Required Report - public distribution

**Date:** 10/13/2004

**GAIN Report Number:** AS4031

AS4031

**Australia**

**Sugar**

**Semi Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Andrew C. Burst

U.S. Embassy

**Prepared by:**

Mike Darby

**Report Highlights:**

Centrifugal sugar production is forecast to increase in 2004/05, driven
by a projected increase in harvested area and improved cane yield and
sugar content. The Australian sugar industry is currently experiencing
an improved price outlook and a return to more normal weather conditions
following a period of prolonged drought and low prices. Exports are
forecast to increase in 2004/05 in-line with the increase in forecast
production.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Semi-Annual Report

Canberra \[AS1\]

\[AS\]

Table of Contents

[SECTION ONE: SITUATION AND OUTLOOK
3](#section-one-situation-and-outlook)

[SECTION TWO: STATISTICAL TABLES 4](#section-two-statistical-tables)

[SECTION THREE: NARRATIVE ON SUPPLY AND DEMAND, POLICY & MARKETING
5](#section-three-narrative-on-supply-and-demand-policy-marketing)

[Sugar Cane for Centrifugal 5](#sugar-cane-for-centrifugal)

[Centrifugal Sugar 6](#centrifugal-sugar)

[Trade 8](#trade)

[Stocks 9](#stocks)

[Policy 9](#policy)

# SECTION ONE: SITUATION AND OUTLOOK

Centrifugal sugar production is forecast to increase significantly in
2004/05. An improved price outlook is expected to increase area
harvested, while excellent growing conditions in key areas is expected
to drive up both cane yield and Commercial Cane Sugar content. The
industry is experiencing a return to more normal weather conditions
following a prolonged drought period.

Sugar production for 2003/04 has been revised downwards slightly in-line
with official estimates. This fall is also directly in-line with the
estimated fall in cane production. Poorer growing conditions associated
with the drought reduced production to historically low levels.

Exports of sugar are forecast to increase significantly in CY 2004/05
due to forecast higher production. Exports for 2003/04 have been revised
downward slightly in-line with revised production.

The Australian Bureau of Agricultural and Resource Economics has
forecast improved prices for sugar growers in 2004/05. This more
favorable price outlook has lifted the Industry's prospects somewhat at
a time of financial hardship. The Australian dollar has recently
strengthened however, constraining larger improvements in pricing
prospects for Australian growers.

Negotiations for the Australian-US Free Trade Agreement concluded early
in CY 2004 with Australia's access to the U.S. Market for sugar
remaining unchanged. The Australian sugar industry successfully used
this outcome to leverage another A\$440 million in adjustment funding
from the Federal Government. This funding package is comprehensive and
includes immediate, as well as medium- and long-term assistance.

# SECTION TWO: STATISTICAL TABLES

+--------------------+-----+------+-----+------+-----+------+------+
| PSD Table          |     |      |     |      |     |      |      |
|                    |     |      |     |      |     |      |      |
| Sugar, Centrifugal |     |      |     |      |     |      |      |
+--------------------+-----+------+-----+------+-----+------+------+
|                    | **  | **R  | **  | **Es | **  | **Fo | *    |
|                    | 200 | evis | 200 | tima | 200 | reca | UOM* |
|                    | 3** | ed** | 4** | te** | 5** | st** |      |
+--------------------+-----+------+-----+------+-----+------+------+
|                    | **U | **   | **U | **   | **U | **   |      |
|                    | SDA | Post | SDA | Post | SDA | Post |      |
|                    | Of  | Esti | Of  | Esti | Of  | Esti |      |
|                    | fic | mate | fic | mate | fic | mate |      |
|                    | ial | \    | ial | \    | ial | \    |      |
|                    | \[O | [New | \[O | [New | \[O | [New |      |
|                    | ld\ | \]** | ld\ | \]** | ld\ | \]** |      |
|                    | ]** |      | ]** |      | ]** |      |      |
+--------------------+-----+------+-----+------+-----+------+------+
| **Market Year      |     | **0  |     | **0  |     | **0  | *    |
| Begin**            |     | 7/20 |     | 7/20 |     | 7/20 | MM/Y |
|                    |     | 02** |     | 03** |     | 04** | YYY* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Beginning        | 507 | 507  | 662 | 662  | 583 | 511  | *(   |
| Stocks**           |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Beet Sugar       | 0   | 0    | 0   | 0    | 0   | 0    | *(   |
| Production**       |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Cane Sugar       | 5   | 5461 | 5   | 4994 | 5   | 5500 | *(   |
| Production**       | 461 |      | 023 |      | 300 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Sugar      | 5   | 5461 | 5   | 4994 | 5   | 5500 | *(   |
| Production**       | 461 |      | 023 |      | 300 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Raw Imports**    | 6   | 6    | 3   | 3    | 3   | 3    | *(   |
|                    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Refined Imp.(Raw | 2   | 2    | 2   | 2    | 2   | 2    | *(   |
| Val)**             |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Imports**  | 8   | 8    | 5   | 5    | 5   | 5    | *(   |
|                    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL SUPPLY**   | 5   | 5976 | 5   | 5661 | 5   | 6016 | *(   |
|                    | 976 |      | 690 |      | 888 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Raw Exports**    | 3   | 3975 | 3   | 3810 | 3   | 4019 | *(   |
|                    | 975 |      | 767 |      | 940 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Refined Exp.(Raw | 139 | 139  | 140 | 140  | 140 | 140  | *(   |
| Val)**             |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL EXPORTS**  | 4   | 4114 | 3   | 3950 | 4   | 4159 | *(   |
|                    | 114 |      | 907 |      | 080 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Human Dom.       | 1   | 1200 | 1   | 1200 | 1   | 1200 | *(   |
| Consumption**      | 200 |      | 200 |      | 200 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Other            | 0   | 0    | 0   | 0    | 0   | 0    | *(   |
| Disappearance**    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Total            | 1   | 1200 | 1   | 1200 | 1   | 1200 | *(   |
| Disappearance**    | 200 |      | 200 |      | 200 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Ending Stocks**  | 662 | 662  | 583 | 511  | 608 | 657  | *(   |
|                    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL            | 5   | 5976 | 5   | 5661 | 5   | 6016 | *(   |
| DISTRIBUTION**     | 976 |      | 690 |      | 888 |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+

+-----------------+------+-------+------+-------+------+-------+------+
| PSD Table       |      |       |      |       |      |       |      |
|                 |      |       |      |       |      |       |      |
| Sugar Cane for  |      |       |      |       |      |       |      |
| Centrifugal     |      |       |      |       |      |       |      |
+-----------------+------+-------+------+-------+------+-------+------+
|                 | **20 | *     | **20 | **    | **20 | **    | *    |
|                 | 03** | *Revi | 04** | Estim | 05** | Forec | UOM* |
|                 |      | sed** |      | ate** |      | ast** |      |
+-----------------+------+-------+------+-------+------+-------+------+
|                 | **   | *     | **   | *     | **   | *     |      |
|                 | USDA | *Post | USDA | *Post | USDA | *Post |      |
|                 | Offi | Est   | Offi | Est   | Offi | Est   |      |
|                 | cial | imate | cial | imate | cial | imate |      |
|                 | \    | \[Ne  | \    | \[Ne  | \    | \[Ne  |      |
|                 | [Old | w\]** | [Old | w\]** | [Old | w\]** |      |
|                 | \]** |       | \]** |       | \]** |       |      |
+-----------------+------+-------+------+-------+------+-------+------+
| **Market Year   |      | *     |      | *     |      | *     | *    |
| Begin**         |      | *07/2 |      | *07/2 |      | *07/2 | MM/Y |
|                 |      | 002** |      | 003** |      | 004** | YYY* |
+-----------------+------+-------+------+-------+------+-------+------+
| **Area          | 0    | 0     | 0    | 0     | 0    | 0     | *(   |
| Planted**       |      |       |      |       |      |       | 1000 |
|                 |      |       |      |       |      |       | HA)* |
+-----------------+------+-------+------+-------+------+-------+------+
| **Area          | 423  | 423   | 415  | 415   | 0    | 420   | *(   |
| Harvested**     |      |       |      |       |      |       | 1000 |
|                 |      |       |      |       |      |       | HA)* |
+-----------------+------+-------+------+-------+------+-------+------+
| **Production**  | 3    | 36995 | 3    | 36892 | 0    | 39065 | *(   |
|                 | 8062 |       | 6280 |       |      |       | 1000 |
|                 |      |       |      |       |      |       | MT)* |
+-----------------+------+-------+------+-------+------+-------+------+
| **TOTAL         | 3    | 36995 | 3    | 36892 | 0    | 39065 | *(   |
| SUPPLY**        | 8062 |       | 6280 |       |      |       | 1000 |
|                 |      |       |      |       |      |       | MT)* |
+-----------------+------+-------+------+-------+------+-------+------+
| **Utilization   | 3    | 36935 | 3    | 36832 | 0    | 39005 | *(   |
| for Sugar**     | 8002 |       | 6220 |       |      |       | 1000 |
|                 |      |       |      |       |      |       | MT)* |
+-----------------+------+-------+------+-------+------+-------+------+
| **Utilizatn for | 60   | 60    | 60   | 60    | 0    | 60    | *(   |
| Alcohol**       |      |       |      |       |      |       | 1000 |
|                 |      |       |      |       |      |       | MT)* |
+-----------------+------+-------+------+-------+------+-------+------+
| **TOTAL         | 3    | 36995 | 3    | 36892 | 0    | 39065 | *(   |
| UTILIZATION**   | 8062 |       | 6280 |       |      |       | 1000 |
|                 |      |       |      |       |      |       | MT)* |
+-----------------+------+-------+------+-------+------+-------+------+

# SECTION THREE: NARRATIVE ON SUPPLY AND DEMAND, POLICY & MARKETING

## Sugar Cane for Centrifugal

[Sugar Cane Area (Cut for Crushing)]{.underline}

Sugarcane harvested area is forecast at 420,000 hectares in 2004/05, up
5,000 hectares from the figure for the previous year. Industry sources
anticipate that a higher forecast pool return will encourage producers
in certain areas to expand production. Furthermore, Post expects that
harvested area will be boosted by a recovery from the disease outbreaks
of 2002/03, which required large areas to be replanted.

Estimated harvested area for 2003/04 remains unchanged at 415,000
hectares. This area is considered to be an average level according to
historic data from the Australian Bureau of Agricultural Resource
Economics (ABARE).

Mill closures and disease outbreaks have placed downward pressure on
cane area over the past three years. However, Post anticipates that with
expected more normal weather conditions and the recently improved price
outlook cane harvested area will increase slightly in 2004/05.

![](media/image2.wmf)

*Source: ABARE*

The above graph and other graphs in this report are based on ABARE data,
which may differ from Post's figures.

[Cane Yield]{.underline}

Cane yield for 2004/05 is expected to be around 93 MT/Ha, the highest
yield since 1998/99 according to ABARE's historical data. A yield of
this level would signify a return to levels experienced prior to the
disease outbreaks and extreme weather events that plagued the industry
in 2000/01 and 2001/02.

Cane yield for 2003/04 is estimated at around 89 MT/Ha, the third lowest
level over the past decade according to ABARE's historical data. Drought
conditions constrained cane yield to below average levels. However, the
dry conditions helped in boosting Commercial Cane Sugar (CCS) content.

![](media/image3.wmf)

*Source: ABARE*

[Sugar Cane Production]{.underline}

Sugar cane production in 2004/05 is forecast at 39,065 TMT, up slightly
from Post's previous report (GAIN report #AS4012). A return to more
normal weather conditions following an extended drought has increased
forecast cane yield, while an improved price outlook has increased
forecast harvested area.

Sugar cane production for 2003/04 has been revised downwards slightly to
36,892 TMT, in-line with both ABARE and current industry figures. The
severity of the drought slightly exceeded previous expectations forcing
industry analysts to trim production figures for the 2003/04 season.

![](media/image4.wmf)

*Source: ABARE*

## Centrifugal Sugar

[Production]{.underline}

Production of centrifugal sugar in 2004/05 is forecast at 5,500 TMT,
about four percent higher than Post's previous forecast. Improved
seasonal conditions have boosted expected cane yield. Furthermore,
historically high Commercial Cane Sugar (CSS) content has contributed to
the expected higher sugar production level. ABARE recently revised its
cane production forecast for 2004/2005 upwards substantially to just
above Post's previous forecast. Higher cane yields and high CCS content
drove this increase.

Post revised sugar production for 2003/04 downwards slightly to 4,994
TMT, in-line with current ABARE figures. This fall is in-line with the
downward revision in cane production.

![](media/image5.wmf)

*Source: ABARE*

[Commercial Cane Sugar Content]{.underline}

Commercial Cane Sugar (CCS) content for 2004/05 is expected to be 13.9
percent. This figure remains in-line with the long-term trend
established using historical ABARE figures. This relatively high CCS has
surprised some analysts as CCS is usually inversely related to cane
yield. An above average level of sunny days has provided ideal growing
conditions and constrained a drop in CCS commonly associated with
improved cane yields.

![](media/image6.wmf)

*Source: ABARE*

**Prices**

ABARE has forecast pool return to growers rising around five percent to
A\$260.00/MT in 2004/05. This would represent the first price increase
in three years. The long-term price trend according to ABARE's
historical data has been down over the past decade, placing the industry
under significant financial pressure.

![](media/image7.wmf)

*Source: ABARE*

**Exchange Rates**

Australia's competitiveness in world agricultural markets and export
returns to domestic producers are heavily impacted by the value of the
Australian dollar. The Australian dollar has appreciated markedly
against the currencies of major trading partners, particularly the
United States, over the past two years -- averaging US\$0.544 in 2002
and peaking at US\$0.80 in early 2004. Currently, the Australian dollar
is valued at about US\$0.72. A general increase in the value of the
Australian dollar has partially constrained increases in grower returns
despite recent increases in world sugar prices.

## Trade

[Exports]{.underline}

Sugar exports are forecast at 4,019 TMT in 2004/05, up around 200 TMT
from the revised estimate for the previous year and in-line with ABARE
export figures. This increase is also in-line with the increase in
forecast production.

Up-to-date sugar export statistics are not available due confidentiality
restrictions. Export figures quoted by Post are derived from production
and consumption figures and industry estimates.

Post has revised export figures for 2003/04 downwards slightly to 3,810
TMT. This drop is in-line with export figures published by ABARE.

![](media/image8.wmf)

Source: ABARE

[Free Trade Agreements]{.underline}

[Australia-US FTA:]{.underline} Raw cane sugar enters the United States
under a tariff-rate quota (TRQ). Under the TRQ, Australia was allocated
87,402 MT of raw cane sugar in U.S. fiscal year 2004.

Australia completed free trade agreement (FTA) negotiations with the
United States in February 2004. Under the negotiated FTA, Australian
sugar access to the United States remains unchanged. The Australian
sugar industry reacted angrily to the omission of sugar in the
Australian-U.S. FTA. Industry reports claim that sugar was excluded from
the agreement in order to secure an overall agreement. Sugar industry
representatives were hopeful of increasing Australia's access
arrangements to the United States under the FTA.

[Australia-Thailand FTA:]{.underline} Australia completed FTA
negotiations with Thailand in October 2003. Australia has historically
imported small amounts of sugar from Thailand. Australia's applied
tariff rate for sugar is zero.

## Stocks

Official data concerning sugar stocks is unavailable. The holding of
sugar stocks is not subsidized in Australia and Post believes that stock
levels reflect commercial conditions. Post has increased stocks for
2004/05 in-line with the forecast increase in production and indications
from industry sources.

## Policy

The omission of sugar from the Australia-US FTA created much debate
between the sugar industry and the Federal Government. Growers and
millers successfully used this issue to get an increase of A\$440
million in adjustment funding. This comes on top of the existing A\$120
million of Federal Government funds and A\$30 million of State
Government funds as part of the reform taken under the Memorandum of
Understanding between State and Federal governments (See policy section
of report #AS4012, April 14, 2004).

Under the A\$440 million Federal government Sugar Industry Reform
Program (SIRP), growers receive immediate, as well as medium and
long-term assistance. Immediate assistance is provided in the form of
sustainability grants, income support and crisis counseling. The
sustainability grant is funded at A\$73.05 million and is divided
between mills and their growers. Income support is funded up to A\$21.0
million and is paid to growers and harvesters. Crisis counseling is paid
to families in the sugar industry and totals A\$5.0 million in funding.

The program requires mills, growers and harvesters to individually
undertake a decision to either stay in the industry or leave. To assist
in this decision mills receive A\$1.2 million while growers and
harvesters receive up to A\$14 million.

Medium and long-term measures are available under the program for
growers who wish to stay in the industry. Grower restructuring grants
are made available to growers at the individual farm level accounting
for A\$39.0 million of total SIRP funding. Regional and community
projects to facilitate restructuring on a long-term basis will account
for A\$75.0 million in funding. Assistance is provided for
intergenerational transfer with up to A\$23.0 million provided while
re-establishment grants and retraining are funded to a total of A\$7.0
million.