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Sugar and strife – not so nice if the price is not right

01-Sep-2009
Last updated on 02-Sep-2009 at 09:08 GMT

Sugar politics means high prices are a bitter pill for US and Indian sweet food and beverage makers; while the European industry is sitting pretty on the back of the recent sugar reforms.

Yesterday raw sugar futures reached a 28-year high of 24 cents per lb in New York, a new peak after climbing for months. The poor monsoon in India has hit production as sucrose levels in cane are woefully low. And over in Brazil, drought has affected the harvest.

More demand for sugar from emerging economies and traders’ resistance to paying steep storage costs, mean concern is compounded by low carry over stocks from last year. The Indian government says the new sugar marketing year will kick off on 1 October with just 2.7m tonnes in the bank. Last year’s balance was 10m tonnes.

The politics and policies of sugar

The US and India may be worlds apart in many ways, but manufacturers of sugar confectionery, cakes and sweet drinks in both countries are united. Political interference in sugar prices and usage is bad for business.

In India, the government sets tough limits of how much sugar a company can store and for how long. This has put Coca Cola in a sticky spot, as it is being blocked from using 3,549 tonnes of sugar it has allegedly stocked at its warehouse near Pune for over a month.

Meanwhile, the US has tough tariffs on sugar imported from all countries but Mexico. Confectionery companies complain that they would be better off manufacturing elsewhere; even if world prices are high, they would rather pay those than even higher prices at home.

Fears over sugar shortages in the homeland caused confectioners to implore the USDA to increase sugar quotas – though the government department insists there is no supply problem. New domestic production will be available from October 1, and the import tariff quota will be reset to zero.

In the EU, too, sugar has been a political wrangling point. Reform of the sugar sector introduced in 2006 by agriculture commissioner Mariann Fischer-Boel set tough quotas on sugar production in member states in a bid to make the industry more competitive.

There was resistance. Companies and states had to be cajoled to give up their sugar by a set of incentives. And in March, the reform was hailed a success. Between them, members states can now produce 14m tonnes of sugar and isoglucose (high fructose corn syrup) a year – a reduction of almost 6m tonnes.

The guaranteed minimum sugar price has been cut by 36 per cent, to €404.4 per tonne for 2009/2010.

And for any extra sugar it needs, as of October 1 2009 the EU no longer imposes tariffs on sugar imported from ACP (African, Carribean and Pacific) countries and from less developed countries (LDC).

What is more, the past year has been exceptionally good for EU sugar growers, and over quota excess will be sold onto the world market. The precise amount Europe has to spare is not sure yet; but it will be up to the amount allowed by the World Trade Organization – 1.3m tonnes.

That’s 1.3m tonnes that will surely help ease the tight supply on world markets caused by the effects of India and Brazil’s inclement weather.

So what is the lesson here? It’s a tale of two approaches.

Controlling companies’ access to sugar can put their business activities in jeopardy – or cause them to flee the market. Or put the emphasis on controlling production and recognise that there is a big wide world of sugar out there that could prove helpful.

At the end of the day, sugar protectionism in the US could backfire on the sugar lobby if their customers go elsewhere. And there’s already a trend for manufacturers to seek cheaper alternatives to sugar that fit their needs, like high fructose corn syrup.

Stevia sweeteners, too, are taking on sugar. Although the price of stevia sweeteners is still high, they are expected to come down as supply goes up – and undercutting sugar is part of the fledgling industry’s strategy. Being calorie-free, they have healthier eating arguments on their side, too.

There are lessons to be learned from Mrs Fischer-Boel. The US and India would be advised to heed them.

Jess Halliday is editor of award-winning website FoodNavigator.com. Over the past 12 years she has worked in print, broadcast and online media in both Europe and the United States. If you would like to comment on this article, please email jess.halliday'at'decisionnews.com

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