China Sugar and Cane Industry are Fully Recovering in 2020/2021
The United States Department of Agriculture (USDA)’s Foreign Agricultural Service (FAS) has released a China sugar report in MY20/21, is expected to mostly recover from the previous year’s drought. Continued government support, especially in Guangxi, the country’s largest sugar producing region will encourage existing and, possibly, new production in the future. The exports are forecast up slightly from the previous year’s newly revised estimate. Exports, most of which is refined sugar, go to neighboring countries, including North Korea and Mongolia.
China in MY20/21 (October-September) cane sugar production is forecast at 9.25 million metric tons (MMT), up 450,000 metric tons (MT) from the previous year’s newly revised estimate but still slightly lower pre-drought levels. This predicted increase is mainly due to the expected return of normal weather conditions as well as stable sugarcane prices. Year-over-year plantings are expected to remain unchanged. The anticipated improvement in weather conditions, stable sugar cane prices, and government support are expected to offset the supply-side effects of reduced sugar demand resulting from COVID-19.
The Guangxi provincial government announced a three-year (2020-2022) action plan to modernize the region’s local sugar industry, which accounts for 70 percent of China’s total cane sugar production. The plan aims to raise yields to an average of 5 MT per mu (1mu=0.067ha) by mechanizing at least two-thirds of cane planting and harvesting practices. Current yields without mechanization are around 3-4 MT per mu. These anticipated yield increases, if realized, could spur higher cane sugar production levels in the future.
In order to incentivize greater mechanization, the plan will provide varying levels of support payments to cane farmers. Farmers will be paid RMB170 (~$24) and RMB270 (~$48) per mu for instituting mechanized seed and harvesting practices, respectively. Other payments will also be made to encourage new and existing production levels, while separately providing insurance-type payments to offset farmers’ losses if weather or market conditions deteriorate. State-owned mills will also receive continued support.
MY20/21 sugar consumption is forecast at 15.2 MMT, unchanged from the previous year due to continued market uncertainties due to the lingering effects of COVID-19. Some industry insiders predict that consumption will start picking back up during the second half of the current calendar year. Meantime, some industry experts are predicting consumption could fall as low as 14.4 MMT based on the assumption that the impact of COVID-19 could last longer. And, sugar imports are forecast at 4.2 MMT, up 100,000 MT from the previous year. China applies a tariff-rate quota (TRQ) on imported sugar, most of which comes from Brazil, Cuba, and Thailand. The within-quota tariff is 15 percent for 1.945 MMT, which is slightly less than half of total imports. About 70 percent of the in-quota TRQ is allocated to State-Owned Enterprises (SOEs).
In response to the COVID-19 situation, China has instituted stricter border controls to on incoming visitors and cargoes. One of the side effects resulting from these controls is a reduction in informal sugar imports. The anticipated removal of the safeguard measure is also expected to put downward pressure on informal sugar imports. The exports are forecast at 200,000 MT up slightly from the previous year’s newly revised estimate. Exports, most of which is refined sugar, go to neighboring countries, including North Korea and Mongolia.
The sugar price situation in MY/20/21 is difficult to predict because of the uncertainty about domestic consumption and when demand might fully recover. External variables, such as the sugar supply and demand conditions in Brazil and India, as well as the cost of oil, could also influence future sugar prices in China. Prices in MY19/20 started trending lower in mid-January in part because of COVID-19’s impact on demand. This downward price pressure is expected to let up as China’s economy gradually recovers from COVID-19.
