August 2011 SUGAR INDUSTRY OVERVIEW Key market highlights, 2010 General description of the sector Granulated sugar production, thou t 816 PRODUCTION Granulated sugar retail turnover , thou t 165 Average annual per capita sugar consumption, 41,4 ¾ In 2010 the total production of sugar in the Republic of Belarus kg amounted to 816 thousand tons, that is by 7.5% higher than in previous year. On average, over the past three years the production of sugar has Sugar export, thou t 493,4 increased by 5.6% and reached the level of 2006. Sugar and raw sugar import, thou t 407 ¾In the Republic of Belarus there are four sugar mills producing sugar : ¾JSC «Gorodeya Sugar Refinery»(230.2 thousand tons in 2010), Granulated sugar production in the Republic of ¾JSC «Zhabinka Sugar Plant»(197.3 thousand tons in 2010.) Belarus, thou t ¾JSC «Skidelsky Sugar Refinery» (166.7 thousand tons in 2010), 1000 814,1 758,9 816 ¾JSC «Slutsk Sugar Plant» (221.8 thousand tons in 2010). 656,6 707,8 ¾About 50% of sugar is produced from sugar beets, 50% - from 500 imported raw cane sugar. The sugar produced from raw cane is supplied to the domestic market and exported to the countries of Central Asia. In 0 2010 the sugar refineries produced 412 thousand tons of sugar from 2006 2007 2008 2009 2010 sugar beets. The need for this type of raw material is completely Source: National Statistics Committee of the Republic of Belarus satisfied by the domestic market. However, during recent years the total The structure of granulated sugar yield of sugar beet in the Republic of Belarus has decreased and in 2010 production in the Republic of Belarus, 2010 amounted to 3770 tons. Gorodeya Sugar Refinery 21% 28% Slutsk Sugar Plant 24% Zhabinka Sugar Plant 27% Skidelsky Sugar Refinery Source: UNITER DOMESTIC CONSUMPTION Average sugar consumption per capita, kg ¾ Despite a 3% drop in retail sales of sugar in the Republic of Belarus 60 50 over the past 3 years the average annual per capita consumption has 50 39,7 40,7 41,4 been increasing. Moreover, the retail sales of sugar, which in 2010 40 30 amounted to 165 thousand tons, accounts for only 20% of the volume of 20 production, the rests are wholesales for industrial consumption and 10 export. 0 2008 2009 2010 2011 e ¾ As a consequence of excessive demand for sugar from the population, Source: National Statistics Committee of the Republic of Belarus that emerged in the first half of 2011, the retail sales of sugar, according Sugar retail in Belarus, thou t to the results of 2011 and “Belgospischeprom’s” valuation, will increase 300 265 by about 60%. The average annual per capita consumption will increase 250 by approximately 20% to not less than 50 kg (compared with 36 kg in 200 170 175 165 European countries). The increase in supply to the domestic market also 150 had a negative impact on the export position of the Belarusian sugar 100 50 producers in the 1st half of 2011. 0 2008 2009 2010 2011 e Source: National Statistics Committee of the Republic of Belarus CJSC UNITER Investment Company © 1 August 2011 SUGAR INDUSTRY OVERVIEW External trade Sugar export in the Republic of Belarus, thou t EXPORT 600 493,4 500 CAGR = 16% 439,8 323,5 400 272,1 ¾ Currently, sugar exports from the Republic of Belarus are 300 200 implemented by sugar refineries. Over the past 4 years the volume of 100 exports has annually increased on average by 16% and in 2010 was 0 made up 493.4 thousand tons, accounting for 60% of the total 2007 2008 2009 2010 production. Source: National Statistics Committee of the Republic of Belarus Geography structure of sugar export, 2010 ¾The Belarusian sugar is mainly exported to the CIS countries. The significant foreign consumer of Belarusian sugar is Russia. It has a 38% Other countries share in the Belarusian export structure of sugar, or 189.5 tons. 10% Although a few years ago the share accounted to 95%. The volume of Kazakhstan Georgia 13% foreign trade between Belarus and Russia is specified in the 4% Kyrgyzstan intergovernmental agreement. According to it, in 2011 the sugar export 9% to Russia will reach 200 thousand tons. The Belarusian sugar produced Ukraine from imported raw cane will mainly export to the countries of Central 19% Asia: Kazakhstan (62 , 4 tons), Kyrgyzstan (41.7 tons), Uzbekistan (35.4 Russia tons), etc. 38% Uzbekistan 7% Source: National Statistics Committee of the Republic of Belarus Sugar and raw sugar import in the Republic of Belarus, thou t 500 407 400 CAGR = 22% 300 IMPORT 221 213,2 200 ¾ Sugar imports to the Republic of Belarus are generally the supplies of 100 raw cane sugar from Latin America for further processing by Belarusian 0 sugar refineries. Thus, over the past 3 years, the sugar imports to 2008 2009 2010 Belarus have increased from 221 tons to 407 tons. It is noteworthy, that Source: National Statistics Committee of the Republic of Belarus in 2007 the foreign supplies of sugar were negligible. Geography import structure, 2010 ¾The main suppliers of raw cane sugar are Brazil, which accounts for more than half of Belarusian imports, Argentina and Costa Rica. Other countries 9% Argentina 27% Costa Rica 10% Brazil 54% Source: National Statistics Committee of the Republic of Belarus CJSC UNITER Investment Company © 2 August 2011 SUGAR INDUSTRY OVERVIEW Average prices (rubles) and prices index for Price review sugar (%) in the Republic of Belarus 3000 150 ¾ Retail prices on sugar without any additives are established by the 2000 100 Ministry of Economy (as of 08/11/2011 the price for 1 kg of sugar was 1000 50 4600 rubles for packing at least 50 kg and 5,000 rubles for 1 kg packing). It is noteworthy that in 2011 the state prices regulation for 0 0 molded and coarse-granulated sugar, enriched sugar with additives, 2006 2007 2008 2009 2010 sugar in small packing by 5-10 g, as well as weight sugar, which is supplied by sugar refineries to the domestic market for industrial Average retail prices, rubles use. Over the past 5 years the price of sugar has increased by 90% with Sugar price indexes, % the average annual growth rate of 13.7%. Source: National Statistics Committee of the Republic of Belarus Average prices (rubles) and price index (%) of ¾ The purchase prices for sugar beets (the basic raw material for sugar beet producers’ in Belarus domestic production of sugar) are also set by the state. In order to 250 200 stimulate agricultural organizations that supply sugar beet in the early 150 stages, and to compensate the low sugar content at beets’ harvesting, 100 the up-lift to the purchase price was set. 50 0 ¾The increase in the supply of beet during 1-10 September will make up 2006 2007 2008 2009 2010 2011 ̨ 20%, from 11 to 20 September - 10%, from 21 to 30 September - 5%. Sugar beet average pries, thou rubles for t The growth rate of producer’s average price of sugar beet falls behind Prices indexes for sugar beet, % the growth rate of retail prices for sugar and for the last 5 years has Source: National Statistics Committee of the Republic of Belarus, Belgospischeprom been amounted to 43% with the average annual growth rate of 7.4%. According to preliminary information, in order to eliminate the Sugar export average prices (rubles) and price imbalance and support for farmers, the prices paid for sugar beets will index (%) increase by 234 thousand rubles per ton 800 140 600 90 ¾In 2010 in the Republic of Belarus there was the significant jump in 400 40 export sugar prices due to the situation on the world sugar market, 200 which has developed as a result of failure of sugar cane crop in Brazil 0 -10 (the largest sugar producer in the world), as well as substantial losses of 2006 2007 2008 2009 2010 sugar cane and sugar beet harvest in other countries, in particular, China, Pakistan and Russia. It is noteworthy, that till 2009 the producers’ Average export prices, USD per t average price for sugar exports were higher, then starting from 2009 Average prices index of sugar export, % there was the reverse situation. So, as of August 2011, a ton of sugar in Average producers' prices, USD per t Belarus is by $ 300 cheaper than in Russia, however, it is likely that in Source: National Statistics Committee of the Republic of Belarus Russia the price will fall. In 2011, in particular, there is expected a Raw sugar import average prices (USD per t) bumper crop of sugar beet, what could bring down prices. and prices index in Belarus 800 200 ¾The average import prices for raw sugar for the Republic 600 150 of Belarus are highly subjected to fluctuations on world markets. On 400 100 average, over 5 years, the index of average import prices of raw sugar 200 50 composed 20%. In general, over recent years the import prices have 0 0 exceeded export ones by 25-30%. 2006 2007 2008 2009 2010 Average import prices, USD per t Average prices index of sugar import, % Source: National Statistics Committee of the Republic of Belarus CJSC UNITER Investment Company © 3 August 2011 SUGAR INDUSTRY OVERVIEW «Gorodeya Sugar Refinery» Granulated sugar production, thou tons 250 240,7 240 Location:Zavodskaya str., 2, Gorodeya 228,9 230,2 230,2 230 Nesvizh district, Minsk region 220 220 In 1996 the state enterprise "Gorodeya Sugar Refinery" was reorganized into Open Joint 210 202,3 Stock Company "Gorodeya Sugar Refinery" with the registered fund amounted to 59,9 200 million Belarusian rubles (570 130 registered shares of common stock).