Sugar costs leave a sour taste
The price of many drinks and sweets is likely to rise this year because the cost of sugar on world markets has doubled in the past 12 months and companies want to recoup their costs. Dubai Refreshments, which produces and distributes Pepsi products in the country, is considering applying to the Ministry of Economy to increase the Dh1 price on its soft drink cans, a price that has not changed since the 1970s.
"The sugar has had a multimillion-dirham impact on us, and effectively if there is nothing to upset the sugar price rise somehow, it would wipe out every single company's profitability," said Tarek el Sakka, the general manager of Dubai Refreshments. "If it continues to rise, then we have no other choice than to increase prices. But we haven't taken that decision yet." Yesterday, white sugar futures traded at US$758 a tonne in London, just below its record high of $767.Analysts expect the rally to continue for the next few months.
Peter Bennett, the Dubai-based divisional director for Czarnikow Group, one of the largest and oldest traders and brokers of sugar, said prices could reach $1,000. "There will be more pain from here on than we have seen." The current global supply of sugar is well short of demand, he said. The shortage is the result of severe drought in India, one of the world's biggest sugar producers, which has led to a drop in the country's crop from about 26 million tonnes last season to between 14 million and 15 million tonnes this season.
"India has basically swung from an exporter to a major importer. The Brazilian crop has also been affected at the other end of the extreme by very wet weather." The Indian cabinet yesterday issued a statement expressing its concern over sugar prices. Until the Brazil crop comes to the market in April or May, there might be only half the sugar supply needed to satisfy global demand, Mr Bennett said.
"All the ingredients are there for the markets to proceed to new highs," he added. Masafi, the UAE-based maker of fruit juices and other beverages, has been investigating sugar substitutes such as fructose to cut expenses, said Rami Benjamin, the company's business development manager. Another option is to raise the prices, but that would be a last resort, he said. "We are still in the middle of the economic downturn, so we cannot increase our prices," said Mr Benjamin. "But there is a limit for us to be able to absorb this increase."
La Ronda, the Dubai-based maker of chocolate-covered dates and other sweets, has seen its costs soar more than most. The confectioner has been hit by both sugar prices and cocoa prices, which have risen by 40 per cent in the past year. "There is no more bottom line," said Ravi Jangid, a director at La Ronda. "We are really having a hard time at the beginning of this year." Raising the prices of their sweets is an option, but an unwise choice when consumers are more budget-conscious.
"Purchases of luxury and other products are already down," Mr Jangid said. "To increase the price will further hurt us. But we may have to increase the price if the costs of one or two of our major ingredients don't come down." Aujan Industries, which produces the drink Vimto Cordial, has also felt the pinch of record-high sugar prices, said Abdulla Aujan, the vice president of supply chain at the company.
He said he did not know if there were plans to raise prices but added Vimto would need to make adjustments. "When your raw material prices go up by 60 per cent you have to do something. You saw Pepsi and Coke in Saudi, for example, they have increased their prices by 50 per cent," he said. "I'm not saying that we will be increasing our prices by 50 per cent, however you have to compensate for these abnormal sugar prices."
Published: January 22, 2010 04:00 AM