China's struggle with sugar smugglers far from over

Wed Jan 30, 2013 11:14pm EST
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By Sarah McFarlane and Niu Shuping

LONDON/BEIJING (Reuters) - China's battle against sugar smugglers working across southern borders is failing as it keeps domestic prices higher than the world market to support its own production, officials say.

Beijing's policy of stockpiling to support domestic prices and keep its farmers growing cane will also keep the profit incentive firmly in focus for the smugglers.

"As long as there is a big price gap, smuggling will continue," Liu Hande, vice chairman of the government-backed China Sugar Association, told Reuters.

Traders and analysts estimate that between 500,000 tonnes and 1 million tonnes of sugar was smuggled into China in 2011/12, mainly from the world's second largest exporter Thailand, but often via third countries.

That is in addition to official imports of 4.26 million tonnes.

The world's top sugar importer's policy is keenly watched and its impact complex. Cheaper world prices encourage China to import more, which supports global prices and helps cope a little with a surplus haunting the market for a third season. Rising Chinese stocks, boosted by smuggling and higher domestic output, may weigh on local prices.

The Sugar Association said domestic sugar prices are quoted at 5,500 yuan ($883.80) per tonne in top growing region Guangxi and for smuggled sugar, the price is about 4,000 yuan ($642.70) per tonne.

"If such a price gap remains for this year, we believe smuggling volumes would be more or less the same as last year," said Liu Hande.   Continued...