Shortfalls in India and Brazil pushing up prices for commodity globally
Ravi Velloor, Straits Times 20 Aug 09;
NEW DELHI: The unpredictable weather is playing havoc with people who have a sweet tooth or get a sugar rush whenever a festive occasion is around the corner.
Drought in parts of India and excess rainfall in Brazil - two major world producers - are causing shortfalls in sugar cane crops and pushing up prices worldwide to unseen heights.
The international price of raw sugar hit a nearly three-decade high of 23 US cents (33 Singapore cents) a pound last week, compared with 11.8 US cents at the end of last year.
India, the world's biggest consumer of the sweetener, is feeling the pangs.
The world shortage is also poised to cut into the bottom lines of food companies such as Cadbury, Nestle and Danone.
What all this means for the consumer, whether in India, Singapore or the United States, is that the next sugar fix will cost much more.
In India, the demand for sugar, like gold, tends to peak at festive times. The country has a series of festivals starting this weekend, and ending with Deepavali in November. Therefore, one reason for surging global prices is that speculators are eyeing the prospect of India importing vast amounts of sugar.
'Last year, many farmers moved out of sugar cane because of low prices,' Mr Vinay Kumar, president of the National Federation of Cooperative Sugar Factories, told The Straits Times.
'This year, the drought has added a new issue. Sugar production may not go beyond 15 million tonnes,' he said. India produced a little more than 26 million tonnes of sugar in the 2007-2008 season.
As food prices tend to be politically sensitive, the Indian government has moved to quickly free up sugar imports in order to try hold prices down. With India looking set to buy at least five million tonnes of sugar, or about twice what was initially expected, an international scramble to sell to the country has broken out, often with hilarious consequences.
Earlier this month, Indian naval boats intercepted a North Korean vessel anchored suspiciously at a remote area close to the Little Andaman Island. Its crew was arrested and the cargo seized, sparking speculation that it could be linked to an illegal nuclear trade with Myanmar.
Interrogation of the crew later revealed that the hold contained 16,500 tonnes of Thai sugar bound for Iraq. But after the ship's charterers heard that New Delhi had allowed duty-free sugar imports, they decided to divert the cargo to an Indian port instead. So, as the captain waited for the official notification to reach customs officials, he dropped anchor off the Andamans, sparking an alert.
Late last week, large US food companies warned that the country could 'virtually run out of sugar' unless the government eased import curbs, the Wall Street Journal reported.
In a letter to the Agriculture Secretary, the companies - including Kraft Foods, General Mills, Hershey and Mars - said there could be a severe shortage of sugar used in chocolate bars, breakfast cereal, cookies, chewing gum and thousands of other products, the paper reported.
They also reportedly warned that they would raise consumer prices and lay off workers if the Agriculture Department did not allow them to import more tariff-free sugar. Current import quotas limit the amount of tariff-free sugar the food companies can import in a given year.
Consumers are complaining of sugar stocks running low in Malaysia, where the Ramadan fasting month starts on Saturday, and ends on Sept 19, the eve of Hari Raya Aidilfitri.
The shortage, which has hit sundry shops, has forced consumers to buy from hypermarkets and supermarkets, Malaysia's The Star daily reported this week. Shoppers are limited to 2kg each time.
To prevent panic buying, the Perak state government has allowed sugar to be sold temporarily at petrol stations, The Star reported yesterday.
'The Hari Raya celebration is just around the corner, and many people, especially those making foodstuff, are hoarding sugar in fear of shortages and price hikes,' said an official of the Perak Sundry Shops Guild, Mr Diong Khek Chai.
In Singapore, prices holding but for how long?
Straits Times 20 Aug 09;
AS WORLD sugar prices soar on falling yields, suppliers and retailers here are starting to feel the pinch.
A source from a major industry player said that suppliers' wholesale pricing decisions are closely tied to world prices of sugar futures, which have been climbing steadily since the start of the year.
Recent developments, such as unfavourable climatic conditions in the sugar-exporting countries of India and Brazil, are likely to exacerbate the situation and drive prices up further.
Retailers have been absorbing the increases so far. Data from the Department of Statistics indicates that the average retail price of 2kg of white sugar has remained within the range of $2.63 to $2.66 between January and June this year.
Mrs Mui-Kok Kah Wei, deputy director of integrated purchasing at NTUC FairPrice, said the supermarket chain would be keeping sugar prices stable in the next few months, despite recent developments.
'As we have longstanding contracts with our suppliers, we have been able to hold prices and will not be increasing the prices for most of our sugar products in the short run,' she said.
But retailers, including those who make use of sugar in their production processes, are facing mounting costs.
The chairman of the Singapore Bakery and Confectionery Trade Association, Mr Liow Kian Huat, said that while most bakeries will not be raising the price of bread and other baked goods in the near future, he could not rule out price increases should the cost of sugar continue to rise.
According to Mr Liow, a 50kg bag of imported baking sugar used to cost $38 just a month ago, but now costs $46.
'Most bakeries have been absorbing rising ingredient costs - we didn't raise prices when the cost of eggs and butter went up recently as well,' said Mr Liow.
He said that if sugar prices went up by another 50 per cent to 100 per cent, bakeries and confectioneries might be forced to raise prices to cover costs.
CHIA YAN MIN
