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Report Highlights:

FAS/Moscow forecasts Russia’s sugar beet production in 2013 to fall by 18 percent from last year to 37 million metric tons (MMT). The lower forecast for the 2013 sugar beet crop is due to the expected decrease in sugar beet sown area from 1.14 million hectares to 1.0 million hectares as low sugar prices are expected to result in a shift in area to other grains and oilseeds. 

Executive Summary: 

FAS/Moscow forecasts Russia’s sugar beet production in 2013 to fall by 18 percent from last year to 37 million metric tons (MMT). Last year’s crop of 45.1 MMT, the second highest in the Russian history, was greater than Russia’s processors demand for sugar beets, and as a result a significant portion of the sugar beet crop was left unprocessed and lost. The lower forecast for the 2013 sugar beet crop is due to the expected decrease in sugar beet sown area from 1.14 million hectares to 1.0 million hectares, while sugar beet yields are forecast to remain at the relatively high level of the last two years: 38-39 metric tons (MT) per harvested hectare. This high average yield forecast is based on the assumption that sown area will likely be reduced at less efficient farms with poorer yields, while sown area in large agro-holdings which typically use modern technologies and improved seeds and obtain higher yields is expected to remain steady. 

Decreased domestic sugar beet production in 2013 is not expected to result in a corresponding significant decrease in beet sugar production in marketing year (MY) 2013/14, as production still should be sufficient to meet processors’ demand. The losses of sugar beets are expected to drop, with the volume of beets sold and processed expected to remain at almost the same level as in MY 2012/13. FAS/Moscow forecasts domestic production of beet sugar in MY 2013/14 at 4.9 MMT (raw value) only 0.1 MMT, or 2 percent, lower that in MY 2012/13. 

Sugar beet processing is seasonal, and begins in September and usually ends in January. Industry analysts report that domestic processors may process in this period 36-37 MMT. Recent production of sugar from beets has already surpassed the targets of Russia’s Food Security Doctrine, which requires Russia’s self sufficiency in sugar at 80 percent. The incentives for business to invest in expansion of sugar processing in Russia have been curbed by several factors. First, prices have been low in recent years as world production and trade in raw sugar has been stable and global stocks have been high (and Russian production has been very large). Second, competition from other sweeteners (both grain-based and artificial) in the world and inside Russian market has increased. 

Imports of raw cane sugar are expected to rise in MY 2013/14 as a result of lower domestic beet sugar production and as processors build a buffer in case of production shocks. However, these volumes will remain far below the levels of nearly 2 MMT at the beginning of the decade. FAS/Moscow forecasts imports of sugar in MY 2013/14 to increase to 1 MMT, from the estimated 0.7 MMT in MY 2012/13. These imports will include 0.9 MMT of raw sugar (cane), and 0.1 MMT of refined sugar (raw equivalent). Russia’s exports of sugar are forecast at 0.2 MMT (raw equivalent). 

Sugar Beets 

Production: 

FAS/Moscow forecasts sugar beet sown area to decrease in 2013 by 13 percent to 1.0 million hectares and sugar beet production to decrease by 15 percent to 37 MMT. The sharp decrease in both sown area and in production will be based on the limited demand of the domestic refining industry to process sugar beets, decreased sugar beet prices and growing competition with other spring crops for arable area in the Central and the Southern European Russia. Production of sugar beets is expensive (cost of both labor and inputs is higher than in production of grains and oilseeds), and increased prices of inputs and lower state support of crop farmers than in MYs 2011/12 and 2012/13 will also influence farmers’ decision to reduce sugar beet production. 

Some farmers in the Central Federal District, Russia’s largest beet producing district, reported that they plan to cut sugar beet planted area by 50-70 percent in 2013. It is unlikely that the cut will be this drastic, but if prices of alternative spring crops (spring grains and oilseeds) remain attractive and spring weather allows early sowing of spring wheat and barley, many farmers will prefer these crops to sugar beets. According to preliminary data of the Association of Sugar Producers of the Customs Union (Rossahar), area sown to sugar beets in 2013 (all types of enterprises) is forecasted at 1,047,000 hectares, that is 8.4 percent lower than in 2012, and 19 percent less than in 2011. 

Inputs supply 

Inputs supply for sugar beet production may be worse than in the previous two years. Sugar beet farmers in 2013 were not able to receive high incomes in MY 2012/13 because sugar beet prices were decreasing, unlike prices of most of other crops (grains and oilseeds). Thus, the financial situation of farmers which focus on sugar beet is likely worse than other farmers, and this will constrain them in increasing investments in production in 2013. The lifting of state subsidies on mineral fertilizer in 2013 will also strongly impact sugar beet producers, even more than grain producers, because the rate of application of mineral fertilizer on sugar beets is 7 times higher than on grain crops (270 kg of fertilizer, nutrient value, per hectare of sugar beet area vs. 39 kg per hectare of grain crop area). 

The quality of sugar beet planting seeds has improved significantly in 2011-2012, but sugar beet farmers still cannot use biotech planting seeds of sugar beets as Russia still does not have regulatory mechanism for cultivation of biotech crops. For more information on inputs supply for crop production in 2013 see FAS/Moscow GAIN Report Grain and Feeds Annual 2013. 

Summary of 2011-2012 Production Changes 

In 2011 and 2012 Russian farmers significantly increased sugar beet production due to the combination of such factors as favorable weather, high sugar prices (both domestic and international) and increased use of modern technologies and improved seeds. However, the demand of the refining industry was not enough to stimulate the further increases in production, and beet prices dropped in MY 2012/13 significantly. According to industry analysts, in MYs 2011/12 and 2012/13, many farmers have not been able to sell all their beets, and the volumes of beet loses increased. The Russian State Statistical Service (Rosstat) does not provide monthly data on marketed beets, and its calendar year data does not include beet marketed by small farmers and individuals. FAS/Moscow estimates of marketed beets are based on Rosstat calendar year and irregular monthly data, and assumption that sales of beet crop are seasonal (September through January next year). FAS/Moscow estimates volumes of marketed beets in MY 2011/12 and 2012/13 at the same level of 34.8 MMT. The volumes of unsold beets increased roughly from 4 MMT in MY2009/10 and 3 MMT in MY 2010/11 to 14 MMT in MY 2011/12 and 10 MMT in 2012/13 respectively.

Currently, approximately 60 percent of area sown to sugar beets is farmed by large agro-holding companies, which invest in modern technologies and in improved planting seeds. Yields at these farms are higher and usually more stable from year to year. Meanwhile, 40 percent of sugar beets are still produced by smaller agricultural enterprises or independent farmers and yields at most of these farms can vary significantly from year to year depending on weather.

The annual demand of Russian’s refining industry for processing sugar beet is estimated at approximately 36-37 MMT, which would require farmers to produce 37-38 MMT of sugar beets annually. With yields similar to the past 2 years (39-40 MT/HA), this would require sown area to be 1.0 million hectares, and with yields similar to the average of 2008-2012 (34 MT/HA), this would require 1.1 million hectares. Industry analysts forecast that any reduction of area below 1 million hectares may result in insufficient supply for processors and in increased imports of raw cane sugar and white sugar. 

Farmers in the Central Federal District produced 26.4 MMT or 59 percent of the total Russia’s production in 2012, and leaders were Voronezh oblast ( 6.2 MMT), Kursk oblast (4.7 MMT), Tambov oblast (4.3 MMT), Belgorod oblast (4.3 MMT), and Lipetsk oblast (4.0 MMT). Farmers in the Central Federal District are also leading in beet yields. The Southern and North Caucasus Federal districts follow the Central Federal District in sugar beet production (24 percent together). These three federal districts have traditionally been the major producers of sugar beet. However, recently beet production began expanding to the Volga Valley Federal District (16 percent of the total in 2012) with Tatarstan Republic and Pensa oblast being the absolute leaders (2.0 MMT each in 2012).

Most sugar beets are produced at large agricultural enterprises, and most of these enterprises are part of vertically integrated sugar companies that invest in improved technologies and seeds. The yields at agricultural enterprises are much higher than at private farms, and also much higher than individual household farms. Thus, in 2012 the average yields at agricultural enterprises was 41.4 MT/HA (harvested area), at private farms – 37.7 MT/HA, and at households – 28.4 MT/HA. However, the share of agricultural enterprises in beet production has decreased from 89 percent in 2009 and 2010 to 86 percent in 2011 and 2012 as high prices encouraged smaller, private farmers to increase their sown area and production,. However, low sugar beet prices and high production costs are expected in 2013 in cause of reversal of this trend, with the share of these private farmers in total beet production falling as many reduce planted area.

Consumption: 

FAS/Moscow forecast beet utilization for sugar in MY 2013/14 at 37 MMT. This is close to the actual utilization of sugar in MY 2012/13. FAS/Moscow assumes that in these years farmers (enterprises and private farmers) sold for processing approximately 37 MMT, or volumes that equal the current demand of Russia’s processing plants in beets. This includes 36 MMT’s demand in beets of plants located in the Central and the Southern Federal Districts, the major beet producing districts. These plants can produce approximately 4.5 MMT of sugar (4.9 MMT of sugar in raw equivalent). Industry analysts estimate Russia’s annual demand in sugar at 5 MMT that will require approximately 38 MMT of sugar beet annually. Russian farmers have already proved that they may produce more than these volumes, but sugar industry demand does not exceed this 38 MMT. In order to reduce losses, according to industry analysts, can be resolved by improvement of logistics, including the increase of capacity for safe and durable storing of beets at farms in order to extent the period of delivery of beets to processors, construction of processing plants closer to areas, which have potential for increased production of sugar beets. 

Policy: 

The development of the sugar industry was part of the State Program on Development of Agriculture 2009-2012, and remains part of the new Program on Development of Agriculture in 2013 – 2020. The Program 2013-2020 sets as a target of 41 MMT for sugar beet production by 2020 in order to meet the targets of Russia’s Food Security Doctrine of 80 percent self-sufficiency in sugar. However, in 2011 and 2012 production already surpassed this target with domestic sugar beet production at 47.6 MMT and 45.1 MMT respectively. Industry analysts link the achievements of sugar industry in exceeding these targets primarily to the favorable market situation (prices) and to weather, rather than to government support. 

The new State Program on Development of Agriculture in 2013-2020 decreased the federal state support of crop producers and switched the price support of such inputs as fuels and mineral fertilizer to the decoupled, per hectare, support, that is below the previous support (for more information see FAS/Moscow GAIN report Russian Government Discusses Grain Situation). The new Program envisages interest rate support for loans to processors of agricultural products, which may help investors in sugar refining. However, since sugar targets for 2020 have already been met, and meat production continues to be the priority for the Russian Government, it is unlikely that sugar producers or processors will receive much additional federal support. Some lobbyists of sugar beet producers consider that farmers may be stimulated to increase production of sugar beet if the procurement prices are guaranteed and based on the basic sugar content of 14 percent determined in 2009 by the State Standard P 52647-2006. However, it is unlikely that the government will develop the new price-guaranteed program for sugar beet producers. 

Marketing: 

Sugar beet prices were steadily growing until the end of 2010, and stimulated farmers to increase beet production. However, in 2011 and 2012 the prices began decreasing. Production of sugar beets requires high labor and input expenses, and with current prices industry analysts consider that farmers that get less than 35 MT of beets per hectare will be unable to cover production costs.

Sugar, Centrifugal 

Production: 

FAS/Moscow forecasts Russia’s beet sugar production at 4.9 MMT (raw value) in MY 2013/14, a 2 percent decrease from MY 2012/13. FAS/Moscow estimates beet sugar production in MY 2012/13 at 5.0 MMT (raw value) that is almost 10 percent less than in MY 2011/12. The estimate is based on the reported beet sugar production in October 2012 through January 2013 at 3.4 MMT that is 9 percent below the volumes produced in the same period a year ago. Russia’s production of all refined sugar, cane and beet (white, in solid form) reached the maximum of 5.7 MMT’s maximum in MY 2010/11. Along with growth of domestic sugar beet production and processing, the share of white cane sugar in the total white sugar production dropped from 42.6 percent in MY 2010/11, to only 7.0 percent in MY 2011/12.

Sugar Standards 

Customs Union (CU) Resolution No. 880 of December 2011 includes a list of voluntary standards (GOSTs) to ensure compliance of sugar products with the CU Technical Regulation “On Food Safety” (for more information see FAS/Moscow GAIN report on Customs Union Technical Regulation on Food Safety.) 

Other sweeteners 

Russia is developing production of starch-based sweeteners that are received from corn and wheat. In CY 2010 Russia produced 493,000 MT of starch syrups, in CY 2011 production increased to 563,400 MT. In CY 2012 this production decreased to 462,000 MT due to decreased grain crop and high grain prices. However, since most of starch syrup is exported, the fluctuations in production do not affect domestic supply of sweeteners. Cargill remains the major producer and exporter of starch syrup. 

Sugar Industry By-products 

Russia still is lagging far behind the developed countries in production and utilization of sugar industry by-products, such as pulp and molasses for feed. In 2012 Russia produced 45 MMT of sugar beet, and Ministry of Agriculture analysts estimate that if all beet is processed, the pulp production could have been 32 MMT based on the average Russia’s pulp output form beet processing at 70-73 percent (compared with 90 percent in the developed countries). The actual production of pulp is much lower because of huge losses of harvested sugar beet crops at farms and because of a shortage of pulp drying facilities at the beet processing plants. According to the Ministry of Agriculture the volume of production of dry granulated pulp fit for feeding at livestock farms is only 0.7 MMT, and most of this granulated pulp is exported. The rest of pulp (in liquid form) is either fed to animals at farms located close to sugar plants or wasted.

Meanwhile, exports of pulp and molasses are actually bringing larger returns to processors than exports of white sugar. According to the Sugar Producers’ Union of Russia, in 2012 Russia exported 91,000 MT of white sugar worth $66 million, while exports of dry pulp (690,000 MT) was worth $125 million, and exports of 628,000 MT of molasses, another by-product of sugar processing, were $47 million. The major consumers of Russia’s pulp and molasses are UK, Belgium, Germany, Denmark, Italy, and Netherlands.

Trade: 

Imports: Raw Sugar 

FAS/Moscow forecasts Russia’s imports of raw sugar (almost entirely cane sugar) at 0.9 MMT in MY 2013/14, up from the estimated 0.6 MMT in MY 2012/13, because of expected decrease in beet production and processing and desire of processors to eliminate risks of shortage of beet supply in MY 2013/14. In October 2012 through February 2013 Russia imported 175,931 MT of raw cane sugar, and industry analysts forecast the further increase of imports of raw sugar in March and April, before the expected increase of import tariffs on May 1st 2013. 

Imports of raw cane sugar had dropped in MY 2011/12 to 445,481 MT compared to almost 2.26 MMT in MY 2010/11 due to record sugar beet crop in Russia in 2011.

Tariffs on raw sugar imported to Russia and other Customs Union members (Kazakhstan and Belarus) are on the web-site of the Customs Union. Import tariffs vary significantly depending on the season and specifications of sugar. Thus, imports of raw beet sugar for refining (HS Number 1701 12 1001) from January 1st through June 30th is $250/MT, and from July 1st through December 31st is $270/MT. Import tariffs on raw cane sugar (HS numbers from 170113-170114) increased after Russia’s WTO accession on August 22nd 2012. However, these tariffs are seasonal, and will affect raw cane sugar imported from May 1st through July 31st, and importers will feel WTO-connected changes only after May 1st 2013. Thus, until May 1st 2013 import tariff on raw cane sugar for refining (HS Number 1701 14 1024) is $160 per MT, and will increase to $205 per MT for the period May 1st through July 31st), and the tariff for raw cane sugar for refining HS Number 1701 14 1025 will increase from $140 to $162 per MT for the same period. According to industry analysts, these expected changed in tariffs have stimulated importers to increase imports of raw cane sugar in February – April 2013, despite the abundant domestic supply of raw beet sugar. Imports into Russia from other Customs Union member-states are duty-free, and this increases competition in production of beet sugar between Russia and Kazakhstan and Russia and Belarus. 

Imports: Refined Sugar 

FAS/Moscow Forecasts Russia’s imports of refined sugar in MY 2013/2014 at 130,000 MT or 30 percent more than in MY 2012/13. The forecast is based on assumption that Russian consumers of refined sugar and sweeteners’ (confectionary industry, wholesalers of food products) may increase imports in order to guarantee stable supply of white sugar if domestic production of sugar drops. In October 2012 through February 2013 Russia imported 26,024 MT of refined sugar (HS Numbers 170191 and 170199), 28 percent more than in the same period in MY 2011/12. Imports of refined sugar is dominated by refined sugar not containing added flavoring or coloring matter (HS Number 170199) that comprises 99.5 percent of the total imported volume. Refined sugar that contains added flavoring and coloring (HS Number is 170191) is only 0.5 percent of the total volume. The major suppliers of refined sugar not containing added flavoring or coloring matter in MY 2011/12 were Poland, Lithuania, Brazil, and Moldova (54 percent, 26 percent, 8 percent and 5 percent respectively).

In accordance with the Agreement on the Free Trade Zone (which includes all Former Soviet Union countries except Georgia and the Baltic Republics) of October 18, 2011, (article 2), Russia can import sugar duty-free from all of these countries except Ukraine. can import sugar duty-free. Imports of white sugar from Ukraine (HS Code 1701 99 100) to the Republic of Belarus, Republic of Kazakhstan and the Russian Federation is subject to import duty of $340 per 1,000 kg, and this will be in effect until some date in the future that will be “agreed upon on mutual consent”. In its turn the Ukraine will apply 50 percent import tariff on white sugar (code 1701 99 1000) imported from Belarus, Kazakhstan and Russia until the same data “agreed upon on mutual consent”. 

Exports: Refined Sugar 

FAS/Moscow forecasts Russia’s exports of refined sugar at 0.2 MMT, 0.1 MMT decrease from exports in MY 2011/12 and MY 2012/13. Since the organization of Customs Union, Russian Customs data does not show Russia’s exports to Kazakhstan, which accounted for more than 40 percent of these exports in MYs 2007/08 and 2009/10. Russia’s exports in MY 2013/14 may decrease for two reasons: slight decrease of domestic production, and increased supply of sugar in the importing countries.

Marketing: 

Russia’s domestic prices of white sugar (both wholesale and retail) reached maximum in March 2011, and gave strong impulse to sugar beet producers to increase production in 2011 and even in 2012. However, after some stabilization at relatively low level in CY 2012, prices have fallen

Black Sea Trade Flows (BST Flows)

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