Coronavirus-related lockdowns have invariably dislocated normality which is increasingly becoming a distant memory. Oil prices have fallen by over half in the recent past and global demand plummeting from lockdown restrictions on movement. Sugar sector has not escaped its throes. Brazilian millers are ramping up sugar production at the expense of biofuel ethanol whose sales in the top fuel consuming central-south region dropped 20% in the second half of March, according to the sugar industry group Unica. Hydrous ethanol prices are down by 31% this year in Sao Paulo state. According to the Cepea/Esalq research centre, price for a litre has fallen from BRL2.04 to BRL1.39. With the Brazilian real sliding to all-time low (over BRL5 to US$1) sugar production has received additional push. Not surprisingly, therefore, the market has turned bearish with sugar price falling on 15th April to US¢10.01/lb having earlier hit its lowest since September 2018 at 9.96 cents. According to the broker Marex Spectron, the 2020/21 Brazilian sugar output is expected to increase by some 7 million tonnes to 33.8 million from 26.7 million in the previous season.
Brazilian ethanol prices plunge
Source: University of Sao Paulo research centre Cepea/Esalq
Meanwhile, consumers are having to pay a high price for sugar in the supermarkets. This is informed largely by supply chain disruptions and opportunistic pricing (or to put it bluntly, cashing in on panic buying). In the former case ports are not operating as effectively from lockdown measures as shipment from and to ports have been hampered. Bloomberg reported on 14th April that “in the Philippines, officials at a port that’s a key entry point for rice said last week the terminal was at risk of shutting as thousands of shipping containers pile up because lockdown measures are making them harder to clear. Meanwhile, curfews in Guatemala and Honduras, known for their specialty coffees, are limiting operating hours at ports and slowing shipments. And in parts of Africa, which is heavily dependent on food imports, there aren’t enough workers showing up to help unload cargoes.” While shipments from Brazil, the top sugar exporter “are now running at a normal pace amid a joint effort between the government and companies to keep shipping flowing,” this is academic if there are hiccups with the reception at the receiving end. Added to this is the closing of borders by many countries. In Africa for example, Burkina Faso, Cameroon, Ivory Coast, Ethiopia, Gambia, Mali, Niger, Uganda, Rwanda, Sudan (to name few) have done so. Net imports in Africa in the sugar sector are worth US$ 4.1 billion.
Press reports from emerging and developing economies highlight price increases for a range of basic foodstuffs including sugar. What follows is a snapshot of this development. It is not exhaustive but hopefully is reflective of travails encountered by ordinary people. Suffice to say that while the extent of opportunistic pricing is not that obvious in developed economies it is worth stressing that a subtle form of this operates. At one of the well-known supermarkets I frequent, until mid-March, you used to get a voucher giving you £5 off when your shopping was £35 or over. Needless to say, this initiative was a competitive measure for repeat business. When the Covid-19 lockdown got entrenched the supermarket stopped issuing such vouchers at the check-out.
Following the COVID-19 outbreak, the price of sugar has jumped sharply above the highest retail price (HET), which has been set at IDR12,500 (US¢80) per kilogram. As of April 6, the average price of granulated sugar in Jakarta was IDR 18,900 per kg.
In the city of N’zérékoré, “citizens are dragging their heels by the tail because of the increase in prices of everyday consumer products”, reports the correspondent of Guineematin.com based in the prefecture. At the central market of N’zérékoré, the price per kilogram of sugar has gone up from GNF7,000 (US¢73) to GNF8,500 (US¢89).
On 13th April, the price of sugar shot up by TZS1,700 (US¢73)/kg in the capital city’s retail market to TZS3,400-3,500. Majaliwa Luhende, a trader at Kikuyu in Dodoma told ‘Daily News’ that “customers coming to buy sugar have been turning away immediately after learning the new price. We have no choice so do they,” he said.
Reuters reports that with a tiny industrial sector and scant natural resources, Lebanon’s economy produces few goods. Fahed, who owns a major supermarket chain, said prices for most goods have risen 45-50%, with some already running out. “I work on wheat, flour, rice and sugar, and nobody is selling anything,” said Paul Mansour, owner of Crown Mills. “Whatever is already booked, there’s a delay. For any new business, there’s nothing in the market.”
Prices for staple foods spiked across Russia in March, the latest figures from national statistics office Rosstat showed as people rushed to stockpile. Sugar prices rose by at least 16% in 23 Russian regions.
Local press reports say that many traders are taking advantage of Coronavirus pandemic. “They raise prices and have as a pretext: “the borders are closed”. The price of a kilo of sugar has gone up recently from XOF500 (US¢83) to XOF550 (US¢92).
Price per kilo of sugar in large shops recently increased by XAF100 (US¢17) to XAF700 (US$1.16). “It is not our fault that product prices have gone up. The borders have been closed for a few weeks, our suppliers no longer deliver the goods to us at the usual price. Given the current economic situation, we are also obliged to increase 100 francs or 200 francs on certain products such as a litre of red oil, the kilogram of sugar, flour and milk… ”, says a trader
The government fixed price for 50 kg bag of sugar is XAF28,000 (US$46.47). In stores, the price has been marked up by 12.5% to XAF32,000.
Complicated by the forecasted drop in sugar output by 17.4% compared to the same period last year and its price has risen 8.4% in the last ten days in the wholesale markets. The retail price of sugar has risen to 18.7% compared to the same dates in 2019.
In the Zapata Market, Puebla, sugar price for a kilo has increased by 3 pesos (US¢12) to 22 pesos. “They use Covid-19 to increase prices in Puebla,” said the deputy mayor.
The government, through ministerial agreement, has agreed to freeze prices of 50 basic products (which includes sugar) in the current pandemic. But despite this, for example, in San Pedro Sula “prices have gone to heaven”. One vendor Saydi Castro said “I already have little sugar. I think that by tomorrow [15th April] I would have sold what I have. People are buying lots and everything is going fast.”
In the emerging and developing economies, median household income is significantly lower than their counterparts in the developed economies. Add to this stress of livelihoods of many impacted through loss of jobs overnight by the Covid-19 restrictions, squeezing household income. Followed by a combination of opportunistic pricing and reduced supply has certainly added to the woes of ordinary folks in these countries. The conventional wisdom amongst analysts is that global consumption of sugar is expected to decline but this is simply speculative – no hard data yet. In its latest quarterly report. Rabobank suggests that the coronavirus crisis will have “no major impact on 2019/20 global sugar consumption but a small erosion in countries severely hit by the virus, resulting in flat demand globally, instead of 1% growth”. Certainly, the impact of increased prices and reduced household income will have a rationalising effect on purchasing. But the new normal has invited panic buying which has supported inflated prices.
Paradoxically, therefore, while the global sugar price is falling and has fallen recently, this is not translating into reduced prices for customers as supply chain disruptions add to relative access to the sweetener compounded by opportunistic pricing. While some countries have sought to safeguard price increases through government intervention (e.g. Honduras) there does not appear to be evidence of enforcement to curtail market forces at play.
So, the anecdotal evidence suggests that any drop in consumption is more likely be due to direct access to the commodity than customers choosing to reduce consumption.