Every commodity has its ups and downs. It's the nature of supply and demand. This autumn, it's sugar's turn. U.S. stockpiles shrank to their lowest level in 37 years in October, forcing both wholesale and retail prices to skyrocket and prompting the federal government to increase import quotas.
The U.S. Department of Agriculture is forecasting that domestic inventories will shrink more than 35% through mid-2012. Retail prices have already risen nearly 10% since the beginning of this year, even though import quotas were increased by 45%. The situation is just as dire — even more so — for organic sugar supplies.
“We've come into a year where there's zero inventory in the warehouse, so no carryover, and the crops in both Brazil and Paraguay are very bad, down 30% on the organic,” said Hobbs Wolcott, vice president sales and procurement for Tradin USA, a division of SunOpta, an ingredients and food product company.
To counter the shortage, specialty quotas covering organic product have been likewise increased in an effort to soften the blow. Contracts for the following year are typically signed at this time of year, in October and November, but currently there's nothing to sign for.
“There's basically no availability on organic sugar to date so people are having a hard time getting contracts,” Wolcott said, adding that suppliers don't even want to provide quotes due to their reluctance to promise volume.
Higher retail prices will likely last at least through the first half of next year. Before that, however, manufacturers are likely to face unpleasant choices.
“With the higher retail prices they're going to have to either switch to natural sugar or go without organic,” said Wolcott. “It's conceivable that people aren't going to do organic products on some level because of the price.”
The long-term solution is to devote more acreage to organic farming, but even here there are challenges, Wolcott points out.
“Organic agriculture can't keep up with market demand,” she said. “Organic needs more acreage but they're not adding enough land to match that demand.”