Sugar wears away tooth enamel. Its surging price, up 41 per cent in the past year, has also eaten into consumer budgets.
Paying an extra 40 pence per kilogramme in the supermarket may not break budgets in the UK. But in developing economies with expanding populations, a sugar rush is under way. Supply is tight. Consumption of these moreish calories shows no sign of abating.
Blame the El Niño weather phenomenon. This can cause unusual and violent weather patterns. Top producers Brazil, India and Thailand have local issues too.
For the largest, Brazil, production is not the problem. This year its output has climbed 10-15 per cent compared with two years ago. Getting sugar out of the country is tough, however. Heavy rain plus congestion at important ports such as Santos, near São Paulo, is squeezing world supply. Do not expect any expansion of capacity before mid-2025, says senior analyst John Stansfield at DNEXT Intelligence.
India and Thailand have the opposite problem. Dry weather has slashed sugarcane yields. Number two producer India has curbed its exports. Forecasts vary, but one from the US Department of Agriculture has India’s exports falling again in the year to September 2024, down by almost half over two years.
Meanwhile, demand in emerging economies has not stopped. Countries such as Indonesia and Egypt have a sweet tooth, plenty of festivals that revolve around sugary treats and fast growing populations, say experts at Marex. Strong demand in the Middle East and south-east Asia should mean a supply deficit of 3mn tonnes of sugar worldwide this year. That gap is not expected to close up before 2025.
Higher sugar prices have boosted the fortunes of some listed producers, such as Brazil’s Sao Martinho. Its locally listed shares have risen by a quarter over the past year, and now trade at about 5 times forward ebitda. As with larger rival Cosan, a fair bit of its sugar goes into making ethanol fuel, widely used in Brazil. About half of Brazil’s sugar crop is turned into ethanol.
Consumers worldwide will take more lumps by paying steep prices for the next year at least.
*This note has been altered to reflect that India has curbed its exports.
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