China Sugar Acreage Again Declines

April 24, 2001

Acreage planted to sugar cane and beets continued to decline in China this year. Combined with a drought in cane producing areas, production declined even further than expected, according to a USDA report. Sugar prices have increase sharply in response. In an effort to bring prices down, the government has continued sales of surplus stocks, and industry sources believe that increased imports soon will be permitted.

Sugar cane production declined by 8.6% in 2001, to 68.3 million tons. This is due primarily to a 9% decline in planted area. Industry sources report that cane yields have remained low due to drought in Guangxi and Yunnan, and to the long-term effects of the previous years' freeze.

The current high prices have created more interest on the part of farmers, and planted area and yields are both forecast to rebound in marketing year 2002 with total production reaching 77 million tons. Long term prospects are less optimistic as China's eventual entry into the World Trade Organization will provide increased access to inexpensive imports.

Production of sugar cane probably will be decreased most in coastal areas and where cane is grown on high-quality land, as farmers look to more profitable alternatives, the report said. As a consequence, it is likely that overall yields will decline as cane production shifts toward more marginal land. Cane producers continue to receive a protected price from refineries, although a market price component has been added. The cost of this protection is borne by refineries, who must purchase cane at the protected price while receiving market prices for their sugar.

Area planted to sugar beets continued to decline as well, posting a loss of 3.5% in marketing year 2001. As a result, total production was down by an estimated 600,000 tons, a decline of 6.6%. Most of the decline in area was concentrated in the highest-yielding provinces of Xinjiang and Gansu, accounting for the decline in yields.

The decline in production was actually somewhat less than originally forecast, as poor weather had less of an effect than originally feared. For MY 02, planted area is forecast to increase, jumping by 392 thousand hectares in response to high sugar prices. Although high sugar prices do not necessarily translate into higher procurement prices for beets, farmers are well aware that improved profitability for refineries increases their chances of being paid promptly for their crop. The increase, the first in years, is likely to be short-lived as increased imports under WTO seem certain to bring prices back down. Long-term prospects for the industry remain grim.

Declining production of both sugar cane and sugar beets in 2001 is forecast to result in an 8.3% drop in total production of sugar, down to 6.9 million tons. This will leave domestic production well short of demand for the second year in a row. The shortage has already caused prices to jump to their highest levels since 1996, and placed some of the governments reform and restructuring efforts in jeopardy. The government has continued to auction off surplus stocks of sugar. However, these sales have not had much effect on prices, and increased imports now seem certain.

Imports for marketing year 2001 are now forecast at 1.4 million tons. For 2002, much will depend on the timing of China's entry into the WTO and the details of the administration of the tariff rate quota for sugar. Although the initial TRQ is for 1.6 million tons, USDA explects imports of only 1.2 million tons based on the assumption that the TRQ does not go into effect until well into the marketing year. The refining industry in southern China is making preparations for China's entry into the WTO, and many of the largest refineries are confident that they can reduce costs enough to compete in this environment.

The entire report is available on the Internet at http://www.fas.usda.gov/scriptsw/attacherep/attache_lout.asp.