The “bitter” truth in the sugar market: Consumers reduce consumption of sugary foods

Sugar prices fall to three-year low

Global sugar prices are hovering near a three-year low as food companies cut sugar and turn to alternative sweeteners amid health concerns over sugar, including diabetes, obesity and heart disease.

This reality is posing the risk of a long-term decline in sugar demand just as sugar output in the world's largest sugar producing countries is reaching record levels.

The downward trend in sugar prices is similar to that of other agricultural commodities such as corn and wheat, which are forecast to have lower yields this season due to the drought that has swept across Europe and Asia. Since the beginning of the year, corn and wheat futures have increased by 2% and 28%, respectively, but raw sugar futures have fallen by 30.5% to 10.54 cents (2,450 VND) / pound (0.45 kg) on ​​the ICE Futures Exchange (USA).

Sugar is the worst-performing traded commodity this year and speculators are betting sugar prices will continue to fall.

The fall in sugar prices has had mixed effects around the world. In Europe, Canada, and parts of the Middle East, consumers have benefited as sugar prices have tended to track world prices. But consumers in countries like the United States, Japan, and China have still had to pay higher prices than world prices because of government subsidies.

The world’s top sugar producers, such as Brazil, have been hit hardest by the slump in sugar prices. Brazilian sugar producers are having to sell sugar below the cost of production.

Sugar-free drinks are on the rise

Adam Sarhan, CEO of investment consultancy 50 Park Investments (USA), said that sugar prices will continue to decline due to weak demand. Sugar demand is gloomy because consumers' tastes are changing. They are staying away from sugary drinks and switching to unsweetened teas and sparkling mineral water with fruit flavors.

According to the investment company Susquehanna Financial Group (USA), in the past 5 years, soda revenue in the US decreased by 1.2 billion dollars but natural mineral water revenue increased by 1.4 billion dollars.

This year, for the first time in history, Coca-Cola introduced new flavors for its Diet Coke line, its sugar-free soft drink. In its second-quarter financial report, Coca-Cola reported double-digit growth in Coca-Cola Zero Sugar compared to 3% growth in traditional Coca-Cola products. Coca-Cola Zero Sugar does not contain sugar but contains alternative sweeteners.

In Spain, beverage company PepsiCo has reduced sugar in its products by 29% since 2006 and is aiming to reduce sugar content to less than 100 calories in two-thirds of its products by 2025.

Last month, Germany’s Südzucker, Europe’s largest sugar producer, and Tel Aviv-based food technology company DouxMatok signed a partnership agreement to develop a sugar that can reduce the sugar content of foods by up to 40 percent. The sugar has silica particles embedded in its sugar molecules, which increases the surface area of ​​the sugar molecules that come into contact with the taste buds on the tongue, allowing consumers to taste more sweetness without increasing the amount of sugar.

Sugar surplus rises to record levels

“Sugar consumption in Europe and the US has not grown for many years and there is no prospect of further growth due to the popularity of alternative sweeteners,” said Judith Ganes Chase, president of commodities market research firm J. Ganes Consulting in New York.

While this fact signals a change in sugar demand in the coming period, sugar supply is still increasing.

In its monthly sugar market update report released in July, the International Sugar Organization (ISO), an intergovernmental body based in London, said the global sugar surplus will reach a record level this year and continue to be in surplus next year. This means it will take a long time for the market to absorb the global sugar surplus.

Australian consultancy Green Pool Commodity Specialists predicts that the global sugar surplus will reach 19 million tonnes in 2018, the highest level in history. However, sugar producing countries have not reduced the area under sugarcane cultivation. For example, sugarcane farmers in India are expanding the area under sugarcane crops after the Indian government issued a series of policies to support sugar exports, including eliminating the 20% sugar export tax.

According to the Indian Sugar Mills Association, India’s sugar production is forecast to rise to 31.5 million tonnes in 2017-18, which is 6.5 million tonnes more than India’s annual sugar consumption. As a result, India has to find ways to “dump” sugar on the international market, which could further depress sugar prices.