According to Reuters, world sugar prices ‘are entering uncharted territory as investment funds show a record interest in the commodity which traders see as increasingly tied to energy markets’. This in part accounts for sugar prices reaching record highs for the last five years in recent weeks (US cents 10.35 /lb). In 2005 sugar prices have increased by 24.8%. The high oil price and Brazilian demand for ethanol for the expanding flex-fuel cars, is opening up new possibilities for sugar as an energy product. However the article warns that ‘the present fine balance in the global demand-and-supply situation of sugar would not appear to justify the surge in raw sugar prices’, with global production of 146.4 million tonnes slightly exceeding global demand of 145.1 million tonnes in 2004/05.
This suggests that there could be increased volatility in the world sugar price depending on the trends in oil prices and policy initiatives in major economies to develop the use of alternative bio-fuels.