Since the beginning of the current year, the international sugar prices have been on the increase. Global sugar markets have entered a period of radical structural change. The EU sugar reforms would have an impact on the prices because EU would disappear as a major white sugar exporter within the not too distant a future.
The ethanol factor, given the exorbitant and phenomenal level of crude oil, prices could consume more sugarcane supplies for sugar manufacturers creating permanently tighter supplies. Given the ongoing concentration process of the supply side and Brazil’s growing dominance, a few countries may determine the fate of the global sugar market. This opens the doors for volatility and unexpected price oscillations as any political or weather determined upheaval would have a profound impact on global sugar prices.
The price has swayed primarily because of the import demand of India and Pakistan. The factors that prevented a major disaster for importers were high carry over stocks, higher Brazilian production and an exceptionally good EU crop as Thailand and Cuba had adverse weather conditions.
The greater the weight on Brazil, the more apprehensions about food security. The stock consumption ratio is reportedly, likely to fall below 45 per cent which by itself is a warning to sugar importers as not much of a safety margin is left. Any major production shortfall in 2005/2006 would provoke a sharper price reaction and could escalate the global raw sugar prices permanently above a 10 cents level.
It is therefore important to look at the emerging consumption trends as consumption is the driver of the world sugar economy. There are a number of factors which influence consumption:
* a) price of sugar and substitute sweeteners; b)per capita income; population growth; d) availability of sugar; e) preferences of consumers; f) policies of a government.
Per capita income and population growth have been defined to be the most important. Consumption actually defines prospects for growth. At the beginning of the last century world sugar production amounted to no more than 11 million tons raw value. By the year 1949/1950 this figure increased to 36.5 million and in the year 1985/1986, it further surmounted to 100.5 million and by the end of the century it was around 129 million tons.
Despite the fact there has been an increase in per capita income, the consumption of sugar decreased due to following reasons:
* availability of other sweeteners; health hazards associated with consumption of sugar and; life style changes focused on health food
On the contrary, sugar has been a staple food in many areas and in those countries higher per capita consumption levels have been reported. The consumption of 25 EU member states has registered a growth rate of slightly less than one per cent. Consumption in the non-EU Europe category is rather volatile.
According to recent reports, Africa did not register much of the consumption and it is forecast to reach 15.8 kg in 2004/2005. Algeria, Tunisia and Egypt had a significant increase in off-take during the past decade where the compound growth rate was between 1.6 and 1.8 per cent a year. The two largest consumers of the African continent are Egypt and South Africa.
Consumption in North and Central America is close to 36 kg per head which leaped and adjusted to 38 kg. The country has partially switched over to higher fructose corn syrup (HFCS) a sugar substitute due to changes in life style and demographics. South America has a per capita consumption of 46.5/kg which is increasing at an annual compound rate of more than two per cent and about 60 per cent of the South American consumption is Brazil where the consumption is increasing three per cent per annum.
Of the total world population, 55 per cent is in the Asian continent where prospects for increased utilization are immense apart from substantial variations in the level of consumption. Average of the Asian consumption has reached over 16kg per head. India is forecast to consume at a compound growth rate of three per cent which is approximately 17.9 kg per capita whereas the Chinese foresee it to grow by an additional one million tons as against a consumption of 12.5 million tons which is consumed annually.
The Indonesian consumption is forecast to rise to almost 3.9 million tons up from 3.3 million tons 10 years ago. Consumption in Japan is falling as consumers are shying away due to health hazards whereas in Thailand it is increasing by almost two per cent out of which one per cent is due to population increase. The consumption in Oceania including Australia is about 45kg/per head.
Sugar consumption in Pakistan has reached an astounding figure of 3.9 million tons approximately compared with 2.8 million in the year 1995/1996. Over the last 10 years, there has been a compound growth rate of almost 2.7 per cent and on the contrary per capita consumption has reached 25/kg approximately. The following table would highlight consumption profile in our country:
This data shows progressive increase in consumption pattern over the years and an upside curve. There has been a considerable growth in terms of enhanced crushing capacities in the country. As EU would be restricted in its role as a major exporter of refined white sugar in the years to come under the WTO, it is imperative now that indigenous sugar industry is in a position to sustain the growing domestic demand in addition to requirements of neighbouring Afghanistan and Iran.
The additional existing crushing capacities should be able to meet our requirements. The basic factor with reference to food security is very important because sugar supplies would primarily be dependent on Brazil in future and there is a dire need to formulate a sugar policy along with measures to be adopted for co-generation and ethanol blending for cost efficiency and viability of the sugar industry.
It would not be out of place to ignore a long standing demand of the sugar industry i.e. linkage of sugarcane price with sucrose contents which will give impetus to the growers and prove to be an extremely positive step for being sufficient in raw material which will save precious foreign exchange being wasted after every few years on heavy imports from abroad.
World sugar consumption which is around 145,549 million tons is likely to increase by 10 per cent in year 2010 to 160,709 million tons and the forecast for 2015 is about 176,163 million which again is a 10 per cent increase of 2010 estimates.
Although consumption is dependent on various factors, we should gear up our resources and formulate policies in a manner that we are self-reliant in the years to come and are not confronted with shortages in future. Cuba, India and Thailand have had series of droughts which resulted in scarcity of sugar. There is no way a natural calamity could be predicted or pre-empted but all these countries have well-defined policies.
Pakistan sugar industry has a role to play in the local market and can also strive for a share in the international market in view of the emerging global perspective provided practical difficulties are removed to ultimately strengthen the sugar economy.
(The writer is ex-Chairman Pakistan Sugar Mills Association, Punjab)