In just a decade, Russia has transformed its sugar industry. The country, which was once the world’s top importer of raw sweetener, is now on the verge of becoming a net exporter.
Aided by an import tax Russia introduced in 2004 to shield domestic firms from foreign competition, producers have been able to invest in making beet refining more efficient. The latest example is at one of the top manufacturers Ros Agro Plc’s Znamensky operation, where improvements mean the plant squeezes more sugar from molasses that used to go to waste.
The money spent by producers like Ros Agro, Prodimex Group and Dominant Group to make plants more efficient means Russia will this season become self-sufficient. Higher local prices also encouraged farmers to boost plantings. The nation will probably export “considerably” more than it imports in the 2016-17 season, the International Sugar Organization predicts.
“Domestic pricing will go a long way to encourage one to revising planting decisions, and that has largely driven the growth and the capacity for production increases in Russia,” Tracey Allen, an analyst at JPMorgan Chase & Co. in London, said before the Dubai Sugar Conference, where she’ll lead a panel on Sunday. “We have seen quite a lot of growth recently.”
The amount Russia can ship out will be among topics discussed by traders, analysts, refiners and shipping firms gathering in Dubai from Sunday. ISO Senior Economist Sergey Gudoshnikov says exports may reach a record 500,000 metric tons this season. Still, the Moscow-based Institute for Agricultural Market Studies, or Ikar, forecasts a total of 180,000 tons. That would keep Russia a net importer.
Benchmark global white-sugar prices gained about 40 percent in the past year, and that increases the competitiveness of Russian supplies to nearby countries, said Evgeny Ivanov, an analyst at Ikar. Most of Russia’s shipments go to Kazakhstan, Tajikistan and Mongolia.
Cutting losses during processing has been one of the most important production improvement, Nikolay Zhirnov, chief executive officer of Ros Agro’s sugar business, said in an interview.
The new unit at the Znamensky plant in central Russia allows Ros Agro to make an additional 40,000 tons of sugar a year. The company boosted the plant’s capacity from processing 3,200 tons of beets a day in 2004 to about 8,000 tons last year.
Russian production will reach a record 6.1 million tons this season, according to the Russian Union of Sugar Producers. That’s about four times more than at the turn of the century.
Greater investment in farming techniques and seed development also helped, said Kona Haque, head of research at London-based trader ED&F Man Holdings Ltd. and who’s due to speak in Dubai. Russian prices are about one-third higher than the world market, according to the ISO, and that’s encouraging more planting.
“Although there is potential for Russia to carry on being sugar self-sufficient, a lot depends on improvements in farming to prevent the beet crop sensitivities to weather,” Haque said. Frozen beets from cold weather can shorten the beet-processing campaign, which usually lasts about five months.
Even with net exports, Russia would account for a fraction of the global total. Brazil, the largest producer, ships out about 25 million tons a year. World output will probably exceed demand by about 2 million tons in the 2017-18 season that starts in October in most countries, F.O. Licht GmbH estimates.
Some other former Soviet states now produce more than they need, with Ukraine sending sugar as far as Sri Lanka. Together with Moldova and Belarus, the four countries may export as much as 1 million tons more than they import this season, the ISO’s Gudoshnikov said.
There’s “significant” potential for Eastern European nations to boost output, JPMorgan’s Allen said, adding that there’s always the potential for Russian farmers to expand planting.
Because those countries make white sugar directly from beets, rather than from the raw variety, increased exports may weigh on futures for refined sugar traded in London. The New York market, where the raw type trades, is bigger and more liquid and less likely to be affected by small increases in global supply.
“Is it a game changer? Certainly the rapid increases that we have seen in Russia provided more available supplies within the region,” said Allen.