Sugar prices expected to stabilise, forecasts FAO

The Organisation for Economic Co-operation and Development (OECD) and Food and Agriculture Organisation (FAO) met in Paris on Wednesday to present the world Agriculture Outlook for 2007 to 2016.

The report noted that although the sugar market, like the marekts for other agricultural commodities, has been squeezed by a growing demand for ethanol, the supply and price situation of sugar is expected to stabilize.

Increased biofuel demand is "not expected to unduly constrain the amount of cane available for sugar production and sugar exports (are) projected to rise strongly and to exert a moderating influence on world price prospects over the coming decade," said the report.

After hitting 25-year highs in 2005/2006 due to supply pressures, sugar prices were recently below the expectations for 2006/2007 at $253.5 (€186) per tonne.

The FAO forecasts this to reduce to $231.5 (€170) per tonne by 2009/2010, and then increase to $242.5 (€178) per tonne by 2016/2017.

This is still an increase on the average price for the last five years of $217.6 (€159) per tonne.

"Sugar prices remained below earlier expectations for 2006-07, reflecting abundant supplies, higher stocks and an emerging global surplus," the outlook said.

World sugar consumption is expected to rise to over 186,000kt from the current 152,000kt per year, for the next ten years.

The report said the majority of world production and consumption growth will be seen in developing countries over the outlook period.

The fastest growth is expected in Asia, with China, Indonesia, Korea and Japan remaining significant sugar importers, according to the report.

This is particularly the case due to the forecasted increase in demand for sugarcane-based ethanol.

Brazil currently supplies 40 per cent of world sugar trade, which is expected to be largely supplying the demand for ethanol.

But recent pressures on prices are set to relax, as the FAO predicts that supply will rise up to meet additional demand while demand generated from the biofuel industry.

However, it suggests the EU will reduce production and increase imports under the EU sugar reform of February 2006.

This is in order to make the EU sugar sector more competitive by allowing better rates to developing countries, with the possibility of challenging the Russian Federation for its role as the leading sugar importer.

"Sugar reform in the EU and the retraction of large white sugar supplies from the international market contributed to a widening white sugar premium in 2006."

Sugar exports are expected to rise from Mexico to the US next year due to the elimination of the trade restrictions between the countries under the North American Free Trade Agreement (NAFTA).

However, the report suggests the rise in demand will reduce Mexico's exportable surplus.

Total world sugar production is set to increase from 162,000kt to 187,400kt per year during the outlook period, according to the report.