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Rabobank report places Australian sugar industry at turning point of recovery

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article image Rabobank sugar analyst Tracey Allen

According to a recent report by agribusiness banking specialist Rabobank , Australia’s sugar industry is at a turning point, all set for a recovery from recent challenging operating conditions.  

Titled ‘The raw deal’, the report says that operating conditions have been challenging for the Australian sugar industry despite favourable weather throughout the 2011 crush, and elevated international sugar prices.  

Thanks to an influx of international investment and renewed confidence in the market, the Australian sugar industry is well on the road to recovery.  

Rabobank sugar analyst Tracey Allen says that factors including a firm international price outlook and strong demand for Australian sugar exports throughout the Far East have encouraged local mills to provide incentives to growers to expand the area under cane.

The Far East region comprising of East Asia, Oceania, South Asia and the Middle East has been the focus of considerable corporate activity among sugar players in recent years.  

Dynamic increases in regional income and consumption growth leading to a structural sugar supply deficit caused by the inability to meet the increasing demand are some of the attractive characteristics in the Far East region, according to the Rabobank report.  

Australia’s low cost of production coupled with output exceeding domestic demand during the past decade places the Oceania in a unique position of consistently being able to produce an exportable surplus of raw sugar each year.

Consequently, the big sugar demand markets such as China and Indonesia are deepening the regional deficit and placing more pressure on structural sugar exporters such as Thailand and Australia to meet the needs of growing Asian sugar markets, which presents new investment and trade opportunities for East Asian and Australian sugar markets.  

According to the report, the Australian sugar sector is in a dynamic phase of consolidation, largely driven by investments from international sugar players in the future supply potential of the industry.  

Ms Allen says that industry consolidation and expansion are expected to continue in the medium-term largely driven by capital inflows from international players. In Rabobank’s view, recent capital injections into the Australian sugar sector will stimulate the industry to capitalise on the growing supply deficit through the Far East region.  

Key reasons for foreign investors, particularly sugar players from East Asia finding the Australian sugar industry a favourable investment destination include geographical proximity to Asian markets, management practices, efficiency, and research and development within the Australian sugar industry.    

Also significant is the untapped supply growth potential of the Australian sugar industry, which includes bringing more area back to cane from horticultural crops and plantation forestry, formerly managed by investment schemes, introducing new higher-yielding varieties and opening new area to cane through water infrastructure developments.

Ms Allen points out that the projected growth of consumption and trade in the region over the longer-term, coupled with high world prices in recent years, has created new dynamism in the region’s sugar business.

Heavyweight international players are acquiring many existing milling and refining assets with plans to boost production and processing. Additionally, new investment by local players in Thailand, Indonesia, China and elsewhere in milling capacity and refining capacity will come on-stream in the medium-term.  

Given the robust consumption trends, sugar producers and traders in the region can certainly look forward to a healthy growth period in the coming years.

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