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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


03 May 2013

USDA GAIN: Ukraine Sugar Annual 2013USDA GAIN: Ukraine Sugar Annual 2013

In marketing year 2012/13, sugar beet planted area decreased by 13 percent but overall production stayed at a level similar to the previous season. Sugar production in Ukraine has been fully satisfying domestic market needs in the last two years and has reached 2.1 million metric tons in MY 2012/13. Refined beet sugar production is projected to decline by about 20 percent in the next season due to the lack of export markets and unattractive domestic market prices for the product. As a result, sugar beet planted area for MY 2013/14 is projected to decrease by almost 25 percent from 450,000 million hectares in 2012 to 350,000 hectares in 2013.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Sugar Beets

Production:

Sugar been production area has been on the declining trend in Ukraine over the last two decades and is expected to drop by about 25 percent to about 350,000 hectares (ha) in the Marketing Year (MY) 2013/14 compared to the previous planting season.

The main factors that stimulate the recent decline in area under sugar been production are:

  • Lack of export markets for Ukrainian refined beet sugar
  • Domestic market oversupply with sugar and larger stocks
  • Decline in the domestic market price of sugar
  • Increasing fertilizer costs

Despite relatively good profitability of sugar been production in Ukraine, area under this crop is on the decline due to the unfavorable domestic market conditions for beet sugar. In recent years, Ukraine produced an abundant harvest of sugar beets but failed to secure export markets for refined sugar. This led to domestic market oversupply with refined sugar and a subsequent drop in domestic sugar beet and sugar prices. In addition, an increase in fertilizer costs in Ukraine in the recent years may also have a negative effect on sugar beet production, especially in the case with the smaller producers who may revert to other, more profitable crops like soybeans, corn, sunflower, wheat. The general trends in areas planted under major crops in Ukraine are shown on the graph below.

Breakdown of Area Planted under Main Agricultural Crops in Ukraine

Source: State Statistics Committee of Ukraine

About 70 percent of all sugar beet planted area belongs to the large producers – corporations that enjoy the benefits of vertical integration in their business models. These ‘agriholdings’ operate their own sugar refineries and other related businesses (chocolate factories, etc.). They do not project a decline in their area planted with sugar beets in the new season. However, the methods of agricultural production they employ are becoming more and more advanced. Some producers have started using precision agriculture practices and report less fertilizer use and higher productivity. These large producers have also been investing in higher quality seeds and thus report higher yields.

Also, updated equipment at sugar refineries and concentration of more sugar beet production areas near the refineries contributed to an overall increase in effectiveness of sugar production in Ukraine in the recent years.

The cost of production of sugar beets in Ukraine in 2012 was reported to be roughly $ 1600/ha, while corn production costs were half that amount - $800/ha, for soybeans - $ 550/ha, wheat - $500/ha, and for sunflower - $440/ha.

Sugar Beet Area Planted and Average Yields in Ukraine 1990-2010

Source: State Statistics Committee of Ukraine
* -- FAS-Kyiv projections as of April, 2013

The graph above shows the official data on sugar beet production and yield. FAS-Kyiv projects the new season’s average yield for sugar beets to be slightly above the last 5-year average at about 38 tons/ha. But the overall sugar beet production is expected to decline as a result of the lower area.

Consumption:

Sugar beets in Ukraine were not used for alcohol production, and this information is reflected in the PSD table below. Sugar beets produced in the country were fully utilized for sugar production less some transportation and storage losses. No exports of sugar beets were reported from Ukraine in the last few years.

Sugar, Centrifugal

Production:

Beet sugar production in Ukraine has dropped by almost ten percent in my 2012/13 and is expected to decline even further in MY 2013/14 as a result of a reduced sugar beet production in the country. The domestic market has become oversaturated with own produced refined sugar due to lack of export markets and an abundant supply of sugar beets.

Domestic prices for refined sugar in the current marketing year have been sliding down from about $ 0.68 per kilogram in the fall 2012 to an undesirably low level of roughly $ 0.63 per kilogram in early April 2013. Average sugar prices are expected to remain low until the end of the season due to oversupply on the domestic market with an occasional price increase around Easter holidays and at the start of the summer canning season.

The average wholesale refined sugar price in Ukraine was roughly $ 621 per Metric Ton (MT) in September 2012 and dropped down to about $ 558 / MT in December 2012 and $ 533 / MT at the end of February 2013. In comparison, wholesale sugar prices in January 2012 were at about $ 663 / MT and $ 597 / MT in June 2012. Sugar producers have been struggling to break even this season while still carrying large ending stocks from the previous marketing year.

Next year’s sugar production is projected to decline once again by about 20 percent to 1.7 MMT. The large stocks and the lack of export markets have made sugar business unprofitable in Ukraine in the last two years. However, larger vertically integrated companies that operate sugar beet production and have related confectionary business may still be able to stay above the surface. Smaller producers on the other hand are facing negative balances and prospects of losing their business.

Consumption:

Consumption on refined sugar in Ukraine has been relatively steady and fluctuates between 1.7 and 1.9 Million Metric Tons (MMT) depending on the economic situation and size of consumer’s disposable income which has been on the positive side in the last two years in Ukraine. Domestic confectionary industry enjoyed the abundant supply of domestically produced sugar as well as continuously declining sugar prices. Overall consumption of sweets in the country has been observed to go up somewhat, especially during various holidays.

Trade:

In the current season Ukraine has been exporting to a number of neighboring countries, the members of the Commonwealth of Independent States (CIS) like Kazakhstan, Kyrgyzstan, Georgia, and Moldova. Some Ukrainian sugar has also been sold to the Middle East and the closest EU neighbors (For a complete list of export destinations see tables in the end of this report).

Negotiations with Russia – the most attractive export market for Ukrainian sugar that holds a lot of potential – did not result in any significant sales in the recent years. As a result, Ukraine has been struggling to secure large export markets for its refined beet sugar.

It is expected that in MY 2013/14 Ukraine will continue trading sugar to the CIS countries but export quantities would remain similar to the current MY.

Imports of raw cane sugar to Ukraine have been minimal if non-existent in the last few years. Domestic sugar beet production has completely satisfied the domestic demand for sugar and has created some oversupply, thus imports of cane sugar became unnecessary.

Sugar Beets
Sugar, Centrifugal

Policy:

Ukrainian sugar producing industry has a tradition of being regulated by the government. Sugar has been viewed as a strategic food product and thus sugar beet production and refined sugar prices have been strictly monitored and controlled by legislation. Usually, once a year, the State updates the minimum allowed level of wholesale sugar price as well as the sugar beet price. For the MY 2013/14 these prices were set at $ 584.71 / MT and $ 42.26 / MT respectively. While in the current season the whole sale sugar price was first set at $ 738.75 / MT and then adjusted to $ 637.50 / MT due to the oversupply in the market and a subsequent depressing situation.

May 2013

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