WTO

Coca-Cola China 2004 sales increased 26% year-on-year, which reveals at least two things: Coke is doing well, and sugar consumption in China is going up.

The odd thing is that, despite rising consumption, prices have been going down such that land allocation for sugarcane, China's big sugar source compared to beet sugar, has been shrinking and is destined to go on shrinking. Guangxi, where over half China's sugarcane growing happens, is cutting way back: by 2008, the sugarcane hectare count will shrink to 533,300 from 766,700 in 2003. With prices falling, China has been importing more and in 2004 nearly doubled 2003 imports, to 1.18m tons, much of that sugar coming from Brazil and Thailand.

Of course, the writing has been on the wall for China's inefficient and badly-equipped sugar industry. Two years ago officials projected a rise in imports on the back of WTO import liberalizations: "In accordance with the new tariff level, the cost of imported sugar from Thailand and Brazil will be around RMB2,300 (US$277) per ton, while the figure for Guangxi sugar, the cheapest in the country, would be approximately RMB2,621 (US$316), China Daily reported in February 2003.

China's sugar industry is dispersed yet overcrowded with too many old refiners, and it has been losing money for years. "It takes six days on average to transport sugar cane from the fields to refineries in China, but in foreign countries, sugar cane is sent directly to the plant nearest the farm," notes one report.

Hardly surprising, the UN's Romebased Food and Agriculture Organization (FAO) says China sugar production is expected to decline for a second consecutive year, following the severe drought in Guangxi, which accounted for more than 55% of total sugar production in 2003-04. For 2004-05, the FAO said China output overall should decrease by 5.3%.

"Consumption in China is expected to reach 11.5m tonnes in 2004/05, about 490, 000 tonnes more than the quantities consumed in 2004-05," the FAO says. Rising income explains much of that higher demand, it says. But there is another reason: "the substitution effect brought about by the closure of saccharin processing plants."

The other feature of the story, as the FAO tells it, is that Chinese, unlike consumers in consuming countries, do not use very much sugar in the home. Sugar in China is used mostly – and this returns us to the Coke data – for industrial purposes: in the food processing, beverage, and pharmaceutical industries. "Only a small share [is] diverted to household consumption, as per caput consumption remains below 10 kg, two folds lower than the world average of 21 kg."