Raw sugar prices have reached a 28-year high as concerns over supply grow.
The price grew by three per cent on Monday, to finish the day at 22 cents a pound, and analysts have said there is limited scope for food companies to shift to cheaper alternative sweeteners because many already pay above the market price for sugar.
Sugar prices are still subsidised in the European Union and the United States, and reforms are under way to gradually remove protection of their sugar industries to create a more level playing field in international trade.
Raw sugar futures have surged by over 80 per cent on the international market this year, driven by Indian imports after a dismal domestic crop.
Food industry analysts said that in the United States and Europe, food companies already paid high, protected prices for sugar, and so the latest rally in the world sugar market was not expected to have any immediate impact on their buying strategy.
However, in some developing countries ,for instance China, food companies could turn increasingly to cheaper alternatives.
“Europe operates a protective regime for sugar as does the US, so the world sugar price really only affects those outside these areas,” said analyst Julian Hardwick at brokers Royal Bank of Scotland.
Analysts pointed out that the current world price of sugar at around 22 cents compared to prices within the protected regimes of Europe and the United States of around 35 cents.
Midland chocolate giant Cadbury declined to comment on sugar prices, but analysts said that it buys the bulk of its sugar in Europe and the US so is used to paying high prices for its sugar.
“For Cadbury, cocoa is a much bigger concern than sugar in the commodity world,” said one analyst.
Premier Foods, maker of Mr Kipling cakes, Hartley’s jam and Branston pickle, said it buys all its sugar in Europe where prices had peaked and were coming down due to reforms of the European sugar regime.