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


10 May 2012

USDA GAIN: Ukraine Sugar Annual 2012USDA GAIN: Ukraine Sugar Annual 2012

Domestic beet sugar production in Ukraine has increased to over two million metric tons, creating an exportable surplus. Domestic stocks are high as Ukraine could not export refined beet sugar as expected to Russia due to high import tariffs. Finding export markets for Ukraine is an issue that will have a significant impact on the developments in the industry in the near future. Cane sugar imports to Ukraine are on hold while domestic producers lobby the Government to cancel the cane sugar import quota preferential tariffs. Sugar beet production continues to be a profitable business in Ukraine.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Commodities:

Sugar Beets

Production:

Sugar beet production area is expected to stay relatively unchanged in Marketing Year 2012/13 (MY 2012/13) and approach 550,000 planted hectares (ha), compared to 530,000 ha in the previous year. Ukraine observed an increase in average sugar been yields mainly due to improvements in the quality of planting seeds. Some of this increase is also attributed to a better use of fertilizer and other chemical treatments.

About one-half of the sugar beet production companies also own sugar refineries and belong to large agriholdings (corporations). Formation of such vertically integrated businesses allows the owners to benefit from economies of scale, while better investment options are available to the companies that they use to improve production technology and refinery facilities. (For more information on the current trend in the industry developments, please see KAS-Kyiv’s 2011 Annual Sugar Report).

Sugar beet production in Ukraine has approached the level that can fully satisfy domestic demand for refined sugar. Further production increases would be dependent on export markets for refined sugar, or utilization of sugar or sugar beets for production of bio-ethanol. Additional discussion on this topic is provided in the Policy section of this report.

The new season’s yields are expected to be above the 5-year average but lower than that in the previous season. In the summer of 2011, weather conditions and a number of other factors related to production technology resulted in record high yields of sugar beets for Ukraine – 36.3 tons per hectare.

Profitability of sugar beet production remains quite attractive for producers regardless of the increase in fuel and fertilized costs this season. See comparison of profitability for various groups of agricultural crops below.

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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 transportation and storage losses and occasional minor exports. [For Production, Supply and Demand Data Statistics, please download the document]

Commodities:

Sugar, Centrifugal

Production:

Sugar beet sugar production in Ukraine has increased in MY 2011/12 by about 50 percent year-to-year, and reached 2.3 Million Metric Tons (MMT). It is expected to remain at this level in the next season. This increase for the most part was stimulated by the following factors:

  1. Domestic market demand for refined sugar. Domestic production in the last years did not produce enough to satisfy domestic needs and thus some sugar was imported to Ukraine.


  2. Consolidation of sugar production by the large agricultural corporations that allows these companies to utilize larger production areas and benefit from the economies of scale of the own sugar production.


  3. Ukraine was hoping to open up sugar export markets in Russia and other members of the Customs Union (CU).

Domestic refined sugar prices stayed relatively low in 2011/12 that made sugar production in Ukraine almost unprofitable. As of September 2011, market price of one kilogram (kg) of sugar in Ukraine was on average 8.5 UAH, which translates roughly into $1.06/kg. However, industry experts project the price to drop to $0.81-0.88/kg by the end of the current MY. The average breakeven price of sugar for producers in Ukraine in the current season is estimated by the industry experts to be $810-900 per MT. However, the larger producers, who are usually a part of the vertically integrated agri-holding companies, enjoy much lower input costs and are said to have positive profit margins. Individual company cost of production and sales data is not available.

The average selling price of refined sugar at the refineries in Ukraine was about $630/MT in midseason. This price is projected to increase by about 10-15 percent by late spring 2012 due to a customary increase in demand on the local market with the approach of the summer canning season.

Consumption:

Sugar consumption in Ukraine in MY 2011/12 is anticipated to increase by about seven percent, mainly due to an abundant supply in the domestic market from the local production and in part due to the attractiveness of the price, compared to the last season.

Trade:

mports

Raw sugar imports in Ukraine in the current season remained at minimal levels due to an increase in domestic production. Imports of cane sugar are expected to decrease significantly, compared to the previous year and not exceed 10,000 MT, while a year prior Ukraine imported 245,000 MT cane sugar for refining and sale in the domestic market.

Sugar industry lobbying groups in Ukraine have been advocating for cancelation of the current cane sugar quota import tariffs. In the current season costs of domestic production of sugar from sugar beets has increased due to the growth in energy costs. As a result some smaller sugar producers were pressed had to break even while large corporation still have some safety margin to spare.

There is more sugar produced in Ukraine than the local market can consume and so larger producers are holding stocks, not dumping on to the local markets, to keep the prices at still profitable levels. However, imports of cheaper cane sugar would further the oversupply of sugar and result in complete drop of the retail prices below economically feasible levels for the local producers. Thus, imports of sugar are expected to remain minimal in Ukraine in the current and the following year.

Exports

Because Ukrainian sugar production exceeds its domestic needs at present, Ukraine is looking for markets for its refined sugar. Russia was once a promising destination. However, sugar import tariffs that Russia set for Ukrainian sugar of $340/MT make this business completely unattractive for Ukraine. So, Ukraine started exporting Georgia, Kazakhstan and some other members of the Commonwealth of Independent States (CIS). In addition, some shipments were recently made to Lebanon and Syria in the Middle East and to Slovakia.

Exportable potential for sugar in Ukraine is estimated at 400,000 – 500,000 MT a year. However, whether or not this potential is realized in the near future depends on the GOU’s ability to negotiate agreements with potential buyers among the CIS countries. Other possible markets for Ukrainian sugar, according to the industry experts, may exist in the Middle East and in the Far East. [For Production, Supply and Demand Data Statistics, please download the document]

Commodities:

Sugar Beets
Sugar, Centrifugal

Policy:

Sugar production has been traditionally regulated by the Government of Ukraine. The policy has not changed much in the current marketing season. However, Ukrainian sugar producers hope that the GOU will cancel the tariff rate quota (TRQ) of 260,000 MT on imports of cane sugar that has been hanging like a dark cloud over the domestic producer’s profits in the current season. The terms of the TRQ and the process of its administration was discussed in detail in the previous year’s Annual Sugar Report by FAS-Kyiv.

There is some possibility that Ukraine may start producing bio-ethanol from sugar beets in the future. This spring, the GOU redrafted legislation on bio-fuel use in the country that may result in significant local demand for bioethanol in the local fuel industry.

Ethanol in Ukraine can be produced from corn or from sugar beets/sugar. A number of older alcohol producing plans have not been operating full capacity and may offer an investment opportunity to interested parties should the local demand for ethanol increase significantly. Some remodeling of these facilities would have to be made to accommodate bio-ethanol production technology.

On the other hand, corn production has increased dramatically in Ukraine in the last two years and the GOU is looking for an opportunity to process some of the crop domestically. Bio-ethanol production may be an answer. Economies of this production are still to be examined and discussed by local potential producers but an attractive opportunity is believed to exist, according to the industry experts.

Thus, change in the GOU Policy that may impact sugar beet and sugar production in Ukraine in the not so distant future is possible.

May 2012

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