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Published: Mar 30, 2023
Updated: Mar 30, 2023

Sugar Prices Surge: Global Food Inflation Threatens Amid Tightening Supply

Rising prices touch highest levels in a decade

Sugar prices have surged to the highest level in more than a decade, while the raw variety is near its costliest in over six years. This price hike is leading to increasing costs for the industry and putting pressure on global food inflation. The rise in prices is attributed to the tightening supply of sugar due to India, one of the leading sugar exporters, cutting exports after rains hurt the sugar cane crop and diverted more sweetener to biofuel.

The global supply of sugar is already tipped to show a shortage next year by Green Pool and Covrig Analytics. If India exports less sweetener than expected next season, the prices will have to rise to extract sugar from any other part of the world. The decrease in Indian exports is down to lower output and the diversion of sugar cane for biofuel. As a result, the global market is experiencing a significant reduction in supplies from India, which is leading to a price hike.

Impact on UK inflation

The jump in sugar prices has already worsened the impact of inflation in the UK, with shoppers paying more for baked goods, sweets, and fizzy drinks. The tightening supply of sugar is also putting pressure on the global market as the consumption of sugar increases, and stockpiles decline. The situation is further exacerbated by the fact that Brazil, another leading exporter of sugar, is experiencing delays in harvesting due to rains, which may constrain supplies to the global market.

While the production of sugar cane in Brazil is expected to be bumper, the country is also gathering a record soybean crop, leading to port capacity constraints. Output in Thailand, another leading exporter, is also likely to miss forecasts this year. Therefore, the steady increase in global consumption and declining stockpiles have made supplies from India even more crucial for the world market.

Diversion of more output to ethanol production affects supply of sugar in global markets

The Indian government's biofuel program, which aims to reduce air pollution, cut oil import bills, and boost farmer incomes, is diverting more sugar cane to ethanol production. This program is leading to less cane juice used for making sugar, which is further reducing the supply of sugar for the global market. In conclusion, the tightening supply of sugar and the diversion of sugar cane for biofuel are putting pressure on the global market, leading to a surge in sugar prices, which is threatening global food inflation