Ukrainian Sugar Market Overview 2020/21

Ukrainian Sugar Market Overview 2020/21
Photo by: Latifundist.com

The Ukrainian sugar market is in a fever. Compared to last year, product prices have doubled, and sugar production from beets from the 2020 harvest has not kept the price rally. The Ministry of Economy recalled a way to stabilize prices, which had not been used for 10 years, and opened a quota for the import of raw sugar from cane at a preferential rate of duty. Market participants reacted differently to this initiative. Meanwhile, agrarians are gradually increasing the area for sugar beets.

Sweetened. Crop area increase

In 2021, according to forecasts of the Ministry of Agrarian Policy and Food, agrarians will sow 220 thou. ha with sugar beet, that is, almost at the level of 2020, when 219 thou. hectares were allocated for crops.

However, the mood of agriproducers suggests that the actual sown area under sugar beet may be slightly higher than the official forecast.

For example, General Director of Gals Agro, Sergei Kravchuk says that the farms of Kyiv and Chernihiv regions, which supply 20% of the total volume of processed sugar beet to the company’s enterprises, are increasing the area under crops by 15-20% this year. The area under beets will remain at the level of 7 thou. ha.

The agro-industrial holding Astarta-Kyiv also reports that their area under sugar beet will not increase this year (33.5 thou. ha). Although the company admits that if other producers increase the sowing of this crop, it will be insignificant. The growth can not be drastic, since the technology of growing sugar beet provides for the preparation of the soil in the fall, and it is too late to make a decision on significant changes in the area for a crop in the spring.

Evgenii Makara
Co-founder of Gnidava Sugar Plant

“High sugar prices stimulate agrarians to increase sugar beet sowing. Farmers in Western Ukraine, as, for sure, in other regions of the country, are increasing the area under this crop by 10%.”

According to UKRPROMINVEST-AGRO experts, in addition to sugar prices, interest in growing sugar beets this year is influenced by the fact that after a two-year drought, a sufficient amount of moisture has accumulated in the soil, which makes growing crops less risky. But due to the fact that both factors (the rise in prices and the accumulation of moisture) arose in the winter, the farmers did not have enough time to prepare for the increase in the area under sugar beet.

“In the fall, when the main preparation of the areas for sugar beets was underway, these two factors were not so obvious. However, we expect a slight increase in the area under crops for farmers in the area of our factories that according to our estimates, may reach up to 30%,” says Pavel Lymar, Director of the Sugar Beet Supply Department at UKRPROMINVEST-AGRO.

This year, UKRPROMINVEST-AGRO plans to sow sugar beet on 28.3 thou. ha. This is 800 ha more than in 2020. In general, about a third of the company’s area in Vinnytsya region is allocated for this crop.

Market experts also speak about an increase in sugar beet sowing. Director of the Scientific and Practical Center for Sugar Beet Production, Aleksandr Korotynskii, relying on information received from suppliers of sugar beet seeds, suggests that this year the sown area under crops will make up 230 thou. ha.

Aleksandr Korotynskii
Director of the Scientific and Practical Center for Sugar Beet Production

“A significant increase in acreage is not expected. Because if the beets have been removed from the crop rotation, then it is rather difficult to bring them back in.”

By the way, according to him, on April 5, the sowing campaign was started by farms of Cherkasy and southern Vinnytsya regions.

Surely only the old-timers of the sugar market remember that at the dawn of independence in Ukraine, beets were sown on 1.5 mln ha. Even 10 years ago, the sown area under this crop reached 0.5 mln ha. Despite the fact that over the past two years beet sowing occupied 219-220 thou. ha, the country is still one of the ten world sugar beet producers. Analysts and processers believe that such volumes are sufficient to supply the domestic market with sugar.

Aleksandr Korotynskii
Director of the Scientific and Practical Center for Sugar Beet Production

“The sown area of 230 thou. ha under favorable (average) weather conditions will fully provide the country with sugar and even create an insignificant export potential.”

Market imbalance

A slight increase in sown area is good news for processors, as sugar production in Ukraine has been declining over the past two years. In 2020, not only the sowing of beets decreased, but also due to the drought, the farmers received a low yield of this crop. According to the Ministry of Economy, in 2020/21 MY, enterprises produced 1.11 mln t of sugar.

It is worth mentioning that back in 2016-2018 sugar production in Ukraine was at the level of 1.8-2.1 mln t per year. Market participants say that at that time there were favourable prices on the external market and Ukrainian producers sent part of their products for export. But when oil prices began to fall on the world market, companies that processed sugar cane into bioethanol began to produce sugar. Thus, these producers have occupied the niche into which Ukrainian exporters of beet sugar jumped 5 years ago. The cost of beet sugar on the external market fell by almost a third, and it was already unprofitable for producers from Ukraine to supply their products abroad. As a result, quite large sugar carry-overs were formed on the domestic market. But last year, due to quarantine, migrant workers returned to Ukraine for a while, consumption boosted, and the stocks shrank.

Reduced sugar stocks and low sugar beet harvest in 2020 influenced the fact that product prices in the domestic market remained high. And after the end of the sugar production season in 2021, prices not only did not decline but continued to rise. In general, compared to April last year, sugar prices in Ukraine have almost doubled.

To stabilize the situation, from February 5, 2021, the Ministry of Economy began accepting applications for the import of raw sugar to Ukraine within the tariff quota (260 thou. t). As a reminder, under the quota, it is possible to import raw materials with a 2% duty. A 50% protective duty applies to sugar supplies outside the quota. That is, the Ukrainian market has long been reliably protected from the influence of imported sugar on the market.

After the Ministry of Economy began to receive applications for the import of raw sugar, officials said that there was no reason for concern: there is enough sugar on the market. At least at the end of March, at a regular meeting of the Deputy Minister for the Development of Economy, Trade and Agriculture of Ukraine, Taras Vysotsky with representatives of agrarian associations, a lot of time was devoted to the “sugar issue”. At this online meeting, the Director-General of the Directorate for Food Safety and Quality, Mykola Moroz says that, taking into account carry-overs and imports, the volume of the domestic sugar market in 2020/21 MY will amount to 1.25 mln t, of which 1.19 mln t — for domestic consumption. According to him, considering the licenses for the import of raw sugar, the remaining sugar will be at least 330 thou. t. As of March 28, 38 thou. t of white sugar was imported to Ukraine, and the ministry issued licenses for the import of 120 thou. t of raw sugar (as of April 2, licenses were already issued for a total of 200 thou. t of raw material), deliveries of which are expected in the second half of April, in May.

This alignment allows the officials to conclude that the situation is under control, there will be enough sugar for everyone and the rise in prices for it will stop. According to Aleksandr Korotynskii, prices on the domestic market have remained stable since mid-March, and there has even been a downward trend.

Aleksandr Korotynskii
Director of the Scientific and Practical Center for Sugar Beet Production

“Several enterprises are preparing to process raw cane sugar. At the end of May, these additional volumes will go to the domestic market, which will help stabilize prices in the domestic market. Prices are now at a balanced level when both sugar beet and sugar production are profitable. This situation makes it possible for the market to balance the production of sugar in the required volumes.”

In 2020/21 MY, 33 sugar plants processed beets in the country. According to Aleksandr Korotynskii, the same number of enterprises will operate in 21/22 MY. None mentions the closure of sugar plants. On the contrary, according to the expert, there is a possibility that in the coming season Krasyliv Sugar Plant (Khmelnytsky region) will resume operations.

Of course, the current level of sugar prices suits the producers of beets and sugar itself. But not household and industrial consumers. At the aforementioned meeting, the representative of the European Business Association (EBA) said that “there is no sugar on the market or producers are holding it back,” which brings a serious concern for companies that use this product as a raw material.

The President of the Ukrkondprom Association, Aleksandr Baldyniuk, for his part, mentions that due to rising raw material prices, confectionery prices have risen by 10-15% since the beginning of the year. In January-February 2021, the export of confectionery products decreased by 8%. And according to the estimates of the Association, if sugar prices do not decrease, then by the end of the year the production of confectionery products will be cut by about 120 thou. t. Aleksandr Baldyniuk also mentions that due to the rise in prices for raw materials, some confectionery factories have reduced production by 10-20%, and some by 30-50% since the start of the year.

Having received signals from the market, the Antimonopoly Committee of Ukraine intervened in the situation. On April 5, the Committee opened a case against the agro-industrial holding Astarta-Kyiv and the enterprise Radekhiv Sugar on the basis of anticompetitive concerted actions. The aggregate market share of these players is almost 40%. And the AMCU admits that these companies could abuse their position by inflating sugar prices. Whether there was a conspiracy or so reacted the market, the investigation will reveal.

How to find a balance?

Nonetheless, the last time the import of raw sugar under a quota, as a way to stabilize the situation on the sugar market, was used in Ukraine 10 years ago. And today, according to market participants, out of 33 sugar plants, a maximum of 5 have the capacity to refine raw sugar. And the very mechanism for the import of this raw material is stalling a little.

The representative of the importing company at the aforementioned online meeting says that due to the technical features of the work of the customs, it offers only the option of processing goods with a 50% duty. That, in principle, makes it impractical to import raw materials for processing. To this, the Deputy Minister replied that when the first consignments of raw materials begin to arrive in the country, there will be no problems at the customs.

In general, market participants have different attitudes towards the import of raw sugar to the Ukrainian market.

“Today the question is not how much raw material to import, but how to process it. There are no capacities ready to process such volume (260 thou. t – Ed.) of raw material. In order for them to appear, investments are needed and there is not much time left before the new season. Accordingly, those who will work on the raw scheme have risks to enter the new production season with the remains of raw sugar, the cost of which will be 40-50% higher than the sugar produced in Ukraine”, says Artem Semenenko, Director of the Sugar Products Sales Department at UKRPROMINVEST-AGRO.

Aleksandr Korotynskii says that according to the calculations of the Scientific and Practical Center for Beet and Sugar Production, “for a balanced market, it is enough to import 100 thou. t of raw sugar.” Astarta-Kyiv also believes that before the start of the next sugar beet processing season, it is enough to import only 100-120 thou. t of white sugar and raw sugar.

Evgenii Makara
Co-founder of Gnidava Sugar Plant

“Anyway, Ukraine consumes at least 100 thou. t of sugar a month. If the price remains high, then the product is in short supply on the market. The sugar deficit in the country is estimated at 200-300 thou. t, which provoked an increase in prices. Therefore, the import of raw sugar will make it possible to cover the deficit and stabilize prices.”

The processors say that the sugar from the imported raw will not be cheap. According to the estimates of the Scientific and Practical Center for Beet and Sugar Production, the cost of sugar produced from raw cane sugar is 19.5-20 thou. UAH/t, depending on the enterprise where the processing will be carried out (taking into account the price of raw sugar at 340-350 USD/t). Thus, the wholesale prices for this product will be at the level of 22-25 thou. UAH/t, as well as the prices of beet sugar. Because of this, some market participants believe that it makes little sense to import raw sugar.

“The market rumour has it, 40 thou. t of raw material will be imported to Ukraine in May, the processing of which will end in July. Such volume is unable to significantly affect the price of Ukrainian sugar carry-overs,” Artem Semenenko believes.

Other players are confident that the additional volume of the product will help stabilize prices on the market.

Sergei Kravchuk
Director General of Gals Agro

“Raw sugar will not collapse, but simply stabilize sugar prices. But it is important not to bring too much. Then the situation may be repeated, when enterprises rush into dropping the price and then lose everything. Raw processing will also allow sugar plants to be loaded with work, people will receive salaries, taxes will be paid. But if suddenly the government decides to import white sugar without import duties, it will be a crime against the state. I hope this government has enough sanity not to step on a rake.”

Aleksandr Korotynskii says that according to preliminary information, in May-June, the domestic market will receive approximately 55 thou. t of sugar produced from raw sugar.

“It is yet difficult to say what will happen next with the supply of raw cane sugar. Since the exchange prices for this commodity group are subject to volatility on world markets due to the projected global deficit. Brazil, the principal supplier of raw sugar, will definitely increase the processing of raw sugar into ethanol for the domestic market. After all, its prices have grown significantly over the past year,” explains Aleksandr Korotynskii.

Sugar beet processors say that it will be optimal for them if the selling price of sugar from the plant is 17-19 UAH/kg including VAT. This price level will enable businesses to operate profitably. Time will tell if the market will be able to regulate the price situation without abuse and additional government interference.

Alla Sylyvonchyk, Latifundist.com