Marcos Fava Neves
The Future of Food Business

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10 Questions for the Future of Sugar Business

Viewed 1640 times 2013-8-26 13:04 |System category:News| Business, Sugar

Sugar is worldwide recognized as the basic source of energy for metabolism and the food and drink industry depends on sugar. This article has the objective of discussing the major numbers and sharing my major questions about the future of this chain.

The consumption grows (according to ISO - International Sugar Organization and other sources) around 2-2,4% per year. It came from around 143 million ton (m.t.) consumed in 2005/06 to 171 m.t. in 2012/13. The largest sugar consumers are India (23 m.t.), EU (19), China (15), Brazil (13), the USA (10), Russian Federation (5,8), Indonesia (5,2), Pakistan (4,7), Mexico (4,5) and Egypt (2,9).

As average consumption can grow up to 4 m.t./year, expanding the market in about US$ 1,6 billion (considering a price of US$ 400/t.). Projections with this growth pattern may take sugar consumption to 204 m.t. in 2021, being 131 m.t. locally produced and consumed and 73 m.t. traded, expanding export market in 15 m.t. when compared to 2013. Sugar import market in 2021 can be US$ 60 billion bigger following current patterns.

At the production side, because of its importance, almost all countries produce sugar, either out of sugarcane, sugar beet or other sources. World’s sugar production grew from 145 m.t. in 2005 to 175 m.t. in 2012. Largest producers are Brazil (39 m.t.), India (25), European Union (17), China (13), Thailand (10), the USA (8), Mexico (6,5), Russia (4) and Australia (4). Brazil had the largest growth since 2005, with 40% (from 27 m.t. to around 39 m.t.) while other countries growth was around 16%. This made Brazil increaseproduction share from 19 to 22%. Production will grow and is estimated to be around 206 m.t. in 2021.

In share of total 58 m.t. of sugar traded in 2012/13, Brazil had 50%, followed by Thailand (16%), Australia (5%), India (4%), EU (4%) and several other countries with the remaining 21%. Brazilian exports jumped from 17 m.t. to 28 m.t.in the last 7 years, an almost 60% growth, while other countries exports declined almost 6%

The biggest sugar importers in 2011 were the USA (2,7 m.t.), Russia (2,4), Indonesia (2,2), India (1,9), China (1,9), Iran (1,8), Malaysia (1,4) Algeria, Korea and Bangladesh (1,2 each).

Current stocks of sugar are high due to three years of production exceeding demand and the prices in 2013 are around 16-17 cents/liber, the lowest level in the last years. This higher production is a reaction to good prices in 2009-2011. Current pricesmight disincentive production and stock may be used in the next two or three crops, bringing a new balance. 

If a near future of the sugar chain is relatively predictable, what to expect for the next ten years?After this snapshot about the sugar market, the second part explores my 10 big questions that may shape and even change the future of this market:

1)     Asian countries are responsible for 60% of the consumption growth. Per-capita consumption of sugar in China and India, and also other populated countries of Asia and Africa are lower when compared with the USA, Europe and Brazil. Income growth/urbanization that pulls the market of soft drinks, chocolate and confectionary, juices and several other products that use sugar may bring huge impact in these figures. Just picking one example, China’s per-capita consumption is 40% of world’s average and a 5kg/person change in China creates a market of 7 m.t. Will per-capita consumption in these countries grow at a faster rate, changing the average 2,4% annual growth in consumption?

2)     India was responsible for the major sugar price volatility, due to its production variation and also high consumption. With the land pressure and need to produce more grains for its consumer demands, will India have capacity to expand sugar production to meet its demand or will India focus more in other crops for its growing population, consolidating as a net sugar importer?

3)     Some sugar producing countries are adopting mandates to blend ethanol to gasoline. India may start a 5% blend in 2013 and other countries as Thailand, European Union, Australia, Mexico, Brazil have or are discussing mandates. How will these affect sugar production, since they will create an ethanol market that competes for sugar cane and sugar beet?

4)     With current sugar prices, production is not economically feasible in some areas and for some industrial groups. Which industries (oil companies, trading companies, food industry…) and countries will be able to consolidate and lead sugar expansion in a total low cost basis (production + logistics) taking advantage of the growth of import markets?

5)     Which new plants or production technologies might arise that can give a breakthrough in this relatively old and traditional sugar industry?

6)     Although cane has lower production costs than sugar beet and other sources, will substitute products as sweeteners with its own price and cost structure and other sugar sources takemarket share of cane?

7)     The EU has a highly subsidized sugar beet production. What will happen in the coming years with the reform of the Common Agricultural Policy and how this will affect EU production and consumption balance?

8)     Brazil is the largest player in this market. Around 40 to 60% of Brazilian cane goes to ethanol, consumed mostly in internal market for the growing flex fuel car fleet. Will ethanol be competitive towards gasoline to divert more cane to ethanol in the future removing sugar from international market?

9)     How climate changes and general weather conditions will impact production capacities of different regions?

10) Since corn and sugar produces ethanol, there is a growing relationship in these prices, so how future corn prices may affect sugar prices and consumption?In the same way, oil/gasoline competes directly with ethanol as fuel. And ethanol is also directly linked to sugar. How will oil prices affect sugar prices and consumption?

These are the big questions about the future of the sugar business that I wanted to share with China Daily readers. A starting point is trying to answer them, but it won’t be easy!

(Opinions of the writer in this blog don't represent those of China Daily.)


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MarcosF.Neves

Professor of strategic planning and food chains at the School of Economics and Business, University of Sao Paulo, Brazil (www.favaneves.org) and international speaker. Author of 25 books published in 8 countries and in China, “The World on the Tongue”.

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