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Max Foster
The world sugar indicator price (International Commodities Exchange, no. 11 spot, fob Caribbean) is forecast to average US12.9 cents a pound in 2009-10 (October to September), compared with US13.8 cents a pound in 2008-09. This easing in world sugar prices reflects that world production and consumption of sugar is forecast to return to surplus in 2009-10, after the large sugar production shortfall in 2008-09.
World production of sugar is forecast to be 167.5 million tonnes in 2009-10, nearly 8 million tonnes higher than in 2008-09. Increases in production are forecast for most major producing countries, but the increases are likely to be particularly large in Brazil and India.
The level of sugar production in Brazil depends on the extent to which cane production is diverted to ethanol production. Brazilian cane production is forecast to increase by a further 8 per cent in 2009-10.
Brazilian sugar production in 2009-10 is forecast to increase by 10 per cent, to a record 42.7 million tonnes. This forecast increase in sugar production also reflects that the proportion of sugar cane used for sugar production is expected to rise to 42 per cent in 2009-10, the first increase since 2002-03. Lower world oil prices have been causing weaker demand for Brazilian ethanol, both domestically and in export markets. In Brazil, there has been a rapidly growing fleet of flexifuel cars that can run on any mix between ethanol and petrol, leading to an increased substitution between ethanol and petrol. As well, the global economic downturn has caused a marked slowdown in new investments in ethanol production capacity in Brazil.
An increase in Indian sugar production to 23 million tonnes is forecast for 2009-10, as land is returned to sugar production because of high domestic sugar prices and the expectation of lower returns for alternative land uses (mainly cereals and pulses). India has shifted from being a subsidiser of its sugar exports in 2007-08, to being a large importer of sugar in 2008-09 and is expected to continue importing sugar in 2009-10, albeit at a lower volume than the previous year.
Reform of sugar arrangements in the European Union under the Common Agricultural Policy is now largely complete. EU sugar production is forecast to decline only slightly in 2009-10, following the large declines in each of the previous three years. With the decline in domestic production, the European Union has shifted to being a substantial net importer of sugar since 2006-07.
World consumption of sugar is forecast to grow by 1.3 per cent in 2009-10, a slightly faster rate than in 2008-09, because of expected increased sugar demand as a result of a recovery in the world economy.
World sugar exports are forecast to be 49 million tonnes in 2009-10, down from the record 50.1 million tonnes in 2008-09. The current high level of world sugar trade reflects the domestic production shortfall in India in 2008-09 and increasing dependence by the European Union on sugar imports. The increases in import requirements will be met by increased exports from Brazil.
There were substantial drawdowns in world sugar stocks in 2008-09, because of lower world production and a steady increase in world sugar consumption. However, large sugar stocks were carried into 2008-09, because of two years of bumper world sugar production. Given current expectations of world sugar production, world carryover stocks are expected to grow to around 68.2 million tonnes in 2009-10, 2 million tonnes higher than in 2008-09. There is likely to be some rebuilding of sugar stocks in India in 2009-10.
Higher world sugar prices and the relatively low Australian dollar mean favorable prices for Australian cane growers and sugar marketers for the 2008-09 and 2009-10 harvests. Indications at 15 June 2009 for Queensland Sugar Limited’s seasonal pool were $332 to $338 a tonne, IPS (International Polarity Scale) for 2008-09 production (harvested in the second half of 2008), rising to $421 to $461 a tonne IPS, for 2009-10 production. This compares with a realised return for 2007-08 of $275.80 a tonne IPS. The average return to Australian growers for cane in 2009-10 is forecast to be $40 a tonne, compared with $29.87 a tonne in 2008-09 and $27.50 in 2007-08.
Sugar reforms in the European Union
The European Union instituted a number of reforms to the Common Market Organisation for sugar, starting in 2006-07 and aimed at reducing the level of European beet production to sustainable levels. The measures include lower guaranteed minimum prices to beet growers, lower market intervention (guaranteed) prices and reduced quotas to which the guaranteed prices apply.
There are compensation arrangements for beet growers and various incentive arrangements to encourage individuals to voluntarily give up quota entitlements of around 6 million tonnes. If target quota cuts are not reached by 2010, compulsory cuts to quotas will be made.
Prior to the reform, the intervention price for white sugar was €632 a tonne. The intervention price was replaced by a reference price for white sugar, which was lowered to €505 in 2006-07, €458 in 2007-08, €428 in 2008-09 and €404 in 2009-10. A private storage system was introduced to provide a safety net in the event the market price falls below the reference price.
By mid-2007, only 2.2 million tonnes of quotas had been renounced, so the European Union decided in September 2007 to provide additional incentives to attract a further 3.8 million tonnes of quota renunciations. The quota renunciations have now reached 5.8 million tonnes, so compulsory cuts in 2010 will probably not be necessary.
The reforms have adversely affected sugar producers in less developed countries, which have traditionally benefited from EU prices for sugar which have been inflated by EU support measures. The European Union is shifting from the long standing EU-ACP Protocol — which guaranteed certain African, Caribbean and Pacific countries quota-limited, duty free access to the EU market — to Economic Partnership Agreements (EPA) which are believed to be compatible with World Trade Organisation rules. Under the EPA, which will commence in October 2009, access to the EU market for raw sugar will still be duty free. However, a safeguard clause will be in place to limit potential imports to about 3.5 million tonnes a year until 2015.
The reforms have caused markedly lower EU sugar production and exports, and lower EU domestic sugar prices. The latter could also mean lower sugar production in some less developed countries which have traditionally had access to the EU sugar market.
Australian cane production in 2009-10, the harvest of which commenced in June 2009, is forecast to be 31.3 million tonnes, down 0.4 million tonnes on 2008-09 and the smallest Australian crush since 2000-01. Growing conditions for the 2009-10 Australian sugar cane crop were adversely affected by excessive rain, including floods in early 2009 in the Herbert, Burdekin and far north regions of Queensland and, more recently in northern New South Wales. As a consequence, Australian cane yields are forecast to decline to 82.7 tonnes a hectare in 2009-10, compared with 83.5 tonnes a hectare in 2008-09 and the 10 year average of 83.6 tonnes.
Australian sugar production is forecast to decline to 4.4 million tonnes in 2009-10, down 0.2 million tonnes on 2008-09. This is expected to lead to a decline of 0.2 million tonnes in Australian sugar exports in 2009-10, to around 3.2 million tonnes. Reflecting the effect of higher prices in Australian dollar terms, the value of Australian sugar exports is forecast to increase by $188 million, to be around $1.32 million in 2009-10.
| Sugar outlook | ||||||||
2007-08 |
2008-09 |
s |
2009-10 |
f |
% change |
|||
|
||||||||
| World | ||||||||
| Production | Mt |
167.3 |
159.7 |
167.5 |
4.9 |
|||
| – Brazil | Mt |
30.7 |
38.9 |
42.7 |
9.8 |
|||
| Consumption | Mt |
161.3 |
163.3 |
165.4 |
1.3 |
|||
| Closing stocks | Mt |
69.7 |
66.1 |
68.2 |
3.2 |
|||
| Change in stocks | Mt |
5.2 |
– 3.6 |
2.1 |
||||
| Price | USc/lb |
13.7 |
13.8 |
12.9 |
– 6.5 |
|||
|
||||||||
| Australia | ||||||||
| Area | ’000 ha |
381 |
380 |
379 |
– 0.3 |
|||
| Production | kt |
4 763 |
4 634 |
4 425 |
– 4.5 |
|||
| Exports | kt |
3 493 |
3 394 |
3 168 |
– 6.7 |
|||
| – value | A$m |
1 006 |
1 136 |
1 324 |
16.5 |
|||