Was sugar underpriced? Soaring costs pinned on perfect storm of inflationary pressures

06 Jun 2023 --- Inflation has caught up with the sugar sector, which is dealing with similar problems to the general food industry, such as high fertilizer prices, increased supply chain costs and El Niño storms. After an apparent slumber for sugar prices in 2022, when prices barely increased, 2023 has been a year of sudden rise for the commodity costs.

Last month global sugar prices accelerated faster (5.5%) than during the entire 2022 (4.8% for the full year), according to the UN Food and Agriculture Organization. Sugar is now 30.9% more expensive than one year ago.

“Sugar has over the past years been an under-priced product making up a small proportion of the total value of processed sugar products. In a sample of supermarket products undertaken by the European Association of Sugar Manufacturers (CEFS), in February 2023 prices sugar accounted for just 3% of the sales price of own-brand ice cream and 7% of the sales price of own-brand waffles,” Josh Gartland, deputy director general of CEFS, tells FoodIngredientsFirst.

“Between February 2021 and February 2023, the increase in sugar prices would have increased the overall cost to produce each product by just 1.6% in the case of the ice cream and 3.6% in the case of the waffles.”

Margins under pressure
Gartland details what issues sugar manufacturers have encountered.

“EU sugar prices increased over the past year due to serious costs pressures in the shape of higher energy prices (gas and coal) and higher beet prices (owing to higher fertilizer prices, diesel and labor costs and a shrinking phytosanitary toolbox that was negatively impacting yields and made beet cultivation less attractive),” he says.

FAO explains that worries over El Niño weather phenomena are putting pressure on buyers and pushing up prices.“Furthermore, EU sugar has been affected by higher operating costs from transport, logistics, packaging and other inflationary pressures from steel, construction materials and processing aids.

Gartland notes that although energy prices have fallen somewhat over the past months, the “cost effect during the last beet campaign was enormous.”

He explains that these cost pressures are not unique to the EU and sugar prices have increased worldwide. 

“As before, EU sugar prices remain below those in the US, Mexico, Russia and China,” Gartland underscores. 

Concerns over El Niño
In its last Food Price Index, the FAO explains that worries over the upcoming El Niño weather phenomena are putting pressure on buyers and pushing up prices.

“Rising concerns over how the development of the El Niño phenomenon may affect the 2023/24 crops, together with lower-than-earlier-expected global availability in the 2022/23 season, triggered the increase in international sugar prices in May,” says the organization.

“Shipping delays amid strong competition from soybean and maize in Brazil also supported the increase in world sugar prices.”

However, a positive outlook on this year's crop in Brazil, along with improved weather during harvest, prevented more significant increases, according to the organization. Moreover, low fuel prices are not tempting Brazilian producers to turn their sugar into ethanol.

EU domestic troubles
Copa-Cogeca explained in May that farmers could be driven out of business if the EU continues with its plans to reduce pesticide use, as a loss of yields could wipe out farmers’ margins.

“France is expected to lose around 10-15% of beet acreage as a result of ECJ’s ruling against the possibility by member states to grant temporary emergency authorizations for the use of banned neonicotinoids on sugar beet,” says Gartland. 

However, the reduced beet acreage in France is forecast to be balanced by increased plantings, mainly in Poland (up 14%), Spain, Romania, Slovakia and Hungary. Such increases are driven by higher beet prices – a function of higher sugar prices.”

In the EU, sugar prices have risen more dramatically than in other nations. In April 2023, a metric ton of white sugar cost €812 (US$867), up from €446 (US$476) a year ago.There is no shortage of sugar in the EU market, according to Gartland. 

EU sugar imports, Ukraine export ban
The EU is importing more sugar and exporting less this 2023 due to higher prices, according to Gartland.

“However, the EU does produce enough to meet domestic consumption. There is no shortage of sugar in the EU market. Currently, ending stock forecasts for 2022/23 (1.236 million metric tons) remain above ending stocks from 2020/21 (1.225 million metric tons), which were not considered cause for concern by the European Commission or member states,” he explains. 

Nonetheless, “the probability to have a correct yield is low,” Timothé Masson, economic department – international affairs executive secretary of the World Association of Beet & Cane Growers, tells FoodIngredientsFirst. 

He says that this is due to the complex situation in the sector, “as fertilizers were so expansive last year, fields may have been under-fertilized. Coupled with late sowing (+10 days on average in France), dry weather and no possibility to properly fight aphids and yellow virus due to the new pesticide regulations.” 

Masson calculates Europe will need to import two or three million metric tons to equilibrate the sugar balance in 2023 and 2024. Moreover, Gartland adds that the European sugar prices situation could have been even worse without imports coming from Ukraine earlier in the year.

“Since June 2022, there has been a temporary trade liberalization of Ukrainian agricultural products, which will be extended for another year. This has resulted in a significant increase in sugar imports from Ukraine, which reached 150,000 metric tons in 2022, and we estimate around 120,000 metric tons in the first three months of 2023 alone,” he highlights.

“Should imports continue at this rate, it could mean imports of almost 500,000 tons for the full calendar year, making Ukraine the EU’s single biggest source of sugar imports.”

However, Ukraine banned sugar exports from June 5 until September to protect domestic consumption.

Moreover, cheaper imports could disrupt European sugar manufacturers. And the bloc has been previously combative of allegedly anticompetitive imports, such as those from India.

“As a general principle, the EU should not be reliant on third-country suppliers of sugar,” Gartland underscores.

“These often are produced to lower social and environmental conditions or are supported by trade-distorting subsidies. Further, a thriving EU beet sugar sector is in the interests of the EU’s food security and the competitiveness of downstream sugar users.”

By Marc Cervera