Riding out the rising cost of sugarcane
The world price of raw sugarcane increased 75% between May 2010 and February 2011.
In fact, sugar prices hit the highest level in three decades: on 3 February, raw sugar prices reached 36.08 cents per pound on the ICE Futures market in New York.
Lower than expected sugar yields in Brazil and floods and Cyclone Yasi in Australia are largely to blame for the worst sugar crop in nearly 20 years. This put further pressure on already low world sugar stocks and caused the world sugar price to rise sharply.
Northern Queensland is home to about one-third of Australia’s sugarcane crops.
When Cyclone Yasi hit, the output potential of the area was cut in half, massively reducing Australia’s supply in the process.
Australia is a major exporter of sugarcane. When Australia’s supply is low due to its damaged crops, buyers turn to other countries for their sugarcane.
The world’s largest exporter is Brazil, a nation that also suffered at the hands of poor weather conditions: dry weather in July, August and September 2010 dramatically reduced the sugarcane harvest in Brazil.
The domestic price of sugar is determined in the world sugar market, so the high world price of sugarcane translates into higher prices for sugar in Australia.
Consumers can feel this at the retail level. Retail sugar prices increased by 2.8% over the three years through December 2010. Increased competition (especially from the presence of private-label products), the growing purchasing power of supermarkets, and the high Australian dollar dampened further price increases.
Given that the industry exports the majority of its output, the effect of exchange rates can be substantial. However, consumers will still feel the effects of rising prices in the months to come.
Sugar is a primary input in the confectionery manufacturing industry and an increase in the price of sugar inflates production costs. Confectionery manufacturers are likely to pass on these costs to consumers.
Both Nestle and Cadbury have stated that small price increases are likely. Consumers will certainly feel the change when it comes to Easter egg shopping. Confectionery will not be the only industry feeling the bite of rising prices.
The high price of sugar will influence various industries across the economy, including soft drink manufacturing, snack food manufacturing and spirit manufacturing.
While the February sugar price spike will still be felt at the supermarkets in the months ahead, the price of raw sugarcane is now taking a downward turn.
World sugar production is expected to rise this year in response to recent price rises and an expected recovery in production for the world’s main producers.
Brazil, the world’s largest sugar producer, is expected to see an 8.0% rise in production this year, as the sugarcane harvest begins this month.
Sugar production is also expected to rise in India, which in conjunction with Brazil, supplies 40% of the world’s sugar. As production rises throughout 2011 and 2012, world sugar stocks are expected to also rebound, causing the price of sugar to decline.
However, falling prices will be partially offset by an increase in demand for sugar driven by rising income in developing countries over the next five years.
Have your say...
The approval of your comment is at the discretion of this article's publisher. Write your comment with the following in mind to ensure the highest likelihood of it being approved:
- No promotional undertones
- No use of profanity
- Good spelling, grammar and layout
- Check punctuation, language and missing words
- No use of aggression
- No unsubstantiated claims
We reserve the right to remove comments at our discretion.
Your name is used alongside Comments.