While many countries do not produce enough sugar to satisfy their domestic demand, there are others who produce more than what they need.
During 2003/04, the world production was expected to be higher than world consumption. World prices had plummeted due to huge stocks that had accumulated in many years of world. In case of acute shortages, the prices jump up.
In 2003/04, Pakistan too had a bumper crop with sugar production rising to 4.02 million tonnes. The situation had become so bad that Brazilian sugar producers were operating at a loss in spite of the fact that their production costs are the lowest in the world.
In early 2004, raw sugar was below 6 cents/lb. On February 10, it fell to 5.48 cents/lb, the lowest price in nearly a year and a half. January average prices were 5.81 cents/lb which rose by a mere 0.03 cents to 5.84 cents/lb in February. Similarly, white sugar prices had plunged to US$198.00 per tonne, i.e., 8.98 cents/lb that month.
In Pakistan, during 2003/04, average wholesale sugar prices fell to Rs872 per 40 kg compared to Rs960 the previous year and Rs1,283 in 2000/01.
As opposed to the surplus world wide, production of white sugar in India during 2003/04 was estimated to be as low as 16 million tonnes, a sharp 20 per cent decrease from the 20 million tonnes produced in the previous year.
The rise in cane prices encouraged larger plantation of cane in the next two years which led to increase in sugar production in 2004/05 and 2005/06. This has become a boon for Pakistan which has been able to procure sugar from India so conveniently.
In September 2005, sugar prices rose to a seven-year high of $342.00/tonne (15.51 cents/lb). However, London daily price fell to a low of $271.50/tonne (12.32 cents/lb) in November due to expected exports of surplus sugar from the EU. Many estimated that white sugar prices will not rise above 11 cents a pound in the coming months.
However, in December 2005 the daily spot price for raw sugar exploded and rose to 12.03 cents per pound and by late January it rose 50 per cent and peaked at 18.46 cents per lb. It reached the highest level in over 25 years on February 3, 2006 when it touched the stratospheric level of 19.25 cents per pound. By end February, it had come down to 17.85 cents per pound, yet a phenomenally high price.
A similar pattern was shown by white sugar prices which rose from $305.50/tonnes (13.86 cents/lb) at the beginning of December to $460.50/tonne (20.89 cents/lb) on 23, February.
In February 2006, the forecast for world wide sugar deficit during 2005/06 rose to 2.225 million tonnes from the 1.015 million tonnes estimated in November, indicating further problems in sugar supply.
In spite of the sugar deficits, experts believe that the main factors keeping sugar prices up are world energy prices, currency movements and policy developments. A more worrying development is that, “The ISO believes that the world sugar market has entered “uncharted waters”, where pure traditional sugar fundamental factors no longer alone determine the world price level.”
Even Brazil, the largest producer of sugar in the world is facing rising sugar prices which are about thirty per cent higher compared to last year. In China, sugar prices have risen by about 22 per cent.
On February 22, Brazil’s government announced a reduction in the compulsory blending ratio of ethanol into gasoline from 25 to 20 per cent. This will reduce the demand for ethanol, and make more cane available for sugar and which may provide 0.5-1.0 million tonnes of sugar for export leading to some fall in sugar prices.
All countries of the world face periodic sugar crises mainly because of the nature of the sugar crop. On an average, the world faces a sharp fall every six to eight years. Pakistan faces a fall on an average every four years. What has happened is that this year, the troughs of both have coincided. Luckily, India is facing a boom.
The contention that sugar mills have created a sugar shortage does not appear to be valid. Sugar mills may exploit the shortage but they cannot create a shortage. This year a shortfall in cane production was expected due to the cyclical pattern that exists in Pakistan. These cycles are explosive in nature and portend a very dangerous future for the sugar industry.