China Mulls Sugar Exports as Milk Scandal Hits Demand

Beijing - China's sugar industry is seeking government support to export excess sugar stocks amid expectations of record output even as consumption is hit by a tainted milk scandal, an industry executive said on Wednesday.

Contamination of dairy products by the chemical melamine, which has killed four babies and left thousands with kidney problems, has reduced demand for sugar which is used in many dairy products, including powdered milk, yoghurt and candy that contains milk.

The scandal could reduce expected sugar demand by up to 300,000 tonnes in the upcoming year, one trading house estimates.

"It will take time for customers to regain confidence in these products," Liu Hande, vice chairman of the China Sugar Association, told Reuters.

"We see a serious impact on sugar consumption as well in the short term."

The association has proposed that Beijing subsidise exports as sliding prices have left many sugar mills in the red. So far, the central government has not made a decision.

China's dairy consumption could be depressed for at least three months, the chairman of the China Dairy Association said, after widespread contamination scared away consumers. A long list of countries have banned Chinese dairy and sweets products.

It may take up to 2 years for the dairy industry to recover, the chairman, Wang Dingmian, told state media.

Domestic sugar prices have fallen to their lowest in nearly 4 years and are now about 20 percent lower than production costs in some areas. World sugar prices have been dragged down to a four-month low, as the credit crisis has led to a sell-off of commodities.

"If there is no subsidy for exports, it is very hard to rely only on purchases of the surplus for government reserves" to prop up prices, said Liu, adding current stocks were already high at 2 million tonnes.

An additional 1 million tonnes of surplus sugar could accumulate in the upcoming year.

China is expected to produce a record 15 million tonnes of sugar in the year beginning October, a rise of 1.1 percent from last year.
SOURCE:flexnews