Sugar shortage to push up the price of sugary drinks and snacks ‘in the second half of 2016’http://www.independent.co.uk/news/business/news/sugar-shortage-tax-coca-cola-el-nino-commodities-trade-a6958376.html
April 01, 2016 at 1:10 PM
The growing shortage adds pressure to the industry as it grapples with the sugar tax
Hazel Sheffield Wednesday 30 March 2016
George Osborne has an unlikely ally in the battle against sugary drinks and the ballooning national obesity epidemic.
Weather conditions in global sugar producing countries have been so unfavourable that an impeding sugar shortage could see the price of sugary drinks and snacks rocket in the second half of 2016.
Raw sugar prices have risen 9.6 per cent so far this year and are trading around their highest point for 18 months. Sugar is also running a deficit that is expected to reach 4.95 metric tonnes in 2016-17 according to Green Pool, an Australia-based commodities consultancy.
“Many companies have been holding off, but the extended deficit in supply may force a price increase to be passed along to consumers in the second half of 2016,” said Michael Ferrari, vice president of commodities and risk analytics at aWhere, an agricultural intelligence company.
“Based on volumes, it is my view that a sizeable portion of the market is not properly hedged, so passing along price increases is likely,” Ferrari told the Independent.
Tom McNeill, director of Green Pool, said that larger manufacturers may have locked in lower prices for sugar, while smaller manufacturer and retailers may also have contracts for a fixed price up to 12 months ahead. McNeill also said lower prices for transport and packaging – a side-effect of lower oil prices – may offset higher raw sugar prices.
“There will be pressure on manufacturers to consider raising prices if they aren't being offset elsewhere. If sugar rises but say packaging or transport costs fall, will they risk losing customers by putting up prices?” McNeill said.
The growing shortage adds pressure to the industry as it grapples with new regulations that will add 8p to the price of cans of soft drinks and up to 40p of the price of a 1.75 litre bottle from 2018.
Osborne’s sugar tax has not gone down well with drinks-makers, who are expected to mount a legal challenge through the European courts.
Soft drinks makers including Coca-Cola and Britvic are understood to be considering suing the UK Government.
Industry bosses could claim the tax is discriminatory because it will not hit other beverages with high sugar content, like milkshakes, fruit juice and even coffee.
When asked how he felt about the potential legal challenge at a meeting of the Treasury Select Committee, Osborne replied: “Bring it on.”
But sugar companies including chocolate makers and those outside the scope of the sugar tax may face a bigger challenge as a sustained sugar deficit forces them to reconsider the price of products on shelves.
The gap between supply and demand in raw sugar has widened 19 per cent since January.
Crops have been hit by El Nino, a warm weather event in the Pacific Ocean that has a knock-on effect on agriculture the globe.
Drought has hit sugar production in India, Thailand and Brazil for this season and next. Chinese production has already been downgraded by Green Pool Commodities from 9.5 to 9.2 million metric tonnes in 2016.
In China, excess sugar stock is owned by the government and used as a buffer. If the Chinese government sees the price of raw sugar increasing, it may decide to release some of that stock to the market to reduce inflation.
Below average rainfall in India has hit production and limited planting for the upcoming crop. Indian sugar farmers also have some government support, making it very difficult to predict how the market will react.
Sugar ran at a surplus, where supply outstrips demand, for the five years until 2015, which means stocks have built up.
Nick Penney, a senior trader at commodities broker Sucden Financial, told the Independent that Europe will have to import sugar in 2016 because of a bad crop last year, but that he didn’t expect to see price increases on products on shelves in the near-future.
“I certainly don’t think we’re back to the seventies where there were major price increases. There would have to be two or three years of deficit increases before those prices are passed onto the consumer,” Penney said.
The European Union is the third largest sugar producer and the second largest consumer in the world. Prices in the EU are controlled by Tariff Rate Quotas that prevent sugar imports beyond certain limits from the most competitive producers of sugar, including Brazil, Thailand and Australia.
Analysts have said a sugar tax may not have as much impact in the UK as in other countries such as Mexico, because people may be prepared to pay more for drinks rather than cut them out of their diet.
“I would take this tax on sugar with a pinch of salt. It’s not due to come in until 2018 and I am very doubtful that it will have much of an impact on this country’s consumption of sugary drinks,” Penney said.
July 1, 2016
The world is running short on sugar and the tighter supplies are driving prices to the highest in almost four years.Read More
July 1, 2016
Posted Thu at 11:54am Sugar being stored at one of Queensland Sugar Limited's bulk terminals PHOTO: The global sugar price has hit a four year high overnight. (Supplied by Queensland Sugar Limited) MAP: Mackay 4740 The global sugar price continues its strong rally this year, jumping 5 per cent in overnight trading in New York. It is currently buying 20.82 US cents a pound, its highest level since August 2012. A worldwide supply shortage plus a slow harvest in Brazil has seen sugar attract increased interest from investors.Read More
June 14, 2016
* Harvest weather returns to Brazil's sugar regions * Weak pound supports London cocoa By David Brough LONDON, June 13 (Reuters) - Raw sugar futures on ICE held steady on Monday near a 2-1/2-year peak with dealers focused on improving harvest weather in Brazil, while arabica coffee was little changed as worries over frost risks eased. A weakening pound, pressured by concerns over the coming British vote on EU membership, gave support to London cocoa. Raw sugar steadied, with a focus on improving conditions for the cane crush in centre-south Brazil. "The weather across Brazil's centre-south has improved markedly over the past few days as dry weather returns across the region allowing the crush to push into top gear again and port loadings to get back to normal," a broker said. Dealers noted that speculators again boosted the record net long position in raw sugar contracts on ICE they have held since early May in the week ended June 7, according to U.S. data.Read More
June 7, 2016
Marvin G Perez Fabiana Batista Megan Durisin This year’s rebound in oil prices has an unlikely victim: the dessert plate. To understand why, look no further than Usina Batatais SA, a sugar-cane processor in Sao Paulo. Enticing fuel margins mean the company is using a bigger cane crop to produce more ethanol, while keeping its raw sugar output unchanged. Even after sugar prices surged recently, “there’s no time and cane anymore” to make a switch, said Bernardo Biagi, Batatais’ president.Read More
June 2, 2016
* Coming up: Brazil Unica cane crush data due at 1300 GMT * NY July/September cocoa spread narrows By David Brough and Nigel Hunt LONDON, June 1 (Reuters) - Raw sugar futures on ICE fell on Wednesday before Brazilian cane data expected to show a strong crush for the first half of May, while cocoa eased in spread-related dealings. Coffee steadied, supported by concerns over a poor Brazilian robusta (conillon) harvest. Raw sugar dipped, moving away from Tuesday's 23-month peak, supported by a shift to a global deficit. Dealers awaited Brazilian data from cane industry group Unica at 1300 GMT, expected to show a rapid crush in early May. "We expect that the data will show a continued strong harvest in the first half of May. Our guess is that it will be close to 40 million tonnes of cane," said Tom McNeill, director of Green Pool Commodities.Read More
May 16, 2016
A realisation of a global sugar deficit, coupled with political turmoil in Brazil, has seen the sweet commodity continue to rally in world trade. Overnight, the July supply contract for raw sugar closed at 16.98 US cents a pound, down slightly from its peak during trade of 17 cents.Read More
April 1, 2016
Drought has hit sugar production in India, Thailand and Brazil for this season and next. Chinese production has already been downgraded by Green Pool Commodities from 9.5 to 9.2 million metric tonnes in 2016.Read More
March 31, 2016
Balrampur Chini Mills Ltd., the second-biggest Indian sugar producer, expects sweetener prices to extend a rally as production heads for a second year of decline. Shares of sugar mills climbed in Mumbai. Production in India will drop 5 percent to 7 percent in the year beginning Oct. 1 from about 25.5 million tons in 2015-16, the company said in an exchange filing. “Considering the demand-supply scenario, the trend is expected to be firm for sugar prices for 2016-17,” Balrampur said.Read More
March 24, 2016
A global shortage of sugar will be larger than previously expected in the next season as El Nino-induced droughts hurt crops in Asia, Green Pool Commodity Specialists said. World consumption will exceed production by 4.95 million metric tons of raw sugar in the 2016-17 season, the Brisbane, Australia-based researcher said in an e-mailed report on Wednesday. That’s 19 percent more than its January forecast. The world is heading for a second straight annual deficit, following half a decade of surpluses.Read More
February 4, 2016
Sugar is one of the few bright lights on the global commodity stage at the moment as demand outstrips supply for the first time in five years. Globally, the crop is forecast to fall into deficit, down by 5.2 million tonnes of sugar on last season to 177.5 million tonnes a deficit of 4.1 million tonnes.Read More