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Yet another crisis for bakers as price of sugar soars

Manufacturers catch cold as global sugar prices shoot higher, reports Franklin Alli.
“Hike in the prices of sugar has led to significant drops in our profits. You can’t make bread without sugar.  This is the major problem confectionaries and bakers are facing now.  No single baker is making profit ,” said Chairman, Association of Master Bakers and Caterers of Nigeria, Lagos Chapter, Alhaji Lateef Oguntoyinbo.

“We are appealing to the Federal Government to do something about it before it is too late. The price of sugar rose from N3,000 about a year ago to the present price of N7,000 per bag. Producers in Lagos are buying the commodity almost at N8,000 per bag.  You can imagine the price they will be buying it in Kaduna and Enugu.  Some of our members complained that they have been buying it at N9,000, how can they survive in this time of economic recession.”

He warned that unless government intervenes, consumers should expect to pay more for bread, beverages, biscuits, candy, and other products that use sugar. “Consumers are impoverished and we are appealing to the government because if the situation continues like this bread may be off the shelves and we can not encourage members to use banned items. We are appealing to the government for subsidy on sugar imports to address the shortage in the country.”

Industry analysts say the price of the commodity is soaring higher because like oil, sugar is an international commodity. Unlike oil, sugar is an agricultural product which output is dependent on weather condition. This year has seen droughts in some parts of the world and wetter than normal weather condition in other parts particularly where sugar is grown. Both extremes have affected the growth of sugar cane. Reports from various sugar-growing countries showed that in India which is both the largest exporter and importer of sugar will in 2009 be a net importer of sugar. India’s inventories will fall by 50 per cent to 4.54 million tons, equal to three months consumption. Reports from farmers indicate that plants are only one foot high compared with normal growth of five feet. Rainfall was 64 per cent below normal in the growing regions. To fill the gap, the Indian government is extending duty free imports.

Studies have shown that  India, the biggest consumer had the driest period in 83 years; Brazil is the other major sugar cane producer. This year Brazil was expected to have a record crop. However, heavy rains have prevented tractors from harvesting sugar cane. Moisture also leaches sucrose from plants.

According to the report Global demand will exceed supply by about 5 million tons. Mexico which normally is the biggest exporter to the U.S. has set an import quota of 393,000 tons until December. It forecasts an 11 per cent drop in production to 4.9 million tons. A weak U.S. dollar is also a factor in rising sugar prices.

A combination of these factors is driving the price of sugar higher on the futures markets. Prices have surged 76 per cent this year with futures trading around 20 cents a pound. The number of 40 cent options has quintupled to 180,000 contracts. Sugar prices reached an all time high of 66 cents a pound in 1974. On one futures contract each 1 cent equals $1,120. Hedge funds are loading up on long sugar contracts, looking for higher prices.

Global sugar prices are now the highest in 28 years unlike other commodities whose prices are subject to stock markets.  Economic analysts attribute such rise to a problem in raw sugar sources in the light of Brazil’s growing demand for the substance for alcoholic ethylene fuel.

On the other hand, there has been a decrease in production in India during current and last year by about 45 percent due to the drought that converted the country from an exporter to an importer.  More than 100 countries produce sugar, 78 per cent of which is made from sugar cane grown primarily in the tropical and sub-tropical zones of the southern hemisphere, and the balance from sugar beet which is grown mainly in the temperate zones of the northern hemisphere. Generally, the costs of producing sugar from sugar cane are lower than those in respect of processing sugar beets. Currently, 69 per cent of the world’s sugar is consumed in the countries of origin, whilst the balance is traded on world markets. Because of the residual nature of the world market, the free market price is one of the most volatile of all commodity prices.

A source told Financial Vanguard that the high cost of sugar may lead to an increase in smuggling of the commodity into the country. The source further noted that although smuggling of sugar from neighbouring countries has not been rampant over the years, smugglers might use the opportunity to bring in the commodity through the nation’s porous borders.  They may even disguise it as fertilisers or rice.

The source said that key operators in the Nigerian sugar industry ( Dangote Sugar Refinery, Savannah Sugar, and BUA Sugar Refinery) had better rise to the challenge by increasing their production capacity to meet local demand, otherwise, smuggling of the commodity may rubbish their investments.Financial Vanguard gathered that local demand for sugar is between 2.5-million and 3-million tonnes a year. Of this figure, Dangote Sugar produces 1,440 ,000 metric tons of refined sugar per year, Savannah Sugar currently produces 55,000 metric tons a year .


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