT.

The GOES continues to impose a 40 percent import tariff on all sugar.
The bound rate on sugar is 70 percent ad valorem. The GOES considers
sugar politically sensitive because it offers large rural employment and
for this reason provides tariff protection. Recent CAFTA negotiations
have spurred regional tariff harmonization to avoid triangulations and
market disruptions.

Russia continues to be the major destination for Salvadoran sugar
exports, taking almost three-quarters of exports. Out of the 182,943 MT
that have been shipped to date in the 2003/04 season, 92,100 MT have
been delivered to Russia. A new export destination is Canada with an
estimated total of 30,000 MT in 2003/04.

+-----------------+-----------------+-----------------+-----------------+
| ####### Expo    |                 |                 |                 |
| rt Trade Matrix |                 |                 |                 |
|                 |                 |                 |                 |
| **El Salvador** |                 |                 |                 |
|                 |                 |                 |                 |
| **Centrifugal   |                 |                 |                 |
| Sugar**         |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| Time Period     | MY              | Units:          | MT              |
+-----------------+-----------------+-----------------+-----------------+
| Exports for:    | 2003            |                 | 2004            |
+-----------------+-----------------+-----------------+-----------------+
| U.S.            | 26453           | U.S.            | 26453           |
+-----------------+-----------------+-----------------+-----------------+
| Others          |                 | Others          |                 |
+-----------------+-----------------+-----------------+-----------------+
| Russia          | 194000          | Russia          | 200000          |
+-----------------+-----------------+-----------------+-----------------+
| Canada          | 18000           | Canada          | 30000           |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| Total for       | 212000          |                 | 230000          |
| Others          |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| Others not      | 26000           |                 | 24550           |
| Listed          |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| Grand Total     | 264453          |                 | 281003          |
+-----------------+-----------------+-----------------+-----------------+

# 

# Stocks

Ending stock levels in 2003/04 decreased to 27,000 MT mainly due to
increased exports. Contraband sugar coming from neighboring Guatemala is
under control and no longer causes a disruption to the local market. The
Salvadoran Sugar Law state that all sugar sold locally has to carry a
safety seal provided by CONSAA. CONSAA has taken over all assignments
previously handled by the Sugar Development Commission (CDA).

# Production Policy

The GOES continues to require that all sugar sold in the local market be
mixed with vitamin A to reduce blindness in the local population. This
added cost is shared by both producers and millers.

The GOES has not designed a specific production support or assistance
program for the sugar sector, however it continues to provide tariff
protection. Sugar farmers are benefiting from a program that the GOES
has provided to the agricultural sector. This program is called FINSAGRO
and offers loans at a 6 percent interest rate to assist farmers to
payback arrears and have access to fresh working capital. Recent
government assistance to the ailing coffee sector has increased pressure
by other agricultural sectors, including sugar, to expand assistance
programs.

The Law for Commercialization, Production and Distribution of Sugar has
been in effect since August 2001. Since then, CONSAA has been in charge
of regulating the sector. CONSAA has a board of directors that will
include members from the government, sugar producers and sugar mills.

Following are some of the areas where the sugar industry is working to
improve sugar profitability:

-   Produce only the amount of sugar that can be sold at profitable
    prices.

-   Maintain or improve milling yields.

-   Diversify mill incomes by focusing on alcohol production and energy
    generation.

-   Continue to control the use of mixed sugar cane varieties in the
    fields in order to have better sugar recovery yields and higher
    sugar quality.

-   Introduce new varieties that are pest and disease resistant.

-   Lobby for CAFTA approval by the U.S. Congress and the Salvadoran
    National Assembly.

# Price Policy

The wholesale price for white sugar is \$ 24.25 per cwt plus a 13
percent value-added-tax. Rising costs for raw materials, transportation
and labor are the main reason for this price change.

The GOES controls sugar prices through the Ministry of Economy at the
wholesale level. However, little effort is made to control price hikes
at the retail level. The Sugar Association continues to publish monthly
retail prices to counter indiscriminate hikes of retail prices that
deeply affect the consumer.