Dubai is well positioned to take advantage of the growing sugar and confectionery trade thanks to its free and open market.
According to Dubai Chamber, the emirate has a high Revealed Comparative Advantage (RCA) in the global trade of sugar and confectionery.
The RCA for Dubai re-exports of sugar and confectionery is 266 and for free-zone exports is 140; an index level of more than 100 is considered competitive.
A main contributor of this is its first-mover advantage, the chamber said. The first sugar refinery in the Gulf, Al Khaleej Sugar, was built in Dubai in 1995. Nowadays, it is the largest standalone refinery in the world.
In addition, Dubai is located very close to several lucrative markets such as Saudi Arabia, Iraq and Iran, which are among the 30 biggest importers of sugar in 2008.
Location is crucial as sugar trade is slated to continue to thread up. According to the United States Department of Agriculture, total sugar exports are forecast to reach 28.4 million tonnes in 2010-2011 period up 4.1 million tonnes compared to the previous year (2009/2010 marketing year ). Raw sugar should account for 22.2 million tonnes, or nearly 80 per cent while the remainder represents exports of refined sugar.
USDA forecasts that world sugar production for the 2010/11 marketing year will stand at 164 million tonnes, up 12 million from the revised 2009/10 estimate.
Consumption is forecast at a record 158 million tonnes, up 4 million from a year earlier. Exports are forecast at record 54 million tonnes, up 3 million; and ending stocks are forecast at 27 million tonnes, up 500,000 tonnes.
Prices are also inching up as demand takes an upward march. According to Cyrus Raja, general manager of Al Khaleej Sugar, the refining premium for white sugar could even reach record highs this year as pent up demand hits the market while many refiners have reduced their capacity.
"We're starting to see some real-time buying," he told newswires. "Buyers have stayed away eating into their stocks but they will need to come back at some point, whatever the price. I see a tight supply market and huge demand market into the third or fourth quarter of this year."
He said Iraq’s recent purchase of 200,000 metric tonnes of white sugar – more than a quarter of its annual requirement – mirrors the uptake in demand. The country's state-run Iraqi Foodstuff Trading Co. paid $930 a tonne, compared with $400-$450 a tonne last year.
“Dubai’s important advantage is a free and open market with respect to labour and capital,” Dubai Chamber said. “The UAE takes a liberal approach in allowing firms to hire workers from abroad. The UAE also has very open markets for capital, allowing the easy and cost- efficient importation of equipment necessary for business needs.”
Import duties are also low, near 5 per cent for most items, and companies based in free zones are exempt from duty payment in general.
Currently, most of Dubai’s production capabilities in this sector are located in three main areas – Al Qusais, Jebel Ali Free Zone, and TechnoPark.