How has the coronavirus impacted sugar for the global confectionery market? - Ragus Sugars reports
With countries in lockdown seeing a huge uplift in purchases of stable foodstuffs, including sugar-rich convenience foods, the transfer of sugar consumption to the private home has seen an increase in the supply of industrial sugar. With the situation certain to continue, Ben Eastick, Marketing Director, Ragus Sugars, lifts the lid on how this may affect sugar for the confectionery market in the coming months.
The coronavirus (COVID-19) has completely altered our livelihoods and the global economy. Lockdowns around the world have closed restaurants, cafes and offices, with almost all sporting events and concerts now cancelled or postponed. As a result, the point at which sugar is being consumed has shifted - but will this affect the global demand for sugar used in confectionery?
Times of crisis create concerns over food supply lines. In response, agricultural commodities, such as sugar, tend to perform well. Since the UK’s lockdown, we have seen consumers hoard items such as bread, flour and pasta and if this continues, individual countries may have to start stockpiling foodstuffs, leading to a surge in demand for sugar.
COVID-19 hit the world just as global sugar prices were starting to recover from the 10 year low of 2018, reaching 15c/lb this February. Since the outbreak, the commodity price of sugar has plunged back to 10c/lb for raw sugar, the lowest value since 2018.
It is still unknown exactly how sugar consumption will be affected by the global lockdown created by COVID-19, but overall consumption could reduce by as much as 2mln tonnes, with countries already adopting isolation measures seeing a 5% reduction in sugar consumption. At Ragus, we have seen that while demand for sugar out of home has dramatically decreased, demand for sugar has increased for industrial consumers making foodstuffs for home consumption.
Total global sugar production for 2019/20 is estimated to be 176mln tonnes, compared with 184.9mln tonnes produced in 18/19. These figures translate to a total global deficit for sugar of around 10mln tonnes in 2019/20.
TIMELY EUROPEAN HARVEST
Heavy rainfall since September delayed the tail end of lifting the beets in Europe, with many countries concluding harvests just before lockdowns took effect. Sugar production for what was the EU 28 is estimated at 17.4mln tonnes for the 2019/20 campaign, which will result in the EU becoming a net importer for the second year in succession. Recent improved weather has seen all the beets processed and Spring sowing beets for 2020/21 crop is now complete, after a delayed start due to very wet February weather.
The majority of Europe is now on coronavirus lockdown, which will result in reduced consumption of sugar across the foodservices sector, but we expect to see an uplift in industrial use as indoor consumption increases. This makes the conclusion of the harvest especially timely, allowing sugar manufacturers like Ragus to draw on the several months-worth of sugar stored in liquid form to produce industrial sugars and syrups.
Year to date, exports of EU sugar onto the world market are down 46% and are estimated to be only 1.0mln tonnes for this season, compared with 1.6mln tonnes in 18/19.
Harvesting for 2019/20 came to an end in April with a higher crushing rate compared to last year. The prospect for the 2020/21 crop, which starts later this month, is very positive. This is due to good rainfall, meaning moisture levels in the soil remain high, allowing for good cane development.
However, the spread of COVID-19 in Brazil is yet to be fully realised. This means there are still risks of labour shortages and stoppages of the mills producing sugar. The ports of Santos and Paranagua are currently operating normally, but it remains to be seen whether this remains the case.
We will have a clearer picture of how these potential factors could affect sugar needed for the global confectionery market in the coming weeks and months. Initial signs of a plentiful harvest are promising but could be thwarted by any subsequent port closures. With India also feeling the effects of the coronavirus, there is a chance for Brazil to step in and fill any supply shortcomings. Whether it will be able to do so, however, is still unclear.
Brazil exported 19mln tonnes in the 2019/20 season, its lowest total in several years. With the predicted sugar mix being over 46% for the 2020/21 crop, this should add a further 10mln tonnes of exportable sugar onto the world market. With the industry being an important supplier of food, fuel and power to the country, any enforced government lockdowns as a result of the coronavirus are unlikely to shut down the mills.
Lockdown looming, Brazilian mills are doing their utmost to crush as much as they can, preventing uncut cane from being left in the fields. Such actions should help ensure a stable supply of sugar. This depends, of course, on whether ports can remain fully operational.
The coronavirus has now arrived in India and the country’s 21-day lockdown has caused its economy to experience a major slowdown. This comes as the country’s sugar industry was already near crisis point, with reduced exports, local demand falling, and cane farmers not being paid the contracted price.
The 2019/20 crushing season was set to be significantly smaller than the previous season due to the cane area harvested being reduced by 33% and waterlogged fields in August affecting cane recovery. Shortages of labour, transport, processing material and packaging have exasperated the situation further, even before COVID-19 reached the country.
As of March, the mills had produced 21% less sugar than this time last year. Now, they are temporarily closing due to cane cutters saying working conditions do not leave them adequately protected from the coronavirus.
Lockdown has also effectively ended Indian white sugar exports for the short term. Private ports have declared force majeure, while the still open government ports are crippled by the labour shortages dictated by the orders for workers to stay at home. Container traffic is at a standstill and customs are operating at 5-10% capacity.
For the 2019/20 crop, we estimate that 26.5mln tonnes will now be produced, down from 35.9mln tonnes in 18/19. Indian mills have supplied just short of three million tonnes onto the world market, of the committed 3.8mln tonnes. The total figure will be well short of the predicted 5mln tonnes. This is due to a drop in world market prices as a result of the coronavirus making overseas sales unprofitable for mills. Existing contracts may also even be cancelled.
Early signs of lockdown raising demand for in home sugar consumption have been welcome news to industrial sugar producers. The confectionery market is expected to be a key beneficiary from this sudden surge in demand, as consumers stock up on comforting foods during a distressing time. Such is the resilience in the UK’s sugar supply chains, we are equipped to deal with this.
Not only do many manufacturers have several months’ worth of sugar in reserve at any one time, but the UK and Europe’s sugar beet harvest has now ended. The sugar from this is now sitting in industrial holding tanks, ready to be used. Greater challenges will come once the coronavirus tightens its grip on the likes of India and Brazil.
As long as ports remain open, there are the measures in place to keep sugar supplies running as usual, such as added protocols on hygiene and social distancing. Confectioners should, therefore, have the same volume of sugar products available to cope with any lockdown-induced increases in demand. Manufacturers in the UK are also taking coronavirus-related measures, further ensuing a business as usual supply of sugar. For example, we have cancelled all non- essential site visits to Ragus and all office- based staff are working from home.
These measures should combine to limit the coronavirus’ impact on the sugar available for the confectionery market.
As such, producers will be able to deal with rising demand and continue to fulfil customer orders.