Saturday, November 12, 2011


If recent international reports are any indication, sugar market is in for some turbulence in the next two years due to fast depletion of sugar stocks world wide and demand from industry as well as the consumers increasing at a fast pace. There are many disturbing questions which are going to daunt the producing countries as well as those countries depending on imported sugar to meet domestic demand. Will there be a massive increase in world prices and if so will it be tolerated by the consumers including the food industry? Will this curb sugar consumption considered desirable by nutritional pundits? Sugar is one of the most reviled food commodities in the world and cause of practically every disease that afflicts humans is attributed to this so called "white poison". What will be the impact of increased price of sugar on the "Gasohol" industry in Brazil? Will the bio-fuel industry be affected seriously? Sugar is enmeshed in politics with many politicians having a finger in the pie, controlling production in the cooperative sector in India and if there is substantial price increase will the additional benefits be passed on to the grower by way of increased Minimum Support Price for the cane? Probably there may not be any ready answer to any of the above questions right now.

If the new price levels are substantially higher than what they are today, sugar exporting countries can be expected to benefit through increased realization for their exports. But what effect such a policy will have on domestic food inflation needs to be anticipated. Whether one likes it or not any increase in domestic sugar prices will have political consequences for the ruling dispensation and therefore it will pose challenges for the government of present day to orchestrate any clear export policy. This was amply demonstrated recently with food grains in India. Despite the overflowing granaries and extensive rotting of grains in the open due to paucity of storage space, Indian Government could not take any sound decision regarding exports due conflicting pressures from different stake holders. Same can happen with sugar also.

One of the two reasons attributed to the scarcity condition is the "demonizing" of Hugh Fructose Corn Syrup (HFCS) world over for its alleged role in spreading obesity in the US and it was not long ago that the beverage and food industry switched over to HFCS because of economic advantages. There are conflicting views among the scientific community regarding the ill effects of HFCS but even a small doubt raised on the safety of a food ingredient can spell doom for it because of strong consumer backlash. Same thing happened with HFCS. Though no safety agency in the world has banned HFCS, user industry is voluntarily switching back to white sugar due to fierce consumer perception regarding the long term effect of HFCS on human body, setting in motion a higher demand pull for sugar. Other reason for depletion of international sugar stock is the increasing demand for sugar among population in developing economies in Asia which is not matched by concomitant production rise, necessitating drawing from stocks being held from previous years. It appears the current deficit of sugar is about 15 million tons that could not be bridged through increased production. Droughts and floods which have ravaged the land in major sugar producing countries like Brazil, Mexico, Australia and Thailand have seriously affected their ability to match even previous year's production, let alone achieve increased productivity.

Interestingly there was an increase of 10% in sugar production achieved in developing countries while that from developed world contracted by 4%. In the year 2010-11 developed countries produced about 32 million tons of sugar while other countries put together recorded a production of 128 million tons. Why there should be a shortage in future is not clearly evident if one goes by the statistics, especially when sugar consumption growth is hardly 1.5% globally. Added to this the present forecasts by both the FAO and the USDA  
indicate a good sugar year across the world which has the potential to trigger a price crash affecting the fortunes of farmers in countries like Brazil in a significant way. The possibility of HFCS regaining its popularity may further threaten a drastic reduction in sugar demand in the coming years. On the whole there may not be any disaster waiting to happen in the sugar front, at least in the immediate future with any serious repercussions on the economies of sugar producing countries.

Viewed from another point, is the dramatic increase in sugar consumption in countries like India, Vietnam and other developing regions health wise desirable, knowing well about the potential for life style diseases caused by high sugar consumption? It is mind boggling to note that during the last 5 years sugar consumption in these countries has increased by 66%, an average rise of almost 12.5% per year where as world average is only one eighth of this figure!  Are these countries going the American way due to their newly acquired economic prosperity? Is it not time for the governments in these countries to evolve suitable policies that has the potential to curb sugar consumption drastically for the sake of a healthy future? It is most unfortunate that organized sugarcane crushing industry in India has virtually decimated the small scale jaggery industry and in many markets jaggery is more expensive than industrial sugar. Indisputably jaggery and similar unrefined sweetener products from sugarcane and palm tress are much more nutritious than white refined sugar. A differential pricing mechanism orchestrated through fiscal measures can make the sugar very expensive while jaggery and similar products can become highly affordable. The million dollar question is whether the political set up in the country in the vice-like grip of sugar lobby will allow such a thing to happen!

No comments: