Interview with Dr Peter Baron, Executive Director, International Sugar Org

by Dave

Business Standard’

Where does India stand in terms of opportunity based on per capita consumption?

The rapid economic development in India with increased purchasing power, is creating a stronger demand for sugar beyond urban and sub-urban areas. If India’s per capita consumption (now around 18kg) increases by 1kg, sugar demand rises by roughly one million tonne. The world average per capita consumption stands at around 24kg; it is 40kg in the mature markets of Europe and 31kg in North America.

The potential for an increase in India’s per capita consumption is considerable. Healthy economic growth will clearly translate inter alia into higher per capita sugar consumption, approaching the world average in the not too distant future.

Ethanol is looked at as an alternative fuel providing some relief from rising crude oil prices. Would it impact global sugar prices?

The answer depends on the extent to which sugar crops emerge as a dominant feedstock for ethanol production. Brazil accounts for the lion’s share of global fuel ethanol production from sugarcane and this will not change over the next 5 years. While other countries are embarking on fuel ethanol programs, few of these will likely result in a large volume of sucrose being diverted away from sugar and towards ethanol instead.

Depending on the underlying economics, feedstocks other than sugar crops are also likely to be used. In consequence, over the medium term, the potential for ethanol to impact the sugar market will remain centred in Brazil.

A very important development in Brazil is changing the responsiveness of its sugar production to relative gasoline and ethanol prices. The increasing fleet of flex-fuel vehicles there has led to an increasing volume of price-sensitive ethanol demand.

This is because for flex-fuel vehicles, consumers react to the relative price differential between ethanol and gasoline (gasohol). The supply of sugar from Brazil is now therefore linked to price signals and to expectations about demand for ethanol in the local and international markets.

On the other hand, any decline in crude oil prices would result in an easing in ethanol offtake and consequently greater volumes of sugar diverted onto the world sugar market.

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