Sugar industry of Ukraine (2002-2008)

The beet and sugar industry is a strategically important sector in Ukraine’s food industry. It unites producers of elite and ordinary seeds, sugar beets, seed plants, sugar plants, and industry service companies. Sugar varieties as well as by-products such as molasses syrups, lime, and beet pulp are end products of this huge agroindustrial complex. For instance, a plant producing citric acid operates at Smelyanskiy Sugar Plant.

149 industrial, agricultural, construction, and other enterprises, as well as beet harvesting farms comprise the sugar industry of Ukraine, namely:

The volume of sugar production fell with the end of state sugar procurement in 1994. The low point of the granulated sugar production slump was in 2002 when plants produced 1,434 ths. tons of sugar. It was the lowest figure since 1940.

The main players in the Ukrainian beet and sugar industry have evolved over the last four years. These are sugar companies investing in more than 50 processing firms.

From 192 sugar plants operating in Ukraine previously, 120 companies functioned in 2006/2007 and manufactured a total of 2.6 mn tons of granulated sugar.

Sugar beet harvesting volumes are mainly defined by local productive facilities of sugar plants. Sugar industry possessed enormous production potential in the beginning of 1990s. There were 190 sugar plants in Ukraine producing 12.8% of the world sugar out of sugar beet. Each year they processed more than 40 mn tons of sugar beet.

Production volumes of sugar beet essentially augmented in 2004-2006. In particular, if 13.3 mn tons of sugar beet was harvested in 2003, then production in 2006 amounted to 22.4 mn tons. Approximately 600 large farms growing sugar beet operated in 2006 (10% of the total number of companies involved in sugar beet production). Meanwhile, these 600 companies produced more than 60% of all sugar beet grown in commercial farms. Average yield herewith constituted 340 centner/ha.

Sugar industry in Ukraine is almost not supported by the state. There is no mechanism of subsidies and beneficial taxation for sugar manufacturers.

Foreign trade in sugar in Ukraine is low because of low competitiveness of Ukrainian commodity on one hand, and limitations on sugar import on the other side.

Balance of sugar in Ukraine, ths. tons

Index	September 2002 – August 2003	September 2003 – August 2004	September 2004 – August 2005	September 2005 – August 2006	September 2006 – January 2007	September 2005 – January 2006	September 2006 – August 2007*
Initial stock	200	440	223	241	246	241	246
Production of beet sugar	1,430	1,460	1,800	1,900	2,610	1,900	2,610
Import of sugar beet	0	0	0	116	17	112	17
Import of sugar, total	1,408	678	314	187	5	85	25
Import of white sugar	82	62	56	34	3	16	6
Import of sugar with adding of cocoa	0	40	120	128	0	34	0
Import of crude sugar	1,376	592	162	40	3	40	20
Tolling import of crude sugar	816	460	47	40	3	40	20
Tolling import of beet crude sugar	0	7	0	0	0	0	0
Quota import of crude sugar	560	125	0	0	0	0	0
Import of sugar syrup	43	33	0	0	0	0	0
Gross proposal, total	3,038	2,578	2,337	2,328	2,861	2226	2,881
Consumption	1,950	2,000	2,050	2,050	890	860	2,100
including by confectionery industry	425	488	536	536	256	239	560
Gross export of sugar	648	355	46	32	3	15	20
Export of white sugar	348	316	46	32	3	15	20
Export of white sugar by tolling schemes	-	312	46	29	0	15	0
Export of sugar syrup	498	78	0	0	0	0	0
Gross distribution	2,598	2,355	2,096	2,082	893	875	2,120
	440	223	241	246	1,968	1,351	751

* – forecast

Sugar beet is the main raw stock for sugar production in Ukraine. The processing of imported crude cane sugar is conducted when required.

As mentioned before, import of crude sugar in Ukraine is not profitable because of high duties. Recently, crude sugar import through tolling schemes has become popular. Crude sugar is delivered to Ukraine by tolling schemes and is processed into white sugar or sugar syrup. The tolling of crude sugar to Ukrainian sugar plants with further re-export of the syrup to Russia had been rather profitable until Russia introduced limitations on the import of sugar-containing syrups.

Ukraine is a large producer of beet sugar. Production of the output varies in the range of 1.8-2.6 mn tons over the last few years. Molasses and beet pulp are by-products of beet sugar manufacturing in Ukraine. These products are used for the production of alcohol and livestock feed.

The annual need of Ukraine in sugar is estimated, based on a per capita consumption of 40 kg, to exceed 2.1 mn tons. Meanwhile, such discrepancy in needs’ estimation occurs due to ambiguity in number of Ukrainian population and number of visitors residing at the territory of Ukraine.

There is no practice of price intervention on the markets in Ukraine. The State Committee on Material Reserves of Ukraine procures or sells sugar on the local market only in exceptional cases. These actions only influence price formation temporarily, because the volumes of these operations are insufficient.

The Cabinet of Ministers of Ukraine annually determines minimum prices for sugar beet delivered within quotas A and B and sugar within quota A based upon proposals by the Ministry of Agrarian Policy of Ukraine. These prices take the rate of basic beet sucrose percentage (16%) into consideration. Such minimum prices are established until January 1, and consider inflation rates.

Nowadays the sugar industry requires large-scale investments, the major portion of which should be directed at the re-profiling of sugar plants. Only a drop in the number of processing companies will allow the rest of the firms to extend their processing periods, reduce costs, and attract new investments for repairing and improving the granulated sugar production infrastructure.