Nigeria is witnessing a dramatic surge in sugar prices as a confluence of factors, including increased demand, unfavorable weather conditions, and currency devaluation, continues to put upward pressure on prices. The National Sugar Development Council reports that the average sugar price for the week ending July 28, 2023, was N835,400 per ton, representing a staggering 44.2% increase compared to N579,400 per ton for the same week in 2022.
Nigeria relies heavily on sugar imports, accounting for approximately 98% of its sugar needs. Global sugar prices have been on the rise, with India, the world’s primary sugar producer and exporter, grappling with a drought that has adversely affected production and disrupted supply chains. Sugar prices on the world commodity exchange have surged by 44% since the beginning of the year, making it the best-performing commodity globally.
Key players in the Nigerian sugar industry, such as Dangote, BUA, and Flour Mills of Nigeria, have primarily focused on importing raw sugar and then refining and selling it domestically. However, the National Sugar Development Council is now urging these companies to invest in sugar production and integrate locally sourced extracts into their refining processes, a strategy known as reverse integration. The extent of extract imports allowed will depend on the level of investment in local plantations.
Adding to the challenges faced by sugar importers is the scarcity of foreign exchange and the devaluation of the Nigerian naira, which has lost nearly half of its value since the introduction of the managed float FX system in June. The Nigerian Manufacturers Association (MAN) has previously raised concerns about the forex scarcity, as it impedes the import of raw materials and machinery, affecting various industries, including sugar.
With inventories dwindling and the peak holiday season approaching, sugar prices may continue to rise in the coming months. The global demand for sugar exceeds 180 million tons annually, with individual consumers and companies requiring significant quantities for their products. Additionally, weather and climate conditions have constrained sugar production in major producing countries like Brazil, Thailand, China, and the United States.
India, the world’s second-largest sugar exporter after Brazil and the largest consumer and producer, has also faced challenges. This season, India’s sugar exports plummeted to 6.1 million tons, down from 11.1 million tons in the 2021-2022 crop year. Limited rainfall in India’s main sugar-producing regions has heightened concerns about sugar output, leading to a more than 3% price increase in just two weeks, reaching a six-year high.
Moreover, OPEC’s surprise decision to significantly cut oil production, with Saudi Arabia and Russia leading the way, has played a role in driving sugar prices higher. This move has encouraged the redirection of sugarcane toward ethanol production, reducing the available supply of sugar, as noted in Fitch Solutions’ Q2 report.
As Nigeria navigates these complex challenges in the global sugar market, consumers and businesses alike may face higher sugar prices in the foreseeable future, impacting various sectors of the economy.