World sugar production increases but prices remain high, says USDA

By Peter Stiff

- Last updated on GMT

Related tags European union International trade Sugar Eu Usda

Soaring sugar prices are set to continue with supplies remaining
tight, despite increased production, according to the US Department
of Agriculture (USDA).

Short sugar supplies in the US and Asian markets combined with reduced supplies of sugar entering the world export market will continue into 2006, the USDA forecasts.

Prices, which are currently at their highest point since 1980, are also being affected by speculation, the USDA said.

This confirms previous estimates for the new year, which runs from October to September, by the Food and Agriculture Organisation (FAO).

The FAO had forecast that increased production in developing countries would be offset by rising consumption in developing countries, stabilising current prices.

The USDA gave estimates for world sugar production for the 2005/06 marketing year of 144.2 million tonnes, an increase of 3.3 million tonnes.

Consumption is forecast at 142.8 million tonnes, up 1.7 million tonnes on the previous year.

The world export market is expected to be 47.7 million tonnes, an increase of 1.4 tonnes.

The forecast increases can be attributed to a number of producing countries.

India is expected by the USDA to increase production by 4.2 million tonnes, Brazil up by 500,000 tonnes and China up by 700,000 tonnes.

The increased forecast in world exports is also traceable to a number of producers.

The EU will increase shipments by 1.7 million tonnes, Argentina up by 305,000 tonnes and Brazil expected to ship an extra 200,000 tonnes.

Exports from Thailand will continue to decline the USDA have forecast.

Thai shipments are expected to decline by 700,000 tonnes. Thai exports for 2005/2006 forecast at 2.7 million tonnes represent a 40 per cent decline from the 4.5 million tonnes average four years ago.

The top seven sugar producing countries account for 60 per cent of total world production. In fact, the top three producers, Brazil, India and the EU account for over 40 per cent.

Despite this two of the top four producers, India and China, are not among the top exporting countries.

Brazil is the world's largest producer and exporter of sugar.

The country accounts for 20 per cent of total world sugar production and nearly 38 per cent of total world exports.

In light of the highflying sugar prices Brazil is giving more and more land over to produce the commodity. Land devoted to sugar cane production has increased by over a million hectares since 1996.

The USDA cites Brazilian industry analysts as forecasting that between 40 and 50 new mills, producing one and two million tonnes of cane, will be operational by 2010.

The report forecasts a rise in EU production.

The increase is attributed to good weather resulting in higher sugar beat production with higher sugar content. Another key factor in increased EU production is enlargement.

The 2004 accession of 10 countries forming a 25-member state strong EU contributed about 3.7 million tonnes.

EU production is forecast at 21.2 million tonnes, with 3.6 million tonnes coming the new member states, mainly the Eastern European ones.

Exports for 2006 are forecast at 7.1 million tonnes, a rise of 1.7 million tonnes on the previous year.

As well as exporting the EU is also a leading importer of sugar.

The EU imports 1.6 million tonnes of raw sugar, which it refines and re-exports.

This is a result of the African, Caribbean and Pacific (ACP) programme, whereas 17 countries that were former British, French and Portuguese colonies receive production and export subsidies from the customs union.

However, due to impending EU sugar reform the ACP countries will soon receive less money for their sugar.

Due to the negative impact of reform, which may result in sugar production being unviable, the EU has earmarked funding for restructuring aid to help some producers diversify into new crops.

Related topics Commodities Cocoa

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