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Shifting patterns of demand to drive global sugar markets to 2021

August 14, 2013

According to a Rabobank report, growing demand in Asia and Africa will drive global sugar markets through to 2021, with global consumption growing from 166 to 203 million tonnes of raw sugar by 2020/21. Consumption in Asia is expected to rise from 75 million tons to 97 million tons. In Africa, growth in sugar consumption, while starting from a lower base, will be faster than in Asia and Latin America, growing at 3.4% per annum, compared to 2.9% for Asia and 2.1% for Latin America. Asia is expected to maintain its dominant share of global imports, while South Americas share of global imports is also expected to rise. The report additionally notes that the abolition of EU sugar production quotas is expected to reduce EU sugar imports (see Agritrade article EU sugar sector developments and projections, 7 April 2013).

According to the report, this growth in demand arises from population growth, rising per capita incomes and changing patterns of food consumption arising from urbanisation. Strong growth in sugar production is anticipated in China, Indonesia, Thailand and India. Sugar production in Africa is also expected to rise sharply. The Rabobank report argues that while sugar production in Africa enjoys little government protection, it is protected in effect by local infrastructure deficiencies, which makes the landed cost of imported sugar high.

Brazil is seen as being well placed to respond to expanded demand for both sugar and ethanol, given the structure of investment in processing facilities that is already in place, and is expected to maintain its dominant trade position (followed by Thailand and Australia).

Rabobank, according to the report, expects the global sugar trade to reach 64 million tonnes raw value by 2020/21, an increase of some 22 percent over estimated trade in the period 2009/10 to 2011/12. This is less than the growth in consumption projected for the period (25%), with significant growth in production expected in parts of the world that have traditionally been sugar importers (e.g. Russia).

The broad outlook in the Rabobank report is confirmed by the FAO-OECD report Agricultural Outlook 2013-2022 , which notes that world raw sugar prices have fallen by 26% in the last 12 months and white sugar prices by 20%. Sugar prices are expected to continue to ease back through the remainder of 2012/13 on the back of abundant supplies and increasing stock cover. (The stocks-to-use ratio was at a 6-year high in 2012/13.) By the end of the projection period, the 2022/23 season, prices of USD 20 cts/lb in nominal terms are projected.

In the short term, at the corporate level, the website Agrimoney.com reported in June that Czarnikow has warned of difficult times for sugar producers, with a fourth successive production surplus in 201314, implying continued pressure on prices. Only a minor reduction in production is projected (2.8 million tonnes) from the record of 185.6m tonnes set in 201213. Consumption, meanwhile, is expected to rise by nearly 2% to 177.9m tonnes. Agrimoney.com reports that while Czarnikow, Kingsman and the International Sugar Organization all agree that there will be a sugar surplus in 201314, they differ on the scale of the surplus, forecasting variously between 3.5 and 4.59 million tonnes. Czarnikow maintains that current trends have seen prices fall below production costs, which will weaken the balance sheets of the industrial sector, while growers will have to adapt to lower incomes and delayed cane payments.

According to Czarnikow, sugar cane growers are seen as being worse affected than beet growers by the global sugar supply balance, since the annual nature of beet production allows the sector to adjust more rapidly to price declines.