IKAR Dmitry Rylko General director Role of RussiaandCIS on the world sugar market Growing self-sufficiency and/or growing efficiency of the world s biggest sugar import market Brazil, October, 009
IKAR Key topics Russian sugar industry: key fundamentals Government regulation: escalation of sugar beet industry support State of domestic sugar beet industry State of domestic raw sugar industry Final remarks
Russia: the status of world biggest single country raw sugar import market 5 000 0 000 Total Raw Imports RF Raw Imports 15 000 10 000 5 000 9 /93 94 4/95 96 6/97 98 8/99 00 0/01 0 /03 04 4/05 06 6/07 08 8/09 0 00 MT 0
(South) Brazil plays the key role in raw sugar origination Argentina Columbia Sl Salvador Guatemala Thailand Cuba North Brazil SouthBrazil 100% 90% 80% 70% 60% 50% 40% 30% 0% 10% Source: IKAR 003 004 005 006 007 008 0% Russia depends on Brazil much more than Brazil depends on Russia!
Russian sugar industry: key fundamentals Consumption Per capita consumption, kg 45 44 43 4 41 40 39 38 37 36 35 34 The share of sugar in total calorie intake reaches 15%! 0 199 1994 1996 1998 000 00 004 006 008 0 Market volume, MT 6 600 000 6 400 000 6 00 000 6 000 000 5 800 000 5 600 000 5 400 000 5 00 000 5 000 000 199 1994 1996 1998 000 00 004 006 008
Russian sugar industry: key fundamentals End use structure 003 008 Industrial 5% Industrial 31% Ho-Re-Ca 4% Institutions Ho-Re-Ca 6% Institutions Retail 60% Not identified Non-Food Not identified Retail 5% Non-Food Gradual transition towards developed market structure: growing industrial and Ho-Re-Ca consumption
Russian sugar industry: key fundamentals Sugar origins, TMT 6 500 Smuggling 6 000 5 500 5 000 4 500 White import 4 000 3 500 Syrups 3 000 500 000 Raws, non quota 1 500 1 000 Raws, in quota 500 1997 1998 1999 000 001 00 003 004 005 006 007 008 009 est. 0 Beet sugar Source: ISCO-IKAR
IKAR Since early 000 s Government: quite consistent course towards domestic sugar beet industry support and growing g self-sufficiency Support is provided in form of both import tariffs (initially) and direct subsidies (most recently) N h b i li i h l New sugar course has been in line with general «reloading» of domestic agricultural policies.
Raw sugar import regime: flexible rate import duty + seasonal duty when necessary 80 70 60 50 40 30 0 10 00 190 180 170 160 150 140 130 10 USD/MT Current NYBOT Base duty step from 004, $/МТ Seasonal duty 007/08 & 008/09, $/MT Base duty from 009, $/MT c/p 4 5 6 7 8 9 10 11 1 13 14 15 16 17 18 19 0 1 3 4 5 6 7 The higher NYBOT the lower duty, and vice versa. However after 9.0 c/p the system has basically worked as flat import duty
NYBOT sugar price and domestic import duty 04.1999 Duty model-005 Sugar #11 Sugar#11 & Duty (model 005), USD/MT Duty-fact 007/08 & 008/09 Duty-fact 009 04.000 04.001 04.00 04.003 04.004 04.005 04.006 04.007 Source: ISCO-IKAR 04.008 04.009 540 500 460 40 380 340 300 60 0 180 140 100
Russian sugar industry: domestic «virtual free trade» vs. real wholesale white sugar prices Price & Cost Sugar from Raw 004/09, USD/MT Full cost of white sugar EXW-factory (Krasnodar), USD/MT Current market price, USD/MT Cost without duty 01.04 04.04 07.04 10.04 01.05 04.05 07.05 10.05 01.06 04.06 07.06 10.06 01.07 04.07 07.07 10.07 01.08 04.08 07.08 10.08 01.09 04.09 07.09 10.09 950 900 850 800 750 700 650 600 550 500 450 400 350 300 50 It is quite expensive: end-users pay roughly $140-180 extra per ton of white sugar in comparison with «perfect free market» situation
Russian sugar industry: seasonal production, cost and price 000 MT Sugar production & Cost USD/MT Beet Sugar 1000 900 800 800 Import White Sugar 600 700 Raw Sugar 400 600 Price 00 500 Cost Beet Sugar 0 08.07 10.07 1.07 0.08 04.08 06.08 08.08 10.08 1.08 0.09 04.09 06.09 08.09 10.09 400 Cost Raw Sugar Immediate outcomes of flexible import duty: 1. «Russian roulette» on the raw s market;. Relative profitability for domestic beet sugar farmers and integrators
Russian sugar margins USD/MT 400 Sugar beet margin, av. 300 Raw sugar margin, av. 00 100 Raw sugar, current 7. 009 1. 009 7. 008 1. 008 7. 007 1. 007 7. 006 1. 006 7. 005 1. 005-00 00 7. 004-100 1. 004 0-300 Current sugar regime encourages sugar processors 1. To integrate into beet production;. To demand further state support for beet production Total
Total government support to domestic sugar beet industry, up-to-date Raw and white sugar import duties White beet sugar import quota agreement with Belarus (150 tmt of beet sugar per annum); «Lock in» status of Ukraine (treated as «non-cis country») General financial support to domestic diversified farms
Agricultural program: state agricultural budget outlays 300 50 00 150 100 50 0 48 108 11 13 99 7 83 66 76 100 10 15 130 007 008 009 010 011 01 Federal Regional budgets budget 009 rescue ag budget: cut traditional programs by ~RUR7b, add rescue budget lines for ~RUR83b.
Total government support to domestic sugar beet industry, up-to-date Raw and white sugar import duties White sugar import quota agreement with Belarus (150 tmt per annum); «Lock in» status of Ukraine (treated as «non-cis country») General financial support to domestic diversified farms Subsidy on mineral fertilizers to sugar beet producers (RUR00) from 008 Subsidy to domestic sugar beet seed buyers (about 0% of the market) Potential (010) interest rate subsidy (80% of Central bank refinance rate) on R&M of sugar mills and seed plants
Government priorities: market share of domestic beet sugar 008-01 Agricultural program (Jul. 007) 64% 65% 67% 70% 65% 57% 61% 63% 64% 65% 60% Agricultural program 55% 5% 5% 51% Fact 50% 45% 40% 005 006 007 008 009 010 011 01 40% 35% Draft «Food Doctrine of Russia» (009). Even more ambitious goal: 80% of domestic sugar beet self-sufficiency by 016
Government priorities: potential market volume for imported sugars 6000 3 704 964 999 589 1991 05 1 978 1 848 5 000 4000 3 000 Other 000 Sugar beet 1 000 005 006 007 008 009 010 011 01 Are these goals achievable? 0
Technical efficiency Yields Sugar content Digestion USA 480 18 9 EU 580 17 10 Poland 380 17 6 Russia 354 17 4,3 0 00 400 600 0 5 10 15 0 0 5 10 Source: Rabobank, IKAR
Domestic sugar beet complex: constant struggle of growing efficiency vs. growing cost of production,8,6,4,,0 Industrial inflation in Russia White sugar price RUR/USD Sugar Yield per ha 1,8 March 003=1,0 1,6 1,4 1 1, 1,0 0,8 0,6 003, 04 003, 07 003, 10 004, 01 004, 04 004, 07 004, 10 005, 01 005, 04 005, 07 005, 10 006, 01 006, 04 006, 07 006, 10 007, 01 007, 04 007, 07 007, 10 008, 01 008, 04 008, 07 008, 10 009, 01 009, 04 009, 07 009, 10 Source: IKAR, Rosstat
Krasnodar Belgorod-Voronej Ufa-Kazan Altai RF Sugar yield, tons / ha Mt/ha 4,8 4,3 3,8 3,3,8,3 1,8 1,3 08 0,8 1991 199 1993 1994 1995 1996 1997 1998 1999 000 001 00 003 004 005 006 007 008 009
1 400 1 300 1 00 1 100 1 000 900 800 700 600 500 400 300 00 100 0 Number of sugar beet farms and investment/ha Distribution ib ti of number of corporate farms per investment t category 00 004 007 5 9 11 1 13 15 17 19 1 3 5 7 9 31 33 3 35 37 39 41 43 45 47 49 51 53 55 5 57 59 61 63 65 Th. RUR / ha
000 000 1 500 000 1 000 000 500 000 0 Total beet output and investment/ha 00 004 007 5 9 11 13 15 17 19 1 3 5 7 9 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 Th. RUR / ha
Producer s profile: substantial changes The number of sugar beet corporate farms has declined from 3800 in 00 to 1400 in 008 Average sugar beet planting area per farm has increased from 00 to 640 ha Average gross beet output per farm has increased from 4.1 to 0. TMT The share of integrated producers in planted area has reached about 40%
Domestic sugar mills: break-downs of daily capacity, 00 and 008 900 000 800 000 700 000 00 008 11 11 600 000 500 000 400 000 14 8 300 000 3 17 16 9 5 00 000 100 000 11 3 4 0 1300 400 3100 3800 4300 5500 7100
Number of functioning sugar mills and average volume of sugar output TMT 60 50 40 30 0 10 100 95 90 85 80 75 70 65 60 55 Number of mills 0 19 990 19 991 19 99 19 993 19 994 19 995 19 996 19 997 19 998 19 999 0 000 0 001 0 00 0 003 0 004 0 005 0 006 0 007 0 008 0 009 50 Source: Soyuzrosakhar, IKAR Output Number of mills
Daily beet processing capacity and estimated investments into R&M TMT 30 310 TMT per day Investments, RUR billion 5,4 5,9 6,1 7 6 RUR billion 4,8 300 5 90 3,6 3,5 314 4 80 3,3,4 7 74 7 75 7 76 7 76 78 88 89 313 3, 70 60 1 50 001 00 003 004 005 006 007 008 009 0 Source: Soyuzrosakhar, IKAR To be in tact with production we must keep investments into mills very high!
Export of sugar, molasses, and pulp, TMT Beet pulp 350 000 Molasses 300 000 Sugar 50 000 00 000 150 000 100 000 50 000 0 00/03 003/04 004/05 005/06 006/07 007/08 008/09 Sugar export: from 007/08 further growth of tolling is impeded by neighbor countries tolling. While pulp and molasses export are to continue to grow.
1 600 000 1 400 000 1 00 000 1 000 000 800 000 600 000 400 000 00 000 0 Raw sugar transshipment (008) To RF To other CIS Three Black Sea ports play the key role in raw s transshipment to Russia and CIS
Most recent announcement Russia, Belarus and Kazakhstan create Customs Union Russia us type of abandoning individual WTO talks and will negotiate together with two other countries as Customs Union
Most recent announcement Russia, Belarus and Kazakhstan create Customs Union Russia abandons individual WTO talks and will negotiate together with two other countries as Customs Union *** * * Is it realistic to achieve and keep common market? For how long the WTO accession is postponed? Will Russia keep its pre-accession agreements?
IKAR Final remarks Ceteris paribus, Russia will continue to gradually increase its sugar self-sufficiency, sufficiency although the speed of transformation may vary depending on affordability of further support The three countries Customs Union announcement makes the situation more uncertain and even raises question if Russia to keep (longerterm) it s WTO pre-accession arrangements. In any case substantial investments are BADLY needed to improve the efficiency of domestic vertical sugar pipelines.
IKAR ISCO-IKAR sugar reports www.isco-i.ru
IKAR General director Dmitry Rylko Tel/fax: +7 495 3-90-07 E-mail: d.rylko@ikar.ru WWW.IKAR.RU www.isco-i.ru www.isco.ru