Commenting on the move, Brooke Tonkin, IBISWorld Senior Industry Analyst, said: "Sugar manufacturers Wilmar Sugar, MSF Sugar and Tully Sugar are breaking with QSL, and many sugar cane growers are fearful that this will increase pricing competition. However, the effects may not be as severe as anticipated because local growers have little influence on global markets."
Australia's sugar cane harvest is currently in full swing, with approximately 5.6 million tonnes of sugar cane expected to be milled by mid-December for Mackay Sugar. National sugar cane milled is expected to be 34.8 million tonnes in 2015-16. With the harvest well underway, farmers are starting to turn their attention to growing cane for next season. However, the 2017 season is expected to be different to other seasons.
"Sugar cane growers are nervous that the split may spark price competition that will reduce their profit margins. However, Australia's position as a price-taker in the world sugar market means the effects are unlikely to be as detrimental as expected," said Tonkin.
As an industry-owned marketer, QSL is responsible for negotiating prices on behalf of sugar manufacturers and sugar cane growers. Following the industry's deregulation in 2006, QSL has operated through voluntary contracts with sugar millers. Despite the contracts being voluntary, most millers continued to operate through QSL. In 2014, Wilmar Sugar, MSF Sugar and Tully Sugar, three of the five largest sugar manufacturers, announced that they planned to sever ties with QSL at the end of the 2016 season.
"Although approximately 80% of Australia's processed sugar (in volume terms) is exported, Australia accounts for around 3% of global sugar production. Australia therefore has little control over the world sugar market," said Tonkin.
"Although Wilmar Sugar, MSF Sugar and Tully Sugar are major players in the domestic sugar manufacturing industry, they are unlikely to significantly influence the world prices received for sugar," added Tonkin. "This means that despite the imminent changes, farmers are likely to receive similar prices for their cane regardless of which sugar mill they sell to."
Despite the shake-up, the sugar cane growing industry and the sugar manufacturing industry are both projected to grow in the current year, as low world sugar stocks cause world sugar prices to increase. As these effects flow through to the Australian market, the sugar cane growing industry is expected to grow by 12.9%, while the sugar manufacturing industry is anticipated to grow by 19.9%.
