As sweet as sugar: sugar prices appear to enjoy significantly more upside momentum than downward pressure at present - and Africa's producers are among those best placed to benefit from record prices this year, as well as to expand to take a greater share of global markets years to come.

In a roller-coaster 12 months for commodities prices, there has been something of a surprise star performer - sugar. Due to a poor monsoon season, and restricted growth in planting due to weak prices last year, India production fell from 28.6m tonnes to 16m tonnes. Last year, India's population consumed around 15% of global production.

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In the world's largest producer, Brazil, there was far too much rain, and the cold weather has not helped either. With the slump in supply, and resilient, albeit static, demand, recent weeks have seen a sugar bull-run.

Prices have risen 86% this year to reach a 28-year high at the end of August. Prices have, in fact, more than doubled since January 2008. With the market as a whole facing an estimated deficit of 7.8m tonnes this year - equivalent to 3.8% of global output - it is understandable that prices have risen.

Indian production is not expected to meet demand before 2011 and problems in Pakistan, Russia and Thailand - not to mention the effects of a possible El Nino - explain the steep rise in prices.

However, the risks of El Nino aside, African producers, accounting for 6.4% of global production, and who among them have probably greater capacity than other current large producers to expand their output, may well be set to benefit from the high prices. Africa already does rather well with its sugar trading accounting for 7% of global exports. Its share of global consumption has swollen from 3.9% in 2000 to 4.9% in 2007. This share is likely to continue growing.

In Kenya, despite Mumias Sugar restarting production in August, the country seems set for a sugar shortage with supermarkets already restricting the amount customers may purchase. Mumias announced full year profits up 33% to Ksh1.5bn ($21m) at the end of August, despite the effects of drought. The company benefited from tax credits in return for its investments in energy production and its share price has risen as it has managed to continue to provide investors with dividends.

Kenya production should reach around 600,000 tonnes this year, up from 518,000 tonnes in 2008. However, the country needed to import 220,0001 last year, mostly from Egypt, South Africa and Swaziland - limiting the nation's ability to capitalise on record high prices. Kenya did manage to export about 44,000t in 2008 - up from 21,000t in 2007 - but production costs are relatively high in the country, while shortages and high prices have led to sugar smuggling becoming an issue for the government.

Ethiopia is looking to lease 25,000 hectares of land for sugar-cane production, which it is estimated will yield about 200,000t a year of private production, to add to the existing state-owned production of 300,000t a year. Domestic demand in Ethiopia is around 450,000t a year, a per capita consumption of sugar that now exceeds 4kg a year.

World's largest consumer

India's rapidly growing appetite for sugar has meant that the country is now the world's largest consumer of sugar, although Brazil remains the world's greatest per capita consumer. As a country's income grows, there is a tendency for its sugar consumption to grow too, although this tends to plateau at around 35kg per capita year amongst middle-income countries.

Only Gambia (53.8kg) and Swaziland (97.4kg) consume more than this in sub-Saharan Africa. Countries with per capita consumption substantially below the global average are likely to see that consumption rise. Sugars still remains a cheap source of calories for consumers, so demand is likely to remain resilient globally, if static in the face of the downturn and high prices. In Africa, consumption of sugar is expected to rise.

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The increasing significance of sugar as a source of ethanol for fuel is also driving demand. Brazil has had enormous success with this fuel source, a policy it pursued to improve energy security in response to the 1970's oil shock.

Africa boosts sugar production

Little wonder then that other nations are following suit. President Omar el Bashir has just opened Africa's first sugar to ethanol plant in Sudan, utilising sugar from one of Africa's biggest sugar plants in Kenana. The plant was built with Kuwaiti backing.

Nigerians are also looking to emulate the Brazilian bio-fuel model, following a memorandum of understanding between the two countries in 2005. Subsidies for sugar cane and cassava have been introduced. Nigeria is the world's leading producer of cassava, or tapioca as the plant's flour is known.

With 30m/tonnes per hectare yields the global average, Nigeria's 15m/tonne per hectare yields have plenty of room for improvement. Cassava has been seen traditionally as a food crop, but increasingly production is being used for making ethanol. Nigeria is also seeking to increase its sugar-cane production. It has 400,000 hectares of land suitable for high-yield sugar-cane production. Feasibility studies are looking along the course of the Niger and Benue rivers. Some of the new production is scheduled for bio-fuels.

Nigeria's biggest sugar refiner, Dangote Sugar, announced profits of N21.87bn ($149m) - up 2% on last year. The company is the major supplier of sugar to the nations' beverage manufacturers.

Angola intends to grow sugar cane for the first time in 30 years, to refine for bio-fuel. The BioCom joint venture 20,000 hectare site will receive $220m in investment from the state oil company Sonangol, Brazilian firm Odebrecht and the private Angolan group Darner. It is scheduled to yield 230,000t of sugar in addition to 30,000 cubic metres of ethanol from the cane residue. The biomass waste and waste heat will be used to generate an estimated 217MW of power.

The use of land for bio-fuel production can be contentious and the UN's FAO has issued warnings on the topic. There is currently no law addressing bio-fuel production in Angola but there is proposed legislation under consideration.

Also expanding is Durban based Illovo Sugar, Africa's largest producer, which is set to increase production from 1.9m tonnes to 3m tonnes over the next five years. Illovo is looking to produce 200,000 tonnes a year in Mali, producing power simultaneously using biomass waste (making its production on site energy self-sufficient) as well as yielding 15,000 kilolitres of ethanol for use as bio-fuel.

The EU, because of the subsidies it provided for its domestic sugar producers and the tariffs placed on imports, severely impeded sugar producers in Africa and elsewhere. So much so that the WTO found some of the EU practices illegal in 2004 and some reforms have taken place. The Sugar Protocol and the Special Preferential Sugar Agreement have allowed participating African nations the opportunity to gain some access to the EU sugar market.

US and EU subsidies mean that those markets are used to sugar prices around $0.35/lb, so record prices of $0.25/lb have no impact on demand. In fact, prices are likely to fall in the EU due to reforms to the sugar regime.

In particular, from the beginning of this month [October] poorer sugar-producing nations will be able to sell to the EU without tariffs or quotas. So, for example, Illovo's South African production will still be subject to tariffs but its Mali production will not.

There has been delay in signing the Economic Partnership Agreement between the East African Community (EAC) and the EU which could negatively affect Kenya as, if the stalemate persists, the country will be subject to increased EU import tariffs on its sugar sales there.

Fellow EAC nations, Tanzania, Uganda, Rwanda and Burundi, will continue to enjoy preferential market access under the existing Everything But Arms Agreement.

Illovo has also increased its production in qualifying nation Zambia to near 450,000t this year, having expanded rapidly over the last two years. Its subsidiaries include Illovo Sugar (Z) Ltd, and Zambia Sugar, the country's largest producer.

Zambia Sugar secured $30.59m in funding from local bank Zanaco, part owned and controlled by Rabobank. Zambia Sugar has turned its Nakambala site into the second-largest individual milling operation in Africa. Confidence in the company in light of this success has led to the loan being granted to acquire Nanga Farms' 9,800 hectares to produce sugar for the EU market. A good harvest and record-breaking yields mean Zambia is set to benefit from soaring sugar prices.

Illovo also produces in qualifying nations Malawi (266,000t), Mozambique (150,000t) and Tanzania (127,000t) as well as Swaziland: these locations also employ biomass-waste power generation.