[The Editors' Verdict] Beware of Price Hikes Exploiting Sugarflation

Sugar Prices Surge Over 30% This Year
Meticulous Government Measures Needed to Stabilize Inflation

Kwangho Lee, Head of Distribution Economy Department

The price of ‘sugar,’ a crucial ingredient across consumer goods such as beverages, candy, confectionery, and bakery products, is soaring rapidly. It has jumped more than 30% this year alone, reaching its highest level in 12 years. As of the 25th, the price of raw sugar, the raw material for sugar, stood at $549 per ton, about 77.6% of the 2011 price, while sugar itself was priced at $699, approximately 87.4% of the 2011 price.

The sharp rise in sugar prices is largely due to reduced production caused by worsening climate conditions this year. India, one of the world’s largest sugar producers, is facing difficulties in sugarcane cultivation due to an unseasonal monsoon. Consequently, the Indian Sugar Trade Association has lowered its sugar production forecast for this year from 34.5 million tons to 33.5 million tons. Bloomberg also projects India’s sugar exports to be around 6 million tons by the end of September this year, about half of last year’s 11 million tons, with expectations that it could drop to 4 million tons next year.

While 80% of global sugar production comes from sugarcane, the remaining 20% is produced from raw sugar extracted from ‘beets.’ Beet farmland has significantly decreased due to last year’s and this year’s heatwaves and droughts across Europe. Additionally, the El Ni?o phenomenon, which raises sea temperatures near the equator, is expected to hit the Asian continent this year, further reducing production.

As concerns about sugar-driven inflation, or “sugarflation” (sugar + inflation), rise with processed food prices increasing due to the sugar price surge, the government is also acting swiftly. The government held an emergency meeting with the three major sugar companies?CJ CheilJedang, Samyangsa, and Daehan Sugar?to review sugar supply and price conditions. At this meeting, the industry requested tariff reductions, which the government accepted, lowering the applied tariff rate on the remaining sugar quota from the current 5% to 0%, and also reducing the basic tariff rate on raw sugar (currently 3%) to 0%. The quota tariff is a flexible tariff system that applies lower import tariff rates than the basic rate on specific items for purposes such as price stabilization, enhancing industrial competitiveness, supply stability, and industry protection.

Domestically, the sugar industry, led by the three major sugar companies CJ CheilJedang, Samyangsa, and Daehan Sugar, imports 1.84 million tons of raw sugar annually to produce 1.43 million tons of sugar. Of this, 1.19 million tons, or 92%, is consumed by food companies in beverages, candy, confectionery, and bakery products. When sugar prices soar, it inevitably impacts food price inflation. In fact, as sugar prices have risen, the global food price index, which had been declining for the past year, turned upward again last month. The Food and Agriculture Organization (FAO) of the United Nations reported that the global food price index last month was 127.2, up 0.6% from 126.5 the previous month.

The government expects that this measure will allow the three major sugar companies to diversify their raw sugar import sources to countries like Brazil, where a good harvest is anticipated in the second half of the year. Until now, sugar has been imported duty-free through free trade agreements (FTAs) with countries such as Australia and Thailand.

However, it remains uncertain whether price stabilization will be achieved as the government intends. Large manufacturers can negotiate prices with the three major sugar companies in advance to some extent, but some processed food companies may take advantage of the situation to raise retail prices. The government must carefully monitor all potential issues that may arise throughout the process. It must not impose further burdens on ordinary households.