Global sugar prices set to rise signaling higher food inflation

As commodities prices gain with the recovery in global economy beset by the pandemic, price of sugar, which is a major imported consumer commodity in Sri Lanka, is expected to rise in tandem with other agricultural commodities. 

According to ICRA Lanka Limited, global sugar prices are expected to increase by over 3 percent in 2021 from last year’s levels.

The government footed the highest import bill of US$ 57.5 million in January 2021 on sugar and confectionaries, which was 187 percent higher in the same month in 2020. 

In its entirety of 2020, Sri Lanka spent US$ 277.1 million on sugar and confectionary imports, the third highest food and beverage import bill after vegetables and dairy products. 

Sugar suddenly turned bitter when the broader Opposition alliance charged the government of losing revenue to the tune of Rs.15.6 billion when the latter slashed import tax on the commodity from Rs.50 a kilogram to 25 cents giving a windfall to a few traders in the import trade. 

While flatly denying the charges, the government maintains that the current relatively lower prices of sugar are due to the tax cut, though it is questionable whether the full benefit of the tax cut has been transferred to the end consumer. 

Recovery in commodities prices from oil to metals to other agricultural produce is not unusual when compared with economies around the world, which were grounded to a halt by COVID-19 last year, begin to recover.

Prices for Brent crude, the international benchmark for energy markets have soared 82 percent since the end of October 2020.

 Copper has become more expensive than it has been in 2011. Global food prices however haven’t increased much since 2014, the United Nations Index showed. 

Given the soaring commodities prices, some investors bet that these prices are on an extended upswing. Another section of investors and analysts says commodities are still in the early stages of a super cycle - a period when prices of livestock, grains, metals, oil, gas and other raw materials climb for years, if not for decades. 

However, history of booms and busts in raw materials suggest that the conditions aren’t right for a commodities super cycle. Major catalysts for such a long-term rise in commodities prices led by rapid industrialisation or urbanisation in major world economies such as the United States or China isn’t also in the horizon at present.