Sugar

Strong market fundamentals are likely to favour higher world sugar prices in 2004/2005.

FAO’s latest forecast of world sugar output in 2003/04 stands at 141.1 million tonnes, almost 5 percent down from the previous year, largely as a result of smaller harvests in India and China, while global consumption in 2004 is expected to rise by nearly 3 percent to reach 143.1 million tonnes. As a result, the International Sugar Agreement (ISA) average daily prices recovered by more than 30 percent between January and August 2004 when the price averaged US 7.8 cents per pound. These higher prices will likely prevail in 2004/2005 reflecting continuing growth in world sugar consumption, relative to output, and an anticipated fall in stocks worldwide.

Sugar output in developing countries, in 2003/04, is forecast at 99.5 million tonnes, 5 percent lower than in 2002/03. An estimated 9.5 percent production increase in Latin America and the Caribbean would not be sufficient to offset major declines in the Near and Far East. Sugar production in India is forecast to fall dramatically by 51 percent from the previous year to 13.8 million tonnes. Cane production was severely curtailed by drought in major cane growing regions in Maharashtra, Karnataka and Gujarat. Output in China is expected to decline by 9 percent to 10.2 million tonnes due to low beet prices and adverse weather in some growing areas. However, consumption continues to outstrip production and rather than increasing imports, stocks were released from government reserves to meet the demand shortfall. In July, 536 000 tonnes of stocks were auctioned by the government. Sugar output in Thailand is expected to decline slightly, due partly to a lack of rainfall, but also reflecting government policy to restrict output to address domestic oversupply at supported prices. Cane production has been set at 65 million tonnes annually, along with a guaranteed price of 580 bahts per tonne. Production quotas will apply through to the 2007/2008 marketing year.

The revised estimate of sugar output in Brazil for the 2003/04 crop year is 27 million tonnes, a 15 percent increase from 2002/2003. The increase in production is attributed to favourable weather conditions and better utilization of processing capacity, resulting also in increased stocks, particularly in the center-south production area. Increasing oil prices, together with strong sales of “flex-fuel” (multi-fuel) vehicles will help support demand for ethanol and hence moderate oversupply of exportable sugar for the 2004/2005 season.

Sugar production in Africa is forecast to increase by 30 000 tonnes to reach 5 million tonnes in 2003/2004. Most of the increase is attributed to Mozambique where output is expected to rise by nearly 29 percent, as a result of favourable weather conditions, and recent expansion in area through the rehabilitation programme introduced by government in 2000. Sugar output in Egypt is predicted to rise by 7.7 percent in 2003/2004, due to an investment of US$294 million in 3 sugar beet factories in a move to increase self-sufficiency. Imports of refined sugar averaged US$87 million between 1999 and 2002.

Sugar production in the Near East is forecast to fall by 9 percent to 5.2 million tonnes in 2003/2004. Production in Turkey is expected to be lower by 19 percent due to a reduction in sugar beet area, in line with government policy to limit production.

World Production and Consumption of Sugar

Sugar output in developed countries is estimated to reach 41.7 million tonnes, in 2003/04, a decline of 3 percent from 2002/03. This decline is mainly due to an 8.5 percent fall in output in the EU following a reduction in beet area to curtail C sugar output, but also partly reflecting the effect of adverse weather. In Australia, a high incidence of disease as well as adverse weather affected the country’s 2003/04 harvest. Production is expected to fall by 3.8 percent from the output in the previous year. The sugar industry in Australia continues to struggle through its worst crisis ever exacerbated by the strength of the Australian dollar against the US dollar over the last 3 three years. Sugar production in the United States is forecast to increase in 2003/04 to 8.1 million tonnes from 7.7 million in 2002/03. Beet sugar production is expected to rise from 4 to 4.4 million tonnes while cane sugar production will grow by 90 000 tonnes. Ideal weather conditions favoured significant increases in yields.

Global sugar consumption in 2003/04 is estimated by FAO to increase by 4 million tonnes, from 132.9 million in 2002/03. Developing countries would account for most of the growth mainly due to strong economic expansion in the Far East. Consumption in China is expected to reach 11 million tonnes, helped by low domestic prices and a government decision to enforce control over artificial sweetener consumption. India is expected to remain the world’s largest sugar consuming country, with consumption forecast at 21 million tonnes for 2003/04. Sugar consumption in Africa is forecast to grow by 6 percent, in line with long-term average growth rate based on population and income.

Consumption in developed countries is expected to remain relatively stable at 47.9 million tonnes, as per capita consumption is already high (35 Kg compared to the world average of 21 Kg). Consumption in the CIS is expected to reach 11.3 million tonnes, while in the EU and North America consumption is forecast to remain at 20.5 and 10.1 million tonnes, respectively.

Monthly ISA prices averaged US 8.07 cents per pound from January to May 2003, and declined to an average of US 6.3 cents per pound from June to December. The average for the year was US 7.09 cents per pound, 3 percent higher than 2002. Prices in 2004 started lower at US 5.8 cents per pound, but finished 33 percent higher by the end of August. Early forecast indicate a continued shortfall in supply in 2004/2005 relative to the growth in consumption, underpinning the continued strengthening in market prices. At the New York Board of Trade, the May 2005 Sugar No.11 futures contract averaged US 8.25 cents per pound in July 2004, 22 percent higher than in the same month last year. However, this upward trend in raw sugar prices should be interpreted with care, as World sugar stocks remain high enough to supplement production shortfalls. Unless further supply shocks occur, prices should stabilize in the next few months.