A Production, Trade & Consumption Overview
Both Japan and China are significant producers of beet sugar. As in the United States, beet sugar production in these two Asian nations is complemented by cane sugar. Domestic demand for sweeteners is growing in Japan and China, and — again like the United States — overall sugar use is supplemented by corn sweeteners and artificial sweeteners. Since neither country is self-sufficient in sugar, both are large importers, with each averaging more than one million tons of sugar imports per year.
— Japan --
Beet Sugar Production Steady
Japanese beet sugar production is expected to total 700,000 metric tons in 2010/11. That’s similar to the annual average of the past five years and accounts for more than 85% of the nation’s total sugar productiona.
Japan’s sugarbeet agriculture is concentrated on the northern island of Hokkaido. As in the United States, beets are rotated with other crops, such as grains and potatoes. About 64,000 to 67,000 hectares (158,000 to 165,000 acres) of sugarbeets are harvested each year, with yields during the past five years averaging 63.6 metric tons per hectare (about 28.4 short tons per acre) — up nearly 10% from the early years of this decade. Sugar content of the Japanese beet crop averages slightly above 17%.
The crop cycle begins each spring when growers transplant beet seedlings from greenhouses into fields. While very labor intensive, this planting method avoids delays caused by the generally harsh spring weather on Hokkaido.
Beet harvest begins in early October, with the crop sliced at one of eight processing facilities. Two of the beet factories are owned by the Federation of Agricultural Cooperative Societies of Hokkaido; three others are owned by the Hokkaido Sugar Company; and the remaining three by the Nippon Beet Sugar Manufacturing Company.
Japan’s annual production of cane sugar is about 100,000 metric tons from 23,000 hectares (almost 57,000 acres). Sugarcane agriculture is concentrated in Kagoshima Prefecture and Okinawa Prefecture in southern Japan, which together contain a number of small cane mills. The harvest runs from October to January, with the cane crop’s sugar content averaging between 13.1 to 14.3% in recent years.
Japanese farmers receive a guaranteed minimum price for their beets and cane. The aim of the nation’s sugar policy is to support domestic beet and cane producers — as well as sugar refiners — by keeping domestic prices stable but considerably higher than world price levels.
Each year, the Japanese Ministry of Agriculture, Forestry and Fisheries sets the minimum price according to the Sugar Price Stabilization Law of 1965 and the Sugar Price Adjustment Law of 2000. Farmers’ beet and cane crops are purchased at harvest by beet processors and raw cane mills at the support price. The 2010 unit price for sugarbeets is 2,150 yen ($23.40) per ton.
Sugar Market Influenced by Several Factors
Japan’s sugar consumption for 2010/11 is forecast at 2.1 million metric tons — which is on par with the past five-year average. The lack of bullish growth in consumption is due primarily to (1) a gradual decline in Japan’s population to 126.8 million and (2) a drop in annual per-capita sugar use to 16.9 kilograms (about 37.3 pounds). Other contributing factors are the competition from high fructose corn syrup, artificial sweeteners and imports of sugar-containing products (primarily cocoa preparations).
The manufacture of confectionery products accounts for about 25% of Japan’s sugar consumption, with the remainder going to miscellaneous uses. Similarly to the United States, the substitution of HFCS for sugar in carbonated soft drinks resulted in the loss of that market segment.
Japan’s production of HFCS in 2010/11 is expected to total 625,000 metric tons, dry basis, according to the consulting firm LMC International. Over the past several years, Japan has imported more than 16.5 million metric tons of corn annually, with the U.S. supplying 99% of that volume. Twothirds of the corn imports are for livestock feed use, with the reminder going to food manufacturing (including the production of HFCS for the soft drink market).
Multiple facilities produce corn sweeteners in Japan. HFCS plants are located on the major islands of Hokkaido, Kyushu and Honshu, with a particular concentration in the Nagoya area. Nagoya has easy access to corn imports, is centrally located and enjoys excellent transportation links to the major population center on Honshu.
Consumption of artificial sweeteners — e.g., aspartame and sorbitol — in Japan has been growing. Diet soft drinks are a major user, as are food product manufacturers and the pharmaceutical industry.
Large, Steady Raw Sugar Imports
Japan has, for many years, ranked among the world’s major importers of sugar. For 2010/11, the nation’s raw sugar imports are forecast at 1.5 million metric tons, accounting for about two-thirds of expected sugar consumption. Averaged across the past five years, raw sugar has comprised 1.4 million tons of imports, with only marginal amounts of refined sugar being imported.
Leading suppliers of raw sugar to Japan are Thailand, Australia and South Africa. In calendar 2009, these three countries accounted for 97% of total imports, with Thailand alone supply nearly 60%. Raw sugar imports, along with domestically produced raw cane sugar, are refined at multiple refineries in Japan — many of which have a very small refining capacity.
— China --
Beet Sugar Production Expanding
China’s production of sugar is forecast to reach 14.0 million metric tons in 2010/11, of which 12.9 million tons are cane sugar. The beet sugar production forecast of 1.1 million tons, while nearly double that of 2009/10, is comparable to the most recent fiveyear average.
Sugar beet agriculture is concentrated in three regions: the provinces of Heilongjiang and Jilin in northeast China; the province of Inner Mongolia in north central China; and Xinjiang in northwest China. A long-term trend has seen beet production shifting westward, as the northeast region faces increased competition from imports.
The upturn in sugarbeet production for 2010/11 over the prior year is attributable to a larger planted area spurred by higher prices (favorable compared to various other crops) and improved yields. Sugarbeets in the main growing areas compete each year for acreage with crops like soybeans, cotton and tomatoes.
If the average yield forecast of 39.3 metric tons per hectare (17.5 short tons per acre) holds true, 2010/11 beet yields in China would be up 12% over 2009/10. The two most recent five-year averages have been 38.3 and 27.3 tons per hectare, respectively.
There is a chronic lack of quality seed available for the Chinese sugarbeet sector. Plus, the government devotes little funding for seed research. Despite the general upturn since the early 2000s, Chinese sugarbeet yields aren’t much more than half those in the United States and Europe — thus indicating great potential for seed improvement in years to come.
Planted sugarbeet area declined significantly during the early 2000s — a reflection of a decline in the government’s procurement price. Also, many beet processing facilities in China went bankrupt as the industry was plagued by numerous small, inefficient stateowned processors. Additionally, the government wanted to encourage farmers to produce other crops, such as vegetables, melons and potatoes.
The provincial governments in China’s main sugarbeet producing areas currently are working to standardize the pre-purchase contracts that beet farmers sign with processors. The objective is to more-accurately project output and manage cash flow.
Sugarcane production in China is concentrated in the country’s five southern provinces: Guangxi, Yunnan, Guangdong, Hainan and Fujian. Guangxi alone is estimated to account for two-thirds of China’s annual sugar production.
Total sugarcane area in China is currently estimated at 1.85 million hectares (nearly 4.6 million acres), with this year’s yields forecast at 70.3 tons per hectare — thus amounting to total cane tonnage of 130 million metric tons. According to China’s Sugar Association, there are between 250 to 300 operating sugarcane mills and nine cane sugar refineries. The industry estimates average sugar recovery at between 12 to 13%.
According to USDA, in order to ensure reasonable income for cane producers, the southern provincial governments of China announce a pre-set purchase price for the crop. This price serves as a guide to mills when they purchase sugarcane from farmers. The purchase price of sugar generally falls at the beginning of the cane grinding season. In Guangxi, that season starts in November and typically runs for about 150 days, into April.
At the request of provincial governments, the central government purchases refined sugar to hold as state reserve during the processing season in order to boost prices.
Sugar Consumption Expanding
Chinese sugar consumption for 2010/11 is forecast at a record 15.5 million metric tons. That compares with an average of 13.6 million tons during the previous five years and just 8.7 million tons at the beginning of the decade. About one-third of all sugar is consumed at home or in food service, with the other two-thirds utilized by the food processing industry. The largest users of sugar are soft drink makers, food manufacturers (especially candy and biscuit/cookie companies) and the pharmaceutical sector.
The near-doubling of Chinese sugar consumption across the past decade is a reflection of population growth and a buoyant economy. As living standards and diets have improved, sugar consumption has trended upward in line with the rapidly growing food and beverage processing sectors. Current percapita use of sugar is estimated at 11.6 kilograms (about 25.6 pounds) — a 70% increase over the 6.8-kilogram level at the beginning of the decade. Sugar consumption growth would be even greater, were it not for the expanded use of corn sweeteners and artificial sweeteners, as well as certain culinary and food-choice patterns.
Fairly low retail consumption numbers (reflecting in-home use) are due to several factors. Chinese cooking — particularly in the country’s northern regions — uses relatively little sugar. Also, there’s a growing health consciousness in urban areas that empha- sizes reduced consumption of sugar. Finally, retail sales levels are affected by the growing trend in eating out.
Marketing of sugar in China is primarily conducted through three channels. The largest consists of direct sales by beet processors or cane sugar refiners to major industrial consumers (e.g., soft drink manufacturers). The second market channel includes the dispatch of salesmen throughout China to market directly to local industrial buyers and large retailers. Wholesale markets comprise the third major market channel.
In 2000, the Chinese government began a major restructuring of the sugar industry to increase its efficiency. The National Light Industry Bureau initiated a reform plan aimed at reducing the number of refineries by 25%. The plan called for the closing of all small-scale beet sugar processing plants in Xinjiang, Inner Mongolia and Heilongjiang. The number of small, inefficient sugarcane mills and refineries also was to be reduced.
Growth in corn sweeteners was initially sparked by high sugar prices. According to industry sources, the use of corn-based sweeteners in 2008/09 was equivalent to about 3.5 million metric tons of cane sugar. An estimated 85% of corn-based sweetener production is located in Hebei, Jilin and Shandong provinces.
The consulting firm LMC International estimates that Chinese production of HFCS grew from 71,000 (metric) tons, dry basis, in 2003 to 1.1 million tons in 2009. Along with more demand, this sector has been aided over the past decade by government policies that have favored the expansion of the corn processing sector. With sugar prices on the upswing, LMC believes HFCS margins likewise are on the rise, and the immediate outlook for this sector in China looks positive.
A share of potential growth has been absorbed by artificial sweeteners — particularly saccharin and aspartame, as they were cheaper and easier to handle than sugar, allowing the soft drink and confectionery industries to reduce production costs. Due to health concerns, however, the government has sought to limit the use of saccharin and cyclamate. A survey by the China Consumer Association found that artificial sweetener use has regularly exceeded national guidelines.
Imports Large & Steady
Chinese imports of sugar for 2010/11, as forecast by F.O. Licht, are expected to be up by one-third from 2009/10, with raw sugar imports forecast at 1.3 million metric tons and refined sugar imports of 200,000 tons. Imports usually begin arriving in China after the domestic processing season ends and the domestic price starts to increase.
The previous five-year average of raw sugar imports was just over 900,000 tons per year, with that of refined sugar at 260,000 tons. The expected upswing this coming year is a reflection of demand growth outpacing increases in domestic production.
Cuba has remained China’s leading sugar trading partner, providing about 450,000 metric tons of raw sugar annually under a longstanding bilateral agreement. Other raw sugar suppliers include Australia and Thailand. For refined sugar, South Korea is the leading supplier.
Under terms of its entry into the World Trade Organization (WTO), China agreed to open tariff rate quotas (TRQs) for sugar imports. The TRQ initially was established at 1.6 million metric tons, rising to 1.95 million over a four-year period. Calendar 2009’s out-of-quota rate was 50%. As stipulated in China’s WTO accession agreement, 30% of the total TRQ is reserved for use by private traders and 70% by state-owned enterprises.
Overview: Japan & China
There are a number of similarities between the sugar industries of Japan and China. Both have significant beet sugar industries located in their extreme north and cane sugar industries in the extreme south; and both are supported by government policies. Likewise, production expansion has been constrained by generally weak seed sectors.
Sugar consumption is expanding in China, reflecting population growth. Consumption in Japan is stagnant due, in part, to a fall-off in population. In both countries, sugar demand has had to compete with corn sweeteners and artificial sweeteners.
Finally, both Japan and China import about 1.5 million metric tons of sugar per year to balance production deficits with demand needs.
* Peter Buzzanell is director of Peter Buzzanell, LLC. Over the past decade his consulting firm has concentrated on U.S. and international sweetener analysis. Prior to his retirement from USDA, he headed the Economic Research Service’s (ERS) sugar and sweetener analysis unit. The author wishes to thank John Dyck, senior economist on Japan at ERS, for his help in preparing this article.
Editor & General Manager of The Sugarbeet Grower