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IKAR in Mass Media

ANALYSIS-Russia's sweet tooth spurs sugar expansion

22 марта 2006 года

MOSCOW/LONDON, March 22 (Reuters) - Sugar prices near 25-year highs are leading Russian producers to revitalise ailing refineries and reduce the dependence of the world's largest raw sugar importer on overseas supplies.

Millions of dollars of investment by firms such as Rusagro Group and Razgulay , as well as foreign companies, would raise the amount of sugar Russia produces from home-grown beet for use in jam and moonshine liquor.

But domestic growers rely heavily on import tariffs, which have come under scrutiny after a 30 percent spike in local sugar prices last month was blamed for higher-than-expected inflation.

"The Russian sugar industry is in an upbeat phase of development," Sergei Gudoshnikov, senior economist at the International Sugar Organization, told Reuters.

"You can receive $300 to $400 a tonne profit easily on beet sugar. This creates an incentive for money to come," he said.

World raw sugar prices hit a 25-year peak last month as top grower Brazil used more cane in the biofuel ethanol and as global stocks fell, demand rose and investment funds showed an increased appetite for the sweetener.

With Russia producing only 45 percent of the sugar it consumes, analysts view beet cultivation as a potential growth industry.

"The big companies in the sugar market have begun to talk about opportunities for merging and making their operations stronger," said Alexei Knyazev, general director of the sugar division of Russia's largest agro-industrial group, Rusagro.

When asked whether Russia's top sugar producers might join forces, Knyazev said: "Yes, it's entirely possible. I think this is a question for the next two, maximum three, years".

POST-SOVIET SLUMP

Lacking a long-term growth strategy after the break-up of the Soviet Union, Russian sugar output halved between 1992 and 1997 as imports grabbed a bigger share of the 6 million tonnes the country consumes annually, MDM Bank said in a recent report.

Now, high prices are spurring growth. Rusagro will spend up to $100 million in the next three years upgrading four plants, and Razgulay President Igor Potapenko said last month the firm aimed to produce two-thirds of its sugar from its own beet.

"The extremely high sugar price will encourage some marginal producers and we're seeing efforts by big companies to establish vertically integrated chains from production to processing," said Dmitry Rylko, general director of the Russian Institute for Agricultural Market Studies (IKAR).

Large foreign companies would also play a role in developing Russia's sugar sector, analysts said.

Toby Cohen, director of research at London-based sugar merchant Czarnikow, said foreign and domestic investors could increase their involvement in sugar production in Russia by investing in farmland with a view to boosting yields.

"I expect more foreign and domestic investment in Russian sugar production," he said. "Aided by the price spike, we'll see more and more money flowing into beet production in Russia."

IKAR's Rylko forecast Russia's sugar beet area would increase to between 870,000 and 880,000 hectares this year from 813,000 hectares last year.

"Sugar beet is the only crop which has demonstrated seven consecutive years of yield increase in Russia," he said, adding the average yield last year was about 26 tonnes a hectare from 17 tonnes seven years ago.

IMPORT BARRIERS

Russia refined 5.57 million tonnes of white sugar last year, up from 4.79 million in 2004, data from the Russian Sugar Producers' Union showed. About 2.5 million tonnes was produced from the 2005 domestic beet crop.

"A 10 percent increase this year is a very conservative estimate," Gudoshnikov said, referring to beet sugar.

"If Russia this year manages to increase its production by another 200,000 tonnes, in two years that's half a million tonnes taken out of world market demand," he said.

This compares with 45 million tonnes traded internationally every year, on a raw sugar basis, he added.

Import barriers have helped Russia's recovery. In 2004, the country replaced quotas with a floating tariff pegged to New York Board of Trade prices.

The tariff has been kept at the lowest level of $140 in the last six months and will remain unchanged in April.

But Economy Minister German Gref said the government might reassess the formula if prices keep rising. State statistics agency Rosstat said sugar was one of the main contributors to a 1.7 percent monthly rise in consumer prices in February.

Source: Reuters  |  #sugar   |  Comments: 0   Views: 62

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