Sugar prices have risen sharply and seeming endlessly over the past two years.
The severe drought and extreme temperatures have affected both sugar cane and sugar beet production. This has pushed prices higher and forced food and beverage producers to raise prices or reformulate their products.
Sugar is not the only commodity that has seen price increases. Cocoa, olive oil, and coffee are among the commodities that have seen price hikes.
Finally, there is good news.
The sugar price is falling, and at 109.4 points on the index, it has reached its lowest level since 2021.
What is causing the price of sugar to fall?
Sugar cane production in Brazil has increased, resulting in a healthy global supply and falling prices. Gabrielle d’Arco is a Vesper market insight analyst who predicts that the crop for 2025/26 will be around 41-42 millions tonnes.
In addition, Brazilian farmers have switched from sugar to ethanol as it is a more lucrative crop. This has helped to boost supplies.
The weather has also improved in Thailand, and the production forecast for 2025/26 is now 32-33 millions tonnes. This improvement comes on the heels of favorable early monsoon conditions.
“Combined with the strong Brazilian exports this has eased concerns about supply and weighed down on prices,” d’Arco says.
Sugar beets are expected to have a lower production for 2025, according to Darren Peters, vice president of Tate & Lyle Sugars. Some beet growers estimate a 9% decrease in the planted area.
Will sugar prices keep falling?
Sugar prices are expected to continue falling, at least for the near future, given that sugar production has a good outlook.
Vesper d’Arco says that prices are likely to continue falling, even though they have already dropped below 16 cUSD/lb. A global surplus will be generated by increased production in Centre South Brazil and Thailand.
Climate change is continuing to affect all crops and sugar in particular, so the long-term trends are less predictable.
d’Arco says that “weather remains the main risk in all regions.”
The sugar price is highly volatile, she says. The volatility of sugar prices is a result of predictable seasonal patterns, unpredictable macroeconomic changes, extreme weather conditions, and geopolitical events.
The current price drop will also likely lead to increased demand which may push the prices up again. China’s imports increased in May 2024 after the price briefly fell to a low of 1.5 years, showing that even short-term drops can cause significant changes in demand.
What does it mean for food?
Sugar prices have fallen in recent years, and this is good news for food and beverage producers, especially those in the bakery, confectionery, and soft drink sectors, who were most affected.
Despite the fact that the raw sugar price has dropped, there are still additional costs for manufacturers, such as tariffs on imports, costs of environmental compliance, and taxes paid by the government to the sugar industry. These costs can reduce the benefits directly from the lower prices. High energy costs and high packaging prices continue to strain budgets.
Many manufacturers, in order to stay profitable, have already changed the formulation of their products, replacing sugar with sweeteners that are cheaper.
Many manufacturers who chose to continue using sugar have passed on the rising costs of commodities onto their clients.
Dirk Van de Put stated that in November 2023, the chief executive of Mondelez, Dirk Van de Put said the company intended to implement a “straightforward increase in price” to its products in order to offset the rise in sugar costs. The company believed that its decision wouldn’t affect sales because the demand for chocolates, biscuits, and cakes was high.
It remains to be determined whether manufacturers who have raised prices in order to cover rising costs will reduce them once again.
Not all manufacturers chose to pass the rising cost to their customers. Some manufacturers made alternate plans to manage rising production costs.
Lindt & Sprungli made a concerted attempt to offset increased costs through increasing productivity and a future-oriented purchasing strategy, according to a Lindt & Sprungli spokesperson.
These manufacturers are the ones who will benefit the most from the drop in price, as they have improved their efficiency.