Global stockpiles of sugar have decreased so dramatically that current figures estimate a deficit of 5.4 million metric tons for the 2023-24 season. This is a considerable change from the 2022-23 season’s global deficit of one million metric tons.
The drop in supply is due to another poor harvest expected in India amid below-average monsoon rains totalling the lowest volumes in five years. In Thailand, the third-largest sugar producer, severe drought is expected to cut sugar output by nearly 20% for the 2023-24 season.
Shortfalls have put pressure on Brazil, the world’s largest sugar supplier, to fill the gaps and prevent a global shortage. Though Brazil is experiencing record-high sugar production this season, currently about 25% higher than the year prior, its supply is not expected to be sufficient in meeting global demand for the versatile commodity, widely used in food and beverage making, pharmaceuticals and biofuels.
Drought lowers sugar production estimates in India and Thailand
The cumulative rainfall this monsoon season in India was the lowest it has been in the last five years. Some parts of Karnataka and Maharashtra states, key sugar producers, were among the driest areas, registering approximately 25% of their normal August rainfall volumes. In Maharashtra, sugar output is expected to fall 14%, after the driest August on record in the state in more than a century.
Indian producers are now expected to have a sugar output of 28.6 million tons in the upcoming 2023-24 season which started on October 1. This is a notable drop from the Indian Sugar Mill Association’s initial prediction of 31.68 million tons, made before the monsoon season began. To control domestic sugar inventories and retail prices amid the poor seasonal outlook, Indian authorities announced an extension to export controls which limit sugar exports to six million tons, down from the usual 11 million tons.
In Thailand, many farmers have already transitioned to the less water-intensive and, consequentially more profitable, cassava crop. This has further lowered the prospects of a sugar market recovery in the 2023-24 season, as Thailand typically exports 11 million tons of sugar annually, around the same amount as India. Thailand is expected to export roughly nine million tons of sugar this year, which positions it as the second-most critical supplier for global market recovery after Brazil.
In both India and Thailand, heat, drought, and dry conditions are expected to worsen as El Niño conditions remain in place through early 2024. El Niño typically suppresses rainfall in portions of Southeast and Southern Asia during the Northern Hemisphere’s fall and winter, causing concern that Indian, and possibly Thai, authorities will strengthen trade restrictions on sugar given the long-term negative outlook for regional weather conditions.
Food and beverage, pharmaceuticals, and biofuel makers at risk
The food and beverage sector remains the most reliant on sourcing sugar as a critical raw material in end-use consumer products, accounting for around 40% of the market. Whether granulated, refined, or liquid sucrose, food and beverage producers rely on sugar inputs to manipulate the taste and texture of various consumer products. For example, sugar provides bulk, density, and viscosity in food products. Without it, high-sugar-containing products must find appropriate substitutes, which is not always possible given specific molecular compositions needed for food and beverage products.
The most common industrial uses for sugar are in dairy and beverage products. Beyond the contributions to taste and texture, sugar is used to prolong the shelf-life of highly perishable dairy products as it binds water to foods and prevents the growth of microorganisms. The dairy products most reliant on sugar in this way are flavoured milks, yogurts, and ice creams.
Beverages depend on sugar inputs for taste, with soft drinks, energy drinks, and alcoholic beverages leading in sugar consumption. Sugar is also a critical component in the chemical processes behind alcohol production, as grains and fruit must ferment with sugar to create beer, wine, and various liquors.
Sugar is also a critical raw material for pharmaceuticals and biofuels. In the pharmaceutical industry, it is used in powered form for producing medicine capsules that prevent water and air intrusion, making pills easier to swallow, and in syrup form to add viscosity and bulk to liquid medications. Sugar also acts as a stabilizer for both the storage and transport of critical medications, as it keeps the structure of the proteins intact.
Sugar crops are becoming increasingly important to the biofuels industry, as residual materials from sugar extraction processes have had proven success in ethanol production. Residual beet pulp and bagasse, the leftover material from sugar extraction from cane, can produce ethanol through fermentation.
Everstream clients are receiving more detailed insights and recommendations about this risk.
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