In October 2012, the web-based news service Agrimoney.com reported that, with reduced US maize production and rising maize prices, US ethanol producers were facing serious financial pressures, which were likely to result in increased imports of sugar-cane-based ethanol from Brazil. Slightly more than half of Brazilian sugar cane was used for ethanol production from August 2012 (52% ethanol to 48% sugar), reversing the previous balance of cane usage (52% sugar to 48% ethanol). This, along with reduced deliveries of sugar cane to Brazilian mills and lower sucrose content, contributed to a slight rise in the New York raw sugar price to 21.5 US c/lb in the second week of October.
According to the Macquarie financial group, this move by Brazilian millers could ‘set a trend’ in the short term, by supporting a recovery of sugar prices. The forecast by Macquarie reflects not only ‘a recovery in Brazilian ethanol exports’ to the US, but also indicates that the Brazilian government is likely to increase its petrol blending rate from 20% to 25%. At a stroke this could create a market for ‘some 20m tonnes of cane, equivalent to 2.6m tonnes of sugar’.
However, other analysts suggest, according to Agrimoney.com, that any recovery in global sugar prices will be short-lived, given ‘expectations for another global sugar supply surplus in 2012-13’. Some analysts have even suggested that ‘given current levels of demand-supply’, prices could fall substantially, ‘even touching the 2010 low of 13.67 cents a pound’.
The growing exposure of the EU sugar market to global sugar market price trends means that factors as diverse as oil price trends, Brazilian biofuel/petrol blending rates, and rainfall patterns in the US maize-producing regions now all have a bearing on price formation on the EU sugar market. This situation is further complicated by trends in the EU’s own biofuel policy, the EC’s administration of tariff-rate quotas and special dispensations for the use of out-of-quota sugar on the EU market (see Agritrade articles ‘ Tate and Lyle Sugar initiate a further legal case against EC management...’, 25 November 2012, and ‘EU farmers and biofuel industry mobilise against the EC biofuel U-turn’, forthcoming).
The complexity of the forces now impacting on EU sugar market price formation highlights the growing challenges facing ACP sugar-exporting countries in trying to maximise returns from their sugar sector sales not only on the EU market, but across alternative global markets.
Given the growing globalisation of the activities of EU sugar companies and evolving patterns of corporate ownership (see Agritrade articles ‘ ASR to take shares in Belize Sugar Industries’, 9 July 2012, ‘ Fair trade component key factor in BSI acquisition by ASR’, 2 December 2012, ‘ Illovo to expand sugar exports to EU’, 25 December 2010, ‘ Corporate restructuring in the EU sugar sector: Implications for the ACP, 30 April 2010), not only within the EU–ACP sugar trade and investment relationship but also beyond (see Agritrade articles ‘ Pan Caribbean Sugar Company sets out its vision’, 7 May 2012 and ‘ Jamaican privatisation brings in Chinese company’, 30 August 2010), issues relating to ensuring transparency in the functioning of sugar sector supply chains are likely to take on growing significance in the coming years for ACP sugar-exporting countries. This is particularly the case given the volatility in prices paid by EU sugar companies for ACP sugar since October 2010 (see Agritrade article ‘ USDA highlights impact of sugar price volatility on ACP exporters and tr...’, 25 November 2012).