A global sugar surplus for the second year in a row is set to drive raw sugar prices to record low levels. At the beginning of 2017, sugar prices hit 21 cents per pound, but have fallen consistently since then to current prices, which are below 12 cents a pound. Bumper harvests from Thailand and India are expected to drive further decreases, possibly leading to single digit prices for the natural sweetener.
There are several reasons for the sharp decline in prices. One is the change in global consumer tastes. People are becoming increasingly aware and averse to refined sugar in their diet, either switching to artificial sweeteners or staying away from sweetened food altogether. The UK recently imposed a tax on sugary drinks, which imposed an 18p per litre levy on beverages which had more than 5g of sugar per 100ml, and 24p on drinks which had more than 8g per 100ml. Some producers changed their recipes to avoid having to pay the tax, cutting sugar content. Lucozade, Irn Bru, and Ribena all cut the sugar content of their products to below the 5g level, while Coca-Cola and Pepsi, with 10.6g and 11g of sugar per 100ml respectively, maintained their high sugar content recipes.
Another aspect of the fall in sugar prices is the recent high output. There is enough surplus sugar stored to bake three chocolate cakes for everyone in the world. Harvests in India and Thailand, which is only behind Brazil as the world’s largest sugar exporter, are at record levels. However, drought in Brazil has meant that April had excellent conditions for harvesting the crop leading to a year-on-year 35% production increase for the month. However, this drought will hit long-term production levels, and even if the expected rains will help mitigate the damage done to annual yields, Brazilian output is forecasted to be considerably down on normal levels.
US Farm Bill
There is a big push in the US for protections covering sugar growers to be removed from the Farm Bill. This bill comes up for a vote twice a decade, and gives out subsidies to farmers in America. Ostensibly, this supports nutrition programs for the poor, in a compromise between urban consumers and rural producers. US sugar prices never fall below 20 cents a pound, though this could change if protections are removed.
More on Commodities
Freezing Over? – The Future of UK-Russian Relations
Anglo-Russian relations have recently become frosty with the poisoning of the Skripals putting the two governments at loggerheads. Will...
Smart Contracts Will Disrupt the Derivatives Market
The derivatives market is one of the largest in the global finance world. Virtually every asset type can be traded...
From Oil to Soya: China’s Commodities Consumption Rockets
As Xi Jinping starts his second five-year term, China shows no sign of slowing demand for the world’s raw materials. Economic...