The growing usage of ethanol as "green" fuel is unlikely to destabilise the world sugar market in the next 5-6 years, the International Sugar Organisation (ISO) forecast on Wednesday.
Lyndsay Jolly, ISO senior economist, told an industry conference in Amsterdam that most countries pursuing fuel ethanol expansion would not be able to mimic Brazil's integrated sugar-based ethanol industry in the years to come. This limited the potential for large diversion of sugar to ethanol production.
"It's not likely that ethanol will destabilise the sugar market in the next 5-6 years," Jolly said. The rise in global crude oil prices in the past few years had until recently been matched largely by a rise in sugar prices and some analysts had suggested that stronger demand for fossil fuel alternatives had an impact on sugar.
Jolly said this link remained centred in Brazil, the world's biggest ethanol exporter and second biggest producer, because of the size of its ethanol and sugar industries.
Brazil is expanding domestic consumption of the green fuel because of increased usage of flexible-engine vehicles, able to switch to different kinds of fuels. Brazil also has ambitions to boost exports.
"As Brazilian producers become increasingly focused on supplying their domestic fuel market and export ethanol markets, the less likely the country will flood the world sugar market," Jolly said. Prices of sugar futures in London have weakened considerably since peaking in early July due to expected surplus in world production in 2006/07.
The ISO forecast that Brazil could raise its sugar cane production to 36 million tonnes in 2010/11 from 27 million in 2005/06 and boost ethanol output to 27 billion litres from 16 billion litres.
Currently, the growth in Brazil's sugar production is outpacing that of ethanol because sugar is more profitable, Christoph Berg, economist with German commodity analyst F.O. Licht, told the conference. He said Brazil's sugar output was likely to rise 12 percent in 2006/07, compared with a 6 percent rise for ethanol output.
ISO's Jolly said the United States, the world's biggest ethanol producer, would continue to rely mainly on maize as raw material, while the European Union, which has yet to develop a large-scale ethanol industry, would use mostly wheat.
In Asia, where many countries that pursue biofuels have well established sugar cane industries, the scale of ethanol production would be much lower than Brazil, Jolly said.
Some analysts warned that the concentration of world ethanol output in only two countries, Brazil and the US, might have a negative impact on trade given the lack of a global market. "The concentration of world production in two countries could be a serious threat to world trade," Stavros Dimopoulos, ethanol trading manager at Cargill International, told the conference.
This year's world ethanol trade flows would reach just 5 million cubic metres out of a global production of 51 million as trade barriers, varying quality specifications and undeveloped futures markets hamper the creation of a global market, he said.
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