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A sour outlook for sugar


THE global sugar market is facing strong headwinds that could dull its sweet runin the coming years. The global sugar price plummeted from a 15-year high of US34,39c/lb in 2010 to US10,23c/lb in 2018 before recovering to current levels of c.US16,71c/lb. However, global supply and demand dynamics have warranted FAO’s depressed forecasts that range between US14,08c/lb and US16,53c/lb over the next five years.

Global sugar production output has been on the rise since 2019 but it has overwhelmed global consumption and consequently underpins a surplus of the soft commodity. So much is the disparity thatthe world is still experiencing a surplus of sugar despite Brazil, the largest producer of sugar in the world, experiencing reduced output on the back of its worst dry spell in 91 years. The world-leading sugar producing countryhas also gravitated towards ethanol production, but the decline in global activity and shifts in business models because of the pandemic are likely to keep demand for fuel low relative to supply. In Africa, output is expected to remain high, riding on the construction of what will become the world’s largest sugar-producing factory in Egypt.

Growth in global supply, however, has failed to match the increase in production because of an increased uptake in artificial sweeteners,awareness campaigns against sugar consumption, and sugar tax. The artificial sweeteners market is anticipated to grow at mild compound annual growth rate of 4% in the next five years, mainly in North America and Asia.

Kenya is among some of the countries that produce stevia and signed a trade deal with China in 2018 to supply the artificial sweetener to the Asian country.

However, some of these artificial sweeteners remain banned in other regions, such as the standing ban on stevia in the EU, because of alleged potent side-effects such as cancer and infertility.

There has also been a rise in anti-sugar campaigns over the years that are aimed at informing the public about the negative impact of sugar. These include Sugar Smart, Rev Your Bev, Kick The Can, Dunk The Junk, Sugar Free Smiles, and ChangeLab Solutionand their efforts have been statistically proven to reduce sugar consumption by health researchers Bradley et al.

Some of the major health risks associated with sugar that are highlighted by these campaigns include obesity, diabetes, heart problems and even cancer. In addition, more and more countries are adopting sugar tax as a way to reduce sugar consumption. According to Obesity Evidence Hub, six countriesimplemented taxes on sugar-sweetened beverages between 2001 and 2010, and 36 countries followed suit between 2011 and 2019.

South Africa is the first country in Africa to implement this tax and given that health challenges such as obesity are not as primary as hunger on the continent, it is likely to remain the only country with sugar tax in Africa for a while.According to a report by the World Health Organisation, a study conducted by the Mexican National Institute of Public Health and the University of North Carolina evaluated the first two years of implementation in Mexico and showedan average reduction of 7,6% in the purchase of taxed sugary drinks during 2014 and 2015.

The study also showed a 2,1% increase in purchases of untaxed beverages, particularly bottled water. Two years after the introduction of a tax on sugary drinks in Mexico, households with the fewest resources reduced their purchases of sugary drinks by 11,7%, compared to 7,6% for the general population.

In Zimbabwe, sugar output has consistently been higher than the local supply, with excess output being exported to other countries. Output has also been supported by both the public and private. Project Kilimanjaro is the latest development that is aimed at ensuring sustained output amid recent erratic weather patterns.

The project entails increasing sugar cane hectarage in the country, and we envisage output tonnage in excess of 500,000 MT after the completion of the project. Consumption of sugar in the country has been declining over the years on the back of constrained disposable incomes in the country, and extended downtime by the country’s largest sugary drinks manufacturer, Delta, between 2019 and 2020. While Delta’s production challenges look to be largely resolved, downward pressures on sugar consumption remain elevated since the introduction of Zero Sugar products in Delta’s Sparkling Beverages division lines.

Tongaat Hulett is the major player in Zimbabwe, through Hippo Valley Estates and Triangle Estates. The two estates are situated in the Chiredzi District of the Masvingo province and produce a combined 80% of total sugar cane output in the country.

According to theUnited States Department of Agriculture’s Foreign Agriculture Service, Hippo Valley Estates only produces raw sugar and Triangle Sugar Estate producesraw sugar and about 20% of the total refined sugar in Zimbabwe. Star Africa Sugar Refinery, an independent sugarrefinery based in Harare, produces about 80% of the total refined sugar including premium-refined sugar. Hippo Valley Estates and Star Africa are both listed on the Zimbabwe stock exchange and trade at Price-to-Earnings ratios of 32,5x and 189.0x, respectively, based on inflation-adjusted headline earnings.

Mtutu is a research analyst at Morgan & Co. He can be reached on +263 774 795 854 or

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