American Sugar Refiners leads way back into the EU sugar market for DR sugar exporters
07 June 2014
According to the latest US Department of Agriculture (USDA) annual report on the Dominican Republic (DR) sugar sector, total sugar production for 2013/14 is estimated at 575,000 tonnes, 3.3% higher than in 2012/13, due to an expected 150,000-tonne increase in cane sugar production by Central Romana, which dominates the DR sugar market. Central Romana is “the largest and most efficient mill in the country” and is expected to produce some 395,000 tonnes of sugar in marketing year (MY) 2013/2014, around 69% of national production, with a forecast increase to 410,000 tonnes in MY 2014/15. Over the same period, the Vicini Group is expected to increase production from 100,000 to 132,000 tonnes and Consorcio Azucarero Central to increase production from 70,000 to 88,000 tonnes. Production at the fourth major sugar company, Ingenio Porvenir, is declining “following the collapse of the rental agreement between private investors and the government”.
Central Romana, the only local company capable of producing refined sugar, refines 44.3% of its production.
In MY 2013, a total of 162,434 tonnes of raw cane sugar was exported, “down from 209,000 tonnes in MY 2012… due mainly to reduced demand from the US”. The 2013 exports all went to two destinations, the USA (56.3% – 91,434 tonnes) and the EU (43.7% – 71,000 tonnes, 60,000 of it from Central Romana and 11,000 from Consorcio Azucarero Central). The EU markets served included the UK, Portugal and Bulgaria. This was the first time since 2009 that sugar had been exported to the EU from the DR.
While Central Romana enjoys the largest tariff-rate quota (TRQ) allocation for exports to the US market out of the four DR producers (some 118,710 tonnes, or 62.84% of the total US TRQ for the DR), it exported only 40,000 tonnes to the US in 2013, a quota fill rate of only 33.7% compared to the total DR US quota fill rate of 48.4%.
The USDA report notes that the DR sugar industry recognises the importance of increasing the US TRQ fill rate in order to maintain the DR’s share of the US TRQ, but adds that exporters are expected to “continue to ship sugar to the EU during the present MY, possibly as much as 60–70,000 tonnes”, given “the current price disparity between the US and EU markets”. It is anticipated that total DR sugar exports will recover in MY 2014 to 214,000 tonnes.
Sugar consumption in the DR is estimated at 380,000 tonnes, 52% of which is in the form of raw sugar. Demand for refined sugar is, however, increasing, “due to higher demand [for] refined sugar from the bakery and beverages industries, the tourism sector and due to population growth”. Targets for growth in the tourism sector aim to increase local sugar consumption by 40% by 2024.
The “relationship between private cane producers and millers” is regulated by the government, which sets “prices for raw cane based on sugar content” and prices at all stages of the supply chain through to final consumers. INAZUCAR, the Dominican Sugar Institute, also plays a regulatory role in overseeing the market, including approving import permits and administering the TRQ.
While the government has been looking at establishing an ethanol policy since 2005, little progress has been made, and no investments made in sugar-based ethanol production. Co-generation for own use has been developed, but, in the absence of a legal framework, no sales have been made to the grid.
Sugar imports are subject to import licences, and are subject to an out-of-quota tariff of 85%. Certain import quotas (30,000 tonnes) have been established, however, on which the “import duties for raw and refined sugar are 14% and 20%, respectively, plus an 18% value-added tax”. The DR has often issued import licences for amounts in excess of 30,000 tonnes “in order to cover shortfalls in domestic production”.
According to USDA, under the CAFTA-DR [agreement], the government has made a commitment to “phase out its sugar tariffs over a 15-year period, beginning from its base rate of 85%”. The rate is currently 34.05%, and is scheduled to reach zero by 1 January 2020.
Editorial comment
With average EU sugar import prices 16.3–32.5% above US import prices between March 2013 and March 2014, the DR has begun once again to export sugar to the EU market, with Central Romana leading the way through sales to facilities operated by its sister company Tate & Lyle Sugars (TLS) in the UK and Portugal. This has helped to ease the supply problems faced by TLS, a situation exacerbated by the decision of the Fiji Sugar Corporation to sell part of its production to the main rival of TLS on the UK and Iberian markets, Associated British Sugar.
So long as the price obtainable on the US sugar market is not above the cost of sourcing raw cane sugar for its EU refining operations from alternative sources (world market price plus the reduced duty import levy), Central Romana looks likely to continue, and even expand, its raw cane sugar exports to TLS refineries in the UK and Portugal. This could help ease the capacity utilisation problems haunting American Sugar Refiners’ operations in the EU.
However, if the projected expansion of the tourism sector in the DR takes place, major alternative domestic markets for refined sugar production are likely to emerge in the coming years. In this context, the DR sugar sector looks well placed to deal with the consequences of the final stages of implementation of EU sugar sector reforms.
