Smuggling Crackdown Seen Spurring China Sugar Reserve Sales

  • Stockpiles may be released as early as October: Association
  • China may sell state reserves to meet supply gap in 2016-17

China may sell sugar from its state reserves as a crackdown on smuggling limits supply in the world’s second-biggest consumer, according to an industry group.

Between 300,000 metric tons and 500,000 tons could be released as early as October due to expectations of tight domestic supply, Liu Hande, vice chairman at the China Sugar Association, said in a telephone interview on Tuesday. As much as 2 million tons of sugar could be offered from reserves in the 2016-17 season starting next month he said. Stockpiles are currently about 7 million tons, according to Liu.

“To ensure supplies, the government has to release 2 million tons of reserves next crushing season and the same volume could be released during 2017-18,” said Liu. The government may need to keep 3 million tons in stockpiles to help cover any shortfall amid surging global prices and a possible deficit in the global market, he said.

The government’s most recent sale of stockpiled sugar was in the 2012-13 season, when it sold about 165,000 tons. It sold 1.87 million tons in 2010-11, according to Liu, who is also the head of the industry association in the southern province of Guangdong. China has sought to crack down on unofficial imports and smuggling in major border areas has stopped after a year-long effort, Deng Yi, Chairman of Yunnan Sugar Association said last month.

An official at the China Merchandise Reserve Management Center, which manages state sugar stockpiles, declined to comment. The Commerce Ministry didn’t immediately respond to a fax seeking comment on possible sales.

Smuggling

Domestic sugar production is set to rise to 9.5 million tons from 8.7 million tons in 2015-16, while consumption may decline to 15 million tons from 15.9 million tons, Liu said. China set its annual sugar import quota at 1.95 million tons for 2016 with purchases above that taxed at a higher rate.

As much as 2 million tons of sugar were smuggled into the country in 2015-16, up from 800,000 tons a year earlier, estimated Liu. The industry will introduce a QR code system for domestic sugar sold at markets to trace producers and help reduce unofficial trade, he said.

While the government has sought to curb the practice in recent years, the large gap between domestic and global prices makes it hard to control, according to the U.S. Department of Agriculture. Most smuggled sugar is believed to be produced in India and Thailand and then transshipped to Myanmar or Vietnam before entering China, it said in an April report.

The sugar refining industry is expected to turn profitable, possibly during 2016-17, after experiencing losses since 2014, said Liu. As of early March, approximately 90 percent of sugar manufacturers were operating at a loss and a number of mills had closed, the USDA said, citing industry reports.

Yunnan Sugar Association’s Deng said in a speech last month that smuggling through the Honghe area, bordering Vietnam, had been halted after a year-long crackdown and volumes entering China via Dehong, bordering Myanmar, decreased.

— With assistance by Shuping Niu

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