15 February 2011 | Angeline Albert
The price of raw sugar hit a 30-year high this month as traders worried about the impact of bad weather on Australia, the world’s third largest exporter.
Sugar prices rose on 2 February to settle at $35.31 cents/lb on the ICE Futures US in New York for the first time since 6 January 1981.
About 90 per cent of the sugar produced in Australia is harvested in Queensland. Cyclone Yasi arrived there earlier this month to pummel a state that had already seen its sugar crop damaged by floods in December and January.
According to a report by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), the Australian sugar cane harvest (covering June-December 2010) yielded a crop of only 3.6 million tonnes – the lowest output for 20 years.
When large exporters such as Australia suffer damaged crops, countries look to import more sugar from alternative sources including European suppliers.
Anil Alim, procurement and supply chain director at UK caterer BaxterStorey, buys sugar for the group’s businesses which cater to 300 schools as well as companies.
He said: “We had to accept a double-digit price increase from suppliers and that was as low as we could take it.”
The group’s financial year ended on 31 December 2010 and the majority of its suppliers’ contracts were up for renewal in January.
Alim added: “Some suppliers were asking for a 20 per cent rise in prices. We can’t go back to schools and tell them the fixed meal prices we agreed in the contract have changed, so we squeeze our margins to cope. Sugar prices are still rising but we have been able to lock in prices early for the next year.”
To mitigate the risk, Alim said he used a lot of wholesalers to harness their buying power but “benchmarking work revealed we had to concede that prices are rising”.
World sugar prices were also affected by too little rain in Brazil, the world’s largest exporter, which saw a very dry spell last July, August and September dramatically reduce its sugar cane harvest.
Sergey Gudoshnikov, senior economist at the International Sugar Organisation, said: “Australia’s harvest is one of the main factors affecting sugar prices which have been badly affected by bad weather conditions in major sugar producing countries.”