THE PRICE OF SUGAR ON THE WORLD MARKET CONTINUES TO SOAR – YET BELIZEANS WON’T BENEFIT

Elizabeth Pridgeon

Freelance Journalist

Public attention across the world has been focused on the increasing value of sugar over recent weeks, in both the major European and American markets.  Understandably, many local cane farmers have been optimistically hoping for the positive effects to be felt within the Belizean industry, yet even despite Belize being a major international sugar producer, it is almost guaranteed that none of the perks of good trading conditions will be felt for the thousands of northern sugar cane farmers so desperately needing reprieve right now.

To understand the fact that no matter what international trading conditions seem to be, the Belizean sugar industry still does not thrive, it is necessary to first get a broad understanding of the concepts behind the sugar market.  Sugar is principally traded in two forms: refined white sugar, which is traded on the London Futures Exchange (Number 5 Contract), and raw sugar, which is traded in New York on the Intercontinental Exchange (ICE) (Number 11 Contract).  Refined white sugar has peaked over recent weeks to a level not seen since the ‘black’ years of the early 1980s, and at the end of last week, the price stood at US$ 596.50 per metric ton.  Future trading has already increased the price even further, with December rates already peaking over US$600 per metric ton.  Similarly, raw sugar has sustained its historically high prices reached in September, and currently sits around the US24 cents/pound mark. Both sugar contracts represent an almost 90% increase in price since the beginning of 2009, which is both extortionate and almost entirely unexpected.

Experts are accounting the dramatic rise in prices to three principal causes: the late arrival of monsoons in India, investor speculation and a lack of investment due to the economic recession.  India is one of the world’s leading sugar producers, alongside Brazil; now that Indian supply seems unable to satisfy demands, the world market has increased its dependency on Brazil, but heavy rains in South America are repeatedly destroying its potential too, leaving the world with a potentially devastating sugar shortage.  Theoretically, this all seems promising for smaller producers like Belize, for whom the sugar industry is a key source of external financial revenue.

However, the Belizean market has long-standing access to the preferential markets of both the EU and the US, which offers vulnerable producers (like Belize) a means of protection from fluctuating prices on the open market.  This agreement (particularly with the EU market) began as a mutually beneficial understanding – guaranteeing a supply of sugar for the European market in exchange for a stable and strong selling price for Belizean producers.  Yet even if the fixed prices of only the past four years are compared, it is easy to understand the growing crisis which is increasingly dragging Belizean trade below endurable levels: the EU offered a price of €523.70/metric ton in 2006, and the price for the upcoming 2010 season has been set around €335 for the same metric ton measurement, representing almost a 40% fall in just four years.  Belize Sugar Industries now has the unenviable dilemma between fulfilling their quota commitments on the EU market (which, at 48,000 tonnes accounts for almost half of the country’s expected production), or to disregard their longstanding agreement and sell on the more advantageous US preferential market (anticipated to equate to around €480/metric ton for the 2010 season).  The difficulty in the decision-making process arises because the preferential access to the EU market cannot be guaranteed unless Belize repeatedly fulfils its requirements on an annual basis.  Thus, Belize Sugar Industries (BSI) could choose to sell on the preferable US market this year, but by ignoring the EU requirements and failing to meet their commitments this year, it could be penalised via exclusion to the preferential markets in future years.

Financiers from BSI disclosed this week that it is unlikely that the preferential agreements will be neglected solely in order to increase income during the 2010 season, meaning that – as usual – BSI will cater to the longstanding expectations of the EU despite floundering prices on the European market this year.  So – despite all the energy and hope invested by Belizean cane farmers that an increase in world sugar prices will positively impact them, it seems that not even this is able to lift them out of the dire circumstances of trade that they currently endure.

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