There is perhaps one good thing about the monthly inflation numbers. You learn a bit about how markets work, in this case that of sugar. Because for consumers in Germany, all its types have become more expensive on average by more than 70 percent year-on-year. The number is even more striking as the average inflation rate actually fell in March: to 7.4 percent. Only groceries continue to rise in price by more than 20 percent on average, with eggs (+34.6) and vegetables (+27.3) rising particularly sharply. The Federal Statistical Office even recorded an increase of 70.9 percent for sugar.
Carlos Mera, agricultural expert at Rabobank in London, sees several reasons for the increase. There are essentially two manufacturing countries in Europe: France and Germany. In France in particular, the sugar beet harvest was poor due to several heat waves. In addition, there is the planned ban on a plant protection product in France that has to be replaced by another product. As a result, harvest yields are either endangered or higher costs are incurred due to the changeover.
The war in Ukraine also causes higher production costs because energy has become more expensive. A spokeswoman for the German sugar associations in Berlin says beet prices have been raised significantly “to compensate for higher costs for fuel, fertilizers and services”. The prices for sugar beets have also risen because other agricultural commodities such as wheat or rapeseed have become more expensive. In order for farmers to decide to grow beets, the prices would have to be able to keep up with other crops.
This is also a consequence of the abolition of sugar quotas in the EU in 2017. The sugar market regime guaranteed production quotas and minimum prices for sugar beet for almost 50 years. Sugar manufacturers in Europe are now competing with the world market, for example with sugar cane from Brazil, which has been cheaper for a long time.
Manufacturing becomes more expensive for companies like Lambertz
But imports are also difficult at the moment, according to the Aachen Printen manufacturer Lambertz. Sugar accounts for about 30 percent of his ingredients. Professor Hermann Bühlbecker, sole shareholder of the Lambertz Group, says that the strength of the Brazilian currency is currently deterring sugar producers in Brazil from export sales. India, for its part, has cut back sugar exports because production was lower than expected. It is similar in Thailand.
Professor Hermann Bühlbecker, sole shareholder of the Lambertz Group.
(Photo: Marius Becker/dpa)
Finally, increased ethanol prices encouraged sugarcane producers to use their crops for more profitable biofuel blending rather than sugar production. In any case, high taxes and duties are due for the import of sugar from many non-EU countries. In short: the EU is in a particularly difficult situation. On average, sugar prices here are currently twice as high as on the world market. Because supply has fallen and become more expensive, but consumer demand has increased after the end of the corona pandemic.
For confectionery producers like Lambertz, this means enormous cost increases that are at least partially passed on to consumers. Sugar manufacturers such as Südzucker from Mannheim, on the other hand, have raised their profit forecast for the second time this year.