The spread of coronavirus, coupled with plummeting oil prices and the collapse of the Brazilian currency, the real, is causing collateral damage to the sugar market.
The coronavirus panic has hit oil markets hard, as travel restrictions in China, the world’s largest importer of crude oil, limit demand. The slide is being exacerbated by Saudi Arabia's shock move to increase oil production in an attempt to drive competitors such as Russia and the US out of the market.
Oil prices at the end of last week (13 March) were back in real terms to early 1990’s levels, reported the FT. Brent crude oil fell nearly 30% to $31.14 on Monday (18 March), the biggest single fall since the start of the first Gulf war in 1991, according to the Guardian, and is currently hovering below $30 a barrel.
The oil price slump is hitting sugar because it encourages refineries to limit the use of sugarcane for ethanol production, which increases the availability of sugar on the world market.
As of today, (19 March) global sugar prices have dropped 22% in the past 15 days as crude prices have fallen, according to the National Federation of Co-operative Sugar Factories.
Also pointing toward cheaper sugar prices is the collapse of the Brazilian real. That’s hit historic lows against the dollar as investors, put off by President Jair Bolsonaro’s insouciant reaction to the global pandemic and threat of global recession, pull out of the country.
Brazil is the world's biggest sugar exporter. A weak real therefore hits sugar prices because it means that sellers will accept lower US dollar denominated prices for sugar.
The impact of price falls on reformulation
Conventional wisdom, meanwhile, dictates that falling sugar prices discourages reformulation efforts and investment into new sugar reduction technology. Conventional wisdom further suggests that in times of economic crisis consumers ignore their health drives in favour of familiar comfort foods and sugary treats.
However, experts remain relaxed that a drop in sugar prices won’t hinder the positive steps made by the industry during its challenge – increasingly demanded by governments and consumers – to produce healthier, lower-sugar products while not sacrificing taste.
Jack Winkler, Emeritus Professor at London Metropolitan University, co-authored a report from the Food Research Collaboration at the Centre for Food Policy last year which called for agriculture and trade policy to be used to limit supplies and push up sugar prices in order to incentivise reformulation.
The report argued in favour of using agricultural policy instruments to limit the amount of sugar available and raise its price — mainly through production-and-import quotas and minimum support prices, plus tariffs. It called for limits on the supply of sugar to the UK market, which would be progressively tightened to reduce availability, and minimum price for refined sugar and/or sugar beet, in order to elevate the price of sugar to the food and drink industry. “Reducing sugar production is the perfect test of good intentions,” argued Winkler at the time.
However, Winkler told FoodNavigator he was confident that the current drop in sugar prices would not impact reformulation in the long term. “Of course, cheaper sugar diminishes the incentive to reformulate, and raises the costs of doing so,” he said. “That will affect the commercial adoption of some of the new substitute ingredients.” But he added that because the two dominant sweeteners (aspartame and AceK) are now out of patent, they have become commodity products cheaply made in China and elsewhere. They are now “so cheap, at 5% or less the cost of sugar, that no real world fall in sugar prices will make up the difference,” he said.
He therefore believes falling sugar prices will ‘retard but not stop reformulation efforts’.
“Of course, aspartame and AceK are not appropriate for all applications, especially in foods. In short, the price of sugar is indeed a key issue in this whole debate. But there is more than one way to skin a cat. We, and that includes sugar producers and governments, as well as health advocates, need not sit passively while the global market goes through its cycles.”
Robert Lambert, marketing chief at Ulrick & Short, which offers technical solutions to food manufactures seeking reformulation solutions, agrees that falling sugar prices won't jeopardise sugar reduction efforts. “Cost is rarely the main motivation behind product reformulation,” he told FoodNavigator.
“Government stimuli, like the sugar tax, have acted to catalyze reformulation efforts, but would nevertheless take place anyway. Instead, sugar reduction and healthier eating represents a broader cultural shift in the consumer market trend, rather than influenced by financials. There is an increasing stigma attached to excessively high sugar and calorie products.”
He also noted that the product reformulation process is often long and complex, and a short-term reduction in sugar price won't affect the long-term strategy of developing healthier products. Also, as sugar is such a commodity, the market is volatile, and ebbs and flows regularly with shifting supply and demand.
Finally, he pointed out that product reformulation is not confined to purely sugar reduction. “As consumer knowledge grows, and government emphasis shifts, more resource is being put into overall calorie reduction, which can be achieved by reduction of fats as well as sugars and carbs.”
Health and wellness trend won't slow
Tate & Lyle last year claimed its rise in profits was helped by the opportunity presented by sugar reformulation. It believes this will remain the case. Tommy Lykke Husum, Senior Sweeteners Product Manager, told FoodNavigator: “Health and wellness is the leading trend driving reformulation in Europe’s food and beverage industry, and sugar reduction is a key part of that, as more shoppers seek out options with a ‘reduced sugar’ or ‘no added sugar’ claim on-pack. The cost of any single ingredient is one in a long list of considerations for formulators. The range and quality of tools helping producers meet this rapidly growing demand for sugar and calorie-reduced products have never been greater, which is why so many of our customer projects are focussed in this area, and we don’t see this trend slowing down any time soon.”