There Might Be a Sugar Shortage in 2022 — Here's Why

Mohit Oberoi, CFA - Author

May 26 2022, Published 8:52 a.m. ET

The world seems to be heading toward a food crisis in 2022. While there were intermittent reports of shortages of packaged food products over the last two years, several staples like wheat, potatoes, and edible oil have been in short supply in 2022. Could there be a sugar shortage as well?

Article continues below advertisement

Sugar is produced from sugarcane, which is grown across the world. Some of the food product shortages, especially wheat and edible oil, are directly linked to Russian President Vladimir Putin’s invasion of Ukraine. The sugar shortage also has an indirect connection to the war, which is now into its fourth month.

What countries are major sugar producers?

India and Brazil are the top two sugar producers globally followed by the EU. China is the fourth-largest sugar producer, while Thailand occupies the fifth spot. The ranking of sugar exporters is different and more important for our analysis.

Article continues below advertisement

Brazil is the largest sugar exporter.

Brazil, which is the second-largest sugar producer, is the largest exporter, while India occupies the second spot. Thailand is the third-largest sugar exporter. According to OEC, in 2020, Brazil accounted for over a third of global sugar exports, while India’s share was just above 10 percent.

Article continues below advertisement

The U.S. is the largest sugar importer.

The U.S. is the largest sugar importer followed by China. While the latter is among the top five sugar producers, it still has to rely on imports for around a third of its requirements. Sugarcane needs warm weather and plenty of water, which is why some countries aren't able to grow it in adequate quantities.

Article continues below advertisement

Countries are limiting sugar exports.

Inflation has been rising globally and countries have resorted to exporting curbs to tame food inflation. Indonesia briefly halted palm oil exports, while India put restrictions on wheat exports.

Several countries are limiting sugar exports. India has put a limit on sugar exports, while Kazakhstan, Pakistan, and Russia have banned sugar exports. Russia also banned fertilizer exports, which is leading to a shortage of urea and diesel exhaust fuel.

Article continues below advertisement

Global food inflation is rising.

The sugarcane production in Brazil and India is expected to be higher in the current marketing year. Sugar prices have been high, so countries have an incentive to export more to increase farmers’ income. However, there are two reasons why major countries are limiting their exports.

Article continues below advertisement

First, fearing a political backlash at home, countries are taking proactive measures to control food inflation. This is precisely why India put restrictions on wheat exports despite the country having ample stocks.

Global food inflation has also spiked following the Russia-Ukraine war, which is making food-exporting countries more conservative than ever. They are using export restrictions to stabilize domestic prices.

Article continues below advertisement

Sugarcane is also used for ethanol blending.

Second, apart from finding its way into sugar, sugarcane is also used for ethanol production. Crude oil prices have spiked following Putin’s invasion of Ukraine, which is leading to the diversion of the sugarcane crop towards ethanol production. This is reducing the sugarcane available for sugar production.

Article continues below advertisement

According to Enrico Biancheri, the director at global commodities trader Louis Dreyfus, sugar production by Brazil's center-south mills will be around 29 million tons in the current marketing year, which is towards the lower end of what analysts are expecting.

He thinks that sugar prices need to rise more to incentivize its production over ethanol. Biancheri added, "At the current prices, the world is heading to a shortage of sugar, due to an ethanol-oriented crop in Brazil.”

Article continues below advertisement

However, not everyone agrees with Biancheri’s assessment. U.S. broker and analyst StoneX forecasted sugar production of 33.9 million tons by Brazil's center-south mills.

Is there going to be a global food shortage?

The world seems to be heading for a food shortage crisis, which even U.S. President Joe Biden admitted. While the Russian invasion of Ukraine has been the trigger in 2022, the world also needs to address climate change, which is a more structural driver of an impending food crisis in the long term.


Latest Food Industry News and Updates

    © Copyright 2022 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.