Brazil faced a serious economic crisis and its huge increase in cheap sugar exports, the result of low-priced oil imports which had resulted in overproduction of ethanol, was unsustainable in the longer term, he said in the annual report.

``The Australian industry is having discussions at all levels to try to ease the impact of Brazil's excesses but unless a fundamental change occurs in the relationship between oil and ethanol prices, significant improvement in (the sugar) price is unlikely in the short term,'' he said.

Sugar prices were expected to stay down for at least a year and perhaps much longer, he said.

``The medium term outlook is more encouraging but not greatly so,'' he said.

Customers were being vigorously contested in a heavily oversupplied market, Bonannosaid.

Although single desk (monopoly export) selling gave Queensland sugar a positive benefit, high polarisation of Brazilian crystals had become the world standard, placing Australia at a disadvantage, he said.

Brazil's high quality white product combined with cheaper shipping rates following the Asian economic crisis was allowing Brazil to compete aggressively for Australian markets, he said.

Bonanno described Brazil's ethanol programme, which produces motor fuel from sugarcane, as being in tatters because of low world oil prices.

Weather problems which hit last year's Queensland sugarcane crop, reducing raw sugar production from a forecast 5.4 million tonnes to 4.5 million tonnes, had continued into 1999.

This would cause a severe cash flow problem in the second half of 1999, he said.

With 1999 sugar production expected to exceed last year's poor result, early harvested cane in Queensland's central region was promising, but late-cut fields were damaged, he said.

A record crop was in prospectin the traditionally dry South of the state, where several mills were expected to adopt continuous crushing for the first time.

Queensland had the capacity to produce six million tonnes of sugar a year within five years, but its bulk terminals were already nearing capacity, he said.

``I believe we need to be convinced fully of the need and the potential returns before undertaking heavy capital investment on more (storage) sheds,'' he said.

Australia inevitably would need to review its product range because of the influx of high pol Brazilian crystals, Canegrowers' general manager, Ian Ballantyne, said in the report.

With Brazilian sugar redefining sugar quality standards and testing traditional customer loyalties, Australia would also need to review its marketing strategies. he said.