Why have sugar prices changed?
With recent reports in the trade press warning of ‘frightening’ price hikes in the food and beverages industry, we explain why sugar prices have increased in the past year, and why continuity of supply is more important now than ever before.
What is causing the rise in sugar prices?
Within the UK and Europe, the rise in sugar prices cannot be attributed to a single cause. Sugar prices are being affected by multiple factors simultaneously, which can be crudely divided into the below three areas.
COVID-19 creating challenging supply issues
No industry can escape the challenges presented by the global pandemic. Six months have passed since the UK went into its first lockdown, and there has not been any lasting progress in the battle to overcome the virus. With national regulations and import/export laws changing by the week, transportation of goods has become complicated.
This is a challenge which is being exacerbated by the global sugar supply deficit. While sugar supply chains are robust, they are not impenetrable, and many obstacles have arisen importing sugar into the UK. Ports all over the world are in a constant cycle of shutting down and then reopening, making the sourcing and importing of primary production materials more difficult. In addition, recent news has claimed there is a ‘seafarer time bomb for global food supply’ because some seafarers have been unable to dock due to changing port restrictions. Unless the government recognises seafarers as key workers, this issue will continue to grow and intensify the existing porting challenges.
Poor growing conditions in sugar beet producing nations
It is no secret that beet growing nations have struggled this year. Growers have experienced the worst of extreme weather – heavy rains during planting and dry summers during growing. As a result, nations across Northern Europe will feel the effect of this weather in lower tonnage.
More damaging than challenging weather, though, has been the outbreak of Virus Yellows in these countries. The EU’s 2018 ban on neonicotinoids has been well-documented, and it seems as though 2020 is the first year we have truly realised the impact the ban has had on growing. The worst affected nations have been France and Belgium, with Virus Yellows decimating entire regions in each nation. Consequently, the French Agricultural Minister expects France’s beet output to fall by 15% this year. The UK has not fared much better either: British Sugar is expecting to produce 160,000 tonnes fewer than the 2020/21 season.
Lower output results in increased prices due to greater competition and demand. Combine this with greater difficulty importing cane sugar from around the world, and prices will inflate.
The cost of Brexit
Since the UK voted to leave the EU four years ago, the impact of doing so has been a huge talking point. While much has been discussed, as it stands a potential ‘no-deal’ looks increasingly likely. Consequently, this would see an end to the free movement of goods and a full World Trade Organization (WTO) €419/tonne duty applied to white sugar imported from the EU.
This would not only increase the price of sugar but also the prices of food and beverage products more generally. In fact, the British Retail Consortium (BRC) has estimated that food tariffs will rise by an average of 20% from a no-deal, which has resulted in suppliers warning their customers of substantial price increases. It must also be said, however, that there is still the possibility that the government will agree to an eleventh-hour Brexit deal. What that deal might look like, though, remains to be seen.
How does this impact the food and beverage industry?
The above challenges demonstrate that the sugar industry is facing complicated challenges – on both a national and global scale – which have resulted in rising sugar prices. Of course, increased prices are never welcome, but the global sugar supply deficit means that this situation cannot be avoided.
To overcome the supply deficit, sugar manufacturers are importing in bulk to maintain sufficient stocks of raw product. But this comes at a cost. Thousands of tonnes of sugar cannot simply be stored on site, meaning manufacturers have to pay both the warehouse rental fees to store the sugar, and the additional transportation costs required to deliver the sugar from the warehouses to their production facilities. These additional costs contribute to increased sugar prices.
But in the current global circumstances, this is a price worth paying. Particularly when operating within tight markets, food and beverage manufacturers rely on continuity of supply – because if they do not, their operating costs and margins are left to chance.
To mitigate supply risk and subsequent disruption to daily business operations, then, food and beverage producers often agree on 12-month fixed-price contracts with sugar manufacturers. The demand for this type of continuity is now growing. In these uncertain times, there is a need for certain solutions.
Ragus’ wealth of expertise enables it to safeguard customers by consistently delivering bulk orders on-time and in-full. Contact a member of our customer services team on +44 (0)1753 575353 or firstname.lastname@example.org to complete your order today. For more sugar news and Ragus updates, follow Ragus on LinkedIn.