International S ugar Trade & Policy

1. International Sugar Trade & Policy Andrew Pangilinan Brady Irwin Carmelo Ramirez Vicki Yow

2. Content • History and evolution of the sugar industry • History of production • Modern production practices • Recent developments; the sugar industry today • Major players • The roll of policy • The future of sugar

3. History and Evolution of Sugar Production

4. Origin • Sugarcane domesticated ~8000 years ago in SE Asia • Crystallization developed around 350 AD in India, spread to China by 650 AD • Spread to middle east and Latin Europe during the Muslim Agricultural Revolution (8th-13th century) http://en.wikipedia.org/wiki/History_of_sugar

5. The New World • Climate in Caribbean, Central, and South America perfect for sugar production • Production so efficient and prevalent it drove the price down so that the common man could afford it • Largely driven by slave labour • State own enterprises • Plantation production http://en.wikipedia.org/wiki/History_of_sugar

6. The Sugar Beet • During the Napoleonic wars central Europe was cut off from foreign trade • Polish agronomist found a way to economically produce sugar from a beet • Sugar can now be produced in temperate climate • ~20% of worlds sugar comes from sugar beets http://en.wikipedia.org/wiki/History_of_sugar

7. Mechanization and Modernization • Cane is propagated from cuttings • First harvest 9-14 months, can produce for 7 years • Farmers quick to respond to booms • Highly dependent on sunlight (GDDs) • Traditional cultivation • Highly labour intensive • Modern cultivation • Highly mechanized • Prone to spoilage, most initial processing occurs near point of origin • Processing is very energy intensive

8. Modernized v Traditional http://www.biofuelstp.eu/images/sugar_cane.jpg http://cdn1.vtourist.com/15/4071273-Harvest_of_Sugar_Canes_Rio_de_Janeiro.jpg

9. The Modern Sugar Industry Related Products Industry Trends The Role of Policy

10. Related Products

11. On The Market • Raw sugar • Unbleached • Traded on cash market • Refined sugar • Traded as No.7, 11, 14, or 16 white refined FOB Caribbean port • Tokyo Grain Exchange, London Exchange, NY Board of Trade

12. Joint and Related Products • Molasses • Animal feed • Some human consumption • Husk • Field mulch • Basket weaving • Post Processed- powdered and brown • Processed Goods • Rum!

13. Substitutes in Consumption • Artificial sweeteners • Acesulfame potassium (Sunett, Sweet One) • Aspartame (Equal, NutraSweet) • Neotame • Saccharin (SugarTwin, Sweet'N Low) • Sucralose • Natural sweeteners • Corn syrup (high-fructose) • Honey • Maple syrup/other natural syrups

14. Ethanol • Sugarcane is a very efficient source of ethanol • Brazil was an early leader in ethanol production beginning in the 1970’s • 55% of Brazil’s sugarcane production goes into ethanol as of 2008

15. Industry Trends

16. Sugar Market • Data obtained from USDA Sugar World Market and Trade Circular Archives then calculated in Excel • May 2012, November 2003, November 1997 • http://www.fas.usda.gov/sugar_arc.asp • Moderately thick market • % Production exported on average 30% from 1992/93 to 2012/13 • % Production imported on average 28% from 1992/93 to 2012/13

17. Major Players in 2012/13 • Top 4 Producers: Brazil, India, EU, & China • Top 4 Consumers: India, EU, China, Brazil, & US • Top 4 Importers: EU, Indonesia, US, & China • %CR4 = 24% • Top 4 Exporters: Brazil, Thailand, Australia, & India • %CR4 = 69%

18. Trends • Production, consumption, imports and exports all increasing from 1992-2012 • Amount imported and exported from total production also increasing • Brazil’s export market share rising sharply

19. Production, ConsumptionExports, Imports *values in 1000 metric tons

20. % Exported and Imported

21. Production, Consumption, Imports, & Exports Over Time

22. % Change & Brazil Over Time

23. % Changes in Production, Consumption, Exports, Imports

24. % Change

25. International Market Relationships Data collected from the World Bank

26. Market Relationship Data collected from the World Bank

27. Market Relationships % change Data collected from the World Bank

28. % change over time Data collected from the World Bank

29. Conclusions on relationships • Pre mid 2000’s Europe and US were largely isolated from the world market • Prohibitive trade barriers main source of isolation • Changes in trade policy and fuel costs lead to a dramatic shift in the market in the mid 2000s

30. The Role of Policy Brazil India European Union United States

31. Brazil Sugar Policy

32. Brazilian Cost of Production • According to a study by the Economic Research Service of the USDA, Brazilian cost of production had a high correlation with world sugar prices • Highlights the concept that Brazil acts as the world market

33. Brazilian Cost of Production

34. Brazilian Ethanol • Brazilian subsidies for ethanol production based on sugar began in 1975, but ended in the late 1980’s • This allowed for an increase in the production of ethanol with the abundance of sugar as a feedstock • Doing so added to the overall demand for sugar as it gained alternative uses outside of consumption Source: Rothkopf, Garten, A Blueprint for Green Energy in the Americas

35. Brazilian Ethanol • Through sugar’s new use in biofuel, it created greater linkages with crude oil • Oil was linked in the same way that it was linked to other commodities • Sugar and crude oil now acted in part as substitutes

36. Brazilian Ethanol • Within the period between 2005 to 2010, ethanol production has grown from 3649 million gallons to 7270 million gallons

37. India Sugar Policy

38. India • Set quota levels on domestic output in order to control prices • Simultaneously sought self sufficiency • Would thus increase these quotas in order to maintain both of these goals • Now plays large role in world sugar market due to high levels of consumption (1st) and production (2nd)

39. India • Highly cyclical due to lack of incentives • Utilizes a mixture of policies on both imports and domestic production in order to control supply • Leads to higher prices and thus lower exports Source: http://www.fao.org/fileadmin/templates/est/meetings/sugar_fiji_2012/Kaison_Chang_-_FAO_Policy_Overview.pdf http://www.fao.org/docrep/005/X0513E/x0513e16.htm http://www.ers.usda.gov/topics/international-markets-trade/countries-regions/india/policy.aspx

40. U.S. Sugar Policy

41. Price Supports • Government offers loans to producers of sugar • The loan program sets a price floor above world sugar prices http://www.sweetenerusers.org/Sugar%20Program%20Basics.pdf http://www.ers.usda.gov/topics/crops/sugar-sweeteners/policy.aspx

42. Import Quotas • Regulates flow of sugar in the US • TRQ protects high sugar prices • Sets a quantity of imports • Anything above quota are subject to a tariff designed to be prohibitive http://www.sweetenerusers.org/Sugar%20Program%20Basics.pdf http://www.ers.usda.gov/topics/crops/sugar-sweeteners/policy.aspx

43. Role of the Sugar Lobby • One of the biggest and best funded agricultural lobbies. • Bulk of members in key Electoral swing state, Florida • Very little for politicians to gain by going against the lobby, a lot to lose • Growing social pressure against the lobby

44. Traditional European Union Sugar Policy

45. CMO of the EU • CMO was created in the Common Agricultural policy (CAP) in 1968 • Objectives:to guarantee European beet sugar producers a fair income, to provide self-sufficiency in sugar, and to ensure that supplies reach consumers at reasonable prices in countries of the European Economic Community (EEC), known as the European Union • The sugar regime: encouraged beet sugar production and deterred imports from the world market OECD, Sugar Policy Reform in the European Union and in World Sugar Markets

46. Sugar reform OECD, Sugar Policy Reform in the European Union and in World Sugar Markets

47. Local Production • Established price guarantees for sugar growers and refineries to decrease consumption and help producers • Quotas were separated into 2 tiers initially; Quota A which was meant to equal consumption and Quota B was a safety net, but could be exported if surplus • Quota B became more for export and Quota C was put in place to take over the role of safety net • Imposed levies to acquire quota OECD, Sugar Policy Reform in the European Union and in World Sugar Markets

48. Foreign Trade • Put in place import quotas • Then placed levies on levels of imports above the quotas • Also established export subsidies for surplus sugar from the B Quota OECD, Sugar Policy Reform in the European Union and in World Sugar Markets

49. 1970s – Market Price Support • Objective: to maintain above world market price levels to encourage sugar production and reduce consumption • Mechanisms: Import tariffs, TRQ, or export subsidies are used to limit the access of lower priced sugar imports or remove excess supply of sugar in domestic markets • Results: • the EU transitioned from a net importer of sugar to a more stable net exporter • substantial contraction of sugar imports by the United States and Japan over the same

50. The Future of the Sugar Industry European Union; a Case Study Sugar post 2006 ethanol and beyond