HEALTH
CONCERNS HAVE SEEN FOOD AND DRINK MAKERS CUT THE SUGAR CONTENT OF THEIR PRODUCTS.
In the short term, the Indian government is going to introduce the building of a ‘buffer stock’ and, possibly, a minimum price at which mills can sell their sugar. In Thailand more sugar might be diverted to ethanol production. This is somewhat window dressing as the bulk of the sugar will still exist. What is needed is a significant drop in global production in 2019/20. Will this happen enough to eat up the surplus of two years?
In the EU, production looks set to fall as most long term contracts between the farmers and processors will end or be able to be renegotiated at the end of this season, which will result in farmers being paid a lot less for their beet in 2019/20. Brazil will continue to divert more cane to ethanol production while it pays better but can up sugar production very quickly if it becomes profitable. Production in India and Thailand should fall, assuming no significant government intervention/incentives/inducements are made. However, if introduced measures mean that cane production continues to pay better than other crops, then output may not fall meaningfully. Therefore, a large drop in global production is likely but not a given.
The other side of the supply/demand equation is consumption. Health concerns have seen food and drink makers cut the sugar content of their products. So, while the world is seeing record sugar production, consumption is growing much slower than in the past. After a slow fight-back by the sugar industry, they now seem to be getting their message across that it is not just sugar consumption which is the problem but its combination with fats and salt. Other innovative approaches are being made. A couple of companies are involved in producing raw low GI (Glycaemic index) sugar which is seen as healthier. It is also advantageous as it can be easily substituted for white sugar in many industrial recipes. It could be that this type of sugar might become mainstream before too long.
In a past article we emphasised that only a severe weather problem is likely to have a substantial impact on sugar production. Despite current low prices this probably still holds true. Assuming a surplus in 2019/20 the market will have only seen two deficit seasons in the past 10, both caused by failed Asian monsoons.
In summary, the storm that has hit the sugar market over the past 18 months is very slow moving and it is likely to be some time before the sun appears again.
Howard Jenkins E:
howard.jenkins@
admisi.com T: +44(0) 20 7716 8598
19 | ADMISI - The Ghost In The Machine | May/June 2018
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