“The main issue with soft commodity prices at the moment is oversupply coupled with uncertainty about whether consumption levels are going to come back. If we take the case of sugar, where prices have been steadily falling and continue to fall, there is an expectation of ample supply. It’s not just coming from Brazil, but also from Thailand,” Ecobank head of soft commodities research Edward George told CNBC Africa on Monday.
“But of course weakening of emerging market currencies has had an impact on a lot of prices because quite a few of the soft commodity producers actually export their soft commodities in dollars, and so this has made their own production cheaper.”
Poor commodity priced were also led by coffee, wheat and rice falling over 5 per cent.
Africa only produces around 5 per cent of the world’s cotton while China, America and South Asia dominate the production and control the prices.
A big issue for cotton producers In West Africa and other cotton producing regions in the continent is the international market, which determines the general price of cotton across all markets.
There is however surge in West African cotton production, particularly in Mali, which has produced 450,000 tonnes of sea cotton last season and is hoping to produce up to 600,000 tonnes in future. There is also a recovery in Benin’s and Ivory Coast’s cotton sectors.
If China however resumes massive buying of cotton for strategic reserves, it will push up prices globally.
The benchmark piece of sugar was down 16 per cent year to date, following a number of changes in major sugar producing countries such as Kenya.
The COMESA import protection tariff, which protected local sugar producers in Kenya, is set to expire in 2014, opening the continental sector to even more competition.
“Kenya’s sugar sector is in a very difficult position. The main sugar producing region is not very efficient, it costs around 870 dollars a tonne to produce sugar there. That’s about twice the price in Swaziland or in Zambia, and of course these countries can actually export to the East African community under COMESA,” George explained.
In an attempt to try and reform Kenya’s sugar sector, the country got an exemption from COMESA 10 years ago to restrict the number of imports coming into the country to try and give some support to the sector.”