Do Rising Sugar Costs Warrant Concern?

June 3, 2017

According to the most recent Food and Agriculture Organization (FAO) food price index released in September 2016, global food prices rose to their highest point since March 2015. This huge increase was mainly due to the increased sugar costs. Apart from for a slight dip experienced in July, food prices have been steadily increasing since January, when the index hit a remarkable 7-year low.

The food price index is prepared by the FAO every month as a way of measuring changes in the food prices for several key commodities, which includes a basket containing dairy products, oilseeds, sugar, meat, oilseeds, and cereals. September had an average index of 170.9 points, which was 2.9% higher than the previous month and also 10% higher than the same period last year in 2016.

The rising food prices were mainly attributed to higher sugar costs in September. Sugar had an average of 304.8 points in FAO’s index results, which is a 6.7% rise from August and also the fifth consecutive increase so far in 2016. The latest increase in global sugar costs is attributed to the poor weather conditions in Brazil, which is the world’s biggest producer and exporter of sugar. There have also been reports of reduced production in India, along with tight sugar supplies in China and Thailand, which have all contributed to the upward trajectory of prices.

Despite the rising sugar costs in the world, UN’s FAO stressed the fact that food prices, in general, were still moderately low. They also added that the food market was still stable since all the other essential commodities in the food basket still had reasonable prices. In fact, if sugar prices remained constant and stopped increasing, then the index would have been flat. However, many economists argue that there is no possibility for huge declines at the moment.

An analysis of the food price index shows sugar costs will continue rising slowly in the next coming months. Even though this is great for farmers and everyone involved in the production of sugar, it is not quite so good for the consumers. Nevertheless, the global food market remains largely well balanced; especially when you consider the other agricultural commodities such as cereals which continued maintaining a stable price.

Leading analysts recommend that companies that rely on sugar must not yield to the market whims and constant change in food prices. Instead, they should consider implementing strategies that will help minimise price shocks, like the increasing sugar costs, to ensure they are able to still remain profitable in the ever-changing global food market.