There is a widespread consensus among traders and analysts that the sugar market has finally swung to a supply deficit after five years of surpluses. The 2015/16 (October to September) deficit forecast varies amongst traders and analysts – FO Licht projects the deficit at 5.2 million tonnes (mlt) while Czarnikow puts it at 8.2 mlt. At the end of 2015, raw sugar prices closed at 15.24 cents/lb, recovering by some 50% from the low of 10.13 cents on 24 August ’15. Effectively, the sugar market in 2015 ended where it started. While the supply-demand balance has the sway over prices, the contributory factors impacting the balance are certainly worth noting. These include, weather, policy measures (to include national and regional that support trade barriers, quotas, subsidies, soft loans) speculation, currency movement, rising population, urbanization and changing taste. Of these, the emerging issue, that is spreading globally, and which may impact demand is the widespread demonization of sugar.
Type sugar in the Google search engine and click on the news, and you will see preponderance number of stories on sugar, health and taxes. In the UK recently, the Chief Executive of National Health Service was reported as proposing a 20% tax on all sugary drinks and foods in NHS cafes to be introduced by 2020. UK’s Prime Minister, it appears, has been cajoled into reviewing his firm opposition to introducing tax on sugary drinks. In the USA, in addition to federal government urging dietary intake of sugar limited to 10%, the call for warning labels about weight gain, disease and tooth decay on sugar-sweetened beverages, will invariably impact demand. Courteny Gaine (from the Sugar Association) speaking at the American Sugar Alliance symposium in August last year pointed out, that while most stories demonizing sugar were born from misuse of science, the fact was, the badgered consumer was swayed into making a purchase based on emotional response, rather than the fine points of arguments from both sides. This is something rather difficult to address. Reuters1 recently reported that the dietary guideline amounted to reduction in sugar intake by 20%. This translates into a reduction in demand by 3.8 million tonnes of both sugar and high fructose corn syrup in the US alone considering that food and beverage manufactures process 19 million tonnes of both sweeteners (according to USDA data).
Against this backdrop, analysis by Euromonitor, reported by Food Business News in December2 suggested that sugar health debate is not concentrating the minds of consumers in emerging economies in Asia Pacific, the Middle East and Africa, where “per capita consumption growth rates [are around] 5% for biscuits, cake, chocolate confectionery and pastries.” Admittedly, compared with economies in the West, per capita consumption of sugar is fairly low in emerging economies. Whereas the average consumer in 2014 in USA, Netherlands and Germany purchased around 127,105, 105 g sugar/day, respectively, that in India and China purchased 5 g and 18 g sugar/day. As for reduced sugar products, Euromonitor analysis suggested that when it comes to retail sales, they are “relatively insignificant”. The analyst found in more than half the countries studied, packaged food promoted for reduced sugar represented around 1% of total packaged foods sales in 2014 while soft drinks boasting reduced sugar accounted for less than 10% of the market share.
Nonetheless, the onslaught on sugar is spreading in emerging economies too. Recent press reports notes calls for “sin tax” in India and 20% sugar tax in South Africa. Only time will tell whether consumers will get badgered in these economies like the ones in the West. In the UK, not only during prime time tv, a government backed advert on reducing sugar intake punctuates ad breaks.
Conventional wisdom amongst sugar economists and analysts has been that demand will increase to 200 million tonnes by 2020. Wonder if they still think that!!
1 New U.S. diet rules would take 20 percent bite out of American sugar use (7 January 2016) http://www.reuters.com/article/us-usa-healthcare-guidelines-sugar-idUSKBN0UL2Q920160108
2 Sugar reduction is not a global trend (21 December 2015)http://www.foodbusinessnews.net/articles/news_home/Consumer_Trends/2015/12/Sugar_reduction_is_not_a_globa.aspx?ID=%7B670F4E72-0D02-458A-821A-55B794E23662%7D&cck=1