Sweet times at an end

A bitter period as China faces a sugar shortage

Sweet times at an end

Now costs a packet

China may not have got into the habit of eating doughnuts or cupcakes yet, but the country’s dentists are on red alert. The growing affluence of China’s middle-class is fuelling a newfound craving for sugar. As demand grows, domestic supplies may not be able to catch up.

China is now the world’s second largest consumer of sugar (behind India), and the third biggest producer. In 2008 the country produced about 15 million tonnes, and was largely self-sufficient. But eight months of bad weather in China’s sugar cane-growing region has changed that.

Southern China’s Guangxi and Yunnan provinces are experiencing their worst drought in 50 years. Rainfall has been scarce since last July. It has hampered the sugar cane harvest. Last year’s crop was just 12.4 million tonnes, and it’s expected to fall again this year.

“I haven’t seen any rain since last September and the stream on the mountain has dried up,” says Yunnanese villager Zhu Zhenghong. “We have no more water for poultry and crops.” The villager adds: “Drinking water sent by the government is the most important thing to me now.”

The poor harvest drove sugar prices up 73% last year, and the current price is at a three year high ($854 a tonne for September delivery). The dry weather is not expected to end any time soon. “The drought might last until the end of April,” predicts local Water Affairs Bureau Deputy Director Li Kun.

Adverse weather has hit sugar cane crops globally, so importing nations are praying for good weather during Brazil’s harvest in March. Brazil is the world’s top producer of sugar cane, but its own crop suffered from heavy rains last year. World sugar prices recently hit a 29-year high of $0.30 a pound.

“The global sugar shortage is even worse,” says Guangxi-based Yongkai Sugar Company manager Lan Qingyuan, “so it’s difficult to import sugar at a reasonable price.”

China will likely be short 2 million tonnes of sugar this year, according to a China Daily report. But the Guangxi Bulk Sugar Exchange Centre puts the figure even higher, at 3.3 million tonnes.

The government is trying to ease conditions by auctioning part of its sugar stockpile. But it may not be enough.

“The market is speculating state reserves may soon sell between 200,000 tonnes to 300,000 tonnes,” explains Guangxi Sugar Market Net analyst Chen Jingqun.

A recent Customs Office report said the government would likely retain part of its estimated 2.1 million tonne stockpile as a “national strategic reserve”.

In response to the crisis, the Ministry of Agriculture is planning to expand cultivation in an effort to increase the sugar yield to 17 million tonnes by 2015.

No surprise, but Chinese companies are also keen to buy agricultural assets overseas.

Last month, Chinese agribusiness company Bright Group tried (and failed) to purchase Australian sugar cane giant CSR for $1.4 billion (see WiC49).

Sugar is just the most recent commodity to see prices spike. Cold weather in Northern China recently provoked worries that the winter wheat harvest would also fall short.

Food security is a concern for China’s leaders (see WiC40), for whom rising food prices present a serious threat to social stability. Premier Wen Jiabao recently echoed this concern: “Only when food supply is enough and the prices are stable, will people feel at ease.”

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