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Will sugar prices go up or plummet down?

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“The world is made up of sugar and dirt.” – Edward Doblin

At this point, it is hard to predict if sugar prices will continue to drop or otherwise. What is clear is, current prices are way too high compared to the last 10 to 15 years when a 50 kilogram bag was only between 500 to 1000 pesos.  Apart from the Negros sugar crisis in the mid-1980’s the early decade of the current century saw some difficulties in the industry, coupled by the infamous Asian financial crisis.

Fast forward, after more than a decade the sugar industry has recovered at least in terms of prices. However, analyzing its value chain, the big-time beneficiary is the marketing aspect – the traders.

UP, UP AND AWAY

Sugar prices have increased globally according to reports. But, whether to what specific factors they are attributed to cannot be ascertained, but rather, experts say it’s a combination of factors. The World Economic Forum asserts that “the prices of sugar have more than doubled due to lower global supplies in the post dry spell that largely damaged the big sugar producing countries such as India and Thailand.” The assertion came but not without obvious repercussions.

Southeast Asia bears the brunt of the El Nino phenomenon that brings extended and deep drought significantly affecting the agriculture sector. Global production for the current year is expected to decline by less than 5%. The FAO predicts a 2% reduction compared to last year that translates to over 3 million MT. Another good reason for increased sugar prices – the law of supply and demand.

Proportionally, sugarcane byproducts also decreased as did the main raw material for refined sugar. Major products such as ethanol are also at their lows compared to more than a decade, causing drastic price increases.

PITY THE POOR

On the other hand, sugar price increases have their downside at the same scale, because poor and developing agricultural nations, even sugar producing ones, suffer economically and socially out of this trend. From my perspective, the Philippines is a case in point. One, our sugar production is not advanced. Its value chain from production to marketing displays a lopsided disadvantage to the former and more advantage to the latter. 

Small planters and ARBs do not have adequate farm machinery and equipment for land preparation and harvest season. They just make the most of what they have and can only acquire these important production and harvest equipment if provided by the government because of affordability concerns. On top of this, there is less access to capitalization for bigger production that could have resulted in increased quality yield. Generally, poor sugar producing countries lack technology and improved infrastructures, resulting in low productivity. They cannot absorb high production costs which their counterparts constantly cushion. Moreover, they are heavily dependent on the ever-fluctuating global prices.

Domestically, the processing and marketing aspects of the chain where limited labor and no equipment are necessary seem to prey where they dictate the price to satiate their desired margin of profit and what not.

UP OR DOWN?

What is established is that sugar prices are fluctuating. Take the case of the Philippines, where in stores 1 kilogram is priced at 85 pesos, and the 50 kilogram bag plays at around 2,400-2,500 pesos. Will these prices keep falling or go up? Economists and experts are once again having a hard time with the trajectory of the prices, but I pose a basic question: Will the 85 pesos per kilo go down to the 50 pesos level, or go up to 100 pesos?

The rise and fall of the 50-kilogram sugar is always in the hundreds but the 1-kilogram sugar packs are only in a few pesos. What is my point? There are about more than 50% Filipinos living below the poverty line, and it is their choice to use or not to use sugar, that they now define sugar as part of their basic needs according to their affordability. There are about 5 million Filipinos directly and indirectly dependent on the sugar industry Negros being on top of them.

As to the market, we stand to import another projected 200,000 metric tons this year despite being a sugar producing country. Traders on the other hand, commit to resume exporting 30,000 to 60,000 metric tons as US quota commitment obviously according to their own anticipation of sugar price trend.

My guess? No way the sugar price per kilo goes back to 50 pesos.*

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