Australia's Sugar Industry Set to Reverse Decline

Sydney, June 18 - Australia's sugar industry, the world's third-largest exporter of the raw sweetener, is set to reverse a long period of decline as strong prices spur farmers to plant more cane, an industry leader said on Thursday.

Alan Winney, chairman of the country's top raw sugar exporter, Queensland Sugar Ltd (QSL), said output could outstrip forecasts by the government's commodity forecaster, Australian Bureau of Agricultural and Resource Economics, in March.

"Given the price outlook, I would think ABARE's forecasts are probably a bit low," Winney told Reuters.

In March, ABARE forecast Australian sugar output would fall 2.3 percent in 2009/10 from a year earlier to 4.6 million tonnes, recovering in the following year to about 4.8 million tonnes, where output was likely to remain until 2013.

Despite Australia's leading exporter status, a combination of low prices and competition for land along the country's tropical northeastern coast where cane is grown has seen output fall from more than 5 million tonnes annually 10 years ago.

Since 1999 the number of cane farmers has fallen from more than 7,000 to about 4,000, although farms have become bigger and more efficient.

Winney said farmers now had the opportunity, through hedging programs, to lock in prices at attractive levels, thanks to world sugar prices surging almost 25 percent since the start of year.

"So they really should sit down and do the numbers again and have a look at the opportunity to bring more cane land on," said Winney.

"In 12 months from now, you will hopefully see some increase though farmers may wait until they've got some money in the bank, so perhaps that will mean a small increase next year and a bigger one the year after."

A shortfall in production in India, the world's biggest sugar consumer and second-biggest producer, continues to underpin prices as the country moves from being a net sugar exporter to a net importer.

Winney said a downturn in Australia's property market caused by the global financial crisis and the collapse of tax-driven schemes promoting investments in forestry had eased land competition, which would assist a recovery in sugar production.

QSL, which has been restructured on a more commercial footing, is also returning more cash from its pools to canegrowers and millers, boosting the industry's viability.

QSL exports about 95 percent of the country's raw sugar.

The country's largest refiner, CSR Ltd, is also undergoing restructuring by spinning off its sugar assets into a separately listed company.

CSR recently completed a three-year capital investment program in the sugar business and sees growth opportunities for the business in sugar, renewable electricity and ethanol.

Winney said CSR had recently signed new 3-year contracts to supply QSL with raw sugar for sale on overseas markets.

"CSR have considered over the years whether they should export in their own right or use QSL and I think they've made a decision and commitment to QSL so we know where are for the next three years," said Winney.

source: flex-news-food