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Demand surge to keep sugar prices high for years

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World sugar prices are set to remain at elevated levels for years, to ensure producing countries – and notably Brazil – ramp up output to meet demand growth of more than 50% over the next two decades, Czarnikow said in a report.

The briefing did not name a figure for sugar prices. However, Czarnikow head of analysis Toby Cohen told Agrimoney.com a figure of 22 cents a pound may be necessary to ensure sufficient supplies

The group forecast that world sugar consumption will rise to 257m tonnes in 2030, boosted by growth in China and India, where rising wealth and population growth will foster doubling in demand.

"Asia will become the largest sugar-consuming region, reflecting the rising economic status of India and China," Cazarnikow said in a report published to coincide with the annual sugar industry gathering in London.

China, where urbanisation would give sugar demand an extra spurt, taking the country's consumption above the European Union's by 2014, was "clearly set to demonstrate significant demand growth".

'Increasing pressure'

However, prospects for production growth were more uncertain, with land in many large producing countries, such as India and Thailand in short supply.

In China, cane area "will come under increasing pressure" from rice which, as a staple food, is "likely to take priority. The US, there are plans to reincorporate some cane land in Florida into the Everglades national park.

This leaves Brazil, which has a "comparatively unconstrained" ability to expand cane area, as likely to increase further its dominance over world production, of which it currently provides 23%, and exports, of which it is responsible for about 60%.

Importers and consumers are set "to become ever more dependent upon Brazilian supply", the briefing said.

"However, as with any investment, it will have to be paid for by higher returns and, as the market evolves, we believe sugar consumers will need to adjust to higher prices."

Mr Cohen said separately that 22 cents a pound may be needed "to ensure continued interest in expanding production", a figure lower than current benchmarket futures prices in New York, but twice levels that have prevailed for most of the last 25 years.

Handling needs

Brazilian investment will be needed in infrastructure as well as directly in sugar production, Czarnikow added, stressing the country's logistical bottlenecks, which were evident in a struggle this year to keep up with demand.

"Brazil's rail network is currently 10% of the size of the US network, despite a similar land mass, and this will need to expand if Brazil is to realise its potential."

The report also highlighted the potential for the European Union and Russia to return to sugar exports.

By Agrimoney.com

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