Comment - Will More Soft Drinks Firms Turn to Sugar Substitutes?
According to figures from intelligence firm Mintec, the world press price for sugar has jumped 20% year-on-year in the last 12 months
As global sugar prices soar and companies prepare to face the headwinds of ever increasing commodity costs, can we expect more soft drinks firms to begin using cheaper substitutes for sugar?
It is a word that has become more commonplace in headlines in the last 12 months: commodities. And, if they haven't already, companies are putting contingency plans in place in order to ride the wave that is the soaring price of raw materials.
In particular, according to figures from intelligence firm Mintec, the world press price for sugar has jumped by 20% in the 12 months, to 7 March 2010. Some industry observers have forecast that soft drinks firms may up their use of sugar alternatives, including corn-based sweeteners like high fructose corn syrup, if the trend continues.
Rising demand from emerging markets, coupled with a year of difficult harvests around the world, have led to a spike in food commodities generally. Sugar, though, appears to have been worst hit - over the last 12 months, it has been the biggest climber on the United Nations' World Food Price Index.
In Europe, however, some have blamed the current situation on bad decision-making, rather than actual shortages.
"The current crisis with sugar supply and prices is [a] direct result of the sugar regime and that the quotas are set far too low," said Jill Ardagh, a spokesperson for the British Soft Drinks Association (BSDA). "The European Commission has reacted too slowly to release stocks," she told just-drinks this week.
"It is not a free market for sugar," she continued. "But, that is now happening and decisions have been made to release stocks. Soon we hope to have tariffs for imports and we hope that will help ease the price situation."
As for substituting sugar for cheaper alternatives, Ardagh believes this may be a challenge for drinks companies operating in Europe.
"The corn-based alternative, glucose fructose syrup, is hardly available on the EU market," Ardagh said. "It is controlled by quotas to protect the sugar industry and those are very low, so it is not a viable alternative."
There may be more incentive for drinks firms to use sugar alternatives in emerging markets, according to some. Leonardo Bichara, a senior economist at the International Sugar Organisation, believes that the trend of substituting sugar has already taken off in China and Mexico.
"These are two countries where you are seeing substitution," he told just-drinks. "Particularly in China, there has been a rise in the consumption of corn sweeteners," he said, referring to a "big jump" in imports of high fructose corn syrup in the country.
"Mexico also now imports [corn syrup], and in increasing amounts, for inclusion in beverages instead of sugar," he said.
But, Bichara believes it is uncertain that this trend will spread to other markets, or even remain over the longer term. He said that there would need to be a prolonged period of very high sugar prices in order for other countries to look at corn sweeteners as an alternative source.
"There are other types of sweeteners that are high intensity sweeteners," he said, "but then, they are used mainly in the niche markets, so you wouldn't really see a big drive by the likes of Coca-Cola to replace sugar with those."
Some of the largest companies, then, may have to ride out volatility in sugar prices by other means, such as sensible hedging, price increases and efficiency savings. What seems clear is that, with demand for soft drinks growing around the world, those without a cohesive strategy will be at a severe disadvantage.
For more just-drinks comment on the state of commodity markets, and sugar in particular, click here.
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