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Brazilian exporters expected to take full advantage of the safeguard lapse, which will see the tariff for foreign sugar shipments to China above the annual quota level reduced. Photo: Reuters

China’s sugar industry ‘panics’ as Beijing removes protective tariff in a bid to plug shortage

  • In a bid to fill a shortfall in sugar demand, China has let a safeguard tariff lapse, meaning foreign imports will now be cheaper to buy
  • Local industry ‘panicked’ by the move, which may put a stop to widespread smuggling of sugar along China’s border regions

China has ignored its own sugar industry’s pleas for protection after allowing a safeguard tariff on sugar imports to lapse, a move that was welcomed by some of the world’s major producing nations, including Brazil and Australia.

A three-year safeguard tariff on sugar imports was enforced in 2017 after China’s Ministry of Commerce found an increase in imported sugar had “caused serious damage” to the Chinese industry, which was already crippled by rising production costs.

China imposes a tariff of 15 per cent on shipments within its annual quota of 1.95 million tonnes. But the safeguard measure, which lapsed on May 22, meant imports above this annual quota were initially taxed at 95 per cent, reduced by 5 per cent each year over the course of the three-year term.

Now, with the term lapsed, import volumes above China’s annual quota will now be taxed at 50 per cent, instead of the 85 per cent tariff applied before May 22 – a move which has been decried by domestic producers.

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The Chinese government did not respond to a petition filed in early-May by sugar associations in seven Chinese provinces and cities, including the biggest production hub in Guangxi, asking to extend the safeguard. The organisations said that the industry was “panicking” at the change.

“The survival and development [of China’s sugar industry] are facing very severe challenges,” read a copy of the letter from seven industrial associations seen by the South China Morning Post. “All domestic producers are operating at a loss. It is hard to keep the market stable and in turn this is causing social conflict and commercial instability.”

The Guangxi Sugar Association confirmed that it has yet to hear from the National Development and Reform Commission, the economic planning agency. Neither China’s Ministry of Commerce nor its customs authority responded to requests for comment.

China is the world’s third largest sugar producer, but also among the largest consumers and importers, according to statistics from the UN Food and Agriculture Organisation and the International Sugar Organisation. But China’s sugar industry has struggled to meet domestic demand, a fact which has underscored the need to import more.

China’s sugar production was expected to hit 10.4 million tonnes in the year to September but consumption has been forecast at 15.3 million tonnes, according to Chinese Agriculture Outlook Committee forecasts in May. The shortfall of 4.9 million tonnes will exceed the gap of 4.4 million tonnes in the same period last year.

In 2019, China imported 3.39 million tonnes of sugar, up 21.3 per cent from the year before, according to Chinese customs data.

The unmet demand gave rise to illegal smuggling of sugar from neighbouring Southeast Asian countries, as importers tried to get around both the safeguard tariff and the higher domestic sugar prices.

Authorities at the southwestern border city Lincang in Yunnan province seized 335 tonnes of smuggled sugar in the last two weeks of March, even as the coronavirus outbreak was raging.

Dong Xiaoqiang, commercial head of AB Sugar China, said the local industry could not compete with imports, which are already 2,000 yuan (US$281) a tonne cheaper than local sugar. If not managed carefully, China’s sugar industry could follow in the footsteps of the soybean sector, which lost market share to foreign producers, he warned.

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“For domestic sugar factories, the removal of protective tariffs will be a devastating blow,” Dong said. “It cannot be ruled out that some sugar factories will collapse, or be merged and acquired and this could reshuffle the domestic industry.”

While the local industry bristles at the return of imports, exporters will be eyeing potential boost in trade with China. Australia may be particularly optimistic after the recent double setbacks of a Chinese ban on Australian beef exports and a tariff on barley.

Australia exports 80 per cent to 85 per cent of its raw sugar, and is one of the largest raw sugar exporters in the world, according to the International Sugar Organisation. Australia joins Brazil, India, Thailand and the European Union as the world’s leading sugar exporters.

The Australian Sugar Milling Council welcomed the safeguard lapse, as it could allow Australia to export on a more level footing. However, its exports to China are relatively minor, about 180,000 tonnes of raw sugar per year. It would therefore require a boost in demand from China to capitalise on the lapse, said David Rynne, the council’s director of policy, trade and economics.

If China’s demand for imported sugar increases the Australian industry would welcome the opportunity to compete for any additional requirements
David Rynne, Australian Sugar Milling Council
“If China’s demand for imported sugar increases the Australian industry would welcome the opportunity to compete for any additional requirements,” Rynne said.
In a statement, Australian Trade Minister Simon Birmingham welcomed the prospect of “fairer market opportunities”.

Brazilian exporters expected to take full advantage of the safeguard lapse. The Union of the Sugarcane Industry forecast exports to China to return to pre-safeguard levels of 2.5 million tonnes a year, nearly doubling the 1.3 million tonnes during the 2019-20 cycle.

Brazil, which accounts for 45 per cent of the world’s sugar exports, expressed relief at the safeguard removal, saying it had planned to raise it at the World Trade Organisation, before China removed the safeguard.  

This article appeared in the South China Morning Post print edition as: Sugar sector sours as Beijing removes protective tariffs
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