Global Sugar Challenges Impact the Indonesian Market

Published 2023년 12월 6일

Known as the world’s largest sugar importer, Indonesia is experiencing challenges in securing sugar in 2023. The major supplying markets to the Indonesian market are Thailand, India, and Brazil, accounting for a combined 89% share of Indonesian sugar imports in 2022. India's extended sugar export restrictions, the declines in Thailand's sugar output, and logistical challenges in Brazil have raised concerns in Indonesia about potential shortages and price hikes in the domestic market. Sugar prices in Indonesia reached a historic high in Nov-23, hitting IDR 17,850/kg (USD 1.15/kg), up by 6% MoM and 18% YoY. It is anticipated that prices will remain elevated until Apr-24, with seasonal holidays like Christmas, New Year, Chinese New Year, and also events such as the elections on Feb-24, Ramadan on Mar-24, and Eid Fitr on Apr-24 significantly increasing sugar demand in Indonesia. Increasing imported supply and monitoring global trends are imperative to ensure stability for Indonesia's sugar industry.

The Indonesian sugar market is currently experiencing challenges influenced by both domestic and global sugar markets. As the world’s largest sugar importer, Indonesia imported 5.7 million metric tons (mmt) in 2022, marking an 8.4% year-on-year (YoY). The major supplying markets to the Indonesian market are Thailand, India, and Brazil, accounting for a combined 89% share of Indonesian sugar imports in 2022. Heavily reliant on sugar imports, Indonesia is expected to secure 4.641 mmt of imported sugar in 2023. This import quota comprises 3.6 mmt of raw sugar, 991,000 metric tons (mt) of white crystal sugar, and 50,000 mt for specific needs.

Weather Anomalies Impact Sugar Production in Some Regions

A significant concern arises from India's extended sugar export restrictions implemented in Oct-23. A previous analysis highlighted that India's decision to extend the sugar export restriction is prompted by a looming decrease in production due to a substantial reduction in rainfall, particularly in key sugarcane-producing areas.

Similar challenges affect other suppliers like Thailand, where the United States Department of Agriculture (USDA) predicts a significant drop in sugar production to 9.4 mmt in marketing year (MY) 2023/24, a 13% YoY decrease. This is attributed to severe droughts in key sugar-producing areas in Thailand. As a result, the country’s sugar exports are expected to drop to 4 to 5 mmt, a significant decrease from the previous forecast of 7 mmt. The decline in Thailand's output further tightened the global supply after India announced that it would extend restricted exports beyond the end of October.

The world's largest sugar exporter, Brazil, is anticipated to offset the global supply gap with a production estimate of 41.0 million tons, up 8% YoY from the previous season. However, logistical challenges, including port bottlenecks and adverse weather, pose potential complications despite a thriving sugar sector.

The ongoing sugar scarcity crisis has led the price of sugar for the Mar-24 contract traded to USc 27.2 per pound in W47 2023, an increase of 2% month-on-month (MoM). This surge is primarily driven by diminished global supply resulting from unusual weather patterns affecting harvests in key sugar-producing nations such as India and Thailand.

Figure 1. US Sugar #11 Futures Price

Source: ICE

Impacts on the Indonesian Market

Indonesia is aware of the potential repercussions of sugar in some key producing markets, recognizing the likelihood of a ripple effect on global prices that could impact the domestic market. As of Oct-23, Indonesian sugar imports were at 24.69% of the annual quota, raising concerns about potential shortages and price hikes in the domestic market.

The situation is further complicated by a decline in domestic sugar production, prompting the government to revise the domestic production projection from 2.6 million tons to 2.3 million tons. The shortfall is attributed to adverse weather conditions, specifically a dry spell affecting sugarcane harvests. Indonesia had aimed to increase white sugar output by 8.3% YoY to 2.6 mmt in 2023, but the impact of the extreme dry season has led to lower-than-expected sugarcane production, despite higher yields.

With lower imported supply and poor harvests in the domestic market, sugar prices in Indonesia reached a historic high in Nov-23, hitting IDR 17,850 per kilogram (USD 1.15/kg), up by 6% MoM and 18% YoY. Prices are anticipated to remain elevated until Apr-24, with seasonal holidays like Christmas, New Year, Chinese New Year and also events such as elections on Feb-24, Ramadan on Mar-24, and Eid Fitr on Apr-24 significantly increasing sugar demand in Indonesia.

Figure 2. Sugar Prices in Jakarta, Indonesia

Source: National Strategic Food Price Information Center Indonesia

In conclusion, the Indonesian sugar market is at a critical juncture, navigating the complexities of global supply dynamics and domestic production challenges. Timely and coordinated actions, including increasing imported supply and monitoring global trends, are imperative to ensure stability for Indonesia's sugar industry.