Features International Sugar Journal

Uncertainties and collective approach

By the time this editorial is published, Brazil will have a newly elected President in charge. As the number one exporter on international sugar markets and given the commitments taken by both candidates to control domestic energy prices – including gasoline prices at the pump – there is very little doubt that Brazilian mills will favour sugar production, therefore, boosting the sugar/ethanol allocation ratio. Although several analysts are anticipating a 45 (sugar)/ 55 (ethanol) ratio – resulting in about 38 million tonnes (Mt) of sugar being produced – for the upcoming 2023/2024 campaign (April/March basis), uncertainties remain and have the potential to be a game changer: a 1% error on the allocation ratio translating to 0.8 Mt of additional/reduced sugar availabilities.

Given a world sugar surplus of 3 Mt, a 4% reduction in the Brazilian campaign allocation ratio would shift the world sugar surplus into a deficit.

Meanwhile, and above market fundamentals, the most anticipated – yet uncertain – effect of the Brazilian elections will surely be on the BRL/USD exchange rate. In this regard and to illustrate the massive impact of this variable, one should keep in mind that this is precisely the BRL/USD exchange rate which:

  • largely prevented world sugar prices – expressed in USD – from climbing further up, given the historical low stock-to-consumption ratio witnessed by the end of 2021/22 (Oct/Sep basis),
  • brought current world sugar prices to a historical high over the past decade when expressed in BRL.

Source: WABCG

But in addition to markets’ uncertainties and their direct impact on the profitability of sugar-related activities, a growing number of companies worldwide are incorporating in their “economic equation” new environmental variables – such as carbon footprint or biodiversity issues – which consumers and citizens increasingly regard from around the world.

In other words, staying profitable and ahead of competitors not only requires correctly anticipating market fluctuations but also understanding and anticipating how direct (as well as indirect) environmental and climate change regulations (will) affect the different actors positioned along the entire sugarcane and sugar beet value chains.

In this regard, developing collective approaches and initiatives on cross-cutting environmental issues is an important challenge ahead for companies. Especially for countries where a significant proportion of the raw material processed by mills is delivered by independent sugarcane and sugar beet planters.

On a more personal note, this new economic equation also affected our research activity at ARTB1. In addition to our historical macroeconomic and microeconomic expertise on sugar beet-and-sugarcane-related topics, the choice was made to develop new skills and expertise on cross-cutting issues such as carbon, agricultural risk management and sustainability. This has already resulted in new collaborations and partnerships being created.

Eventually, I personally believe that in an unpredictable and fast-moving world like ours, fortune will ultimately favour those who can develop collective value-chain approaches backed by a robust contractual model where, in addition to prices, improved agricultural practices are a source of additional value. On a mid-to-long-term perspective, a business is much more sustainable and successful if a significant number of actors can get a share of the (economic and environmental) benefits.

As we enter the World Cup, my bet is that the winner will likely be the team that can play and act collectively…not the team with the most individual talents! When it comes to operating in a global market, replete with volatility on various fronts, having a house in order offers some semblance of cushion.

 

Alexis Patry, Director, ARTB

Endnote

 

1 The ARTB is a French research organization focused on « beet-cane-sugar-energy » economic impacts and cross-cutting agricultural issues such as carbon or risk management tools. For more details, visit www.artb-france.com