On 2 February 2010, a €15 million loan from the European Investment Bank (EIB) for the construction of two sugar refineries in Mauritius was announced. The project will ‘improve sugar storage and handling facilities, and extend an existing mill’. This is in addition to a €13 million loan made in August 2009 which benefits from an interest rate subsidy from the 10th EDF. This Mauritian project is ‘the first EIB-funded initiative that implements the 2006 Port Moresby Declaration through which ACP-EU Council of Ministers agreed to mobilise €1.5 billion to contribute to the high adaptation costs ACP sugar-producing countries have faced following gradual sugar price reduction across European markets.’

The investment is closely linked to the restructuring of marketing arrangements for Mauritian sugar, which is now being sold under a long-term agreement with the German company Suedzucker.

German research company F.O. Licht has argued that the huge increase in Brazilian sugar production is laying the foundations for the end of the current sugar price boom, with the projection that prices will fall over the course of 2010. Despite this decline, F.O. Licht said that sugar prices are expected to stay above 20 US cents/lb and argued that expanded production would lead to a balanced market next season. Other analysts, however, have argued that with a sugar supply deficit of between 7.2m and 8m tonnes, prices could remain around the 30c/lb mark. In this context it should be borne in mind that on 11 February, Bloomberg.com reported that China was set to make major purchases of sugar on the world market in April 2010 in order to top up its stocks in the face of a 2m tonne shortfall in production. This could further stimulate prices in the first half of the year, particularly since India, Indonesia, Pakistan, Egypt and Russia are also planning major purchases in the coming months. These demand pressures could serve to support prices until the outlook for the Brazilian and Indian crops is known in July 2010, with the Indian crop being seen as unreliable, resulting in major mills operating at around half of installed capacity.

According to the EC update on price developments in international agricultural commodity markets covering developments in December 2009, the steep rise in global sugar prices is the result of ‘a significant drop in supply in key producing regions against the background of increasing consumption in main importing countries’. While EU sugar production dropped following the implementation of reform measures, good yields have subsequently increased production. World sugar production is expected to recover in 2009/10, yet a deficit is expected to remain sustaining current price levels.

In January, in response to industry pressure following an exceptionally good sugar beet harvest, the EC announced its intention of allowing the export of a further 500,000 tonnes of out-of-quota sugar in the 2009/10 marketing year (to 31 July 2010). According to Commissioner Mariann Fischer Boel, ‘the current situation on the world market is exceptional’, with world market prices ‘currently at record levels, well above the market price for EU quota sugar’. This, it is argued, allows EU out-of-quota sugar to be exported without any need for export subsidies or cross-subsidisation, meaning that exports can take place above the WTO ceiling for export-refund-supported exports ‘without violating the EU’s WTO subsidy commitments’. This is seen as a one-off action, since it is considered that ‘the present market situation for sugar is very unlikely to occur again in the future’.

The Brazilian sugar industry has objected to this EU move, describing it as ‘short-sighted’, since it will further encourage EU beet production. It called for the EU to seek approval from WTO sugar-panel members before implementing the measure. Indeed, the Brazilian, Australian and Thai governments are considering the joint filing of a case against the EU at the WTO in response to the announcement of a further 500,000 tonnes of EU out-of-quota sugar exports. The EC maintains that its decision is legal, since the high world market prices (with refined sugar trading at US$734/tonne in London compared to an EU reference price of US$569/t) and the unusual global shortage mean that EU producers can export without any need for cross-subsidisation (i.e. productions costs of EU sugar producers are below the current world market price). The EC is reported both to have sought legal advice before launching the initiative and to have received assurances that the measure in no way violated the ruling of the 2005 WTO panel (WT/DS265) which defined what constituted subsidisation of exports.

Brazil’s ambassador to the WTO however argues that the nature of the EU sugar regime means that all its sugar production is subsidised, and Australian trade negotiators for their part maintained that this view was endorsed by the previous 2005 WTO ruling. However, since the EU has ‘not released any data that would enable WTO members to make an assessment of the cost of producing sugar in the EU’, the debate seems likely to continue.

The concerned governments have sought to argue that the EC decision was largely responsible for the 15% decline in sugar prices which has occurred since the announcement. However, reports from the World Association of Beet and Cane Growers (WABCG) suggest that this impact may not have been so marked, with the white premium having risen to US$135/tonne in recent weeks, and white sugar prices rising from €528/t to €543/t in the week 5 to 11 February. While raw sugar prices fell from €462/t to €442/t over the period 1 to 11 February, a stronger US dollar may have countered some of the losses this implied for individual national currencies (except for the Brazilian real).

To date, although the three governments that are most concerned have taken the issue to the WTO, they are holding back from taking retaliatory action against the EU, preferring to continue negotiations with the EC with the aim of resolving the issue.

Despite the current dispute, the EC argues that sugar sector reforms have been a success, since they have encouraged ‘high-cost producers to stop production and growers in regions not adapted to beet growing to switch to more profitable crops’, thereby enhancing ‘the overall competitiveness of the EU sugar sector’. According to industry sources, some 800,000 tonnes of out-of-quota sugar is potentially available for export.

It should be noted however that at the same time as the EU is allowing the export of a further 500,000 tonnes of out-of-quota sugar, it is also preparing a regulation to allow ‘the duty-free import of 400,000 tonnes of sugar from the world market to be possibly used by the chemical industry in 2010/11 to ensure the long-term raw material supply planning for this sector’. In addition, ‘access to raw sugar to be refined under CXL import quotas’ (the MFN quota for raw cane sugar opened initially for Brazil and Cuba following Finland’s accession to the EU in 1995) is to be ‘facilitated by the suspension of the requirement to present export certificates from Brazil, Australia and Cuba for imports from these countries in 2009/10. A certificate of origin will be sufficient.’

In response to the high level of German refined sugar production, press reports indicate that German farmers are planning to reduce sugar beet plantings. However, the granting of permission for a further 500,000 tonnes of out-of-quota sugar export licences is likely to reduce the contraction in sugar beet plantings from 10% to about 5%-6%. This season German production of refined sugar was 4.4 million tonnes (up from 3.7 million tonnes on the preceding season), some 1.51 million tonnes above its EU quota of 2.89 million tonnes. This situation resulted from an expansion in planting, exceptional beet yields, and a high sugar content.

In the January 2010 Agriculture News Update it was asserted in the comment that ‘Illovo’s strategic alliance with British Sugar (via Associated British Foods) and the strategic partnership established between the Mauritian sugar sector and Nordzucker need to be seen in this light’. This should have read, within its fuller context: ‘It is clear … that the marketing arrangements for ACP sugar are becoming increasingly complex. How the producers from individual ACP sugar-exporting countries position themselves in the coming years, in response to the changing routes to market that are opening up in the EU, will be a critical factor in determining the long-term future of individual ACP sugar sectors. Illovo’s strategic alliance with British Sugar (via Associated British Foods) and the strategic partnership established between the Mauritian sugar sector and Suedzucker need to be seen in this light’.

CTA apologises for this error.

World market sugar prices continued to rise, reaching 27.5 US dollar cents/lb after Christmas 2009, before dropping to 27c/lb. In early January 2010 some future contracts were trading as high as 28.9c/lb. Meanwhile reports carried by Bloomberg.com suggest that ‘sugar futures may rise to more than 30 cents a pound within the next six to 12 months’, with a smaller Indian crop and demand for ethanol in Brazil pushing up the price. This follows a more than doubling of the sugar price in 2009, on the back of adverse weather damage to crops in Brazil and India.

Reports from the world’s largest stand-alone sugar refiner, the Al Khaleej refiner in Dubai, suggest that there are concerns that ‘the biggest annual gain in prices in more than three decades will lead to “forced demand destruction”’ in the second half of 2010, as the supply of white sugar continues to fall short of demand. Indonesia, India, Iraq, Egypt, China and Pakistan are all seeking to purchase white sugar ‘to cool local prices’. Tanzania, Sudan and Kenya have also emerged as ‘surprise buyers of white sugar’. It is projected that the white sugar premium ‘may jump to US$145 a [tonne] as demand climbs’.

Press reports indicate that Illovo sugar ‘expects to double exports to the EU over the next 4-5 years’ in response to the granting of duty-free, quota-free access. Major production expansion plans are under way in Zambia, Swaziland, Mozambique and Mali, with all but Mali targeting the EU market. Output across the Illovo Group is expected to increase by around 200,000 tonnes to 1.78 million tonnes, while current exports to the EU market are around 150,000 to 160,000 tonnes. Illovo’s expansion is based on the expectation of world market prices of around 20 US cents/lb for the next couple of years, with a decline over three to five years to around 15-16 c/lb. Illovo is not alone in expanding production: there are press reports that Tongaat Hulett has invested some US$47 million in Mozambique to develop 800,000 ha of land for sugar cane production.

Meanwhile press reports based on analysis from J.P. Morgan are warning that sugar futures ‘could fall early in 2010’ to as low as 15 c/lb on the back of ‘a big cane overhang from Brazil’s current harvest’. Concerns over the impact of the large volume of Brazilian sugar cane still to be harvested need to be set against the likely poor quality of this cane and its consequent use mainly for ethanol production. Presenters at a recent ISO seminar suggested that ‘sugar futures prices were likely to stay high due to historically low stock-to-use ratios, steady consumption, and the risks of supply crunch in Asia’. Other analysts suggest that ‘raw sugar futures could bounce up to a 30-40 cents/lb range in the next 18-24 months’ as a result of inflationary pressures. Such projections, however, appear rather unrealistic, with SKIL reporting a stable trend over the last month, with prices trading between 22c/lb and 24c/lb. Meanwhile Kingsman reports the prospect of a ‘shift from a deficit in production to a small surplus in 2010/11’. FAO notes the expanding African sugar production (+3.5%), with strong production growth in LDCs targeting the EU market under the EBA initiative.

The German sugar industry is once again expected to exceed its EU production quota, following favourable weather conditions which saw the beet yield increase from 61 tonnes per hectare to 67 tonnes/ha and the sugar content of harvested beets increase from 17.81% to 18.32%. The expansion of production was also supported by a 4.3% increase in beet plantings. German refined sugar production is set to reach 4.11 million tonnes, up from 3.7 million tonnes last year. The head of German sugar industry association WVZ commented that ‘with 116,000 [tonnes] of unsold stocks transferred into the new season … Germany will probably produce about 1.3 million tonnes of sugar above its EU production quota of 2.89 million tonnes’.

Overall EU prospects for sugar production are reported as relatively good, with actual production falling far less than the nominal quota reductions would suggest. The EU will nevertheless become the world’s largest sugar importer in the coming years.

This is likely to increase sugar exports, a development assisted by the EU’s decision in October to increase the ‘maximum permitted volume of non-quota sugar which can be exported in the current 2009/10 season from 650,000 tonnes to 1.35 million tonnes’. However the bio-ethanol industry is also expected to be a large customer.

The increased concentration of ownership in the EU sugar sector is a matter of growing concern to national competition authorities in the EU, with, according to press reports, at least three investigations under way at national level into ‘cartel activity to fix prices and divide up customers and territory’. According to one press report, the German company ‘Südzucker is one of the companies being investigated for cartel activity’, although ‘it denies any wrongdoing’.

The ICTSD has posted a paper on the question of how a WTO trade deal would affect sugar importing and exporting countries. In terms of the EU-ACP sugar trade relationship, the debate in the WTO relates to the treatment to be accorded sugar. Latin American countries favour treating sugar as a tropical product where trade liberalisation would be ‘accelerated and deepened’, while the ACP countries favour treating sugar under the provisions dealing with preference erosion, where tariff liberalisation would be ‘slowed down and cushioned’. The report highlights the high volume of trade taking place under preferential trade agreements, which ‘encourages production of sugar in non-competitive preference-receiving countries … at the expense of competitive low-cost sugar-producing countries’. It notes that ‘high-cost sugar producing countries like the EU’ continue to maintain high levels of tariff protection. These ‘trade barriers result in higher domestic sugar prices, and hence higher domestic production and lower sugar consumption’. It notes that the EU sugar reforms have a significant impact on ACP countries, with the highest-cost ACP producers being most seriously affected. For lower-cost ACP/LDC producers, the adverse impact of EU sugar sector reforms is expected to be mitigated in part by the expanded duty-free, quota-free access which recently came into effect.

Against this background the Falconer text proposals presented in December 2008 would involve ‘large cuts in bound tariffs, lower domestic support, expansions in tariff rate quotas (TRQs) and the elimination of export subsidies’. This would in the first instance require the EU to ‘reduce their tariffs by 70%’. However, if the EU classifies sugar as a ‘sensitive product’, the tariff reduction required would be less, but a large expansion in the TRQ (of between 500,000 and 700,000 tonnes) would be necessary. Such a quota expansion would, it is asserted, impact on EU prices and production.

If sugar is treated as a tropical product, the EU would have to ‘reduce their bound tariff rates by 85%’. This would increase imports by 9% and stimulate a 1.2% increase in average world sugar prices. If sugar was treated under the preference erosion provisions, two options would be available: ‘delaying the start of the tariff cut by 10 years or increasing the implementation period to 13 years for the preference-granting member’. This would allow more time for affected ACP countries to adjust.

In terms of the ‘Total Aggregate Measure of Support’ (AMS) provisions, ‘the EU would face a 70% reduction’, with ‘an initial cut of 25%’. Overall the EU would ‘have to reduce their Total AMS levels by 12 billion USD … to stay within the new lower Final Bound Total AMS’. ‘After de minimis adjustments, the product-specific AMS limits’ for the EU would be €5.9 billion.

With regard to export subsidy commitments, the EU would eliminate export subsidies by 2013. The report argues that ‘the impact of the elimination of the export subsidies in the EU has been mitigated by the implementation of the EU CMO sugar reforms which reduced sugar production drastically’. However the report also notes that ‘to meet its commitment to eliminate export subsidies while fulfilling its commitment to preferential sugar imports from developing countries, the EU may be compelled to further reduce domestic sugar prices and production.

The study concludes that:

• ‘The increased market access results in a higher world price for sugar’, given increased market access and the emergence of a closer linkage between domestic and world market prices on major markets. However in the EU it will reduce domestic sugar prices, decrease domestic production and increase domestic consumption;
• ‘competitive sugar-exporting countries like Brazil’ are likely to increase their market share, but higher world market prices are likely to reduce sugar demand in sugar-importing countries;
• if sugar is treated as a sensitive product, competitive sugar exporters will benefit from higher tariff-rate quota access;
• ‘If sugar is treated as a tropical product, more sugar imports occur as countries further reduce their tariffs’;
• EU sugar production is impacted by a reduction in domestic support, with the analysis suggesting that ‘reducing support lowers domestic prices and production and increases consumption’;
• the elimination of export subsidies also reduces sugar production and exports, thus increasing the world price;
• overall, the lowering of trade barriers, reducing domestic support and removing export subsidies result in lower domestic production in countries providing support. Since these countries tend to be high-cost producers, the result is a diversion of trade to low-cost, more efficient producers’.

Australian sugar analysts are suggesting that global sugar prices ‘will stay fairly firm for the next 12, maybe 18 months’. Prices have risen 98% in the past year following ‘adverse weather in Brazil and India’ and increased global demand. However it is expected that in the longer term, ‘high prices will encourage increased production’. According to German researcher F.O. Licht, ‘global sugar consumption will climb 2.6% to 165.4 million metric tonnes in the season that began on 1 October, exceeding production for a second year’. While there has been some expansion of production in response to higher prices, this will only reduce the supply deficit from 10.7 million tonnes to 6 million tonnes. The stock-to-consumption ratio is expected to drop to about 35%. Meanwhile press reports based on technical analysis by LaSalle Futures Group in Chicago suggest that world sugar prices ‘may jump as much as 19% to 27 US cents’, although it suggests there is an equal chance that it will fall 12% to 20 cents/lb.

At the ACP Ministerial meeting, on 19 November a resolution was adopted on sugar which called on the EU to:

• urgently address any problems arising from ‘the implementation of the EC Import Regulation (No. 828/2009)’;
• ensure the maintenance of a ‘managed market which ensures an adequate level of remunerative price which safeguards the interests of all ACP sugar suppliers’;
• maintain preferential access until ‘after 2015’;
• extend the implementation period of accompanying measures programmes beyond 2013, including through the provision of additional assistance to address the impact of preference erosion;
• ‘oppose, in the WTO negotiations, both the re-opening of the July 2008 convergence package and the concept of reverse engineering’;
• implement any tariff cuts for sugar and high sugar-content products in equal instalments over ‘ten years, following a two-year moratorium as detailed in the July 2008 convergence package’, ensure that under the sensitive-product provisions the lowest possible additional TRQ is established, that binding takes place on the basis of specific tariffs (not ad valorem duties) and that the special safeguard clause is maintained.

Output projections for Zambia Sugar’s year to March 2010 have been cut from 420,000 tonnes to 350,000 tonnes. This is attributed to ‘off-season rains in the early part of the growing period’. However, production of 350,000 tonnes will still be a record for the company. In the current season the company reports that ‘export demand from regional markets has been buoyant, with good realisations being achieved as a result of increased world sugar prices, whilst preferential quotas into the European Union have been supplied in full’. The company expects lower prices for EU sugar from October 2009 to be ‘offset by increased market access’. Meanwhile, Illovo, the owner of Zambia Sugar, reported an 18% rise in first-half profits on its operations in Malawi. This has contributed to an increase in headline earnings across the Illovo Group of between 25% and 30% compared to the previous year.

In parallel to Illovo’s performance, British Sugar’s owner, Associated British Foods (which also has a 51% share in Illovo) has announced an increase in pre-tax profits, taking them to £655 million in the latest financial year. ‘Overall ABF group revenue was up 12% ... and adjusted operating profit [was] up 8%’. This improved performance follows on from the finalisation of the 2010 beet contract, ‘which meant that the price paid to growers would remain unchanged next season’.

According to press reports, the government of Mozambique ‘is planning to almost double its annual sugar production’. The plan is to increase production to 500,000 tonnes by 2012 from the current level of 300,000 tonnes. The general manager of Maragra sugar company, Michael Buchanan, says that Mozambican sugar production ‘is very much geared towards growth, largely because of the new preferential opportunity in the European market’. The European market access greatly reduces the risks associated with new investments, given the continuation of EU price guarantees until 1 October 2012.

Sudan, according to industry reports, is projecting a tripling of sugar production in the next three years, largely as a result of Egyptian investment in the sugar sector. Tanzania, meanwhile, is refurbishing its sugar factories with a 4% increase in production expected this season, according to the director-general of the Tanzania Sugar Board. However use of capacity, at 290,000 tonnes, remains below the nominally installed capacity of 400,000 tonnes in the four main sugar factories. Scope thus exists for a further 25% expansion of sugar production in Tanzania with minimal additional factory investment being required. Illegal imports of sugar, however, are seen as holding back further development of the sugar production in Tanzania.

At the end of September, raw sugar futures prices in New York reached almost 25 dollar cents/lb (24.94c/lb), before falling back to around 21c/lb. This followed adverse weather events in Brazil and India. Analysis in the industry press appears to agree that current high world market prices for both raw and white sugar are likely to continue in the short term. In September, Czarnikow revised its earlier projection of a six-million-tonne deficit on global sugar supply up to nine million tonnes and pointed out that ‘with no reserves left globally … price will need to ration demand in 2009/10’.

EU sugar prices are however following a contrary trend, with average white sugar prices in the EU continuing to fall (reaching a low of €551/tonne in February 2009), and the average price paid for ACP raw sugar and white sugar falling to €456/tonne and €515/tonne respectively by March 2009. These average prices contrast markedly with the €522/tonne and €629/tonne paid for ACP raw and white sugars in March 2007. With a further reduction in the EU reference price having taken place on 1 October 2009, further declines in the prices paid for ACP sugars are expected in the coming months.

SKIL reports on its October 2009 news page that with world market prices at high levels and the EU reference price having been further reduced, some ACP suppliers have found that ‘it doesn’t pay in the short term to sell to Europe’. While ISO had earlier ‘been predicting that ACP and least developed countries would increase exports to Europe from the current 1.9 million tonnes to about 3.4 million by 2014 … it is now starting to rethink’ this projection.

Meanwhile, as part of its long-term strategy, Mauritius has shifted over to the export of refined sugar and and/or value-added speciality sugars and a system for the full exploitation of sugar cane for electricity co-generation and ethanol production. Efforts are now under way to ensure that Mauritian sugar cane farmers benefit from all of these new revenue streams.

An Irish press report highlights a growing dependence of the EU manufacturing sector on imported sugar. The report suggests that EU manufacturers could bear the brunt of rising world market sugar prices and notes Czarnikow’s observation that ‘with the production balance forecast to be in deficit during 2009/10, the sugar market is now facing the risk of supply being insufficient to meet current consumption levels’.

Associated British Food (ABF), the owner of British Sugar, has announced that it expects profits from its sugar business to be ‘substantially ahead of last year’ by the end of the current financial year, with growth in profits in the EU and Illovo forecast to ‘more than offset losses in China’. According to a company statement by ABF, ‘the combination of our leading position in the UK with that of Azucarera Ebro in Iberia, together with access to the sugars of the least developed countries provided by Illovo, gives us a strong presence in the EU market’.

This comes against the backdrop of tough negotiations between UK beet growers and British Sugar over the price to be paid for beet in the coming season, as the millers are willing to pay a maximum of £26/tonne, while the farmers are asking for £27/tonne. A British Sugar representative argued that if the extra pound were paid, ‘it could not afford to make the planned 800,000 tonnes of extra temporary tonnage available’ and UK growers would lose £8.7 million, while the company would ‘make more money by not putting additional tonnage out’.

The NFU argues that a price of £27 would be acceptable as a bridging price for 2010, but that in future years growers would be looking for £34.50/tonne. The extra £7 million British Sugar would need to pay out to meet farmers’ demands is contrasted with British Sugar’s sales of £2 billion and profits of £186 million. ABF’s profits from its sugar division are expected to be even higher next year as a result of its Spanish acquisition and a better performance in its Chinese sugar division.

The EC has produced a review of the agricultural commodities outlook for the period 2009-18 compiled by FAPRI and jointly by the OECD/FAO. In the sugar sector the analysis reviews the various projections for the future development of the world sugar market. The review reports that while sugar production and consumption are expected to be ‘balanced over the medium term’, the market could be subject to cyclical shortfalls, particularly by 2014-15. Production is expected to ‘increase by 25% over the outlook period compared to the past decade’, while consumption is expected to be 27% to 28% higher. ‘Overall, the stock-to-use rate is set to decline further, hence prices are projected to increase (on average + 35% over the projection period compared to the last decade).’ The EU is expected to become ‘the leading net importer’, with India also becoming a net importer.

EU import (-)/export (+) position

Source: FAPRI

Press reports indicate that Zambia Sugar has begun exporting sugar to the Zimbabwean market, with 28,000 tonnes of exports expected this year. The company’s corporate affairs manager, Lovemore Sievu, said that the sugar going into Zimbabwe was ‘raw with some molasses, just like consignments delivered to the EU’, according to press reports. Currently Zambia exports to the DRC and the Great Lakes region, with the regional market taking a third of Zambia Sugar’s exports, a tonnage equivalent to that exported to the EU.

Reuters reports that ‘Europe’s largest sugar producer, Germany’s Suedzucker, is considering sugar industry takeovers in Brazil, India and Russia in the next two to four years’, since ‘acquisition possibilities in the European Union’s sugar industry were thin’. Suedzucker is currently sitting on short-term finance of €600 million to finance acquisition, although this ‘war chest’ could be substantially expanded. Suedzucker currently has ‘33 sugar refineries and sugar factories in Germany, Belgium, Bosnia, France, Moldova, Austria, Poland, Romania, the Czech Republic, Slovakia and Hungary’. Press reports have suggested that Suedzucker could have an interest in the acquisition of a stake in CSR, Australia’s largest sugar company, which with an annual refining capacity of 970,000 tonnes accounts for 40% of Australia’s annual production. No statements to this effect however have emanated from the company itself.

Associated British Foods (ABF) is also reported to be interested in the acquisition of stake in CSR, following the sale of its Polish sugar operations to Pfeifer and Langen Polska (a subsidiary of the German sugar company Pfeifer and Langen) for an estimated £250 million. ABF reportedly sold its Polish operations to concentrate on its UK and Iberian operations, within the framework of a strategy for ‘focusing on markets where it is able to build market-leading positions and obtain significant synergies’.

Anglo-American has offered for sale its 49.5% stake in the South African sugar company Tongaat Hulett, which has a growing involvement in neighbouring ACP countries.

Meanwhile the International Confederation of European Beet Growers (CIBE) and the Comité Européen des Fabricants de Sucre (CEFS) are pressing the EC to ‘strongly safeguard the European outlets by using export refunds’, in particular for non-Annex 1 food product exports, and to be ‘extremely cautious in the management of imports’. The industry lobby is rejecting the notion of ‘any additional opening-up of the market and new trade concessions’ in the sugar sector, arguing that this could undermine the reforms implemented to date. Specifically with regard to the ACP-EU sugar trade, the industry lobby has called for the EC to ensure that imports from ACP/LDC sources ‘do not exceed the fixed thresholds’ and to ensure that overall import quantities do not exceed ‘the import concessions already foreseen in the reform’ process.

In August, world market future prices for sugar reached record levels, at 19.83 US cents/lb for October delivery and above 21 c/lb for March 2010 delivery. Meanwhile white sugar prices in London reached $521.8 per tonne. Press reports suggest a global sugar deficit of 4.2 million tonnes in 2009/10, down from a deficit of 8.8 million tonnes in 2008/09. Recent price developments have taken place on the back of disappointing crops in Brazil and India and large purchases by India, Mexico and Egypt. Prices were further assisted by food companies stepping up their hedging activities over concerns that in 2010 sugar prices could be substantially higher. Nick Hungate, a sugar trader at Rabobank in London, argued that ‘global food and beverage companies probably have not done enough buying over the last six months’, noting that ‘speculators are upgrading their price expectations and it is difficult to find sellers’. Some traders argue that sugar prices have not yet reached their peak, although others argue that certain price falls can be expected in the coming weeks and months as markets adjust (a decline of possibly 5.5%). Between January and August 2009 world market raw sugar prices have risen 68%, while refined white sugar prices have risen 63%.

In mid August, ISO Executive Director Peter Baron projected world market sugar prices of between 20 and 25 US cents/lb for the remainder of 2009, as Indian output looks likely to be 43% lower than last year. This takes sugar price rises to 95% in the last year. However he dismissed speculation that prices could reach the realm of 40 c/lb as ‘wishful thinking’. Furthermore he projected that ‘the world sugar market will probably return to balance in the year ending September 2011 because of a rebound in production in India and other importing countries in response to increased prices’.

Bloomberg.com reports world sugar prices rising to the highest level in three years on the back of a weak dollar and renewed demand. ‘Sugar futures for October delivery … [reached] US cents 16.64/lb in June’. This needs to be seen against the backdrop of a global sugar deficit in 2008/09 of 4,274,000 tonnes.

World sugar balance (million tonnes, raw value)

Source: ISO

However at the beginning of July, Bloomberg.com reported three straight days of price declines for raw sugar futures, as the dollar strengthened and energy prices fell. Nevertheless, overall raw sugar prices have risen 49% in 2009.

Meanwhile SKIL reports that world market prices reached nearly US cents 18/lb before falling back to below 17c/lb, while, ‘based on a modest rise in demand in 2008/09 and a dramatic 20 million tonne fall in production’, Czarnikow ‘predicts a 15.6 million tonne deficit this year’ and a deficit of 6 million tonnes for 2009/10, with ‘Brazil’s production up by 4.5 million tonnes and India up by 5.5 million tonnes’.