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With Halloween just around the corner, the availability and price of sugar has been a growing concern. That’s true for the confectioners responsible for ensuring there are enough treats to go around — and for consumers worried about how much they’ll need to dish out to buy them.

In the past few years, “shortage” has become an all-too-familiar term within inflationary dynamics, but all related roads don’t necessarily lead to a dysfunctional supply chain. Sure, supply chain snags may play a role here and there — but in sugar’s case, experts say U.S. Sugar Policy and El Niño can take a big chunk of the credit for the “sugarflation” that will likely persist in the near term.

U.S. Sugar Policy

In a late-July post for Axios, Kelly Tyko noted that rising price trends for sugar were expected to continue due to “tight supplies coupled with weather mayhem.” But she placed the majority of the blame on America’s 90-year-old sugar program, calling it “the root of the problem with its policy requiring 85% of U.S. sugar purchases come from domestic processors,” as noted by the Wall Street Journal.

A 2016 report from the Congressional Research Service (CRS), “U.S. Sugar Program Fundamentals,” provides an overview of the program:

  • “The U.S. sugar program provides a price support guarantee to producers of sugar beets and sugarcane and to the processors of both crops.”

  • “The U.S. Department of Agriculture (USDA), as program administrator, is directed to administer the program at no budgetary cost to the federal government by limiting the amount of sugar supplied for food use in the U.S. market.”

To achieve these objectives, the CRS says the USDA uses four tools:

  • Price support loans at specified levels—the basis for the price guarantee

  • Marketing allotments to limit the amount of sugar that each processor can sell

  • Import quotas to control the amount of sugar entering the U.S. market

  • A sugar-to-ethanol backstop—available if marketing allotments and import quotas are insufficient to prevent a sugar surplus from developing, which in turn could result in market prices falling below guaranteed levels

The CRS notes that these tools were “reauthorized without change” by the 2014 Farm Bill. In the current Farm Bill enacted in 2018, the sugar program was also largely unchanged, according to a 2019 CRS comparison report.

In addition to detailed descriptions of each of the tools, the 2016 report captures the dicey dynamics that exist between the program’s supporters and critics: “A source of controversy over the sugar program is the balance it strikes between the interests of the sugar industry and sugar users.”

One of those critics is Washington Post columnist George F. Will.

In an August 9 opinion piece, he blames an “industrial policy gone sour” for the potential candy shortages that may plague Halloween and Christmas, specifically laying the blame on sugar import quotas.

“Sugar supplies are tight and prices are high worldwide, but matters are made worse for U.S. manufacturers and consumers by import restrictions,” Will writes.

He notes that sugar quotas are a residual effect of “temporary” commodity supports put in place during the Great Depression that have remained on the books, even though that era thankfully ended long ago.

“Federal policy essentially guarantees 85 percent of the U.S. sugar market to domestic producers, and minimum prices for beet and cane sugar,” Will says, referencing a 2018 CATO Institute article. “And import quotas make the U.S. price of sugar two to three times the world market price, a boon to U.S. confectioners’ foreign competitors.”

U.S. Sugar Policy and the 2023 Farm Bill

Since U.S. sugar policy is governed by regulations within the Farm Bill that is revisited every five years, sugar-using stakeholders are urging lawmakers to make changes to the sugar program in the upcoming 2023 bill.

Although the current Farm Bill expires on September 30, lawmakers say a new bill won’t be ready by then. In a September 1 article, the Washington Examiner’s Rachel Schilke said that in June, Senate Agriculture Committee Chairwoman Debbie Stabenow told the outlet that although the bill wouldn’t be ready by September, she was “hopeful” for a December finish.

“It’s always extended, it’s very routine,” Stabenow told the outlet. “I’ve been through six farm bills, not one that’s gotten completely done by the deadline. There’s always some kind of extension.”

More recently, Senate Minority Leader Mitch McConnell concurred. McConnell is a member of the Senate Agriculture Committee and the Senate Appropriations Committee. In an August 25 Washington Examiner post, writer Emily Jacobs said that despite the challenges associated with putting together the 2023 version of the $1 trillion bill, McConnell said, “We’ll figure it out. …”

Sugarflation and El Niño

And then there’s the weather.

In addition to U.S. Sugar Policy dynamics that are elevating the price of sweets, experts say rainfall-suppressing weather patterns mean exports may be limited from typically sugar-rich regions.

In her post for Axios, Tyco cited several experts who provided their views of the sugar-shortage situation to the outlet — including Nidhi Jain, an associate specialist at research firm The Smart Cube.

“The intensity of the dry season that El Niño is set to influence this year could result in a 10%–15% reduction in sugarcane yield globally,” Jain said.

In an interview for Kennedy’s Confection, Jain noted that sugar prices rose nearly 42% from June 2022 to June of this year — partly due to weather-related production declines in key sugar-producing regions such as India, Thailand, and China. He said those trends may continue through the second half of this year.

Noting that the term “sugarflation” was coined to capture the resulting price surge of the sweet stuff, Jain said that in this context, El Niño — which officially began in June — is largely to blame since it influences the production of “numerous food and agricultural products, including sugar.”

The National Weather Service (NWS) describes El Niño as “a natural climate phenomenon marked by warmer-than-average sea surface temperatures in the central and eastern Pacific Ocean near the equator, which occurs on average every 2-7 years. El Nino’s impacts on the climate extend far beyond the Pacific Ocean.”

​”Depending on its strength, El Nino can cause a range of impacts, such as increasing the risk of heavy rainfall and droughts in certain locations around the world,” says Michelle L’Heureux, climate scientist at the Climate Prediction Center. “Climate change can exacerbate or mitigate certain impacts related to El Nino. For example, El Nino could lead to new records for temperatures, particularly in areas that already experience above-average temperatures during El Nino.”

Current trends

According to a September 12 article written by Rich Asplund for Barchart and published by Nasdaq, sugar prices continue to climb.

“Over the past couple of weeks, sugar prices have risen on concerns about smaller global sugar production, with NY sugar posting a 4-1/2 month high Tuesday and London sugar posting a 12-year high last Tuesday,” Asplund wrote. “Sugar prices jumped last Tuesday after Alvean, the world’s largest sugar trader, said it expects a 2023/24 global sugar deficit of -5.4 MMT [million metric tons], the sixth year of shortages, as India may curb sugar exports and Thailand farmers plant more profitable cassava instead of sugarcane.”

Interestingly, he also described the potential impact of the recent jump in crude prices on sugar’s availability: “WTI crude oil (CLV23) on Tuesday posted a 9-3/4 month high, which benefits ethanol prices and may prompt global sugar mills to divert more cane crushing toward ethanol production rather than sugar, thus reducing sugar supplies.”

In a September 13 article for Reuter’s, writer Rajendra Jadhav said that according to industry and government officials, Maharashtra’s “driest August in more than a century” meant that output from India’s top-sugar-producing state would likely decrease by 14% in the 2023/2024 crop year, dropping to a four-year low.

“The reduced output could add to food inflation and discourage New Delhi from allowing sugar exports, supporting global prices , which are already near their highest in more than a decade,” Jadhav wrote.

“…New Delhi is expected to ban mills from exporting sugar in the season beginning October, halting shipments for the first time in seven years, three government sources told Reuters last month,” he added.

If you’d like to learn more about the dynamics influencing sugarflation, The Smart Cube recently published a report that provides “world-wide insights” on the topic.

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