Sugar price is up, but farmers have moved on

SUGAR prices have been rising, but after a decade of low prices there are now fewer cane farmers to profit from them.

Ian Ballantyne, the CEO of the industry body, Canegrowers, said projected sugar prices were hovering around $400 a tonne, about $100 more than returns last year.

"We have seen the sugar price recover from where it was in 2007, and the projection out as far as 2010, '11 and '12 is for a very strong sugar market," Mr Ballantyne said.

The reason is an international contraction in production.

Brazil, the powerhouse of sugar production, is forecast to reduce production by 2 million tonnes in 2008-09, while India will cut production by 5-6 million tonnes. Thailand is also lowering production and the European Union is not exporting sugar.

"We are looking at an annual increase in consumption of around about 1.5-2 per cent per annum, which is about a 3 million tonne increase per annum," Mr Ballantyne said. That increase, combined with the cut in world sugar production, could bring a deficit of 3-4million tonnes in 12 months, "so the fundamentals forward are pretty good".

Mr Ballantyne said the sugar market was "quite deep. You can price sugar as far out as 2011, 2012 and we are doing that. Even when we had a strong dollar we were getting some very strong prices, and individual grower and sugar milling companies have been locking in future production, particularly 2010, 2011 at prices well above $400 a tonne".

Gordon Galletly, from the Mackay office of MBB Queensland, said cane farm prices reflected the price of sugar. "As soon as the sugar price fluctuates, the cane farm prices basically follow it."

That means, with the sugar price being in the doldrums for the past decade, cane farm prices have been down too.

But cane farms on multiple titles have been an exception. "You might have a total farm area of a few hundred acres, but there might be four or five different titles that farm is on," Mr Galletly said. "Those titles can be sold individually, and what has been happening is lots of miners and people wanting to get into rural acreages are buying individual titles."

It means good prices for cane farms that will no longer be worked as cane farms.

Farms on a single title usually continue under sugarcane, although growers are experimenting with other crops such as corn and cotton, pumpkins and watermelons.

Mr Galletly said there were "quite a few" cane farms listed for sale on MBB's website. He suspects most canefarmers, if approached by a buyer, would sell. "There are a lot of farmers looking to get out." But sugar prices are forecast to rise next year. "They are expecting over $400 a tonne next year. Once they start getting that, the farm prices will certainly follow."

Sugar prices have fallen, but the slide in the Australian dollar has cushioned the impact on Australian farmers and millers. "Even with a slowing world economy, the fact is there is a demand. Consumption goes up year-on-year irrespective of what is happening," he said.

The strong prices are offset by rising fuel, fertiliser and chemical costs. Mr Ballantyne said the falling dollar should reduce fertiliser prices. And he points out skyrocketing costs are affecting Australia's competitors as well.

During the 1990s, the average price of sugar was about $350 a tonne. But the price plummeted in the year 2000 and for most of this decade it has been around $250 a tonne. Last year it finally rose.

"We have, last year and this year, a sugar price with a three in front of it. We are now looking at potential to have one with four," Mr Ballantyne said.

But the break-even point has risen, too. "We used to talk about $300 to $310 (a tonne). We are now talking $350."

The low prices led to a huge restructure of the industry. Canefarmer numbers fell from 6500 in the year 2000 to 3800 today. Mr Ballantyne said farmer numbers might have nearly halved, but the area under production only contracted 20 per cent, "so there has been a consolidation and an increase in unit farm size".

Sugar mills have also been rationalised. Australia produces about 5million tonnes of sugar a year. Of that about 20 per cent is consumed domestically, The remaining 80 per cent is exported, earning between $960 million and $1.5 billion.

Australia is the world's second-largest exporter of raw sugar after Brazil. Brazil's production dwarfs Australia's, but most of it is directed into ethanol.
source:theaustralian.news