FAO/GIEWS - Food Outlook No.3 - June 1999 p. 6

SUGAR

The FAO outlook for the world sugar market in 1998/99 is for continued oversupply due to production expanding at a faster rate than demand. The supply surplus would add to already high stock levels and is expected to limit any recovery in prices. The situation is exacerbated by the weak economic outlook in several major importing countries, leaving little room for substantial recovery from current low levels at least in the near term.

World sugar prices continued their declining trend as the 1998/99 season (Oct-Sept) began. The average International Sugar Agreement (ISA) daily price declined by more than 35 percent during the first seven months of the 1998/99 season, averaging US cents 7.14 per lb over the period. Prices fell by 16 percent from an average of US cents 8.11 cents per lb in January 1999 to US cents 6.82 per lb in February 1999, then plunged to a 13-year low of US cents 4.78 per lb by the end of April 1999.

FAO's estimate of the world sugar production (raw value) in 1998/99 has been revised upward to 129.6 million tonnes. At this level, production in 1998/99 would be 6.5 percent up from the estimated output of 126.6 million tonnes in the 1997/98 season. Upward revisions were made to estimates for cane producing countries, mainly Brazil and India, which more than offset the downward adjustments in beet sugar production, particularly in the EC. Cane sugar production is estimated at 93 million tonnes, or 72 percent of the global output, while total production from beet is expected to decline further to 36.6 million tonnes. Sugar production in developing countries is estimated to expand by 5.4 million tonnes, from 82.2 million tonnes in 1997/98 to 87.6 million tonnes in 1998/99.

Output in Latin America is expected to grow by 4 percent to 38.7 million tonnes, with the bulk of the increase accounted for by a record output of 18.8 million tonnes in Brazil, almost 2 million tonnes up from the previous season. Lower utilization of cane in alcohol processing due to overstocking and less remunerative prices of alcohol underpinned the rise. In addition, favourable weather during the latter part of 1998 contributed to improved yields. The adverse effects of unusual weather in Central America and the Caribbean, particularly damages inflicted by Hurricane Mitch, curtailed expectations for higher production in several major producing countries, including Mexico and Guatemala where output is

foreseen at 5.0 million tonnes and 1.8 million tonnes, respectively. Cuban production is assessed at 3.3 million tonnes, marginally above the 50-year low of 3.2 million tonnes reported in 1997/98, due to persistent lack of agricultural inputs.

WORLD PRODUCTION AND CONSUMPTION OF SUGAR

Sugar output for 1998/99 in the Far East is estimated to grow by about 10 percent to 38.7 million tonnes. In India, where production is forecast to reach 16.5 million tonnes representing about 40 percent of the regional total, better prices paid to growers led to a 5 percent expansion in harvested areas and lowered the volume of cane diverted to gur production. Improved yields and recovery rates also contributed to the increase. Previous estimates for Thailand's output have been revised to 4.9 million tonnes following the reports of adequate rains and better recovery rates. Higher sugarcane production due to an expansion in crop areas would account for a 4 percent increase in China's sugar output, offsetting a slight decline in beet sugar production. Production in developed countries is estimated to reach 42.1 million tonnes. Among these countries, an 8 percent decline to 17.6 million tonnes is projected for the EC due to a reduction in planted areas and lower yields, and 10 percent decline to 5.3 million tonnes for Australia due to a reduction in planted areas and excessive rains.

World sugar consumption in 1999 is forecast to grow at a slower rate of 1.3 percent, compared to 2.2 percent in 1998, to reach 125.6 million tonnes, with developing countries accounting for about 64 percent of the total. The largest declines in growth rate would occur in the Far East, due to reduced purchasing power in several major markets as a result of their weak economies. Consumption in the region would grow by only 1.2 percent to an estimated 41.1 million tonnes in 1999, well below the 5-year average growth rate of 3.5 percent. Consumption in India, the world's largest sugar-consuming country, appears to be an exception, as ample availability at subsidized prices would result in a 2.5 percent rise to 16.4 million tonnes. Latin America is also expected to experience a slower growth rate of 2 percent. Consumption in the two largest markets in Latin America, Brazil and Mexico, is estimated at 9.3 and 4.4 million tonnes, respectively. Consumption in developing countries in Africa is expected to increase by about 200 000 tonnes to 6.6 million tonnes, mainly due to population growth and low retail prices maintained through government intervention in some countries. Disappearance in developed countries is expected to remain at similar levels to 1998, with an increase of 0.7 percent, due to the stability of dietary habits. A growth of 1 percent to 10.4 million tonnes in North America is due mainly to increased consumption in the United States, currently assessed at 9.1 million tonnes.

World sugar trade in 1998/99 would continue to be characterized as an imbalance between export availabilities and import demand. In Brazil, competitive export prices following the devaluation of the Real and increased production would allow exports to reach 8 million tonnes, which would counterbalance lower exports from several major exporters, such as the EC, Mexico and Thailand. Exports from Australia, the third largest exporter, remain stable at about 4.2 million tonnes. On the importing side, weaker demand is expected from the Russian Federation, where demand is likely to decline from 4.5 million tonnes last year to 3.6 million tonnes this year, and the United States where imports are expected to be lowered following recent cancellation of the March tranche of imports under the Tariff Rate Quota. The resulting oversupply situation would lead to higher world stocks. Global stocks would increase by about 4 million tonnes approaching a level of 50 million tonnes and a stock-to-consumption ratio of 40 percent.

As early forecasts for the 1999/00 season do not indicate a significant variation in world production, prices will largely depend on general economic developments in major importing countries. Current world stock levels imply that prices would remain low unless demand is boosted significantly.