World sugar prices to remain low and volatile
In 2018–19 world sugar prices are expected to fall to a 10-year low due to elevated world production and record carry-over stocks. World production is expected to exceed consumption for the second year in a row, sustaining high export availability. World import demand is expected to fall due to plentiful supplies in major consuming countries, including China, the European Union, India and the United States.
Support policies affecting export decisions in India and Thailand are expected to increase price volatility in 2018–19. Returns to Australian canegrowers are expected to be lower as a result of falling world prices.
f ABARES forecast. s ABARES estimate.
High world sugar production
World production in 2018–19 is forecast to be lower than the record level reached in 2017–18. Sugar production in Brazil is expected to fall as the volume of sugarcane allocated to ethanol production increases. EU production is expected to fall more substantially because dry conditions have affected beet yields. Sugarcane yields in India and Thailand have also been affected by less favourable growing conditions.
Despite these declines, world production is forecast to be the second-highest on record. This is a result of previous area expansions in countries with distortionary support policies, including the European Union, India and Thailand.
Opportunities and challenges
Interventionist policies impeding market adjustment
Biofuel and sugar support policies in Brazil, India and Thailand have been revised due to low world sugar prices, uncertainty in global crude oil markets and the rising cost of oil imports resulting from the high US dollar.
Changes in the domestic support policies of these major exporting countries will lead to greater price volatility. The potential for greater biofuel production to lift world sugar prices over the remainder of 2018–19 will be muted by record world sugar stocks.
Trade uncertainty and distortions creating volatility
The Indian Government has mandated domestic sugar mills to export 5 million tonnes of sugar in 2018–19. This volume exceeds Australia's total annual production. However, Indian mills are holding out because of low world prices and in anticipation of greater industry assistance due to looming state elections in 2019. Uncertainty surrounding the timing and volume of Indian exports is creating market volatility.
China's import tariffs on sugar, designed to safeguard its domestic industry, are expected to direct world exports to other Asian and Middle Eastern markets. The redirection of exports to markets such as Indonesia, Japan and the Republic of Korea is expected to put pressure on returns to Australian canegrowers.
Australia's Sugar Code of Conduct Review
The final report of the review of the Sugar Code of Conduct will be presented to the Australian Government at the end of 2018. The review has examined the appropriateness of the code to regulate unconscionable conduct in the sugar supply chain and guarantee the grower choice of marketing entity for on-supply of sugar. It has also assessed the impact of the code on industry competitiveness and its net benefit to the Australian community.
In their reviews of the sugar industry, the Australian Government Productivity Commission and the Queensland Productivity Commission found no evidence of market failure that could warrant legislative intervention. Both reviews questioned the legitimacy of providing growers an entitlement to the sugar produced by millers.
Health awareness constraining growth in demand
Falling world prices are expected to lead to some growth in world sugar consumption in 2018–19. However, world demand growth is being constrained by health concerns, slow population growth in advanced economies and a substitution towards alternative sweeteners.
Future growth in world sugar demand will depend on income growth in developing countries and whether increasing health-consciousness in these countries limits per person consumption. Expected health policy changes in emerging and developing economies are likely to reduce longer-term growth in demand and place downward pressure on prices.
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