Coinciding with the release of the senate inquiry report into current and future arrangements for the marketing of Australian sugar, business analysts at IbisWorld have released their anticipated performance figures for the sugar cane farming and manufacturing industries.
Following months of hearings, submissions and discussions, Australia’s sugar supply chain is likely to receive some much needed clarity regarding supply agreements between sugar cane growers and sugar millers. IbisWorld analysts say this is good news for both parties, particularly given the strong growth in sugar production anticipated over the next five years.
The sugar cane farming industry is currently worth $1.2 billion, with 3.1 per cent per annum growth forecast over the next five years to reach $1.4 billion by 2020-21.
Downstream, the sugar manufacturing industry is expected to be worth $3.3 billion in 2019-20, up from the $3.1 billion the industry is worth in 2014-15.
The new Sugar Marketing Code of Conduct, which is currently being developed by the Sugar Marketing Code of Conduct Taskforce, will provide growers and millers with a legal framework for dealing with each other.
The Code of Conduct is likely to help mitigate the current imbalance of bargaining power that currently exists between approximately sugar cane growers and millers.
Aside from tensions between co-dependent growers and millers, sugar production is exposed to multiple other challenges, according to IbisWorld.
Sugar cane yields dictate the sugar cane growing industry’s performance, and yields are highly volatile due to sugar cane’s susceptibility to adverse weather conditions and disease.
For example, one of the largest production declines on record occurred in 2010-11, when production fell by 12.2 per cent due to flooding over eastern Australia, coupled with the devastating effects of Cyclone Yasi. As a result, sugar cane farmer revenue plummeted 29.3 per cent in 2010-11.
Sugar manufacturers are highly susceptible to world sugar price fluctuations, given that exports represent around half of the industry’s revenue. Australia plays a minor role in determining world prices due to its small share of global sugar production.
The main global sugar producers are Brazil and India, which together account for more than 50 per cent of world sugar exports by volume. The amount of sugar exported by these countries generally has a significant effect on world sugar supply and prices.