A 50 per cent rise in global sugar consumption over the next 20 years will strain already groaning infrastructure and force prices higher, one of the top sugar merchants has warned.

Czarnikow, the London-based sugar company that dates back to 1861, said long-term prices would need to stay above 22 cents a pound to encourage the necessary investment in production of the sweetener. That is more than double the prices of the past quarter-century, when sugar sold at an average of 10 cents.

The projections, published on Tuesday, paint a bullish backdrop to the annual gathering of the sugar industry in London this week. Most expect prices to reach a 30-year high above 30.4 cents a pound within weeks on the back of production cuts and very low inventories, and there is optimistic talk of much higher prices in coming months. On Monday, ICE raw sugar for March delivery was up 1.4 per cent at 28.62 cents.

Sugar’s 125 per cent rally since May has coincided with comparable jumps in other agricultural commodities such as corn and wheat, triggering fears of a repeat of the 2007-08 food crisis. The increase is likely to put further pressure on food inflation, particularly in emerging markets. Sugar makes up a significant part of the UN Food and Agriculture Organisation’s index of food prices, which in September hit its highest level since August 2008.

“The price needs to rise but it should be seen in a historical context. The price has been way too cheap for too long,” said Toby Cohen, head of analysis at Czarnikow.

Sugar consumption is likely to rise rapidly in the coming decades in China, India and Africa, Czarnikow said, in line with forecasts for higher incomes. The merchant warned that significant investment in production would be needed to keep pace.

“World trade is going to double in 20 years – that is the challenge,” said Mr Cohen. The pressure is likely to fall on Brazil, already by far the world’s largest exporter, to meet the additional demand. But the country has been hit by logjams this year as it struggled to keep up with global consumption.

The changing shape of the global sugar market is one of the clearest examples of the shift towards emerging markets that is a common trend across commodity markets. Whereas a century ago London was the centre of the sugar trade, it is now dominated by the Bric countries: Brazil is the largest exporter, Russia the largest importer and India the largest consumer.

SOURCE: FT

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