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Slide in rouble may stunt Russian sugar consumption growth

Business Recorder, 03.12.14

A sharp slide in the rouble is driving up domestic sugar prices in Russia and could stall consumption growth in a country that imports about a million tonnes a year, analysts said. Russia's rouble has lost about a third of its value against the dollar this year, taking the biggest hit in the autumn months, due to a fall in global oil prices and Western sanctions over the crisis in Ukraine.

"The rouble weakening and a rise of local sugar prices may slow down growth in Russia's sugar consumption, which has started to pick up since 2012," said Evgeny Ivanov, a sugar analyst at Moscow-based agriculture consultancy IKAR. Russia was once the world's top raw sugar importer but has boosted production to try and become more self-sufficient.

It remains a net importer, predominantly of Brazilian and Thai raw sugar, and is expected to import some one million tonnes in the current season, largely in the first half of 2015.

Russia, which has a customs union agreement for sugar trade with Kazakhstan and Belarus, has seen a steady rise in domestic sugar consumption in recent years, driven by demand for beverages and confectionery. According to IKAR, Russia's sugar demand may hold at about 5.6 million tonnes in 2014/15, unchanged from the previous year but lower than the 5.7-5.8 million tonnes which could have been expected without the weaker rouble. Benchmark global sugar prices have fallen about 3 percent this year and are on course for a fourth straight annual decline as the market struggles to absorb excess supplies.

The drop in prices has encouraged increased demand in many countries. The International Sugar Organisation (ISO) estimates that global consumption is growing at about 2 percent a year. Sugar is dollar-denominated, however, so a falling rouble raises costs to import the sweetener in local currency terms. "The weaker rouble makes import decisions more difficult. The problem is that, because of the weaker domestic currency, the price of imported sugar is as high as it was a few months ago (when sugar prices were stronger)," Sergey Gudoshnikov, a senior economist with the ISO, said. Speaking at an ISO seminar this week, Andrey Bodin, chairman of the Russian Sugar Producers' Union, said he expected Russian raw sugar imports to continue to decline in coming years. He projected imports could fall to 350,000 tonnes by 2020.

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