Sweet or sour? The forecast ups and downs of the Australian sugar industry

Wilmar International and MSF Sugar’s announcements that they will no longer export through Queensland Sugar Limited is likely to have a significant impact on the Australian sugar supply chain - but it’s not all bad news for the sugar industry, according to IBISWorld.

At the end of the 2016 harvest season, Wilmar and MSF Sugar will part company with Queensland Sugar, creating separate export channels for future harvest seasons.

Legislation has historically required that all sugar be sold to Queensland Sugar, meaning that the company had a monopoly on all Australian sugar exports. This legislation was scrapped in 2006, but until now nothing has come of the change. This will change in 2017.

Controlling almost 50% of the sugar manufacturing industry, Wilmar and MSF Sugar process sugar in 12 mills throughout northern Queensland. By creating separate export channels, the companies are creating an opportunity for revenue growth, IBISWorld says.

Slow annualised growth of 1.1% is forecast for the sugar manufacturing industry over the next five years. Businesses are focusing on international markets for revenue growth. More than 50% of industry revenue in 2013-14 is predicted to come from exports. Separate export channels will give the companies greater control over their exposure to overseas markets and contribute to strong forecast growth over the next five years, IBISWorld predicts.

While this is good news for the sugar exporters, things aren’t so rosy for the sugarcane growers. While Queensland Sugar’s monopoly on the export market meant price completion wasn’t possible, farmers are concerned that the newly created channel will cause a race to the bottom on sugar export prices.

Farmers have very little negotiating power with the sugar manufacturers. Price competition in the export market will place further pressure on farmers, potentially decreasing profitability, IBISWorld says.

But there is a silver lining: increased interest in sugar by-products for biofuel means good things for sugarcane growers. As biofuels technology develops, demand for sugar cane is projected to rise dramatically, IBISWorld reports. This will counteract any negative impact caused by the second channel for sugar exports.

In addition, global consumption of sugar is expected to increase as growing populations and increasing Westernisation of developing countries drive the demand for the sweet stuff.

IBISWorld predicts that this combination of factors will stimulate demand for sugar cane, promoting revenue growth and higher profit margins for growers. As a result, annualised revenue growth of 3.2% is forecast for the sugarcane growing industry over the next five years, to reach $1.2 billion in 2018-19.