Nairobe, 28 March 2011

Crude oil prices on a higher plateau should encourage sugar producers to diversify into ethanol production, helping to cushion the impact of an inevitable fall in the price of the sweetener, a global sugar body said.

Global ethanol production from all sources is expected to surge to 140 billion litres a year by 2015 from 90 billion now. Although the bulk of global ethanol production is from corn, sugar cane is an important source of the liquid.

Peter Baron, executive director of the International Sugar Organization, said that despite the high prices sugar has enjoyed in recent months, sugar growers should diversify their revenue streams.

"How long will the prices be high? They will not stay there for five years. You can be sure the sugar price will not stay at 30 cents for the next five years," Baron said late last week on the sidelines of sugar conference in Nairobi.

Sugar hit a 30 year high in February of 36.08 cents a lb but has since fallen back and was trading on Friday around 27.30 cents. Baron said ethanol production was a smart bet in light of the surge in oil's surge on the political turmoil sweeping through the Middle East and North Africa.

"The prices for crude oil will not come down so quickly. They will remain at very high levels for quite some time. That means automatically the competitiveness of sugar-based ethanol is increasing," he said.

Baron said the global sugar industry would need to invest heavily in infrastructure to ensure the viability of widescale ethanol production, but said producers had little choice.

"More and more countries are not able to live any more only on sugar production. That is not enough to make them (sugar industries) economically viable," Baron said.

DELICATE BALANCE

Baron reiterated the ISO's position that there would be a marginal global surplus of 196,000 tonnes in 2010/11. "We have very low stocks... therefore we depend very much on the new crop. The new crop will most likely be not sufficient to increase the stock ratio again considerably, therefore we will have a market which is in a delicate balance," he said.

"This is something that would obviously speak in favour of prices, keeping them obviously at a very high level, I would say in the range between 20-28 cents (per pound)," he said.

Sugar consumption is growing at rate of about 2 percent a year, or 3-4 million tonnes, tempting African nations to ramp up production.

Many countries on the continent of one billion people have sugar deficits that are covered through imports. That offers the industry an imperative although much depends on politics, Baron said.

"Sugar is one of the most political commodities in the world. A lot depends on political decisions. If a government doesn't encourage its own industry to grow because they are trying to get in cheap imports, for example, that is a problem," Baron said.

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