Rising sugar costs at the global market could raise prices in EA

by jeff ottieno

The regional price of sugar could increase as the year progresses if the cost of the commodity continues to rise in the international market.

The latest figures show that

raw sugar futures have increased by about 10 per cent this year, despite the prices of most commodities declining. Recently, sugar futures ended at around 15.92 cents a pound on the Intercontinental Exchange — an American network of exchanges and clearing houses for financial and commodity markets — up from a five-year low of 13.50 cents.

The rise in price has caused anxiety among consumers, despite predictions by the Food and Agriculture Organisation that production will remain steady this year. The latest trend is a result of the dry weather, which has affected the world’s number one sugar producer Brazil.

“Brazil is experiencing problems mainly because of the harsh weather and this will impact negatively on global sugar output,” said agricultural economist George Mwangi. Mr Mwangi said it is still too early to precisely predict whether the cost of sugar will increase in East Africa.

Most of the sugar imported into the region comes from the Common Market for Eastern and Southern Africa (Comesa) countries like Egypt, Zambia and Malawi. Kenya and Rwanda, for example, rely on imports from Comesa to supplement local production. Kenya imports about 250,000 tonnes while Rwanda imports about 59,000 tonnes.

The former Kenya Sugar Board chairman, Saul Busolo, said East African countries would only see price increases if there was a sharp decline in production not only in Brazil but also in other exporting countries.

“Sugar exporters in Africa are still recording high sugar cane production,” said Mr Busolo. He, however, did not rule out the chance of sugar prices increasing in the future.

There are already concerns that the flooding in Malawi, one of the leading sugar exporters in Africa, might affect production. Recently, Illovo Sugar Malawi said the damage to land under cane is not extensive but added that it is still too early to make a full assessment on whether the floods will affect the company’s 2015-16 crop levels.

“We still expect surplus production according to predictions by the International Sugar Organisation despite the problems facing Brazil. EAC countries should only start worrying about a rise in the cost of imported sugar if demand surpasses production. We are still safe for now but anything is possible,” said Mr Mwangi.

The International Sugar Organisation predicts production to exceed global demand by about 473,000, metric tonnes, however, this will be the least since the 2009-10 season, when the world experienced a major deficit of the commodity.

The fear of a price increase, comes in the wake of a forecast by FAO, which had indicated that sugar production is set to rise in the 2014/15 period on the back of continued area expansion and improved processing capacities in Africa. However, the UN organisation cautioned that the positive forecast could only prevail if the weather conditions remain favourable.

FAO said South Africa, Swaziland, Sudan and Morocco are anticipated to harvest larger crops, while there will be no major changes in production in Kenya.

The organisation warned that a decline in production would negatively affect Kenya, adding that the country is still facing problems due to the fact that sugarcane farming is still rain-fed and based on low-yielding varieties.

“Recently the Kenya government has been encouraging farmers to switch to high-yielding varieties to improve their competiveness, especially as the country is to grant duty free access to sugar sourced from Comesa after February 2015,” said FAO.

Mr Busolo agreed with FAO’s observation saying Kenya will continue to face difficulties in sugar production due to myriad of challenges ranging from poor policies, outdated farming methods to vagaries of the weather.

Due to inefficiencies in production it costs as much as $500 to produce a tonne of sugar in Kenya, which is almost twice what is spent producing the same amount in Uganda and Tanzania.

Research organisation Kenya Institute for Public Policy Research and Analysis said the average productivity per hectare in the country is around 60 tonnes, far below that of Zambia and Malawi at 113 tonnes and 105 tonnes respectively.

SOURCE: the east african