Russia is moving toward self-sufficiency in sugar but a number of obstacles will prevent its emergence as a major exporter. Russia, which was the world's top raw sugar importer in the early 2000s when it used to buy around 4 million tonnes a year, has slid down the rankings as an importer as strong prices encouraged domestic investment. The country looks set to produce just short of its consumption requirements in 2011/12.
Analysts believe that Russia's shift to self-sufficiency is sustainable subject to favourable weather and an economic climate, including a stable import tariff regime, that would facilitate investing in new productive capacity. A senior government official said on Thursday that the government was examining a plan not to lower an import tariff on raw cane sugar next year, a practice it normally applies to provide feed to refineries between beet processing seasons.
"If there is political will and favourable weather in the next couple of years we may easily stop raw sugar imports," said Yevgeni Ivanov, sugar market analyst with the Moscow-based Russian Institute for Agricultural Market Studies (IKAR). First Deputy Prime Minister Viktor Zubkov said last week that Russia was unlikely to import more raw sugar this year as it expects record domestic beet sugar output.
After a severe drought last year held up Russia's march toward self-sufficiency, this year's record sugar production was still expected to fall short of domestic consumption of 5.60 million tonnes, analysts said. Sergey Gudoshnikov, a senior economist with the London-based International Sugar Organisation (ISO), estimated Russian sugar stocks as of October 1 at 1.7 million tonnes, which he described as a normal level.
Russia officially expects a domestic crop of 5 million tonnes this year, although analysts expect it to be less than that, because frosts and thaws may lead to high losses of sugar beets stored in the open air. Analysts said that Russia was unlikely to emerge as an exporter in the coming years, because it has limited export infrastructure and productive capacity and would struggle to compete to deliver sugar by sea.
Russian sugar traders have completed a test shipment of 160 tonnes of domestic white beet sugar by sea, the first in at least a decade, the Russian Sugar Producers' Union, the industry lobby, said last week. More efficient sugar producers like Brazil, which benefits from greater economies of scale and lower production costs, would likely undercut offers of Russian white sugar by sea, analysts said.
As Russia boosts domestic production, it was most likely to increase sugar exports by land to its Central Asian neighbours, because of its freight advantage. "Exports of sugar in the current season may reach 250,000 tonnes and even more," IKAR's Ivanov said.
However, prolonged periods of adverse weather in Russia in the coming years could force the country to seek raw sugar again on the international market, analysts said. "I don't think Russia will become a net exporter any time soon," said the ISO's Gudoshnikov, estimating that the country would be 90 percent self-sufficient in sugar in 2011/12 (October/September).
High domestic sugar prices in Russia, combined with import tariffs, were an incentive to the domestic industry to invest in boosting productive capacity. "Some investments are taking place in Russia to increase capacity and improve technology, and this could help sustain a higher level of production," said Stefan Uhlenbrock, analyst with F.O. Licht.
Required investments included introduction of new long-term beet storage technologies, including special ventilated deposits in which beet may be naturally frozen during winter frosts and stay frozen when the air gets warmer. The Russian sugar beet harvesting season starts in August and ends in February or March. Beets are stored in the open air, and repeated thaws and frosts late in the winter can cause big beet losses.
A draft of a state programme for agricultural development for 2013-2020, prepared by the Agriculture Ministry, worth 6.8 trillion roubles ($221.4 billion), should drastically cut dependence on imported raw sugar. But it implies that the country would still require some imports. It should produce 5.4 million tonnes of beet sugar in 2020, covering 91.2 percent of its needs, the draft said. Analysts said the main significance of Russia's withdrawal as a leading importer was the impact on its top supplier Brazil, the world's leading sugar producer and exporter.
"There will probably be less pressure on Brazilian supply in the second quarter of the year," Gudoshnikov said, referring to the period when Brazilian sugar has been traditionally shipped to Russia. Strong Asian demand for Brazilian sugar was expected to pick up the slack from the fall in Russian imports.