Global sugar prices hold promise
October 11, 2005
By Margie Inggs
Durban - Prospects for the sugar industry's 2006/07 season look promising, with the world price of sugar recently having spiked at a five-year high of $0.114 (75c) a pound (0.45kg) based on the March 2006 contract.
Eighteen months ago sugar was trading at $0.06 a pound. Given that 50 percent of local sugar production is exported and that the rand has been trading strongly against the dollar for the past two years, growers and millers have suffered severe setbacks in their fortunes.
Emerging farmers, especially, have been hard hit, as there is little margin for them to take up the slack and many of them have fallen behind with their loan repayments.
Simultaneously, the industry was hard hit by drought. While irrigation farmers in Mpumalanga and Pongola managed to ride out the crippling conditions, growers along the eastern seaboard, who are almost totally reliant on rainfall, were badly affected.
At the same time, the country's domestic price had to take a cut because of competition from imports. So all in all, a year ago the sugar industry was facing the most challenging set of conditions it had experienced in a long while.
Now, although spring rains in KwaZulu-Natal have been light, they have been widespread, raising hopes that the rainfall for the season will bring relief to hard-pressed growers. And the world price of sugar is reaching for new highs.
Trix Trikam, the chief executive of the SA Sugar Association, said the world sugar market had experienced a significant rally due to the announced reforms in the EU sugar regime that could result in a reduction in exportable refined sugar to the tune of 4.5 million tons.
"In addition, the growth in global sugar demand is stable."
Trikam said that in the short term the outlook for the local sugar industry was for a marginal improvement in dollar-based export proceeds as a result of world market prices.
He said: "Medium- to longer-term prospects depend on a range of variables, with the world market price being just one of them.
"Depending on these other variables, such as the rand dollar exchange rate and climatic conditions, a firmer world market price may help the South African sugar industry to consolidate after a sustained period of challenging conditions, including low global sugar prices."
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