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.
May 4, 2018
July raw sugar settled down 0.06 cent, or 0.5 percent, at 11.69 cents per lb. Focus remained on a global supply glut, with commodity analyst Green Pool forecasting a combined sugar surplus of almost 25 million tonnes for the 2017-18 and 2018-19 seasons.Read More
May 3, 2018
The world’s sugar traders are experiencing the biggest ever global surplus. That’s according to Green Pool Commodity Specialists, which expects the glut to reach 18.4 million metric tons this season. The Brisbane, Australia-based researcher boosted its estimate by almost a quarter because of a massive increase in the sugar-cane area and yields in India, the No. 2 producer.Read More
May 2, 2018
For sugar, there’s no sweet ending in sight after a long period of declining prices. Australia-based consultancy Green Pool recently upped its surplus estimate by 43% to almost 15 million tons. The International Sugar Organization, the global trade body, sees a surplus of 5.2 million tons.Read More
March 29, 2018
Green Pool signalled further weakness ahead of sugar prices, lifting its forecasts for the world production surpluses this season and in 2018-19, and heralding a further one in 2019-20.Read More
February 23, 2018
Global sugar prices have tumbled about 33 percent in the past year on a global surplus as production increases in Europe and India. ISMA last month raised its 2017-18 sugar output estimate 4 percent to 26.1 million tons, the highest in three years. Green Pool Commodity Specialists this week forecast Indian production at 28.1 million tons, with expectations of an equal or better crop next season.Read More
February 6, 2018
Green Pool hinted at downbeat prospects for sugar prices as it raised its estimate for the production surplus for this season, forecast another stockbuild in 2018-19, and said a third one could be in the offing.Read More
January 3, 2018
March raw sugar settled down 0.02 cent, or 0.13 percent, at 15.31 cents per lb after peaking at 15.37 cents, its highest since Nov. 28. But focus on bearish fundamentals returned after closely-watched commodity analyst Green Pool on Wednesday raised its projections of a global surplus in 2017/18 to 10.43 million tonnes, up from a forecast of 9.8 million. [nL8N1OY1Q7Read More
January 3, 2018
Green Pool hinted at the potential for sugar price weakness as it lifted to a 15-year high its forecast for the extent of supplies of the sweetener, citing strong production prospects in the likes of India and Thailand. The Australian-based analysis group raised by 629,000 tonnes to 10.43m tonnes its forecast for the world sugar production surplus in 2017-18 - while reducing by 664,000 tonnes to 1.11m tonnes its estimate for the output shortfall last season.Read More
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