Against the backdrop of rising consumption, doubts begin to appear as to whether the global industry can supply the additional 20 million tonnes sugar by 2020. What is clear at the outset is that Brazil is unlikely to figure in contributing to the rise in demand.
Brazilian sugar industry, riven with indebtedness, with 47 mills closed and some 67 under bankruptcy protection, has been bereft of green-field investment over the past few years. Many industry insiders could not have seen the twist in recent years that has fallen on the mighty sugar industry. It was given that the industry would continue to grow strongly – it was the only country that could address the rise in global demand. The announcement by the Energy Ministry in 2014 that cane production could reach 897 mln tonnes by 2023 was simply fanciful.
So the immediate question is, where is the additional supply going to come from? In a thoughtful presentation by Sergey Gudonishkov at the Int Sugar Org conference in November 2012, he suggested that variety of greenfield projects in the world (apart from Thailand and Brazil) could contribute 4.7 mln tonnes by 2020, while Brazil and Thailand could add 9.4 mln and 1.9 mln tonnes, respectively, while 5.5 mln t would come from expansion in capacity and efficiency gains. Removing the now unlikely 9.4 mln t from Brazil, if the sugar factories operated at their maximum capacity, only additional 10.5 mln tonnes would be required – a modest and achievable target. It has to be stressed though, that as with building new factories, significant investment is required too for expanding capacity and “efficiency gains” through both technology upgrade and personnel development.
To some extent, analysis done by FO Licht supports the view trailed by Gudoshnikov. FO Licht notes that the global beet and cane processing capacity (including 0.4 bln tonnes for ethanol) is 2.4 bln tonnes – with the share for Americas, Asia/Pacific, Europe and Africa being 1.09 bln, 0.96 bln, 0.22 bln and 0.12 bln tonnes, respectively. At average extraction rates for the respective regions, this amounts to sugar production capacity of 28 mln tonnes for Europe, 68 mln tonnes for Americas, 105 mln tonnes for Asia/Pacific and 12 mln tonnes for Africa, giving a total of 210 mln tonnes.
It is apparent that the theoretical potential will remain just that, as vagaries of climate has significant impact on supply of beet and cane. In 2010, some 10 million tonnes of sugar were taken out of production due to drought, flooding and frost in various sugar industries. Last year, in the main cane growing region in Brazil, the Center-South, had 40% less rainfall than the seasonal average.
Over the period July 2013 – August 2014, research by ISJ1 in the global press noted 52 investment projects in the sugar industry, of which only four focused on expanding factory capacity. Should most of the projects, mostly in Africa, are completed on schedule, than there is a fairly good chance that supply will keep pace with growing demand.
1 Anon (2014) New build projects in the global sugar sector over July 2013 to August 2014. Int Sugar Journal, 116 (1389): 692-696