The Hindu Business Line : Global sugar prices seen rising this year too

GLOBAL sugar prices are seen rising this season (October 2005-September 2006) too after increasing by 35 per cent last year. The Food and Agriculture Organisation (FAO) has forecast the prices to be firmer as sugar consumption is projected to outstrip production for the third consecutive year.

World sugar production during 2005-06 (October/September) is forecast by FAO to touch 147.8 million tonnes (raw sugar equivalent). This corresponds to an increase of 3.7 per cent from 2004-05 and about 1,56,000 tonnes short of the projected world sugar consumption of 148 million tones (mt).

The bulk of the growth in production will be accounted for by developing countries, where aggregated production is forecast to reach 106 mt, led by a record harvest in Brazil, and a recovery in India.

Aggregate production in developed countries is forecast at 42 mt, about 3 per cent down on lower production in the European Union and Australia.

With an anticipated supply deficit for the 2005-06 season, along with declining stocks in China, India, and the Russian Federation, world sugar prices are set to remain above their 2001-2004 average level, FAO has said in its Sugar Commodity Note.

Referring to India, the note says it has reduced stocks as production fell to about 13.9 mt in 2004/05 from 14.6 mt the previous season. However, during 2005-06, output is estimated to recover to 18.5 mt, through substantial increase in plantings in response to improved prices.

Monsoon last year provided ample rainfall in the cane-growing areas of Karnataka, Gujarat and Uttar Pradesh, the main producing regions, where output is expected to reach 6.5 mt. Sugar production in Maharashtra, a key State, is also expected to recover to about 4 mt, an increase of 2 mt over 2004-05 levels.

FAO said despite a rise in production, India will import sugar to meet domestic consumption and inventory demand for 2005-06.

Among the developing countries, in the Latin American and Caribbean region, Brazil is forecast to produce 30 mt, up 3.5 per cent as a result of favourable weather condition. Sugar output is also expected to rise in Mexico, following good weather that resulted in higher yields. Output is forecast to reach 6.1 mt, an increase of 200,000 tonnes.

In Thailand, sugar output is projected at 4.6 mt, a decrease of about 15 per cent due to drought. Production is expected to be higher at 3.2 mt and 2.5 mt in Pakistan and the Philippines respectively. Output in China is expected to increase by 6 per cent to 10.7 mt, reflecting the larger crop from the top sugar producing region of Guangxi that accounts for about 60 per cent of the Communist nation's total sugar output.

Global sugar consumption in 2006 is forecast to rise two per cent to 148 mt due to expected growth in consumption in the developing countries of the Far-East and Latin America. Sugar consumption in developing countries is estimated to reach 100 mt in 2006, in line with rising income and population growth. Among developed countries, where demand had been relatively stable, consumption is forecast to remain relatively unchanged in the EU, South Korea, and the US.

In India, the largest consuming country in the world, utilisation is expected to increase to about 20.1 mt. The expected recovery in production should stimulate overall consumption in 2006. Sugar consumption in China is forecast to increase by 2.5 per cent to reach 13.7 mt, driven by increased demand from the processing food sector, combined with declining production of artificial sweeteners.

Stating that the fundamentals did not support any significant changes in sugar prices, FAO said the recent increase was mainly due to producers and funds buying back their futures contracts as well as expectations following the agreement reached by the EU member states to reform their sugar sector.