• Adverse weather conditions have resulted in deficits in major sugar-producing countries
• Zimbabwean companies like Hippo Valley and Star Africa Corporation can benefit from the crisis by addressing supply shortages in China, Europe, and the USA
• Setbacks and challenges: Local sugar companies in Zimbabwe are facing production issues due to power challenges and machinery failures

Harare- The global sugar industry is currently grappling with adverse El Nino weather conditions, leading to a substantial projected deficit in major producing countries such as Europe, China, India, Thailand, Mexico, and the USA. Brazil is the only exception. China, as the fourth largest consumer, is expected to experience the lowest production in seven years, with an estimated output of only 9 million tonnes. Similarly, Mexico's production is anticipated to fall below 5.5 million tonnes, resulting in a halt in exports. India, the largest producer, is set to consider banning sugar exports in October due to unexpectedly dry weather conditions. Despite droughts, Thailand has further opted to shift its focus to cassava production, which commands a better market price, further exacerbating concerns about supply shortages in the international market. Against this, the world is expected to consume a record amount of over 179m tonnes.

The El Niño phenomenon has resulted in drier-than-normal weather conditions in Thailand with a projection of only 66.5 million metric tons in 2023/24 season. This figure represents a significant decrease compared to the approximately 90 million tons produced in the previous season. It is worth noting that Thailand is a notable sugar exporter. The country is projected to have only 1.7 million tons of sugar to export in 2023/24, one of the smallest amounts in the last 15 years. This is further exacerbated by some farmers that have been shifting from sugarcane cultivation to more profitable crops like cassava. This shift is driven by economic considerations and the pursuit of higher returns.

Sugar output in Maharashtra, India's top producing state, is set to fall 14% in the 2023/24 crop year to its lowest in four years due to lower cane yields following the driest August in more than a century. New Delhi is expected to ban mills from exporting sugar in the season beginning October, halting shipments for the first time in seven years. Similarly, local supply deficit in China is expected to rise to 6.5 million tonnes, the second-highest ever. It is set to import 5.4 million tonnes. In Europe, production has been downgraded to 15.5 million tonnes from 15.6 million tonnes in 2022 and further down to 15.4 million tonnes in 2024. Mexico, the eighth producer is expected to yield less than 5.5 million tonnes and no exports. The same goes for US and Russia.

The evolving global sugar landscape presents a distinctive opportunity for Zimbabwean companies, specifically Hippo Valley and Star Africa Corporation. These companies, with Hippo having a local market share of 52%, are currently facing difficulties arising from the influx of substandard, low-cost sugar imports. However, these challenges can be reframed as an advantage for these companies to address the projected deficit, particularly in China, Europe, and the USA, where they already have an established market presence. According to Zimbabwe Sugar Sales, due to cheap imports, stock has been building up and if the current trend persists to March 2024, stocks will potentially close at 94 000 tonnes by March 31, 2024. Hippo Valley exports in FY2023 increased by 15% to 43 760 tons (2022: 38 000 tons) following an improvement of export volumes to the USA to 17 751 tons in 2023 compared to 13 087 tons in 2022, a period before sugar deficit crisis. USA imports over one million tonnes of sugar from Mexico. Mexico will not be exporting sugar in the2023-2024 season due to deprived production of less than 5.5 million tonnes.

According to the initial comprehensive evaluation by the International Sugar Organisation for the 2023/24 period, there is a significant deficit of 2.118 million tonnes in the global sugar market. Production levels have increased to 174.839 million tonnes, indicating a rise in supply. However, consumption has surged even further to 176.957 million tonnes, surpassing production levels and creating a higher demand for sugar.

The global trade balance for the 2023/24 period reveals a substantial deficit of 2.814 million tonnes. This deficit signifies that the quantity of sugar being exported falls short by 2.814 million tonnes compared to the global demand. Furthermore, the evaluation indicates a decline in exports by 3.96 million tonnes, suggesting that countries are facing challenges in meeting the global demand for sugar through international trade.

After three consecutive years of surplus, the world sugar economy experienced a deficit in 2021/2022 season. Global output fell short of global consumption by 3.312 million tonnes. During 2021, world production witnessed its third consecutive year of decline, dropping by 4.164 million tonnes to reach 165.167 million tonnes. Beet sugar production globally totalled 34.204 million tonnes, a decrease of 0.191 million tonnes compared to the revised 2020 figure. Overall, sugar prices recorded a 34% increase in the FAO food index sub-category, surpassing the overall 23% rise in the index in 2021/2022 season.

Despite the challenges posed by the El Niño crisis, Zimbabwe is projected to have normal rainfall levels ranging from 800 to 1400 mm, with the exception of regions 3 and 4 where below-average rainfall is expected. This presents a critical opportunity for Zimbabwe to make noteworthy advancements in the sugar industry. With favourable climate conditions and the potential to increase production, Zimbabwe is well-positioned to capitalize on this advantageous moment and enhance its position in the global sugar market. Ranked 40th in terms of sugar production by the Food and Agriculture Organization (FAO), Zimbabwe has the potential to improve its standing and contribute more significantly to the global sugar market.

However, it is important to note that local sugar companies, such as Hippo Valley and Star Africa, have been facing setbacks in production due to power challenges and machinery failures. Addressing these issues is crucial, and the companies need to take calculated risks for the greater benefit. Star Africa Corporation reported a 6% decline in sugar production during the FY2023, dropping from 82,399 tonnes in 2022 to 77,270 tonnes, primarily due to power supply issues and machinery failures. It is imperative for the company to refurbish its machinery to maximise its potential gains in the upcoming lucrative sugar market.

Hippo Valley, which holds a significant 5.25% share of the local sugar market, experienced a 1% decrease in production attributed to heavy rainfall. Unlike dry conditions, measures can be taken to mitigate the impact of heavy rainfall. Hippo Valley exports a substantial portion of its sugar to the USA, and considering that Mexico is likely to halt its 1 million-tonne exports to the United States, Hippo Valley can seize this as a once-in-a-lifetime opportunity to capture a larger market share. The pilled stocking due cheap imports can be leveraged through growing export markets.

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