Sugar's sweet rally hits food makers and sweet-toothed alike

Snacks are displayed on the shelves at a supermarket in Seoul [YONHAP]

A steep rise in the price of sugar is pushing up the prices of a wide range of products, including snacks, ice cream and beverages.

The price of Lotte Wellfood's Pepero and Kkokkalcorn rose 13.3 percent to 1,700 won this year, while the company’s World Cone ice cream rose 20 percent to 1,200 won. Binggrae's Melona ice cream rose 25 percent to 1,500 won.

Sugar is becoming more expensive due to tight global supply. Higher temperatures and heavy rains have led to a decrease in production, while an increase in energy prices due to the war in Ukraine has led to using sugarcane to produce ethanol instead of sugar.

India, the largest global sugar supplier, is limiting additional exports due to a decrease in domestic production, and Europe prohibited the use of neonicotinoids, as research indicated that the pesticide is lethal for pollinators such as bees.

The price of white sugar hit $676.3 per ton, according to London International Financial Futures Exchange (Liffe) on Saturday. The price peaked at $702 per ton on April 12 and has remained high since then, increasing some 30 percent in the last four months.

It’s been 12 years since futures broke $700.

The price of raw sugar per pound was 24.92 cents on Saturday on the New York Mercantile Exchange (Nymex), the highest since March 2012. The sugar price index for March was 127, according to report from Food and Agriculture Organization of the United Nations on April 7, the highest since October 2016.

Global sugar supply is low, but demand is likely to grow as China lifts its borders for imports due to the Covid-19 pandemic winding down.

“There are already signs that sugar’s rally is feeding through to higher retail prices for goods in grocery stores in the United States and Europe,” according to Bloomberg. “Threatening more inflationary pain by increasing the cost of making baked goods, candy and soft drinks.”

Sugar is one of the primary ingredients in the confectionery business, directly affecting the price of processed foods, such as bread, snacks, ice cream and beverages.

“The price of sugar accounts for up 10 percent of the total cost of raw ingredients for processed foods,” said a source in the confectionery business. “The industry is struggling due to rising of costs in related food production, human resources and logistics as well as a hike in sugar prices.”

The consumer price index rose 4.2 percent in March on year, but for confectioneries, the figure rose 9.1 percent, according to Statistics Korea — bread prices were up 10.8 percent, and snacks 11.2 percent on year.

Prices of chocolates, Coca Cola and ice cream rose 100 to 200 won this year. Similar price hikes occurred between 2015 and 2016 when the sugar price went up.

The government is attempting to control the rising prices. Minister of Agriculture, Food, and Rural Affairs Chung Hwang-keun held a press event in February and invited executives from 12 food businesses, such as CJ CheilJedang, Ottogi, Nongshim and Lotte Wellfood, requesting the businesses to refrain from upping their product prices.

“As the primary purpose of sugar is as a food additive, it has less influence on the rise of price in confectioneries compared to other farm products,” said Jang Bo-hyun, director general at Ministry of Economy and Finance. “The government has temporarily contained the situation by asking large companies to refrain from upping their prices, but we are still wary that the price hike may happen soon.”

"As the majority of food companies have signed long-term supply contract for sugar, it may not immediately affect the domestic industry, but the burden may grow as time passes," said analyst Kim Tae-hyun of IBK Securities. "If the domestic industry wants to absorb the price shock, we need to diversify import routes, but that is difficult due to a limit in the number of global suppliers and climate change."

BY KIM KI-HWAN [lee.jaelim@joongang.co.kr]