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December 2005

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You could be forgiven for thinking that the sugar industry was entirely European last month : news, commentary and discussion on the now agreed reforms of the regime swamped out virtually all other news.


Much to the surprise of some, political agreement was reached on the reform of the EU sugar regime last month. It took an intensive three day council meeting of the 25 states' Agricultural Ministers [perhaps more intensive for the aides than the ministers] to reach that agreement.

The full text of the EU press release is available on the EU web domain but in essence the key aspects of the agreement are as follows :

  • a 36 percent price cut over four years, beginning in 2006/07; [20% in the first year increasing to 27.5% in the next and then 35% and finally 36% in the following years]
  • 64.2 percent compensation to farmers based on the final price cut of 36%; in addition, countries giving up 50% or more of their quota may receive an additional 30% for five years;
  • payments for shutting factories of 730 per ton of capacity closed in years one and two, reducing to 625 in year three and 520 in the final year.

The new regime will last until 2014/15 without any reviews.

It will be a while before the details are turned into official wording and the devil is always in the detail so we still need to wait and see. However, you might want to see the document which came from the Council to Delegates before the meeting but which was changed after the agreement. You can find a copy on the London Sugar Traders' domain.

Not least of the issues is the attitude of the European Parliament [which, unlike say the British Parliament, has little real authority because the EU is run by unelected dictators] which has already warned that it will not approve the reform as agreed. The MEP's feel that the reform is much too sever and have indicated they want to see no more than a 30% price reduction.


Political reaction to the agreement was pretty much as expected with the loosers complaining bitterly, the Charities saying that it is wrong and the winners saying that it is good. There were some interesting aspects though. The British Commonwealth [which was, coincidently, holding a meeting of its heads of state] condemned the changes which means that the UK, Malta and Cyprus - all member states of the EU - came out against an agreement they had just agreed to. The Spanish sugar company Ebro Puleva said that it will continue to process beets but will make ethanol instead of sugar.


The world price continues to surge - presumably helped by the imminent EU regime change - passing through 12 /lb into 13 /lb territory by the end of November. ISO is expecting a 1 million ton global deficit in the current year and is forecasting a 2 million ton shortfall in 2006/7.

At least one analyst [from National Australia Bank] was suggesting that prices in the 15 or 16 /lb range would soon be seen with the average perhaps up around the 13 /lb level. Let's hope that he is correct.


The impact of the three major hurricanes that hit the US cane crop this year has now been reflected in a new crop estimate from the USDA. The new estimate, 28.4 tons of cane, is 6% lower than the October forecast and therefore 2% down year on year.

As might be expected , the issue is the yield rather than the acreage which is marginally up from last year. The report estimates an average yield of 29.7 tons/acre [we assume short tons which means that the figure equates to 66.72 tons/ha] which would be the worst figure since 1933. It also notes that the full impact of Wilma had not been assessed at the time of publication but it was expected to cost 3 tons/acre "due to stalks being blown down and unharvestable". That is not in tune with the report from our local correspondent who reports that the operations people are surprised by the recovery of the cane.


The Indonesian government has announced its intention of being self sufficient in sugar by 2009, quite challenge : current domestic production is about 2.2 million tons but demand is about 3.3 million. Interestingly, it sees Java as being the location of the extra production which is contrary to its past policy of moving sugar to other islands.


The Gokongwei group, owner of the Sonedco factory on Negros has confirmed its $40 million plans for expansion. It is currently installing a 375 t/d RSO refinery and once that is complete it will more than double the factory capacity to 9 000 tcd.


Kayseri Seker has awarded contracts for a new showcase beet factory rated at 10 000 bsd. The beet technology and equipment is coming from France so the contract is underwritten by the French government' s export credit agency. There is no information on costs but the factory is scheduled to start production at the end of 2006.


Following two disastrous years, it looks as if the Indian crop will result in 17.5 million tons of sugar in 2005/6. In part this is a result of better weather but there seems to be a significant increase in land planted to cane [4.13 million ha compared to 3.75 million in 2004/5] and a continuing decline in the number of low efficiency jaggery factories.


Wonjji Shoa has declared its intention to quadruple its production to become a 300,000 t/annum operation. Apparently another 3,000 ha of land is already being brought into production and another 19,000 ha are being studied. The company also said that equipment purchase for the long expected new factory [to replace Wonjii and Shoa factories] was "under way". It will be interesting see if that is correct as we had understood the company needed a foreign partner to raise the finance and that the partnership tendering process was stalled by the current political turmoil.


The South African experiment of selling cane farms to black farmers in Natal has resulted in some bank repossessions although the overall scheme seems to be successful. As always, it is a numbers game : the bank involved has stated that less than 2% of the sales have defaulted but in value terms it is actually nearer 8% - and that assumes there will be no more problems. Other comments indicate that there are still more to come.


Casagrande is one of the Peruvian operations still part owned by the government and crippled by debt following years of neglect as a cooperative. The government has been trying to persuade Colombia's Manuelita group [which already has an interest in Peru's sugar sector] to buy into the company for quite some time. Last month a Peruvian company called Grupo Gloria started to buy up the company and then launched a bid, triggering the suspension of the bid for breaking local rules - or have they trod on someone's toes?


Following the item in the October News, we can now confirm that Illovo is indeed the other South African company interested in buying into Kinyara. We now also know that TSB, owners of Booker Tate who currently manage the factory, are in consortium with Industrial Promotions Services, an investment company owned by the Aga Khan.


Scientists in the US and the UK have reported in Current Biology a better understanding of sweetness. It seems that sugar [and, as it happens, sucralose] interacts with two different taste receptors on the human tongue but some artificial sweetners only interact with one.


In a new study reported in Clinical Drug Investigation last month [Volume 25, Number 11, 2005, pp. 701-707] it was confirmed that policosanol has a beneficial effect on blood cholesterol levels. Policosanol is usually extracted from sugar cane wax. Unlike synthetic statins, policosanol appears to have no significant side-effects.

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