Back on its Feet: A Return to Consumption Growth
We estimate that global sugar consumption has grown by almost 2.5% in 2013. That’s the strongest rate of growth seen in the past four years and approaching the level of consumption growth last seen before the onset of the Global Financial Crisis (GFC).
Over the past 10 years consumption has risen by 25% in aggregate but this is less than we had been expecting as growth rates have had to face significant headwinds.
- In 2010 we published our white paper “Sugar in 2030” in which we identified a 50% increase in aggregate consumption in the next 20 years, driven by rising wealth, population growth and our models of consumption income elasticity.
- However, since the report was written growth rates have been disappointing. The rise in global sugar prices to over 30c/lb, the after-effects of the GFC and the geopolitical stress created by the events of the Arab Spring have all damaged demand.
- Today, as sugar prices fall to multi-year lows and global conditions normalise we are now seeing a return to the faster rates of growth enjoyed prior to the GFC.
With consumption growth proving robust and the world market moving back towards equilibrium the market needs to sustain production and cover total production costs as well as pay a return to shareholders. This remains a challenge.
Toby Cohen, Czarnikow Director
Stronger Growth in 2013
- We have been surprised by the speed and extent of the rebound in consumption growth this year.
- In May 2012 we had originally estimated 2013 consumption at just 172.1m mtrv but by August 2013 we had raised this to 175.2m, boosting the annual consumption growth rate to almost 2.5%.
- This marks a departure from the depressed growth rates experienced since 2008 and during the high price environment that followed from 2009 to 2011.
- In the five years leading up to 2008 we calculate that the annual consumption growth rate averaged over 3%.
- However, between 2009 to 2011 growth slowed to an average 1.3%, and fell to less than 1% in 2011.
What Drives Consumption?
- Sugar consumption growth is primarily determined population growth and affordability.
- Worldwide population growth is typically a little above 1% per year and drives baseline growth. Consequently, we see growth in affordability as the main determinant of faster growth rates.
- The GFC was detrimental to consumption growth rates as economic growth slowed, but in sugar the effect was even more acute as the market entered a three year period of production deficits and high prices.
- This impacted on supply chains resulting in stock out events in certain markets. In North Africa a shortage in the availability of essential commodities, including sugar, became a trigger leading to civil disturbances and the events of the Arab Spring.
Revisiting Previous Forecasts
- Had our previous projections been realised in 2013 consumption would stand today at 184m mtrv, nearly 9m mtrv more than our current estimate.
- Higher prices from 2009 onwards weighed on global consumption growth, most noticeably in Asia and the Middle East/North Africa.
- Since 2000 consumption in Asia rose at around 4.7% per annum, but this fell to around 1.5% between 2008-2012. In the Middle East growth fell from around 3.6% to just less than 1%.
- Had consumption continued to grow at the rates experienced from 2000-2008 in these two regions alone, consumption in 2013 would today be 11m mtrv higher than it is today.
- High prices also resulted in noticeable substitution for HFCS taking place in some markets such as Mexico and China.
What Happens Now?
- The response of developing market consumption to the higher sugar prices of 2009-2012 gives us confidence in our analysis and thus our view that we will see a rebound in growth rates at current lower prices.
- With the global population forecast to rise to 7.56bn by 2018, the next 5 years are expected to deliver 9m tonnes of additional consumption growth unrelated to any improvement in living standards, a 5.6% increase over today’s figures.
- After the slow growth seen between 2008/09 and 2010/11, consumption rates have increased rapidly as world market prices have fallen, improving sugar affordability.
- With the long-term drivers for growth still in place, we remain confident that the long-term outlook for demand remains positive.
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