Nation set to buy sugar

China will start purchasing 500,000 tons of home-produced sugar for State reserves from Thursday, the National Development and Reform Commission (NDRC) said in a statement Tuesday, in an effort to stabilize sugar prices and protect the interests of 40 million farmers.

The base purchase price is set at 6,200 yuan ($980) per ton, the NDRC said, which is higher than the sugar spot price of 5,860 yuan per ton in Nanning, capital of Guangxi Zhuang Autonomous Region, the country's largest sugar production base.

This is the government's second State purchase of sugar this year.

Domestic sugar prices have dropped in the past few months, amid abundant global sugar supply, weakening demand from food manufacturers, and the fading effect of the last State purchase, analysts said.

The government purchased 500,000 tons of sugar in May, at a base purchase price of 6,550 yuan.

But the long-expected government intervention has not boosted market sentiment that much.

"The purchase of 500,000 tons will only help a small number of sugar producing companies, as the amount is small compared to China's annual output of sugar, which was 11.5 million tons between October 2011 and September 2012," Huang Guiheng, research director at Bric Global Agricultural Consultants in Beijing, told the Global Times.

Huang said domestic sugar mills are experiencing a hard time this year, as they are being squeezed by falling sugar prices and increasing production costs.

Even some of the larger sugar mills have recorded profit losses this year.

Nanning Sugar Industry Co, China's largest listed State-owned sugar maker, posted a loss of 32.46 million yuan in the first half of 2012, compared to a profit of 143 million yuan in the same period last year.

"The situation will not improve in the short term, with high stocks of sugar and a bumper harvest of sugarcane expected in the new crop year," Bian Tingting, an analyst at Shandong-based commodity consultancy Sublime China Information, told the Global Times.

Commercial sugar stocks climbed to 1.69 million tons by the end of August, data from the China Sugar Association showed. And according to a forecast by Swiss-based consultancy Kingsman SA, the country's sugar output is likely to rise by 10.4 percent to 13.8 million tons between October 2012 and September 2013.

"The domestic sugar industry is also dealing with the impact of cheap imported sugar from Brazil and India, and increasing competition from sugar alternatives," Bian said.

The phenomenon of illegal imports of sugar into China is also a serious problem. In May, the China Sugar Association launched a campaign to crack down on contraband sugar and promised to offer rewards of up to 500,000 yuan to people offering information about it.

Contraband sugar mainly comes from Southeast Asian countries such as Thailand and Vietnam. The amount of contraband sugar brought into China this year is expected to be 1 million tons, equivalent to 7 percent of the total domestic consumption, according to Guangdong Sugar Association.