Supply shortages and rocketing global prices are sending costs sky-high. So what does the future hold for the EU sugar industry? Robert Miles reports

Consumers face having to pay more than ever to satisfy a sweet tooth, as declines in EU sugar production and soaring global prices push up the price of sugar in Europe.

World prices have risen by 41% year-on-year, and futures prices, for delivery in October, are up by 46% year-on-year. Although high global prices do not necessarily translate into high retail prices margins may get squeezed before consumers see significant hikes shoppers could soon be paying more for treats. A 500g bag of branded caster sugar in the big four now costs 89p on average, up from 72p a year ago [].

And it’s not just sugar itself that could be affected, of course. Sugary favourites such as cakes, biscuits, sweet drinks, chocolate and ice cream are also likely to rise in price.

Part of the problem is the growing importance of biofuels, with sugar increasingly used to produce ethanol (which is then blended into gasoline) instead of food. It is estimated by the European Commission that between 7% and 10% of the EU’s total sugar beet production is currently used for purposes other than sugar, primarily to produce ethanol and vinegar.

Just 15 million tonnes of sugar is currently being produced in the EU, compared with consumption levels of 17.5 million tonnes. The EU had planned to import whatever extra sugar it needed to make up for the shortfall created by its burgeoning ethanol production, but a succession of poor global harvests and increases in world demand, leading to high prices, have made it difficult to plug the gap. At the same time, many EU economies have had their buying power slashed during the downturn, so there is simply less cash to pay for imports. As a result, parts of the EU have started to experience unusual sugar shortages, with supermarkets in Portugal forced to limit how much sugar each shopper can buy.

To help redress the situation, a wide range of EU countries, including the UK, Bulgaria, Finland, Romania and Portugal, have been calling for sugar import tariffs to be lowered and import quotas to be increased but this has been met with opposition from France, the EU’s biggest sugar beet producer.

To make matters worse, EU growers have started to turn their backs on sugar beet. It is vulnerable to frost damage and rot, and the recent extreme weather patterns have left many growers wondering if the money they make on sugar beet is worth the risk. In the UK, for example, frost and wet weather led to an estimated two million tonnes of sugar being lost in 2010. And sugar beet is facing growing competition for acreage from grains, which are commanding especially high prices on the world markets at the moment.

In a bid to secure future UK sugar supplies, British sugar beet growers are now being offered a contract price of £27.53 per tonne for their 2012 crop £4 more than during the 2010/11 season.

This may be good news for growers, but it is also likely to contribute to ever-higher supermarket sugar prices. Clearly food security has a price, and it looks like shoppers will have to pay ever more for it to satisfy their cravings for all things sweet.