Why the sugar price will rise

At a first glance, the headline and the first paragraph might contradict each other: one is about price hikes, the other about the competition from cheaper products. There is no mistake, though. The sugar price is sure to go up, because the stock market price of raw sugar is high, says Ioan Armenean, general manager of Zaharul Ludus factory.

A higher price of the raw material – molasses or raw sugar, processed in the factories throughout the country will transfer into the final shelf price. On the other hand, the European factories can flood the market with cheaper products than the locally produced sugar, so that the domestic factories are caught between a rock and hard place, because of the two price constraints. “As of this year we no longer get any aid for buying raw sugar from Brazil, so that refineries have to buy sugar at market prices from the APC (Africa, Pacific, Caribbean region),” says the general manager of Zaharul Ludus, a company that doubled its turnover in the first half of last year, compared with the corresponding period of 2008, to 9.7 million euros and posted 800,000-euro profit.

Why this change? Following the European Union’s latest decisions, processors have to negotiate their contracts on their own, and Romanian refineries do not have any long-standing commercial relations with the major sugar producers. The APC area countries are mostly former British colonies, with companies that have had sugar plantations for decades or hundreds of years. Against them, the representatives of the Romanian processors stand few chances of negotiation.

“As a result of this change, the Romanian refineries only took out licenses for 100,000 tonnes of raw sugar, compared with 330,000 tonnes as negotiated last year,” said Emilian Dobrescu, representative of Agrana in Romania, the biggest company on the local market with 163 million-euro turnover in 2008.

The result of the contracts for a lower volume is obvious: the six sugar factories in Romania will have less work to do. The reason why the Romanian processors took out licences for only one third of last year’s volume in 2010 is the high price per tonne of raw sugar worldwide, which may reach as much as 600 euros per tonne.