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{| border="2" cellpadding="5" style="border-collapse:collapse" | align=center {| border="2" cellpadding="5" style="border-collapse:collapse" | align=center
-|+ '''World Sugar Production''' (1000 metric tons)<ref name=ISLN1 />+|+ '''World Sugar Production''' (1000 metric tons)
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!Year !Year

Revision as of 20:20, October 18, 2008

Production and Usage

Sugar is commercially produced from sugar beets and sugar canes. Sugar beets are grown year-round and account for 60% of US total production, while sugar canes are grown perenially and account for 40% of US total production. Both production processes yield the same sugar product. Sugar production in the United States generates $10B in economic activity annually, and the sugar/corn sweetener industries generate $21.1B in economic activity.

Sugar is used in food products to sweeten taste and add texture and color. On average, each American consumes 45 pounds of sugar, 45 pounds of high fructose corn syrup (HFCS) and 2 pounds of honey/syrup yearly. In total, Americans consume 10M tons of sugar every year. Sugar end products are raw cane sugar, wholesale and retail refined sugar, cereal, candy, cookies and cakes and ice cream.

Pricing and Volume Trends

From 1994 to 2004, sugar prices dropped significantly as a result of increasing supply. While supply depleted from 2004 to 2006, it has recently resurged, which is reflected in the general drop in prices. Within the past year, however, concerns regarding high fuel prices (see below) have pushed prices higher.


The US is the second largest net sugar importer. Other key players in the world sugar market are the European Union (EU), Brazil and Japan. The EU, like the US, has implemented policies that artificially inflate sugar prices. Brazil, on the other hand, heavily subsidizes its sugar farmers to support its sugar-ethanol program.

World Sugar Production (1000 metric tons)
Year 2008 2007 2006
US 7362 7614 7663
EU 16814 17740 17757
Brazil 33700 32100 31450
India 24830 28930 30780
World 161712 165384 164183

Industry Drivers

http://edis.ifas.ufl.edu/document_fe375

Reasons

Government intervention

Around the world, sugar is one of the most heavily-subsidized commodities. 80% of foreign sugar market prices are subsidized by their respective governments to match the price of sugar in the United States, a value that is lower than production costs for sugar in those countries. This practice, called dumping, enables foreign manufacturers to eliminate sugar surplusses and gain market share. In response to price dumping, Congress has enacted legislation (the Farm Bill in 2002) that imposes foreign import restrictions on sugar. Such legislation helps US sugar farmers compete with foreign producers, but hurts consumers and US food companies since they have kept domestic sugar prices more than twice as high as world prices. Therefore, the various political influences on the federal government, such as lobbying by sugar farmers, are a key determinant of sugar prices in the United States.

Insert quantitative trends here

Growth and development of the ethanol market

More than 50% of world ethanol production stems from sugar. Producing ethanol from sugar is more efficient than producing ethanol from corn (the ratio of required input energy is one to two). Brazil is currently the leader in this production process, using 60% of its sugar canes for ethanol. On the other hand, less than 3% of the ethanol produced in the United States comes sugar. Commercialization of the sugar-ethanol production process raises the demand for sugar, leading to increases in sugar prices. Whether this commercialization occurs depends on the price of oil prices. When oil prices rise, then ethanol-based biofuels become more attractive, elevating the demand for ethanol. For example, in the first half of 2008, sugar prices increased by 22% in response to rising oil prices.

http://www.tradingmarkets.com/.site/eminis/commentary/guestcommentary/-77544.cfm

Producer cooperatives Farmers in the United States have formed cooperatives that enable farmers to own their processing facilities and build them near sugar production sites. While the formation of cooperatives decrease processing and transportation costs, they give US farmers more power over the price of sugar. In addition, cooperatives play an important role in deciding the course of sugar-to-ethanol commercialization since they have control over initial processing stages.


Macroeconomic trends that affect the prices of sugar include world-wide income and population growth. When more people are able to afford sugar-based foods, the demand for sugar rises, driving up sugar prices. Important regions of such growth are Asia, North Africa and the Middle East. Additionally, the price and availability of substitues also affect sugar prices. Sugar substitues include high-fructose corn syrup, starch and artificial sweeteners.


Impact on Companies

What companies are harmed by higher sugar prices

Increases in sugar prices primarily hurt sugar-based food companies since sugar is an important raw material. These companies include: Hershey Kraft Foods Wrigley Jr. Nestle Many of these companies buy sugar through long-term (5-6 years) contracts that dampen the effect of price hikes, and sometimes pass on price increases to consumers. In addition to harming bottom-line earnings, rising sugar prices have emperically caused lowered employment in US food businesses, the relocation of such businesses to Canada and Mexico, and growing imports of sugar-based food products.

http://www.cato.org/pubs/tbb/tbb_0607_46.pdf


What companies are helped by higher sugar prices Increases in sugar prices primarily help US sugar farmers.

http://www.sugaralliance.org/desktopdefault.aspx?page_id=97 http://www.rurdev.usda.gov/rbs/pub/sep06/ethanol.htm

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