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.
November 2, 2017
The global sugar market is poised for a surplus of 9.80 million tonnes 2017/18, Australia-based analyst Green Pool said on Tuesday, amid stronger production and sluggish consumption growth.Read More
November 1, 2017
World sugar dynamics are the “worst” - for bulls – in at least 12 years, Green Pool said, hiking its estimate of the global output surplus, and hinting at the potential for further growth in stocks “into 2018-19 and perhaps beyond”.Read More
August 24, 2017
The global sugar surplus is expanding as Brazil, Thailand and the European Union drive world production to record, according to Green Pool Commodity Specialists. Supplies will outpace demand by 7.1 million metric tons in the 2017-18 season that starts in October in most countries, a 29 percent increase from a May forecast.Read More
July 3, 2017
Green Pool highlighted the threat to sugar consumption from the likes of health concerns and rival sweeteners as it raised by 837,000 tonnes its forecast for the looming world sugar production surplus. The Australia-based sugar consultancy revised up to 5.55m tonnes its forecast for the global output surplus in 2017-18, taking it to the largest since 2013-14.Read More
May 24, 2017
It’s not this year’s price crash that haunts the $150 billion sugar industry. It’s the fear of worse to come. Raw sugar’s 16 percent drop ranks it bottom of the 22 raw materials on the Bloomberg Commodity Index. Shocks to demand in top consumer India and prospects of more European supply are helping shift the market to a surplus, hurting prices. Yet beyond such market dampeners, hang darker clouds. After decades of stable demand growth, almost doubling per person since 1960, the world is heading for a tipping point as shoppers turn against the cola and candy blamed for an obesity epidemic in the rich world. At the same time, sugar has to compete with cheap syrups increasingly used in processed food. "Growth is not what it’s been," Tom McNeill, managing director of Green Pool, said in an interview. "There is undoubtedly a move by global bottlers and by a lot of global food manufacturers to reduce the sugar content in their products."Read More
May 24, 2017
The "war on sugar" being waged by governments and consumers to combat public health emergencies like diabetes is slowing growth in global demand, which along with other factors could signal a fundamental shift in consumption ahead. Consumption may grow at its slowest pace in seven years in 2017/18, according to analyst group Platts Kingsman. It forecasts a rise of 1.04 percent, nearly half the average growth of about 2 percent per year over the last decade. "Consumption is generally stagnating in developed countries," Tom McNeill, director at commodity analyst group Green Pool, told Reuters.Read More
May 9, 2017
Global sugar exports will exceed demand this season and the next as India brings in less than expected and the European Union boosts output, according to Tropical Research Services, which advises hedge funds. Exports will beat import demand every quarter through September 2018, TRS estimates. The trade-flow surplus will total 398,000 metric tons in the third quarter, reversing a previous forecast for a shortage of more than double that amount, said Sean Diffley, the firm’s head of sugar and ethanol research.Read More
May 5, 2017
HOME COMMODITIES COMPANIES MARKETS OPINION DATA CALENDAR SUBSCRIBE Thurs 11th May 2017 PRINTABLE VERSION EMAIL TO A FRIEND RSS FEEDS 13:57 UK, 5th May 2017, by William Clarke Green Pool trims sugar deficit forecast, a touch... Sugar analyst Green Pool only slightly trimmed its forecast for a hefty sugar surplus next season, as consumption grows only sluggishly despite easing sugar prices. "Consumption is a major issue for sugar, with global consumption growing only slowly," Green Pool said. "Some growth is being seen in developing countries, while consumption is actually falling in some developed countries."Read More