China is set to consume 15.8 million tonnes of sugar this market year, equalling record consumption set in 2015/2016. If it weren’t for a sugar import quota imposed in May, Chinese sugar consumption may have been even higher. Nominally intended to shore up the domestic industry, the quota has sent sugar imports tumbling and retail prices soaring (despite low global prices). Conveniently, it encourages food producers to consider high fructose corn syrup (HFCS) as a substitute, which will help reduce aging and bloated corn stocks.
Brazil stands to lose the most from China’s quota. Brazilian exporters, who were already in a bind and who produce the lion’s share of Chinese sugar imports, have seen exports drop to their lowest levels in decades. The pain will be disproportionate, too. Brazil’s main competitors—Southeast Asian countries, such as Thailand—can, and have, effectively smuggled up to roughly a million tonnes of sugar per year into China. Furthermore, China’s import quota will continue into 2018, further incentivizing companies and middlemen to supplant sugar imports with domestically-sourced HFCS or smuggled goods.