Turkey. Sugar Semi-annual. Jan 2014 Jan. 11, 2014
Revised 2013 Sugar Semi-annual Report
This report replaces the 2013 Semi-annual report published on October, 2013.
Turkey’s sugar sector is regulated by production quotas which remained unchanged at 2,532,000 MT during the last three marketing years. However, total production quotas have been decreased for MY 2013/14 to 2,510,000 MT. In light of the decreased quotas, sugar production is expected to be 2.2 million metric tons in MY 2013/14.
In line with the decreased quotas, post expects 15 million MT of sugar beet production from a planted area of 280,000 hectares in MY2013/14. Sugar production is not expected to exceed 2.2 million metric tons and starch based sugar production is expected to be 244.400 metric tons similar to the figures of MY2012/13.
The major development in the sugar sector this year has been the draft regulation prepared by the Sugar Board which would change the current Sugar Law. Even though it has not been approved yet, it has stirred a lot of disputes between the sugar beet producers and the starch based sugar (SBS) producers.
Production: Sugar beets
Factories start processing sugar beets in the beginning of October, and this period is called the campaign period. Unchanged production quotas for the past three marketing years have led to a decrease in plantation and an eventual reduction in sugar production. In MY 2012/13, 14,937,710 MT of sugar beets were harvested from 279,589 hectares. Post expects these figures to be slightly lower in MY 2013/14.
The average national yield per decar (1,000 m2) has increased gradually from 5.3 tons to 6.3 tons in the last couple of years. While the planted area is decreasing, sugar beet yield has been increasing due to the adoption of modern agriculture techniques and higher quality seeds.
Production: Centrifugal Sugar
After remaining the same for the last three marketing years, Turkey’s total sugar production quota was announced by the Sugar Board at 2,510,000 for MY 2013/14.
The “A quota” is the primary production allowance and the “B quota” is an additional margin allowed for producers which amounts to 4% of the A quota. At the end of the campaign period any excess sugar produced by the factories above their allocated quotas are sold as C sugar to exporters at world prices.
There are 33 sugar beet refineries in Turkey, 25 of which belong to the state-owned Turkiye Seker Fabrikalari A.S. (Turk Seker) and the remaining 8 are private. The total production capacity of these 33 beet sugar factories is 3.1 MMT per year and the size of the beet-sugar sector is valued at more than US$ 3 billion.
While the daily average beet processing capacity of the 25 factories under Turk Seker is 3,730 MT per day, the average beet processing capacity of private sector factories is 8,125 MT.
Production: Starch-Based Sweeteners (SBS)
There are six starch based sugar (SBS) producers and the total production capacity of these 6 SBS factories is 1 MMT per year.
The SBS quota is set at 244,400 MT for MY 2013/14.
B quota is not allocated for SBS producers, but the Cabinet has the right to increase the A quota up to 50% annually. Utilizing this authority, this 50% increase has been granted in MY 2010 and 2011, and a 35% increase has been granted in MY 2012 for SBS producers. In MY2013/14, the fact that SBS quota remained same while the beet sugar quota declined is causing a lot of controversy between the two producer groups.
Home-use and industrial sugar consumption increases appear to be correlated with the increase in population and GDP.
Currently, total annual sugar and sweetener consumption is around 2.3 MMT, where SBS accounts for approximately 250,000 MT, beet sugar accounts for 1.9MMT, and unregistered and smuggled sugar accounts for the remainder. The portion of SBS in total sugar consumption is increasing every year due to increased utilization by industry.
Turkey’s sugar exports decreased from 70,000 MT in MY 2011/12 to 66,700 MT in MY 2012/13. The largest export market remains to be Middle East countries such as Iraq and Syria, followed by Azerbaijan. African countries such as Niger and Somalia are also emerging as new export markets.
The decrease in quotas is expected to reflect negatively in MY2013/14 exports since the amount of sugar being produced will hardly meet domestic demand.
The tariff rate on sugar imports to Turkey remains at 135 percent on the CIF value, which makes Turkey’s sugar imports negligible. Import duties on products containing sugar such as candy, cookies, and chocolate vary between 8.3% and 15.4%, plus an additional tax called “agricultural contribution” is applied based on the starch/glucose ratio and milk fat percentage. This procedure was adopted from the EU system.
However if production continues to be reduced by quotas, an increase in imports seems inevitable in the upcoming years.
Production quotas helped deplete Turkish sugar stocks over the last few years. Any remaining stocks would belong to Turk Seker and they sell this stock at discounted prices (ranging from 5% to 8%, depending on the amount purchased) before the beginning of the new campaign period. Post expects sugar stocks to decrease even further in MY 2013/14 due to decreased quotas and because excess sugar production is exported.
Production Policy and Privatization
Production quotas are significantly lower than the established production capacity of both beet sugar and SBS processing plants. This challenges all producers and leads to a consistent struggle of seeking higher quotas.
In the light of this conjuncture the Sugar Board prepared a draft communique to change the Sugar Law that has been in effect since 2001 claiming that the sugar sector in Turkey has undergone substantial changes and that there have also been global changes which necessitate a new law. The major change that this draft presents and the current situation is summarized below in bullet points:
1. Currently the SBS quota is 10% of the beet sugar (A) quota and the Cabinet has the right to increase or decrease this quota an additional 50%. The new law increases this ratio to 15%. The Cabinet shall still have the right to increase this quota as much as they deem fit (instead of the current 50% upper limit), but not to decrease it.
2. Sugar Board shall be restructured with broader authorities and be converted to Sugar Sector Regulation and Auditing Board, with no representatives from sugar beet producers.
3. Sugar is classified as food purpose and non-food industry purposes. There is no quota restriction defined for industry purpose sugar.
The sugar beet producers object to this draft law claiming that it is biased towards supporting the SBS sector and would eventually hurt the sugar beet sector.
Turk Seker and other private producers are also wholesalers who handle the marketing of sugar to retailers. All SBS producers and distributors are private.
The price of A quota sugar beets with 16% polarity rate has been 137 TL/ton and C quota sugar beet price has ranged between 70-85 TL/ton in MY2013.
Wholesale price of a 50kg bag of crystal sugar is 123 TL (including 8% VAT) and a 20 kg bag of cube sugar is 63TL as of October 2013 (exchange rate for 1 US$ is 2 TL).
Exporters of sugar products buy C quota sugar at world prices, and they can also import sugar under the inward processing regulation, where they do not pay the 135% duty imposed on sugar imports, with the precondition that they shall export the end product and not sell it domestically