Investors spot the food industry’s White Gold

Sugar has been a coveted commodity for many centuries. It had helped America win its independence from Britain. At present, two countries, namely- Brazil and India, produce over half of the worlds’ sugar. They also consume 80% of their produce. This heavy dependence on just two countries for the global supply makes sugar a volatile market.

World over sugar manufacturers are protected by local subsidies, minimum support prices, tariffs, and quotas on imports. Japan has used all of the above to cease being the third largest importer of sugar since 1995. But even today imported sugar accounts for the majority of its consumption. Japan’s present food self-sufficiency ratio is 34%.

India, too, has been protecting its farmers since the past decades. This year its domestic output rose by 31% as per the Indian Sugar Mills Association. About 47 additional mills were operated from the regions of Maharashtra and Karnataka. This achievement comes at a time when the central government has decided to do away with the subsidies this year.

Indian sugar is majorly exported to Bangladesh, Malaysia, Sri Lanka, Iran, China, South Korea, Afghanistan, and Somalia. Any gap arising due to the cancellation of subsidy, is expected to be filled by Brazil which currently plans to add 13% more canes to its production. Brazil is also to gain from China’s latest policy change of removal of protective tariffs. Brazils’ sugar export is also heavily regulated by its local currency- Reals’ exchange value. When the real is weak, farmers prefer to export their produce and when the real is strong, they sell it domestically for the production of ethanol. Major markets for its sugar are in Asia, followed by Africa and the Middle East.

China’s relaxation of its annual import quota is also expected to benefit the sugar farmers in Australia, who at present meet 70% of the raw sugar demand from South Korea.

Besides India, another major exporter from Asia is Thailand. Thailand exports a little over half of Brazils’ quantity and is expected to increase its production by 59% in anticipation of high prices. Its traditional methods of harvesting have caused pollution that has invited regulations by the government. As per the new policies, farmers are required to use modern equipment which is often expensive. This has increased the cost of production and even made farming unviable for some producers.    

Price regulation of sugar has one more aspect which stems from health concerns. Many APAC governments have levied sugar taxes in the past to manage the problem of obesity among its populations. Singapore has been mulling over to ban and impose taxes on this sweetener since Oct 2019. However, past experiments suggest that consumer behaviour and not taxation is the reason behind the changed buying habits. Sugar, considered as a luxury, is consumed more by the wealthier economies. Unsurprisingly then its largest consumer is the United States of America. The total global consumption of sugar is projected to grow at 1.4% p.a., reaching 199 Mt by 2029.

Merchant Credit and Guarantee Corporation Limited (MCG) is a global consulting firm that provides financial instruments to investors seeking a fortune in White Gold.