Poor Crop Yields and Biofuel Use Due to Indian Heavy Rainfall
'Sugarflation' Becomes Reality in the UK
Global sugar prices have surged to their highest level in 11 years, raising concerns that this could drive up food inflation.
On the 29th (local time), May sugar futures on the London ICE Futures Exchange closed at $618.1 per ton, the highest level since 2012.
Sugar Prices Soar, Heavy Rainfall in India Drives Increase
Supply reductions in India, the world's largest sugar producer and the second-largest sugar exporter, are the main cause of sugar price instability. Heavy rains in India have negatively impacted the sugarcane crop, the raw material for sugar, and the use of sugarcane for biofuel production in India has significantly reduced the amount of sugar exported overseas.
According to a Bloomberg expert survey, India's sugar exports are expected to be about 6 million tons by the end of September this year, roughly half of the 11 million tons exported a year ago. There are also projections that exports could fall to 4 million tons next year, indicating further potential for sugar prices to rise.
Enrique Akamine, Head of Sugar and Ethanol at Tropical Research Services, a market research firm, analyzed, "If India exports less sugar than expected next year, sugar prices will have to rise further. Only then can other countries increase sugar extraction."
Increased Biofuel Production Also a Factor
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The use of sugarcane for biofuel production has also contributed to the reduction in sugar exports. The Indian government plans to increase the amount of sugar used for ethanol production from 3.6 million tons last year to 5 million tons this year, and 6 million tons by 2025. This would amount to about one-seventh of India's projected sugar production this year (32 to 34 million tons).
Additionally, Brazil, the largest sugar exporter, is experiencing delays in sugarcane harvesting due to heavy rains. Brazil's soybean harvest is also abundant, causing delays in logistics and shipments. Thailand, a major sugar supplier, is also likely to fall short of market expectations for this year’s export volume.
Is Sugarflation Coming?
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As sugar supply fails to meet demand, rising sugar prices are already pushing up other food prices, signaling the onset of "sugarflation" (sugar + inflation). In the UK, the sharp increase in sugar prices has driven up the cost of bread, snacks, and soft drinks, and combined with shortages in fruit and vegetable supplies, grocery prices surged 15% in February this year. The rate of increase in food and non-alcoholic beverage prices reached its highest level since 1977. Consequently, the overall consumer price inflation rate last month was recorded at 10.4%, exceeding expert forecasts of 9.9%.
Earlier this month, the United Nations Food and Agriculture Organization (FAO) also expressed concern that sugar prices are soaring due to reduced exports from India and strong global demand. According to the FAO’s global food price index, sugar prices in February rose 6.9% compared to the previous month, marking the largest increase since February 2017. This contrasts sharply with the overall global food prices, which fell by 0.6% during the same period.
Bloomberg reported, "Rising sugar prices are becoming a new threat to food inflation," adding, "With steady global consumption growth and declining stocks, India's supply is becoming increasingly important to the world market."
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