|No.2 December 2006|
|Global Market Analysis|
World sugar prices in recent months have significantly decreased from the 25-year highs of early 2006. Several factors have contributed to the marked price declines over the past few months, particularly, better than anticipated 2006/07 output, declining oil prices and reduced speculation by large trading funds. Although preliminary estimates for the current crop year indicated a world supply deficit for the third consecutive year, higher than anticipated global output now points towards a surplus. Lower oil prices, and recent estimates of excess supply are pressuring sugar prices downwards to its longer-term trend value. The International Sugar Agreement (ISA) daily price averaged US˘13.86 per pound for the third quarter of 2006 (July through September), 18 percent lower than the first quarter (January through March) average of US˘16.98 per pound.
FAO has revised the 2006/2007 sugar production forecast upward to 155.5 million tonnes, due to better than anticipated output in Brazil, the Russian Federation, United States, the Far East Asia and Eastern Europe, a 4.3 percent expansion over 2005/2006. Increased global production is largely attributable to developing countries, where output is forecast at 116.5 million tonnes, 9.7 percent more than the preceding season. Clearly, sugar producers have responded to the high prices of the past two years by expanding planted areas and supporting efforts to revitalize sugar industries, particularly those in developing countries. Growing export demand for ethanol, as well as domestic biofuel initiatives, are also supporting global trends toward expansions in sugarcrops and renovation or construction of processing and refining facilities.
Larger sugar output from developing countries, currently estimated to increase by 10.3 million tonnes to 116.4 million tonnes is expected to reverse the global deficit of the past three years into a global surplus of 3.4 million tonnes. Production in Latin America and the Caribbean for 2006/2007 is currently estimated at 51.4 million tonnes, with production in Brazil forecast to reach 31 million tonnes, a record crop and some 2 million tonnes more than in 2005/2006. Sugarcane output for 2007 is estimated at nearly 420 million tonnes, with a better than anticipated harvest and crushing campaign ending in November. Dry weather at the beginning of the harvest has resulted in slightly decreased tonnage from the centre-south region, whereas favourable growing conditions in the north-northeast region sustained a 7 percent increase in cane tonnage in 2005, when output was some 20 percent less than anticipated. The north-northeast milling campaign is underway and should end in March.
Sugar production in Brazil depends on how much of the cane harvest is directed to sugar or ethanol. The Government of Brazil reduced the anhydrous ethanol to gasoline blend ratio from 25 to 20 percent in early 2006 to mitigate the tendency for sugar prices to rise at the retail level. The record cane harvest allowed to replenish sugar and ethanol stocks and, after several weeks of negotiation between the industry and the Government, it was decided to increase to 23 percent the blend ratio of ethanol to gasoline, effective 20 November 2006. Current ethanol prices are lower than one year ago and reports indicate that earnings from domestic sales of ethanol have become more profitable than sugar exports since world sugar prices began to decline in February 2006.
Sugar output in Mexico is forecast at 5.8 million tonnes in 2006/07, slightly higher than 2005, but still slightly below the record 2004/2005 crop of 6.1 million tonnes. However, a strike by workers at sugar mills in mid-November may reduce the sugar output and slow the crushing campaign for the new crop. Damage and flooding due to Hurricane Stan in October 2005 reduced sugarcane yields and delayed the harvest, reducing 2005/2006 output. More favourable weather and growing conditions have resulted in an estimated near record crop in 2006/07, despite reduced planted area in 2005. Current debate between government and sugar producers hinges on the mechanism that should be used to establish reference prices paid at the farmgate. Suggestions have been made to modify the reference price to reflect internal prices of the North American Free Trade Agreement (NAFTA) partners, particularly in view of the planned liberalization of all sugar and sweetener trade among NAFTA members in 2008. The new Congress in Mexico has also planned to eliminate the 20 percent tax on beverages made with high-fructose maize syrup (HFCS) in January 2007, following the WTO ruling against the appeal by Mexico to maintain the tax.
Sugar production in Guatemala is forecast to reach 2.2 million tonnes in 2006/2007, a modest increase over the reduced 2005/2006 crop attributable to an expansion in cane areas. Cane yields, at slightly more than 85 tonnes per hectare, are largely similar to 2005 when Hurricane Stan damaged Pacific coast growing areas. More favourable weather patterns contributed to a slight increase in 2006/2007 sugar output in Cuba, currently estimated at 1.4 million tonnes, after the very low 2005/2006 production. Government plans to downsize the industry further had been reversed in light of higher world prices and increased global demand for ethanol. The upcoming harvest will utilize some 80 percent of the currently available milling capacity.
Output from developing countries in Africa is expected to increase slightly to 10.6 million tonnes in 2006/2007, reflecting an expansion in Egypt, Kenya, Mauritius, Mozambique and the Sudan. Egypt continues to invest in the sugarbeet sector and plans to open five new processing facilities, with the first of these to become operational in early 2007. Expectations are that sugar production in the Islamic Republic of Iran may increase marginally in 2007, with plans to nearly double sugar output by 2013. Recent investments in sugar export facilities in Mozambique have contributed to the rapid growth of the sugar sector, with output increasing from some 40 000 tonnes in the late 1990s to nearly 300 000 tonnes in 2006/2007.
Sugar output in the Far East Asiafor 2006/2007 shows the most significant increase, 15.1 percent, over 2005/2006 amongst all regions. Production is estimated at 52.7 million tonnes, up 6.9 million tonnes, as producers responded to high sugar prices and growing demand for ethanol. Output increased in all major producing countries, particularly China, India, Indonesia, Pakistan and Thailand. Output in India may reach a new record, 24 million tonnes, reflecting expanded area planted to sugarcane, in response to higher domestic prices, and favourable weather patterns that raised sugar content, particularly in southern and central India. Reports indicate that several sugar industry groups are expanding milling capacity.
Production in China for 2006/2007 is estimated to be at 11.3 million tonnes, up 15 percent over 2005. Higher domestic prices stimulated large planting to sugarcane and sugarbeet, while favourable weather after two years of drought contributed to higher sugar yields. Reports indicate that the Government had released more than 1.2 million tonnes of sugar from reserve stocks by the end of September 2006, in order to contain domestic price rises. HFCS continue to make inroads as a more economic substitute for sugar in food processing and beverages, with year-on-year production growth continuing to be around 20 percent. The production and use of high-intensity sweeteners (HIS), particularly saccharine, has increased in response to high sugar prices, despite the ongoing policy to reduce the use of HIS in the food processing and beverage sector.
Some area formerly planted to rice and cassava in Thailand has been replaced with sugarcane in 2006, with current sugar output estimated at 6.9 million tonnes, a 30 percent increase year-on-year. Production in Indonesia is estimated at 2.5 million tonnes, up 200 000 from 2005/2006, in line with Government policy to achieve self-sufficiency in sugar output by 2009. Increased output is also reported for the Philippines, which may result in an exportable surplus in 2007.
Sugar production in developed countries is expected to decrease by 9.1 percent in 2006/2007, down to 39.1 million tonnes. Output in the European Union for 2006/2007 is estimated to have fallen by 23 percent, from 21.4 million tonnes in 2005/2006 to 16.5 million tonnes in 2006/2007, reflecting the adjustment process begun in July 2006, under the European Union sugar policy reform. The decline in overall European sugar production, however, has been somewhat offset by a better than expected output in the Russian Federation and in Eastern European countries. In the Russian Federation, where the sugar industry continues to expand sugarbeet production and renovate and improve beet processing facilities, sugar output is estimated to have risen to 3.1 million tonnes, up 15 percent over 2005, in response to high world prices. As a result, raw sugar imports were down 60 percent during the first half of 2006.
Recovery in cane growing areas of the United States is expected to lift sugar output by 14 percent to 7.6 million tonnes, largely attributable to a rebound in Louisiana and Florida, where hurricane damage in 2005 reduced the 2005/2006 crop. Better than anticipated beet sugar output has also contributed to the increase. Production prospects in South Africa have been reduced to 2.4 million tonnes due to dry weather after normal rainfall in 2005 provided a respite to dry conditions in past crop years. Estimated output for 2006/2007 in Australia has been reduced to 4.9 million tonnes, following some damage by Cyclone Larry, in March, and heavy rains during harvest in Queensland, one of the largest sugar producing areas, which reduced overall sugar extraction rates.
Table 7. World production and consumption of sugar
|2005/06 estim.||2006/07 f’cast||2005/06 estim.||2006/07 f’cast|
|million tonnes, raw value|
|Latin America and the Caribbean||48.6||51.4||27.5||27.8|
|Far East Asia||45.8||52.7||53.8||54.9|
|Europe, of which:||27.4||23.0||29.5||29.6|
|CIS in Europe||5.3||5.8||9.4||9.4|
Asia continues to drive growth in world sugar consumption
The FAO forecast of world sugar consumption 2006/07 is 152.1 million tonnes, a 1.5 percent growth from 149.9 million tonnes in 2005/2006, and well below the ten year average annual growth of 2.4 percent. Sugar consumption in developing countries is forecast at 104.3 million tonnes, with growth at 1.8 percent. This rate is substantially lower than past year averages, reflecting the adverse effects of higher global sugar prices on net importing countries, particularly in Africa and Asia, as well as the increased use of alternative starch-based or high-intensity sweeteners in some major consuming countries, such as China and Mexico. However, economic growth continues to drive consumption increases in developing countries, particularly in India and in the Far East Asia. For developed countries, per capita consumption continues to decline, similar to the past decade reflecting health concerns and mature sugar and sweetener markets. Overall consumption in developed countries is expected to grow at less than one percent and total 47.9 million tonnes in 2006/2007.
Regionally, utilization is forecast at 27.8 million tonnes in Latin America and the Caribbean in 2006/2007, slightly more than one percent over 2005/2006. The increase is mostly led by Brazil, where consumption is set to rise to 11.3 million tonnes, sustained by population growth and expanded use of sugar in food processing. In Mexico, consumption is forecast at 5.6 million tonnes. Sugar is likely to account for only a marginal proportion of growth in domestic sweetener consumption, which is expected to be met by HFCS, particularly given the elimination in January 2007 of a consumption tax on beverages made with HFCS.
Developing countries in the Far East Asia are forecast to account for 54.9 million tonnes of global sugar consumption in 2006/2007, a 2.1 percent increase over the previous year, which compares with an average growth of 3.4 percent in the past ten years. In China, sugar consumption is expected to increase only marginally, to 12.9 million tonnes, as the utilization of artificial and high-intensity sweeteners in food and beverage processing continues to be more cost-effective than cane and beet sugar. Sales of saccharine are significantly higher than government controlled targets, while starch-based sweetener (HFCS) is increasingly replacing sugar, where feasible, in industrial applications, limited only by available refining capacity and availability of maize for feedstock use.
In India, increased incomes and government actions to contain domestic price increases are expected to help achieve consumption of nearly 21 million tonnes in 2006/2007. Domestic sugar prices reached record highs in May 2006, restraining consumption growth and prompting the Government to invoke the Essentials Commodity Act to control hoarding, ban exports and allow duty-free imports of sugar. Consumption is expected to increase to 11.9 million tonnes in the Near East, up 240 000 tonnes, slightly more than 2 percent. In Africa, it may reach 9.5 million tonnes in 2006/2007, a marginal increase over 2005/2006. Population growth in both regions remains the key driver of sugar consumption.
Sugar utilization is likely to remain mostly stable in developed countries, with an expected 350 000 tonne increase year-on-year, or 0.8 percent, to reach 47.9 million tonnes. No substantial change is forecast in the European Union where sugar utlization is currently at 17.8 million tonnes. Slightly stronger growth should occur in North America, where consumption is expected to reach 10.7 million tonnes, mostly sustained by population growth in the United States. Only a slight increase in consumption to 6.6 million tonnes is foreseen in the Russian Federation, driven by increased use of sugar by large industrial food processors.
|GIEWS||global information and early warning system on food and agriculture|