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Unsweetened forecast: why sugar prices skyrocketed

This autumn, wholesale prices for sugar have sharply increased in Russia – one and a half times compared to the same period last year, it follows from the Ministry of Agriculture data. Confectioners have already expressed concern about the high cost of raw materials.
The sharp rise in wholesale sugar prices began in September of this year. Analytical materials of the Ministry of Agriculture indicate that as of 18th of October in the Southern Federal District the wholesale price for sugar (traditionally, the basis for determining it is Krasnodar) was 50% higher than in October last year – 35.9 rubles per 1 kg. Since the beginning of the year, the wholesale price has increased by almost 44%. The reason for the growth was not indicated in the materials of the ministry, and the press service of the Ministry of Agriculture did not comment on the rise in sugar.

The rise in wholesale prices for sugar in mid-September was a surprise for the market, recognizes the leading expert of the Institute for Agricultural Market Studies (IKAR), Yevgeny Ivanov. According to him, despite the fact that after 24th of September in most regions, wholesale prices for sugar slowly declined, in Central Russia in October they still remain at 35 rubles per 1 kg. The increase in wholesale prices is confirmed in the Russian office of the French Sucden, which, in particular, produces sugar under the Uslada brand, and supplies products for Coca-Cola, PepsiCo, Mars, Nestle, Heineken.

One of the main reasons for the increase in the wholesale price of sugar is the low yield of sugar beet, explains Ivanov. In 2018, the area of sowing of sugar beet was 6% less than in the previous year: 1.13 million hectares were sown for this crop. At the same time, the yield of sugar beet in the south of the country decreased by 25% compared to last year, to 371.6 centners per hectare. As a result, Russia, according to ICAR forecasts, will produce 5.8 million tons of sugar in the 2018/19 season, which is lower than the previous season’s figure and 6–6.1 million tons forecasted. Sugar deficit, however, does not expected in Russia: at least 200 thousand tons of surplus reserves from previous seasons are preserved, and about 300 thousand tons are imported from other countries, primarily from Belarus. Taking this into account, Russia will even be able to export about 150–200 thousand tons of sugar for export.

In the 2017/18 season, the sugar beet harvest was good and sugar in Russia was produced 6.6 million tons with domestic consumption of 6-6.1 million tons. The surplus of sugar formed on the market led to the fact that its prices began to fall. Belarus helped to solve the problem, which agreed to buy out “extra” beet sugar from Russia and load its factories with it, limiting the import of raw cane sugar.

A month ago, the market began to panic, which was associated with a very low yield of sugar beet in the Krasnodar region. This region provides 25% of sugar production. According to him, the poor harvest of beets in the region is associated with a strong drought. When it became clear that the situation was better in Central Russia, the sugar content in beets was high, production forecasts began to increase warning, however, that sugar exports could decline this season.

The shortage of sugar and the rise in prices on the domestic market can be created artificially due to the fact that Russian sugar producers decide to take advantage of the deficit in neighboring Kazakhstan, where Russia has a single economic area. Kazakhstan used the privilege within the EEU and could import duty raw sugar from third countries (in Russia, the duty is $140-250 per ton), but from 2019 this will not happen. In addition, from 1st of August this year, the privilege for some participants in the free economic zone on duty-free import of white sugar from outside the EEU was canceled, and now such sugar, when imported to Kazakhstan, is subject to a duty of $ 340 per ton, as in Russia. As a result, manufacturers began to declare a critical situation: in September, purchasers left sugar “for five to seven days”, and “in two weeks” the sugar would end in retail chains, Kazakhstan media quoted the head of the food supply division department at Raimbek company Suren Abibulayev. The Ministry of National Economy of Kazakhstan denied the shortage of sugar and the rise in prices, media reported.

The rise in sugar prices has already worried confectionery manufacturers. According to RBC executive director of the Association of Confectionery Enterprises Vyacheslav Lashmankin, now at the level of professional associations ASCOND and Soyuzrossahar, consultations are underway on the situation in the sugar markets.
Any increase in the cost of raw materials leads to an increase in production costs and reduced profitability, said the chairman of the board of directors of the Konfael group, Irina Ildarkhanova. She recalls that this year for confectioners because of the weakening of the ruble, imported raw materials have already risen in price. The increase in sugar prices will most of all hit the low-cost segment of confectionery, which is almost entirely composed of sugar – caramel and lollipops. The consumer will not feel the rise in the price of confectionery immediately, it will be gradual.

Sugar is becoming more expensive not only from wholesale suppliers, but also in grocery stores: according to the Ministry of Agriculture, from the beginning of 2017 retail prices for sugar in October increased by 17.6% to 42.7 rubles per 1 kg. However, compared with October last year, prices rose by only 5%. Rosstat data show that in September retail prices for granulated sugar were lower than a year ago: 41.1 rubles against 42.6 rubles per 1 kg. However, Rosstat does not yet have data for October. Retail prices traditionally react to wholesale dynamics with some delay. In X5 Retail Group (Perekrestok, Pyaterochka, and Karusel), according to its representative, the rise in sugar purchase prices have been fixed since early September. But this growth was moderated by the retailer itself, and the retail price of sugar remains stable, the representative says.

Sugar is included in the list of socially significant products for which the state can set retail price limits for 90 days, if within a month this product has risen in price at least in one region by more than 30%. In total, the list includes 24 products, including bread, chicken eggs, drinking milk, carrots, apples, several types of meat and fish.

World sugar prices are at a low level, but global markets have also seen an increase, according to ICAR. Prices are rising amid expectations of a deficit global sugar balance after two seasons of surplus. According to preliminary estimates, the shortage of sugar in the 2019/20 season will amount to 7.2 million tons while consuming 189.6 million tons.

Source: www.rbc.ru


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