The Australian sugar sector will benefit from increased exports and growth in world consumption, driving up the price of sugar through to 2020/21, according to the Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES).
Global sugar consumption is set to outstrip production to the extent that closing stocks will deplete by 23% over the five-year period to 2020/21, according to a recent report.
This mechanic is forecast to drive up the market price for sugar from 14 US cents per pound to 15.9 US cents per pound (in 2015/16 terms) over that same stretch.
That will translate to a return for Australian growers of A$44 a tonne by 2020/21, compared with an expected A$37 a tonne in 2015/16.
During that same stretch, Australian sugar exports are tipped to grow from a forecast 3.05mt this financial year, to 4.38mt in five years’ time.
The projected growth in export volumes, combined with an improvement in the price of sugar, will lift Australia’s sugar export value to $2.16bn in 2020/21 (in today’s dollars), compared to a forecast $1.77bn figure this financial year.
World sugar production is forecast to decline this financial year, with poor conditions impacting yields in some areas, and growers responding to low sugar prices in others, resulting in lower production in China, the EU and India, being only partially offset by increases in Australia, Brazil, Thailand and the US.
While global production declines, consumption is set to continue its upward trend, impacting stocks.
“World sugar consumption is forecast to exceed production in 2015/16, reducing world stocks and putting upward pressure on prices,” ABARES research analyst Benjamin Komla Agbenyegah explained in the Agricultural commodities – March quarter 2016 report, released this month.
“If realised, world sugar stocks will decline for the first time in six years, having increased significantly between 2010/11 and 2014/15 to reach a record 77.8mt.”
World production will bounce back in 2016/17, according to ABARES, with recoveries expected in China, Brazil, India and the EU.
But increased production is still not expected to meet consumption growth through to 2020/21, putting a slight upward pressure on the price of sugar, Dr Agbenyegah wrote.
“The world indicator price for sugar is projected to rise slightly in 2017/18, before easing towards the end of the projection period,” he said.
“By 2020/21 the world indicator price is projected to average around US16 cents a pound (in 2015/16 dollars). This projected higher price in 2020/21 is largely based on an expectation that world sugar consumption will continue to exceed production and reduce world stocks over the medium term.”
ABARES projects world sugar consumption to grow by an average of 2.5mt a year over the medium term, to reach a record of around 197mt in 2020/21
“This projection is based largely on rising world population and continued income growth in non-OECD countries, particularly in India, China, Brazil and Indonesia,” Dr Agbenyegah explained.
“The food processing industries in these countries are expanding rapidly and expected to increase sugar consumption accordingly.”
In the same time frame, world sugar production is projected to grow around 2% per annum, to 196mt in 2020/21. Consumption is set to outstrip production by almost 4mt on average, over that five-year stretch.
Increased production in Brazil, as well as in other major sugar producing countries, including India, China, Thailand, Mexico, Australia and Pakistan, will be key to worldwide production growth, ABARES predicts.
“Production growth is expected to be largely driven by increased planted area, as producers respond to higher sugar prices,” the bureau explains.
“Some improvement in yields is also expected, under the assumption of average seasonal conditions.”