World Sugar Production
White sugar can be made from two different crops: sugar cane, which grows in tropical climates, and sugar beet, which grows in temperate climates. The final product is identical, even down to its chemical formula C12H22O11 – the properties of pure sucrose. It is therefore possible for sugar to be produced right across the globe, although the cost of doing so differs in each location.
Underpinned by increasing demand in developing countries, world sugar production also continues to increase. The dips and rises around the trend level occur as weather patterns affect yields and strong price signals or government policies affect the amount of land dedicated to growing sugar. Since the 1970s onwards, sugar cane has accounted for an increasing proportion of global sugar production. This reflects expansion in Brazil, India, Australia and Thailand, which have more than offset the decline in Cuban production during the 1990s.
Regional Consumption of Sugar
Source: F. O. Licht’s International Sugar and Sweetener Report. Various Years. Note: EU data for 1990 and 1995 includes current member’s data prior to them joining.
Global consumption of sugar has increased during the 2000s at a steady rate of 2.5% per year. This trend is driven largely by increased consumption in Asia – particularly India and China. Despite its low per capita consumption, given its large population, China is still the second biggest sugar-consuming country in Asia behind India, eating 15 million tonnes of sugar per year. Because it does not produce enough sugar domestically to feed the sweetening teeth of its consumers, it is expected that China will become the biggest importer over the next decade, overtaking the EU and USA. The majority of imported sugar already goes to developing countries rather than developed countries.
Research has suggested that people consume more sugar due to increased income, urbanisation and socio-cultural change. The income effect tends to work more when people are poor and foods make up a higher proportion of their overall spending. Urbanisation is a proxy for increased access to fast food chains and modern retailers, which encourage sales of processed foods and drinks. Socio-cultural change is typically associated with the entry of women into the workplace and the changes in eating habits. The substitution of home cooked foods for pre-prepared ones and the rise of snacking outside traditional meal times are some effects associated with the increasing demands on female labour time. An increase in the amount of sugar, vegetable oil and meat in people’s diets is known as a nutrition transition and is linked with a rise in diseases such heart disease, cancer and diabetes.
Nominal World Price of Sugar
Source: F.O. Lichts, International Sugar and Sweetener Report. Various years.
In 2011 the price of white sugar on the world market hit a 30-year high. Many people have spoken of ‘an end to cheap food’ as they believe there are new, underlying factors which will keep the price of sugar and other commodities propped up. History cautions against this reading. The world market for sugar has been always been subject to volatility. The two spikes in the 1970s resulted from unexpected imports from the world market by the USSR, following a drop in domestic and Cuban production. Today, it is fluctuations in Brazil and India which result in swings in prices. This uncertainty is one of the reasons sugar producers have sought to insulate themselves through tariff protection in domestic markets.
Another reason to rethink the ‘end to cheap food’ argument is that current prices only seem so high because they are in nominal terms rather than real terms. Adjusting for inflation, sugar prices are around the same now as they were in the 1980s. In addition, many of the costs that sugar producers incur have risen at rates above inflation. So, in response to steep increases in fuel and fertiliser costs in particular, sugar producers have had to find ways to lower costs and increase their yields, crop sucrose content, and processing efficiency in order to maintain profitability.
EU Net Sugar Trade
Source: International Sugar Organisation data, private communication.
Despite sugar being brought into the remit of the World Trade Organisation in 1995, many of the measures put in place to limit exposure to the world market remain in place. This is one of the reasons why most sugar consumed in the world (66%) comes from domestic sources rather than imports. One ‘state’ which has seen significant change in its trade policy is the European Union.
When the UK joined the European Economic Community (the forerunner of the EU) in 1973 it wanted to maintain its historic commitment to import raw sugar from its former colonies. However, the beet growing countries said that if the UK needed sugar, they should import it from their new European partners. Thanks to the high prices at the time, it was decided that the UK could import cane and beet producers could expand their production because any surplus could be exported to the world market at a profit. The European trade bloc would henceforth act as one of the world’s biggest importers and biggest exporters of sugar. This came to an end when the EU trade regime was disputed under WTO rules by Australia, Brazil, and Thailand. They argued that the EU had violated its commitment to limit subsidised exports of sugar to 1.3mt. The EU lost and decided to lower the guaranteed price of sugar by 36% to force down supply. This has forced many domestic producers out of business – and some foreign ones too – and has returned the bloc to its pre-UK role of net sugar importer.
International Sugar Exporters
Source: OECD and FAO Secretariats. http://www.oecd.org/dataoecd/2/37/48184295.pdf
The international export market is dominated by Brazil. This concentration is set to increase over the next decade, giving Brazilian producers greater power to influence prices. Even countries which can produce sugar relatively cheaply face being undercut by Brazil, since its producers can turn large volumes onto the world market at any one time.
This financial wealth flowing from the sugar export business will also be concentrated into a smaller number of beneficiaries. Brazil is renowned for its capital-intensive and large-landholding model of production. This means it takes fewer man-hours to make a tonne of sugar in Brazil than in other sugar producing countries. While some of the jobs in the industry may be more technical and better paid as a result, on the other hand its links to rural development are severed as the employment opportunities for labourers decline. Between 2010 and 2020, for example, the industry is estimated to shed 70-80,000 jobs due to mechanisation. Conflicts with peasants and indigenous people have also arisen, as an expanding industry requires secure access to land and water.
World Sugar Production by Company, 2009-10
Source: F. O. Lichts (2011) International Sugar and Sweetener Report, 143: 14, pp. 283.
As more and more sugarcane is grown in Brazil, many sugar processors and traders have invested in production facilities there. These include Tereos and Louis Dreyfus, originally based in France. Foreign investors are estimated to now control over 10% of Brazilian cane output. There is also a large interest in using sugarcane to produce biofuel for use in transport vehicles – around 20% of global production is used for fuel sugar rather than food sugar. Brazil itself has one of the largest consumer markets for biofuel in the world. This alternative agro-energy usage for sugarcane is the reason why Royal Dutch Shell has set up a $12 billion joint venture with Cosan, Brazil’s biggest sugar and ethanol producer, to distribute biofuel through its service stations.
As a result of the EU’s partial opening of its market to sugar exporters, many European-based sugar producers have also invested in African countries which are eligible to target the EU market. Associated British Foods, the company that owns British Sugar, has acquired a controlling stake in Illovo, the Southern African sugar producer. Sudzucker, meanwhile, has entered into a partnership with the Mauritian sugar industry to market its sugar within the EU. For their part, the South East Asian sugar producers have expanded into regional markets, with Mitr Phol – the biggest of these – investing in Cambodia, Laos, Vietnam and China over the last decade.
After the end of the colonial period, the increased involvement of the state in regulating the sugar industry meant that its ownership tended to follow national lines too. Now, control of the global sugar industry is becoming more cosmopolitan and more corporate. The top fifteen producers account for 20% of global sugar production and the decision-making and influencing power over how the industry operates, and who gets to benefit from it, is increasingly concentrated in their hands.