FAO/GIEWS - Food Outlook No.2 - May 2002 p.16

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FAO forecasts world sugar production to reach 138.5 million tonnes in 2002/03, based on current crop conditions and assuming normal weather for the remainder of the seasons. The increase is largely attributable to a record output forecast for Brazil, increased production in the EC and a recovery in several other major producing countries. This 4.4 million tonnes increase in global output signals another season of excess supply and potentially weaker prices. The supply outlook in Brazil continues to influence prices in the global market. A declining price trend emerged early in 2002, amidst reports of a large crop and increased export availabilities in that country. Furthermore, because of its highly competitive and robust nature, a sustained period of low world prices would have a lesser impact on the Brazilian sugar industry, which is also believed to have the lowest production costs in the world.

World sugar prices increased in late November 2001 as the market reacted to reports of hurricane damage to the sugarcane crop in Cuba and reduced beet sugar recovery in the EC. However, reports of increased

production in the world’s two largest exporters, Brazil and the EC, drove prices downward in early 2002. The International Sugar Agreement (ISA) daily prices declined over the first 3 months of 2002, averaging US cents 7.79 per lb in January, 6.55 per lb in February and 6.70 per lb in March, respectively. The ISA daily price averaged US cents 8.64 per lb in 2001.

FAO forecasts world sugar consumption to reach 136.2 million tonnes in calendar year 2003, an annual growth rate of 2.6 percent driven by strong economic growth. Consumption is expected to grow fastest in the Far East, reaching a forecast growth rate of 3.5 percent in 2003 against a backdrop of annual GDP growth exceeding 5 percent and a population growth rate of around 1.5 percent for the region. Consumption in developing countries is forecast to grow by 3.2 percent overall. Among developed countries the growth rate is estimated at 1.5 percent, slightly higher than in recent years, attributable to the stronger than anticipated consumption growth in the CIS, particularly in the Russian Federation where the food processing industry continued to expand strongly.

World Production and Consumption of Sugar

Production Consumption
2000/2001 2001/2002 2002/20031/ 2001 2002 20031/
  (. . million tonnes, raw value . .)
WORLD 130.4 134.1 138.5 130.7 132.7 136.2
Developing countries 88.5 94.2 96.8 84.7 86.2 89.0
Latin America & Caribbean 37.7 43.0 45.0 23.8 24.2 25.0
Africa 4.7 4.9 5.0 7.0 7.2 7.4
Near East 5.8 5.4 5.4 10.3 10.5 10.7
Far East 39.8 40.5 41.0 43.5 44.2 45.8
Oceania 0.4 0.4 0.4 0.1 0.1 0.1
Developed countries 41.9 39.9 41.7 46.1 46.6 47.2
Europe 22.2 20.0 21.5 19.8 19.9 20.1
  of which: EC (18.2) (16.2) (17.5) (14.6) (14.7) (14.7)
North America 7.9 7.4 7.4 10.6 10.7 10.8
CIS 3.9 4.2 4.4 10.1 10.2 10.5
Oceania 4.4 4.8 4.8 1.2 1.3 1.3
Others 3.6 3.6 3.6 4.3 4.4 4.4

Source: FAO 1/ Tentative forecast.

As mentioned above, world sugar production is forecast to reach 138.5 million tonnes in 2002/03, which would be 4.4 million tonnes up from 2001/02. Amongst the major producing countries, Australia, Brazil, the EC, Thailand and South Africa are forecast to have larger outputs. Cane production in Australia may increase by up to 15 percent over levels attained in 2001/02, if favourable weather continues. Production in developing countries is currently forecast to increase by nearly 3 percent in 2002/03, with lower than anticipated production only expected in Mauritius and Fiji.

Favourable weather and growing conditions for most of 2001/02 continue to highlight the potential for a record harvest in Brazil in 2002/03, with expectations of increased export availabilities and downward pressure on international sugar prices. FAO estimates that sugar output in that country is expected to increase by slightly more than 2 million tonnes, to nearly 23 million tonnes in 2002/03. Sugar production in Brazil has more than doubled over the past decade, when sugar output in 1992/93 was slightly more than 11 million tonnes.

The expectation of further production increases in Brazil over the near to medium term have highlighted the ongoing debate as to the amount of cane allocated to the production of alcohol (ethanol) versus sugar. Brazil announced an increase in the ethanol fuel blend from 22 to 24 percent in early 2002, in part to increase domestic ethanol stocks and direct more cane away from sugar exports. Furthermore, given the potential for continued world surplus sugar production, there is significant interest on the part of numerous important sugar producing countries, such as the Dominican Republic, India, Mexico, Mauritius, Thailand and the United States, in the expansion, enhancement and/or start-up of a domestic ethanol industry.

One of the more significant developments in the world market in support of expanding demand in the near term is the expectation that the Russian Federation, the world’s largest sugar importer, will announce an increase in the 2003 sugar import quota from 3.65 to 4 million tonnes, with the increased quota put to tender in September 2002. The growth in domestic consumption remains strong in the Russian Federation, with an estimated increase of almost 4.5 percent between 2001 and 2002, due to the continued development of the food processing industry in the country.

China, another important producing and consuming nation, could provide some support to an oversupplied world market in 2002/03. Low world prices may induce China to purchase sugar in the international market, particularly as domestic sugar reserves are depleted following the release of stocks to lower internal prices. Despite low stocks, trade reports indicate that China is unlikely to fulfil the announced 1.764 million tonne tariff rate quota for 2002 as the short term price differential between domestic and international sugar prices was not large enough to attract imports.

A reduced crop in Cuba, lower beet sugar recovery rates in the EC and steady consumption growth rates contributed to higher price levels in 2001/02. Although the expansion in consumption in the Far East and the Russian Federation, as well as stock-building by China may contribute to firmer prices, the forecast supply/demand balance for 2002/03 would suggest otherwise.

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