World sugar supplies are expected to tighten as production declines in 2019-20, but large stocks and indications of declining demand growth may limit recovery in a market battered by low prices, said Jose Orive, executive director of the International Sugar Organization.
It is reported by BakingBusiness.
«World sugar prices have hit bottom, and signs are pointing to a recovery», — Mr. Orive said Aug. 5 on a panel at the 36th annual International Sweetener Symposium, sponsored by the American Sugar Alliance (A.S.A.).
That’s good news for global farmers who have been struggling as raw sugar futures dipped to near 10c a lb in September 2018 — well below the average cost of production. To survive falling prices, many foreign governments have increased subsidies, which has only increased overproduction.
Mr. Orive preliminarily forecast a global sugar deficit of about 3,5 million tonnes in 2019-20, growing to nearly 6 million tonnes in 2020-21, compared with global surpluses of 2,1 million tonnes in 2018-19 and 9,7 million tonnes in 2017-18.
«The world is still suffering from high accumulated stocks that will need to be absorbed by the market before we can see any improvement on price», — Mr. Orive explained.
But he is optimistic because production from major sugar suppliers appears to be declining, which will let stocks fall.
Brazil, the world’s biggest exporter, has seen production fall rapidly since 2017-18 with the majority of cane now being used to produce ethanol. Production by the second biggest exporter, Thailand, is also down as farmers switched to alternative crops. Europe, another major producer and exporter, also has devoted fewer acres to beet production this year, although the industry there is struggling after production soared when government controls were lifted in late 2017.
However, Mr. Orive warned that there are factors that could quickly change the outlook.
«Weather could provoke production variations, while consumption growth is declining as the war against sugar continues, — he said, — Government policies will continue, mainly for political reasons».
India, now the world’s biggest sugar producer, is a prime example of the impact policy changes can have on the market.
«The global sugar market is the most distorted commodity market in the world because of subsidies, — noted Jack Roney, director of economics and policy analysis for the A.S.A., — Today’s low prices are a result of these subsidies, and any bullish signals can be quickly undone by government intervention».
Mr. Roney said the extreme volatility of the world market is the reason the United States has a sugar policy, and he urged governments around the world to put an end to competing subsidies.
But the greatest long-term threat to sugar producers may be growing indications of declining demand growth.
«We’re getting killed with consumption», — Mr. Orive said, noting the “war” on sugar, including sugar taxes in many countries. Recent years have shown a trend toward a slow but steady erosion in consumption, he said. Annual consumption growth was about 2% in the mid-2000s but currently is below 1.5%.
«The war against sugar will continue, — Mr. Orive said, — It's crucial the sector communicates better and is able to convey proactive messages based on facts and sound scientific evidence».