Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Sugar: A global perspective - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jun 7, 2006

    Sugar: A global perspective

    The sugar market is highly regulated throughout the world. It is produced in over 100 countries with about two- thirds of the output consumed in the country of production. Brazil, India, the EU, Australia and Mexico are the largest producers of sugar. Trade barriers, including production quotas, guaranteed prices and import tariffs, impart a significant degree of distortion to international prices. We analyse the global scenario in brief and its implication on sugar prices.

    Consumption pattern: World sugar consumption, which was at 118.1 MT in 1996 rose to 145.1 MT in 2005. During the last three years (i.e. 2002 to 2005), demand has grown by 9.6 MT (2.3% CAGR). India and China together account for 45% of the world's total consumption (though bulk of the Chinese consumption is still saccharine). Overall, the world sugar production is expected to grow at an annual rate of 1.1% as against 0.47% earlier. Growth could accelerate depending upon the rate of shift from saccharine to sugar in China. But overall, the world sugar consumption is expected to be around 160.7 MT in 2010.

    Year Production ( MT) Consumption (MT) Imports End stock Ratio
    2001-02 137.99 135.46 45 61 45%
    2002-03 149.58 139.54 48 69 49%
    2003-04 144.39 142.93 48 67 47%
    2004-05 146.37 145.09 50 65 45%

    Source: F.O. Litch.

    Demand supply situation: Brazil and India are the largest producing counties in the world. Global production has increased from 125.8 MT in 1996 to 146.4 MT in 2005. The following structural changes had a significant impact on sugar prices in the global markets.

    • Success of flexi-fuel vehicles (FFVs) in Brazil - Brazil is the largest producer of sugar in world at around 23 MT. Currently, the blending of ethanol with gasoline in Brazil is in the ratio of 20:80 (Source: International Sugar Organisation). Brazil started manufacturing flexi-cars (running 100% on ethanol). With demand for such vehicles growing faster, demand for ethanol is also likely to increase). If more cane is diverted towards ethanol production, we believe that the demand-supply equation in the global markets for sugar will remain in favour of sugar producers, thus resulting in higher prices.

    • Rising crude prices - Due to rising/firm crude prices, the search for alternate source of fuel has increased manifold. While many areas are still under the development stage (including fuel-cell and jatropha-based fuels), commercially, ethanol has proved to be a successful alternative (taking Brazil as the example). If crude prices continue to increase, we believe that ethanol demand will increase at a much faster rate.

    • EU subsidy reduction - Under the WTO ruling announced in mid-2005, EU is under obligation to cut subsidies on sugar. This would result in EU becoming less competitive, which will open up new opportunities for Indian players apart from higher prices.

    Regulations: Each country has its own rules apart from the WTO norms to protect their domestic industries. Sugar has been under the WTO scanner, many developed countries provide high subsidies to maintain competitiveness in the global markets. Europe leads the pack as far as sugar subsidies are concerned. However, the WTO regulations have forced EU to change its policy, which will come into effect this year.

    EU subsidy: The European Union is a key player in the sugar market. Its produces around 20 MT of sugar and is one of the largest exporter in the world. The European Union currently pays about US$ 1.8 bn per year in support to the sugar sector (as the cost of the production and consequently, the cost of the sugar sold is higher. Besides, import duty is at higher levels to give protection to domestic manufacturers). To put things in perspective, sugar prices in the EU is almost 3 times of the world sugar prices. Subsidies, as is known, breeds inefficiency and post the latest ruling by the WTO with respect to subsidies on sugar by the EU, we expect sugar supply to come under pressure going forward. (chart sugar prices)

    Sugar trading is subject to various controls. Import restrictions, political compulsions, domestic support in the form of production quotas and limitations on market access have artificially kept sugar prices at low levels. However, since the announcement of the EU reforms in June 2005, prices of both raw and white sugar have increased by over 20%. Sugar prices touched the high of US$ 484 in April 2006. Given this backdrop, based on our interaction with sugar companies, prices are expected to remain firm over the next two years. This is not only on account of demand growing in India and China but also due to cane production being diverted towards ethanol at the cost of sugar.



    Equitymaster requests your view! Post a comment on "Sugar: A global perspective". Click here!


    More Views on News

    Sorry! There are no related views on news for this company/sector.

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms