How does the ban on importing sugar affect local companies and market prices?


I wrote – Shaima Hefzy:

On Thursday, the Egyptian government banned the import of white and raw sugar for a period of 3 months, coinciding with a significant drop in the price of sugar globally, a decision that provides protection for local sugar companies, according to industry dealers told “Masrawy.”

Dealers in the sugar industry told Masrawy that the low price of imported sugar due to its low price globally, compared to the prices of locally manufactured sugar, cause losses to local companies, which are having difficulty selling.

They added that the decision to ban imports would help companies achieve sales, especially as they were entering in an “unfair” competition with the imported product, at a time when global demand for sugar declined, due to the repercussions of the crisis of the “Corona” virus globally.

The volume of Egypt’s consumption of sugar is between 3 and 3.2 million tons annually, of which 2.4 million tons are local production, and the difference is compensated for by import, according to what Minister of Supply Ali Al-Muselhi said in a statement yesterday.

And it works in the sugar industry sector, 8 companies that produce sugar cane, divided into the Sugar Company for Integrated Industries of the cane and owns 8 factories in the Upper Egypt and a refinery in Hawamdiya, in addition to 7 companies to produce sugar beet, including only 3 companies a private sector, according to Abdul Hamid Salama, Former chairman of Delta Sugar Company, by Masrawy.

Local companies achieve self-sufficiency with 75% of the total domestic consumption.

Why did sugar prices drop globally?

Islam Salem, CEO of Canal Sugar Company, told Masrawy that the economic repercussions of the emerging “Corona virus” crisis have led to a decline in demand for many products, including sugar, in addition to the impact of the collapse in oil prices.

According to a statement of the Ministry of Trade and Industry, today, fluctuations in world sugar prices caused by low oil prices to their lowest levels have led to a drop in sugar prices, especially raw sugar, by 30%.

“As a result of the decline in oil prices, the prices of ethanol, or what is known as biofuel, is reduced, which is a product made from sugar cane. As a result, industrialized countries such as Brazil resort to increasing their production of sugar at the expense of ethanol, and thus the volume of sugar supply increases globally.”

He pointed out that this increase in supply was not absorbed in the global market, as a result of the decline in industrial demand globally due to the closure of factories in many countries after the “Corona” crisis, and this was followed by a decrease in the price of sugar on the global stock exchange.

Global data indicate a decline in rates ranging from 15 to 20% in demand for sugar globally, during the first five months of the year, compared to the same period last year, as a result of the “Corona” crisis, while the average prices fell by about 30% with the beginning of the crisis and then recovered About 15%, but it is still in a downtrend, according to Salem.

Why does low price harm local companies?

Sugar production companies in Egypt – most of them governmental companies – face great challenges due to the “Corona” crisis, the decline in global demand and low prices, which was reflected in the results of Delta Sugar’s business during the first quarter of this year.

The company said in a statement to the stock exchange last month that it turned to a loss during the first quarter of the year worth 118.78 million pounds against profits amounting to 70.49 million pounds in the comparison period of 2019, as a result of the sharp decline in global sugar prices, followed by low local sugar prices and lower sales to close a large sector of users Sugar, such as tourist establishments, clubs and cafeterias, and its effect on lower average prices in the market.

Abdel Hamid Salama, former head of Delta Sugar Company, told Masrawy that increasing the volume of the low-price importer reduces the sales of local companies that bear a high cost of production, and this difference translates into the price of the final product by about 1 to 2 pounds per kilo.

Salem added that the global low sugar prices make imported sugar prices much lower than the factory prices locally due to the high cost of production, which leads to a decline in sales of local companies with their inability to reduce prices to compete with incoming.

The cost of a ton of imported sugar decreased to between 5500 and 6000 pounds per ton, and these prices are not commensurate with the cost of production in Egyptian companies, according to Salem.

Salama notes that the cost of raw materials in Egypt (reeds and beets) is more expensive than any country in the world, equivalent to 100 pounds per ton of agricultural crops, due to the low average ownership of land by farmers, which is the most costly item in the industry, especially after the factories turned to work with gas Natural.

And companies bear the cost of raw materials only to produce a ton of about 7 thousand pounds in cane sugar (to produce a ton of sugar needs 10 tons of canes at a cost of one ton about 700 pounds), according to Salem.

In the sugar industry of beets, the cost of producing a ton is about 6500 to 7 thousand pounds (producing a ton of sugar needs 7 tons of beets, the price of a ton is about 650 pounds).

Egypt grows about 300 thousand acres of sugar cane annually (a continuous crop for a period of 5 years), and about 500 to 550 thousand acres of beet (changes annually and the seeds are imported), according to Salameh.

How does the decision help local companies?

Salem said that the decision to ban imports enables local companies to spend their production and achieve sales without facing unfair competition, especially as Egypt imports more than 95% of sugar from Brazil, which currently has a large surplus of production due to the oil crisis.

He pointed out that supporting sugar companies is not only because it is a strategic commodity, but because the sugar industry is linked to other dimensions, such as farmers who supply cane and beets, and workers in these companies, as well as it is a source of granular wood, and the only producer of ethyl alcohol that is used in the manufacture of disinfectants.

Are sugar prices affected by the decision?

The two sources agreed that the import ban will not cause increased sugar prices in local companies, especially at the present time as demand falls.

Salama said that the demand for sugar does not change rapidly or fluctuatingly, and therefore the price does not change except under global conditions of import or the cost of local production changes, but in the event that the import is stopped, the price increase and the shortage of supply will be due to “merchant actions”, and these need to be controlled by the state On the commercial and storage process.

Salem added that the size of the gap between need and local production is not large, and under the current circumstances, it is not expected that the demand will pressure the supply locally and therefore the price will not rise, especially with the introduction of new production capacities soon.

“The Canal Sugar Company production is scheduled to start in March 2021, with a production capacity of about 450,000 tons in the first year of operation, which is half of the production capacity of the plant, and it will reach production capacity in the third year,” according to Salem.

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