The highest demand will be in Asia, where consumption is expected to rise from 75 million tons to 97 million tons during the period. Africa’s tonnage totals will be lower, according to the report, but its growth in demand will be faster, with an annualized rate of 3.4% as compared to Asia (2.9%) and South America (2.1%).
As cities rise, so does sugar demand
“The three principal drivers of consumption in these emerging markets are, first, rising population. That’s simple. The second is rising levels of incomes—real incomes. As people’s incomes rise they generally go from more simple, less processed foods to where they’ll be able to access more processed food and drink,” Andy Duff, Rabobank’s global strategist for sugar told FoodNavigator-USA.
“The third driver that puts more people into the environment where they have more access to these foods is the shift in emerging markets toward urbanization. This is also a very powerful factor that changes dietary habits and is a driver of rising sugar demand,” he said.
“Local production in key countries such as China, Indonesia, Thailand and India is also projected to rise strongly. Given that the technical performance of all these industriesin terms of crop yields and crop quality - is relatively low, there appears to be significant scope to achieve gains, assuming a positive outlook for margins and for investment in technology, R&D, and extension services for farmers," Duff said.
Duff expects African sugar production to rise sharply in the study period. African markets are not protected by government fiat as they are in the US, but are protected in effect by local infrastructure deficiencies, making shipping costs high. So local prices can be sustained at higher levels than world markets, and local, less efficient producers can get a foothold, whereas in world markets they would be swamped by more efficient competitors.
How fuel affects sugar
One of those highly efficient competitors is Brazil, and it is through Brazil that the demand for fuel plays a role in sugar prices. Brazil’s sugar industry features newer mills for processing sugar cane that have been designed for dual purpose sugar/ethanol production.
“Within capacity limits, the industry can arbitrage sugar and ethanol markets. You have a mill which produces two products. You don’t install sufficient capacity to turn all of the cane into either sugar or ethanol, or you’d have excess capacity one way or the other. Any one product can account for up to 60% of the cane in the mill. The mills can choose how much of the cane juice goes to sugar and how much goes to ethanol and they make that choice on the relative profitability of sugar or ethanol,” Duff said.
“The whole ethanol market in terms of prices and margins available has an influence on sugar production and vice versa.”
Global sugar trade
Rabobank expects the global sugar trade to reach 64 million tonnes raw value by 2020/21, an increase of some 22 percent over estimated trade in the period 2009/10 to 2011/12. This growth is somewhat less than the projected growth of consumption over the same period (25 percent), reflecting the general expectation that there should be significant growth of production in some parts of the world that have historically been substantial importers (e.g. Russia).
"India, the second largest producer and the largest consumer of sugar in the world, has shifted from being a net exporter to a net importer and back again, making it a pivotal participant in the global sugar market," added Duff. "Although weather is a key driver behind these seasonal production swings, government policy measures have had a major impact. In the near term, the removal of the levy sugar obligation and the abolition of the quarterly release mechanism, effective as of the 2012/13 season, will provide immediate relief to the Indian sugar sector. This partial de-control should create a more positive investment climate and large and well managed players will have competitive advantages with an opportunity to grow."
Asia is projected to maintain its dominant share of global imports, while South America's share of global imports is also expected to rise, driven by continued consumption growth in key countries where local production growth is not expected to keep pace. Europe's share of imports is expected to decline very slightly, largely as a result of increasing production in Russia (until recently the world's leading importer of sugar) and the Ukraine. The report said this decline could be greater if EU sugar quotas were to be abolished at some point during the forecast period.
Brazil, Thailand and Australia are expected to remain the world's top three exporters, each increasing their share of global exports up to 2020/21. Rabobank expects Brazil to remain the world's most important exporter. However, unlike the last ten years, when Brazil's share of world market exports grew from 25% to 46%, Rabobank's projections suggest that future growth in Brazilian sugar production and exports will be more gradual, raising the country's share of total world sugar exports to 50% by 2020/21.
Thailand is projected to increase its market share from 11% to 14%, and Australia is expected to make modest gains, rising from 5% to 6%. With the combined market share for the rest of the world's exporters projected to decline from 37% to 30%, Rabobank's forecasts effectively point to a continuing concentration of global sugar exports over the next ten years.