11193 sugarcane harvesting in the us industry report

WWW.IBISWORLD.COM� Sugarcane�Harvesting�in�the�US December 2011 1

IBISWorld Industry Report 11193Sugarcane Harvesting in the USDecember�2011� Nikoleta�Panteva

Bitter future: Falling demand and less government support will cause revenue to dip

2� About�this�Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3� Industry�at�a�Glance

4� Industry�Performance4 Executive Summary

4 Key External Drivers

5 Current Performance

8 Industry Outlook

10 Industry Life Cycle

12� Products�&�Markets12 Supply Chain

12 Products & Services

13 Demand Determinants

14 Major Markets

15 International Trade

17 Business Locations

19� Competitive�Landscape19 Market Share Concentration

19 Key Success Factors

20 Cost Structure Benchmarks

21 Basis of Competition

22 Barriers to Entry

23 Industry Globalization

24� Major�Companies24 United States Sugar Corporation

26� Operating�Conditions26 Capital Intensity

27 Technology & Systems

27 Revenue Volatility

28 Regulation & Policy

29 Industry Assistance

31� Key�Statistics31 Industry Data

31 Annual Change

31 Key Ratios

32� Jargon�&�Glossary

www.ibisworld.com��|��1-800-330-3772��| ��[email protected]


Farmers in this industry primarily grow sugarcane, a tall tropical grass originally from Southeast Asia. Scientifically

known as Saccharum officinarum, its thick stems are a major commercial source of sugar.

The�primary�activities�of�this�industry�are

Cane farming, sugar, field production

11199 Hay�&�Crop�Farming�in�the�USEstablishments engaged in sugar beet farming are included in IBISWorld report 11199.

Industry�Definition

Main�Activities�

Similar�Industries

Additional�Resources

About�this�Industry

For�additional�information�on�this�industry

www.nass.usda.gov�National Agriculture Statistics Service

www.census.gov�US Census Bureau

www.usda.gov�US Department of Agriculture – Sugar and Sweeteners Briefing Room

The�major�products�and�services�in�this�industry�are

Sugarcane for milled sugar

Sugarcane for refined sugar

Sugarcane for seeds

�IBISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com


Cent

s pe

r pou

nd

45

20

25

30

35

40

1703 05 07 09 11 13 15Year

Price of sugar

SOURCE: WWW.IBISWORLD.COM

% c

hang

e

30

−30

−20

−10

0

10

20

1703 05 07 09 11 13 15Year

Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2011)

69%Sugarcane for refined sugar

25%Sugarcane for milled sugar

6%Sugarcane for seeds


Key�Statistics�Snapshot

Industry�at�a�GlanceSugarcane�Harvesting�in�2011

Industry�Structure Life Cycle Stage Decline

Revenue Volatility High

Capital Intensity High

Industry Assistance High

Concentration Level Low

Regulation Level Medium

Technology Change Medium

Barriers to Entry Medium

Industry Globalization Low

Competition Level Medium

Revenue

$1.0bnProfit

$54.4mExports

$100,000Businesses

503

Annual�Growth�11-16

-0.6%Annual�Growth�06-11

2.6%

Key�External�DriversPrice�of�sugarDemand�from�sugar�processingExternal�competitionPer�capita�sugar�and�sweetener�consumptionNatural�disaster�index

Market�ShareUnited States Sugar Corporation 22.5%

p. 24

p. 4

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 31



Key�External�Drivers Price of sugarPrices for sugarcane in the United States are determined partly by government policy, which strives to match supply and demand. As a result, US prices are much higher than world prices, which somewhat insulates farmers from volatility. This driver is expected to increase during 2012, creating a potential opportunity for the industry.

Demand from sugar processingDemand for sugarcane is primarily derived from sugar processors. A rise in domestic demand and consumption of sugar will encourage manufacturers to lift

production levels. This will result in greater demand for sugarcane, thereby pushing revenue and returns to US growers upward. This driver is expected to decrease during 2012.

External competitionCompetition from substitute sweeteners has increased over the past five years. Consumer preferences for health-conscious, no-calorie sweeteners have changed demand patterns. Manufacturers of foods and beverages are increasingly catering to these changed tastes by omitting sugar and substituting it with alternatives. In

Executive�Summary

The Sugarcane Harvesting industry has endured drastic spikes and drops in revenue over the five years to 2011. Global weather patterns are responsible for price and production fluctuations. For example, sugarcane prices skyrocketed during the 2009-to-2010 growing season as a result of heavy rainfall in Brazil, one of the world’s leading suppliers of sugar. As a result of the 20.0% price increase and ensuing production growth during the year, US sugarcane harvesting

revenue shot up 27.4% in 2009. The effects trickled through to 2010, but are likely to wear off in 2011, when industry revenue is expected to decline 3.5% to $1.0 billion. During the past five-year period, revenue has averaged 2.6% growth per year.

Industry profitability is just as volatile as revenue. In 2006, the average sugarcane farmer took home 11.1% of revenue as profit; in 2007, this portion crashed to 1.2% and is expected to reach

back up to 5.2% in 2011. Sugarcane farmers do not receive direct government support. Instead, they get payments from sugar processors, who are entitled to subsidies. Because farmers are not subject to dedicated payments, year-on-year incomes vary with their output.

Sugarcane farmers are not likely to catch a break over the five years to 2016. In fact, as sugar prices continue to come down from their 2010 highs, industry revenue will suffer. IBISWorld expects revenue to decline 1.1% in 2012. Additionally, increasingly health-conscious consumers will likely turn to low- and no-calorie sweeteners – both artificially and naturally derived. This will increase competition for sugar processors, which will hurt the Sugarcane Harvesting industry. Over the next five years, revenue is forecast to decline at an average annual rate of 0.6% to just above $1.0 billion in 2016. A potential opportunity for sugarcane farmers lies in the production of alternative energy. Bagasse, a by-product of sugarcane processing, is currently used to provide energy to sugar mills. Commercial use of bagasse in energy production lies on the horizon for the sugar supply chain.

Industry�PerformanceExecutive�Summary�� |�� Key�External�Drivers�� |�� Current�PerformanceIndustry�Outlook�� |�� Life�Cycle�Stage

� The industry relies on subsidies for steady profit, though revenue fluctuates wildly


Industry�Performance

Current�Performance

The Sugarcane Harvesting industry is in decline, despite revenue’s average annual growth rate of 2.6% over the five years to 2011. Unpredictable weather conditions have caused erratic spikes and drops in the industry’s performance. In 2005, an unusually active hurricane season battered the Southeast United States, damaging Florida and Louisiana sugarcane crops. As a result, industry revenue declined, only to rebound 17.1% the next year. Similarly, good weather in 2009 allowed revenue to spike 27.4% and surpass the $1.0 billion mark in 2010. Heavy rainfall in Brazil, the

world’s largest sugar producer, halted the country’s production during the 2009-to-2010 harvesting season. Meanwhile, a drought in India, the second-largest producer, reduced output from that country. These combined conditions limited world supplies of sugar, leading the United States to export the crop. Sugarcane is not exported at a high rate because the cane must be processed quickly after being harvested to retain its sugar content. However, refined sugar exports increased 52.9% in 2010 and an additional 60.5% expected through the

Key�External�Driverscontinued

addition, substitutes such as low-cost high-fructose corn syrup are attractive alternatives to producers wishing to cut costs. Import competition in the downstream sugar processing industry is also reducing demand for the domestic supply chain. This driver is expected to increase slowly over 2012, posing a potential threat to the industry.

Per capita sugar and sweetener consumptionPer capita consumption of sugar increases demand for sugarcane. Over the past five years, as consumers have

become more health-conscious, demand for caloric sweeteners (including sugar) has decreased. This driver is expected to decrease slowly during 2012.

Natural disaster indexWeather conditions play an important role in determining crop yields and production levels, domestically and globally. Favorable weather patterns will lift crop yields. The opposite is true when weather conditions are extreme, as was the case during the hurricane season of 2005. This driver is expected to increase over the next year.

% c

hang

e10

−10

−5

0

5

1705 07 09 11 13 15Year

Demand from sugar processing


Cent

s pe

r pou

nd

45

20

25

30

35

40

1703 05 07 09 11 13 15Year

Price of sugar



Current�Performancecontinued

end of 2011. Sugarcane harvesting revenue is expected to come down from its 2010 high, dropping 3.5% during 2011 to just above $1.0 billion.

Weather conditions aside, the industry has long suffered competition from sugar substitutes. In 2006, the average American consumed 139.0 pounds of sugar and other caloric sweeteners per year; in 2011, that figure has dropped to an estimated 131.7 pounds. Focus on personal health has taken center stage, limiting consumers’ demand for sweeteners and encouraging them to opt instead for no-calorie

substitutes. Downstream beverage processors made efforts to highlight the benefits of sugar, marketing their soft drinks made with real sugar instead of high-fructose corn syrup (HFCS), which has been linked to obesity. However, over the past two years, the Corn Refiners Association has launched its own campaign to defend HFCS, claiming the human body processes it in the same way it processes cane sugar. The evidence remains inconclusive, but the counter-efforts are sure to further intensify price competition between sweetener producers.

Artificial�profit-sweeteners

Downstream sugar processors receive a variety of government payments, ranging from price supports to import quotas. Sugarcane farmers do not directly reap the benefits of such programs, but they do get payments from processors. These government programs protect the industry from the world market for sugar by blocking lower-priced imports from entering the country. Domestic sugar prices are also inflated, remaining high above the prevailing world price in any given year. As a result, sugarcane farmers’ profit margins are less volatile than revenue. While farmers sometimes experiences losses, as any other crop grower does, the multitude of programs

has kept profit positive over the past five years, averaging 5.2% of revenue in 2011.

However, sugarcane growers that do not contribute a large portion of the input to downstream processors may suffer from poor returns and government backing. Farmers receive loan payments proportional to the amount of sugarcane provided to processors. Therefore, while a farmer may give his entire crop to a processor, it may still only account for a small percentage of the processor’s input, limiting the payments he or she affords the farmer. As a result, many farms – mostly small, unprofitable farms unable to generate enough return from processors – have exited the industry at

US�Sugar�Processing�industry�revenue

YearRevenue�

($ million) (% change)Imports�

($ million) (% change)

2006 7,885.4 N/C 1,612.0 40.02007 7,847.2 -0.5 1,027.2 -36.32008 7,599.0 -3.2 1,270.3 23.72009 7,845.9 3.2 1,424.8 12.22010 8,071.9 2.9 2,178.5 52.92011 8,356.2 3.5 3,497.5 60.5

SOURCE: IBISWORLD



Artificial�profit-sweetenerscontinued

an average annual rate of 3.5% over the past five years, leaving the total number of farms at 566 in 2011. Acreage, however, has only shrunk less than 1.0%

per year. Sugarcane farms are now fewer in number, but have become larger, harvesting an average of 1,458 acres, compared with 1,254 acres in 2006.

Import�competition Imports in the Sugarcane Harvesting industry are insignificant because the crop must be processed soon after harvesting to prevent sucrose loss. Imports in this industry account for only 0.02% of domestic demand and exports represent a mere 0.01% of industry revenue. However, in the downstream Sugar Processing industry (IBISWorld report 31131), international trade is much more important. Recent imports for sugar processors are especially notable because they have increased at an average of 16.8% per year since 2006, despite government efforts to restrict them.

The growing volume is largely due to recently opened trade relations between the United States and Mexico. Since 2008, Mexico has imported unrestricted amounts of sugar into the United States duty-free under the North American Free Trade Agreement (NAFTA). Likewise, under the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA), countries in

the region enjoy fewer barriers to the US market, which has caused imports from them to increase over much of the past five years. Processors and downstream markets use the imports in place of domestically produced sugar to cut input costs, which are inflated by the protectionist US government policies that ensure high domestic prices for sugar growers.

% c

hang

e

500

−100

0

100

200

300

400

1703 05 07 09 11 13 15Year

Revenue Exports

Revenue vs. exports




Looming�threats Almost all sugarcane grown in the United States is processed into sugar. This means that as the Sugar Refining industry (IBISWorld report 31131) suffers, so will sugarcane farming. IBISWorld anticipates revenue declines in the downstream industry over the next five years, which will reflect poorly on sugarcane growers. The domestic sugar supply chain is facing a multitude of threats. First, consumer health-consciousness is increasing, which is leading downstream food and beverage producers to substitute alternative, low- and no-calorie sweeteners in place of sugar and other traditional syrups. This shift is already evident in industry

trends and is expected to continue into the next five years.

Second, the US Department of Agriculture (USDA) and the US International Trade Commission (USITC) are easing their protectionist policies of the US sugar supply chain. Price supports for sugarcane and sugar beet farming are slated to expire in 2013. Unless renewed, domestic producers will have to face high input costs without non-recourse government loans. Internationally, the United States has begun to reduce its barriers to imports. In 1994, as part of the World Trade Organization (WTO), the United States signed the Agreement on Agriculture.

Industry�Outlook

The Sugarcane Harvesting industry faces more threats than opportunities over the five years to 2016. After the sugar price surge in 2010 due to a global shortage, prices are expected to recede over the next five years. To meet demand, US farmers have planted and harvested more sugarcane, which will result in price relief over the next few years. As the price for sugarcane continues to come down from its astronomical high, revenue will decline 1.1% between 2011 and 2012. In addition to settling prices, the industry will face reduced downstream demand from sugar

processors and consumers. Americans’ preferences have already begun to shift away from sugar and other caloric sweeteners such as high-fructose corn syrup. Between 2006 and 2011, per capita consumption of sugar and sweeteners fell from 139.0 pounds per year to an estimated 131.7 pounds per year; IBISWorld projects consumption to fall even further to 130.0 pounds by 2016. This will stifle Sugarcane Harvesting industry growth, with revenue forecast to decline at an average annual rate of 0.6% over the next five years to $1.0 billion in 2016.

US�Sugar�Processing�industry�revenue�forecast

YearRevenue�

($ million) (% change)Imports�


2011 8,356.2 -2.1 3,497.5 5.72012 8,141.3 -2.6 3,283.9 -6.12013 8,314.0 2.1 3,425.5 4.32014 7,795.1 -6.2 3,611.2 5.42015 7,474.6 -4.1 3,725.4 3.22016 7,308.5 -2.2 3,702.5 -0.6

SOURCE: IBISWORLD



Looming�threatscontinued

This document dictates that its signors must reduce domestic agricultural supports, limit export subsidies and allow access to their markets. While tariff rate quotas (TRQs) and re-export programs still define the domestic sugar supply chain, the United States’ doors are opening to trade. In 2008, free trade of sugar with Mexico was established under the North American Free Trade Agreement (NAFTA). Similarly, under the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA), import quotas for these trading partners have increased since 2006 and are slated to continue in this manner through 2021. After that, quotas are to grow by 2,640 metric tons per year indefinitely. This effectively exposes domestic sugar processors (and therefore sugarcane growers) to world sugar, limiting domestic price growth and industry growth.

Additionally, the state of Florida purchased major player US Sugar’s

sugarcane growing and processing land in the Everglades in 2008. This move is focused at preserving the natural ecosystem and species found in the area. Currently, the company, which accounts for about a fifth of the industry, still operates as usual. However, Florida will dismantle the operations in 2013, as indicated by officials. This will severely hurt the Sugarcane Harvesting industry, with revenue and establishments expected to decline most severely in that year. Overall, the number of establishments is forecast to decline 5.3% per year to 430 sugarcane farms in 2016, while profit dwindles to about 3.5% of revenue and competition intensifies.

Potential�opportunities

The future may not be all bad news for the industry. USDA support for sugar producers is likely to continue through 2013, at least. Payments to sugar processors will trickle back to farmers, supporting their otherwise weak revenue streams. The return may be minimal, and shrinking, but it will keep some farmers in business for the next few years.

Biofuel production is this industry’s diamond in the rough. Bagasse, the fibrous by-product of sugar processing, is an input in natural gas production. Currently in the United States, primarily sugar mills and refineries use this matter

to fuel and sustain their operations. Commercial use of bagasse for ethanol remains some way from viability. The United States currently lacks technology efficient enough to convert this waste into fuel; the rate of technology change will determine how quickly bagasse becomes a staple in ethanol production. However, the rising popularity and demand for biofuel in the United States (the Energy Policy Act of 2005 mandates increasing amounts of biofuel to be mixed with traditional fuel in each year through 2012) could be the spark that turns the Sugarcane Harvesting industry around.

� Americans are becoming more health-conscious and are consuming less sugar per year


Industry�PerformanceHarvested acreage of sugarcane has dropped over the past five years

Consumer preference for low- and no-calorie sweeteners has increased competition from substitutes

Farmers’ profitability depends in part on government policies, which have become less effective in ensuring US prices stay high

Life�Cycle�Stage


30

25

20

15

10

5

0

–5

–10–10 100 20–5 155 25 30

%�G

row

th�o

f�pro

fi�t/G

DP

%�Growth�of�establishments

DeclineCrash or Grow?

Potential�Hidden�GemsFuture Industries

Quality�GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

Time�WastersHobby Industries

MaturityCompany consolidation;level of economic importance stable

Shake-out

Shake-out

Quantity�GrowthMany new companies; minor growth in economic importance; substantial technology change

Key�Features�of�a�Decline�Industry

Revenue grows slower than economyFalling company numbers; large fi rms dominateLittle technology & process changeDeclining per capita consumption of goodStable & clearly segmented products & brands

Hay�&�Crop�FarmingSugar�Processing

Crop�Services

Organic�Chemical�ManufacturingFertilizer�Manufacturing

Sugarcane�Harvesting



Industry�Life�Cycle The most important indicator of growth is the industry’s value added (IVA), or its contribution to the overall economy. Over the 10-year period to 2016, IBISWorld expects IVA for the Sugarcane Harvesting industry to decline at an average annual rate of 1.6% while gross domestic product (GDP) grows at about 1.8% per year. Consumer preferences have limited demand for refined sugar, about 45.0% of which comes from sugarcane. Between 2006 and 2011, per capita consumption of sugar and other caloric sweeteners has dropped from 139.0 pounds per year to an estimated 131.7 pounds, with an additional decline expected to 130.0 pounds by 2016.

Historically, the US Sugar Processing industry (IBISWorld report 31131) has been protected from the effects of world sugar prices. The domestic price is consistently higher than the prevailing world price. However, the US Department of Agriculture (USDA) and

the US International Trade Commission (USITC) are easing up their protectionist policies. Downstream food and beverage producers, and end consumers, suffer from the inflated price and the barriers on imports. In 2008, the North American Free Trade Agreement (NAFTA) extended free trade of sugar with Mexico. The assistance offered to sugar processors is likely to diminish over the next five years, leaving the domestic supply chain in a state of decline.

However, the industry may see some positive growth if it establishes itself as a solid supplier to biofuel manufacturers. In other parts of the world, sugarcane and bagasse (the fibers that remain after sugarcane is processed) are used to produce ethanol and to generate electricity. Domestically, bagasse is only used within refineries to promote self-sufficiency. With the substantial and growing interest in biofuel production in the United States, the industry may enter into a new growth phase.

�This industry is Declining


Products�&�Services

Sugarcane is a perennial grass that grows between six and 19 feet tall. On average, it takes between six and 24 months to reach full maturity. Once matured, sugarcane is harvested for the juice that

is stored in the inner core of its stalk. This juice is then processed into sugar.

While sugarcane production does not vary based on its final destination, for the sake of product detail, IBISWorld

�Products�&�MarketsSupply�Chain�� |�� Products�&�Services�� |�� Demand�DeterminantsMajor�Markets�� |�� International�Trade�� |�� Business�Locations

KEY�BUYING�INDUSTRIES

11193� Sugarcane�Harvesting�in�the�US�Farmers will purchase sugarcane seeds from each other for planting purposes.

31131� Sugar�Processing�in�the�US�Sugar manufacturers purchase sugarcane for processing into raw and refined sugar.

32519� Organic�Chemical�Manufacturing�in�the�US�Sugar can be used as an input into ethanol production.

KEY�SELLING�INDUSTRIES

11511� Crop�Services�in�the�US�Sugarcane farmers purchase off-farm services such as soil testing.

32531� Fertilizer�Manufacturing�in�the�US�Fertilizers are used in corn production to life crop yields.

32532� Pesticide�Manufacturing�in�the�US�Fertilizers are used in sugarcane growing to improve yields.

33311� Tractors�&�Agricultural�Machinery�Manufacturing�in�the�US�Agricultural equipment is used for harvesting sugarcane crops.

42382� Farm,�Lawn�&�Garden�Equipment�Wholesaling�in�the�US�Harvesting machinery and other equipment used in sugarcane farming is purchased from wholesalers.

42491� Farm�Supplies�Wholesaling�in�the�US�Sugarcane farmers may purchase seed, fertilizer and other farm supplies from these wholesalers.

Supply�Chain

Products and services segmentation (2011)

Total $1.0bn

69%Sugarcane for refined sugar

25%Sugarcane for milled sugar

6%Sugarcane for seeds



Products�&�Markets

DemandDeterminants

Demand for sugarcane is derived from a range of factors including activity in sugar manufacturing, sugarcane and sugar beet prices and competition from substitutes.

Downstream demandThe demand for sugarcane is strongly influenced by the demand for raw and refined sugar. Concern about health and diet has seen per capita consumption of sugar stagnate. In addition, sugar processors are facing increased import competition under the Central America Free Trade Agreement (CAFTA) and the full implementation of the North America Free Trade Agreement (NAFTA). In addition, food manufacturers, particularly in the confectionery industry, have reduced demand for

sugar as health concerns pave the way for non-caloric alternatives.

Sugarcane versus sugar beetIn the past century, sugarcane has been the secondary source for sugar production. On average, sugar beet accounted for 55.0% of total sugar production in the US since 1980, while cane contributed 45.0%. These shares change slightly each year, depending on weather conditions and yields. Sugar beet and cane are grown in different areas and go through different processes to become refined sugar. However, if availability of sugar beet and refining capacity continue to expand, while consumption of sugar overall continues to decline, demand for sugarcane may come under pressure and farmers may choose to plant smaller areas.

Products�&�Servicescontinued

breaks down sugarcane for milling and sugarcane for refining. Sugarcane that is not grown for seeds is taken to a mill where it is washed, chopped and shredded. It then gets mixed with water and crushed. The resulting products are begasse, a fibrous solid output used as burner fuel, and juice, which later gets converted into molasses and raw sugar. Some of the begasse is used as fuel in mills, making them more self-sufficient, while the remainder is used in animal feeds.

Raw sugar can either be consumed in this form or it can be refined further. IBISWorld estimates that about 69.0% of sugarcane reaches the refining stage of the process. In this stage, sugar from the milling process is continuously refined to create white sugar and brown sugar. From there, granulated sugar can be created by heat drying the white or brown sugar to create small crystals. Refined sugar has grown as a share of revenue over the past five years due to the

combining of the milling and refining process in most developed nations, including the United States. Because this is a more cost-effective and efficient method, refined sugar has gained market share over the five years to 2011.

Seed production accounts for about 6.0% of industry revenue. While sugarcane is grown from seed, the plants usually remain in use for two to three years. After the cane is harvested, the remaining stubble will re-grow and be cropped a year after the first harvest. Growing sugarcane seeds is commercially separate from sugarcane production (for processing purposes) because field production of seeds results in genetically different seeds. Genetic uniformity is important for commercial sugar cane production. Research and development in sugarcane is continually improving the characteristics of sugarcane seeds. Scientists are using biotechnology as a means of developing strains that increase plant resistance to pests and disease.



Major�Markets

Almost all sugarcane produced is sold to sugarcane mills. The mills are located close to growing areas because sugarcane must be processed quickly before its sucrose deteriorates. Processing mainly involves chopping and crushing the cane to extract its juice. The juice is further processed to separate the crystals from the molasses. Crystallized sugar is usually sold to a refinery, where it is further processed. The fibers that remain after the juices are extracted are known as bagasse. They are widely used for energy generation, especially within the refinery itself.

The immediate market for sugarcane is sugar mills, which account for about 95.0% of Sugarcane Harvesting industry revenue. The remaining 5.0% comes from sales to other industries, including biofuel producers and sugarcane farmers

(who use the seed for future plantings). These buyers (biofuel makers and sugarcane farmers) represent a growing portion of the industry’s market. As quotas for biofuel mixing increase each year, demand for alternative fuels made from biodegradable masses increases. Bio-diesel manufacturers are increasingly turning to begasse, the by-product of sugarcane milling, as a source of energy.

However, this simple breakdown does not represent the use of the industry’s products accurately. Therefore, IBISWorld presents markets further downstream to give a more accurate picture of sugarcane usage. After the sugarcane has been milled and refined, it is usually sold to food manufacturers. Bakeries, which produce breads, cereals and confectioneries, are the largest downstream market for sugar,

DemandDeterminantscontinued

Sugar alternativesApart from the competition with sugar beets as an input into refined sugar production, sugarcane demand is also affected by competing sweeteners. These range from high fructose corn syrup (HFCS) to no-calorie sweeteners. Over the past five years,

consumption of caloric sweeteners has been falling due to health concerns, while low-calorie demand has strengthened. However, technical constraints limit substitution to an extent; for example, high fructose corn syrups are not currently suitable for some baked goods.

Major market segmentation (2011)

Total $1.0bn

42%Bakery and cereal

products manufacturers

25%Wholesalers

13%Retailers

12%Other food

manufacturers

8%Other industries




International�Trade International trade of sugarcane is very low. The crop must be processed very quickly after its harvest to retain its sucrose content. Once cut, the stalks begin to lose their sweetness. As a result, exports total an estimated $54,636 in 2011, accounting for about 0.01% of industry revenue. Likewise, imports of sugarcane are an insignificant factor for this industry, satisfying only 0.02% of domestic demand. Imports from Mexico dropped off drastically in 2011, due to the country’s low production and imposed import quotas. The quotas are set to expire in January 2012, at which time the country will be able to sell its product to the United States again.

Trade in the Sugar Processing industry (IBISWorld report 31131) plays an increasingly important role. Sugar processors are highly protected from low-priced imports. The US government imposes tariff rate quotas (TRQs), where imports under a certain volume get taxed at a lower tariff rate and anything exceeding the quota gets charged more. Cane sugar in-quota rates are 1.46 cents per pound and above-quota rates are

4.38 cents per pound; beet sugar rates are 3.66 cents per pound and 6.58, respectively. This goes to ensure that the high demand first gets filled by more expensive domestic sugar rather than cheap imports. However, imports have grown as a portion of domestic demand over the five years to 2011. In 2008, the North American Free Trade Agreement (NAFTA) opened free trade between Mexico and the United States, which eliminated TRQs and allowed cheaper

Major�Marketscontinued

representing about 42.0% of revenue. This market has shrunk slightly over the past five years as demand for value-added, high-priced foods deteriorated during the recession. However, as the economy rebounds over the next five years, IBISWorld expects demand for ready-made foods to increase.

Other food manufacturers produce ice cream, canned foods and beverages. These processors account for about 12.0% of revenue, up from about 10.0% in 2006. Demand for these ready-to-eat, low-cost foods grew in the past five years because they are attractive alternatives to cooking at home, which requires time, and eating prepared meals at restaurants, which carry a price premium.

Grocery store wholesalers and sugar dealers account for about 25.0% of industry revenue. Demand from this market segment has experienced polarized pulls. On one end, consumer demand for at-home cooking increased during the recession, spurring demand from wholesalers. On the other end, retailers have increasingly tried to bypass the wholesaler in an effort to cut costs and retain margins. As a result, wholesalers’ share of sugarcane farmers’ downstream market has remained stable. Meanwhile, retailers have gained a slightly larger piece of the pie over the past five years, currently making up 13.0% of the market.

Level�&�Trend��Exports in the industry are Low and Decreasing

�Imports in the industry are Low and Decreasing

$ m

illio

n

1.2

−0.8

−0.4

−0.0

0.4

0.8

1703 05 07 09 11 13 15Year

Exports Imports Balance

Industry trade balance




International�Tradecontinued

Mexican sugar into the US market. As a result, imports have increased at an average annual rate of 16.8% over the past five years. Because the US Department of Agriculture (USDA) is unable to accurately forecast the volumes of imported sugar under NAFTA, it is also unable to determine quotas for other importing countries. This could result in an over-supply in the domestic market, pushing prices down and decreasing revenue and profits for sugar processors.

Exports are much more limited for the Sugar Processing industry. Domestic demand is high and processors within the United States are protected, which keeps most domestically milled sugar within the country. In 2011, exports to accounted for 9.4% of revenue. Because there is a high level of demand domestically and US sugar prices are above the world price for sugar, IBISWorld expects that exports will remain a small portion of revenue over the next five years.

Imports From...

Total $200,000

91%Vietnam

6%China

2%Brazil

Exports To...

Total $100,000

43%Mexico

32%Canada

25%All Others

Year: 2011SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: USITC


�Products�&�Markets

Business�Locations�2011

MO0.0

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

Great Lakes

VT0.0

MA0.0

RI0.0

NJ0.0

DE0.0

NH0.0

CT0.0

MD0.0

DC0.0

1

5

3

7

2

6

4

8 9

Additional�States�(as marked on map)

AZ0.0

CA0.0

NV0.0

OR0.0

WA0.0

MT0.0

NE0.0

MN0.0

IA0.0

OH0.0 VA

0.0

FL49.1

KS0.0

CO0.0

UT0.0

ID0.0

TX4.4

OK0.0

NC0.0

AK0.0

WY0.0

TN0.0

KY0.0

GA0.0

IL0.0

ME0.0

ND0.0

WI0.0 MI

0.0 PA0.0

WV0.0

SD0.0

NM0.0

AR0.0

MS0.0

AL0.0

SC0.0

LA40.8

HI5.7

IN0.0

NY0.0 5

67

8

321

4

9


Mid- Atlantic

Distribution�of�revenue�(%)�

� Less�than�3%� 3%�to�less�than�10%� 10%�to�less�than�20%� 20%�or�more


�Products�&�Markets

Business�Locations Sugarcane growing requires tropical conditions, with an annual rainfall of at least 24 inches. As a result, the crop is only grown in four states domestically: Florida, Louisiana, Hawaii and Texas. Florida has the largest contribution of sugarcane production and value in the country. Its production is mainly located around Lake Okeechobee, which provides fertile soil with adequate moisture and warmth. The area’s ideal climate allows it to account for nearly 50.0% of the United States’ sugarcane production. Over the past five years, the Florida state government has increased its efforts to preserve the Everglades (one of the most popular regions in Florida for sugarcane farming). In 2008, the state agreed to purchase major player United States Sugar Corporation and all its facilities in the area to restore the natural region. The company will remain in operation until 2013, after which its plants will be dismantled. This will severely alter the shape of the domestic Sugarcane Harvesting industry.

Louisiana accounts for 40.8% of sugarcane farming revenue. Like Florida, its warm and moist climate make an ideal growing environment for the crop and its vast expanse of readily available land make the state an ideal choice for industry operators. Hawaii, while globally known for its sugarcane farming,

only accounts for 5.7% of industry revenue. Its small surface area limits the growth opportunities for farmers in the region. Over the past five years, Hawaii’s sugarcane farming industry has suffered as the state moved toward tourism as its main source of income. In addition, cheap labor and input costs in the Caribbean shifted sugarcane production offshore. Texas accounts for a small portion of revenue at only 4.4%. Its warm climate can sometimes be too dry for the crop, but its available land allows for cane production.

%

90

0

10

20

30

40

50

60

70

80

Sout

hwes

t

Wes

t

Gre

at L

akes

Mid

-Atla

ntic

New

Eng

land

Plai

ns

Rock

y M

ount

ains

Sout

heas

t

RevenuePopulation

Revenue vs. population



Key�Success�Factors Production of premium goods/servicesFarmers that produce premium sugarcane can find buyers that are willing to pay higher prices.

Ability to alter goods and services produced in favor of market conditionsGrowers can maximize returns by altering the balance between sugarcane crops and other products in response to changes in market conditions.

Easy access to further appropriate land for developmentThe availability of suitable land is critical for expansion of sugarcane farming. This can be difficult, given that sugarcane can only be grown in tropical or semitropical regions.

Appropriate physical growing conditionsLocation and regional weather conditions affect sugarcane yields, thereby affecting production volumes.

Economies of scaleThe size of a sugarcane farm determines the extent of the economies of scale achieved in growing. Economies of scale affect a farm’s cost structure and profitability.

Ability to take advantage of government subsidies and other grantsThe US sugarcane industry receives substantial assistance from the Federal Government, which can insulate farmers from market volatility.

Market�Share�Concentration

As an agricultural industry, Sugarcane Harvesting has a low level of ownership concentration. The large majority of farms are small, family-owned operations. According to the US Agriculture Census, 57.3% of farms in this industry generate annual revenue less the $500,000. However, that vertical integration is an important and increasingly common feature in the sugar supply chain. Vertical integration ensures a constant supply of raw materials for sugar refineries and is also easier to achieve in an industry with a very high degree of geographical concentration.

This pattern has also been attributed to competitive and cost pressures that are encouraging the industry to move toward large-scale production. This trend reflects the continuing consolidation occurring

across the agricultural sector. A possible outcome of higher integration will be greater profitability among large farms as fixed costs fall relative to production.

Competitive�LandscapeMarket�Share�Concentration�� |�� Key�Success�Factors�� |�� Cost�Structure�BenchmarksBasis�of�Competition�� |�� Barriers�to�Entry�� |�� Industry�Globalization

Farms�by�harvested�acreage�(2011)�*

Harvested�acresNumber�of�

farmsShare�(%)

1 to 14 41 7.215 to 24 17 3.025 to 49 33 5.850 to 99 31 5.5100 to 499 145 25.6500 to 999 128 22.71,000 or more 171 30.2Total 566 100

*IBISWorld�estimateSOURCE: US DEPARTMENT OF AGRICULTURE

Level��Concentration in this industry is Low

�IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive�Landscape

Cost�Structure�Benchmarks

Cost structures can vary widely among industry players. Production costs for sugarcane farming are partly a function of farm size. Larger farms have the greatest total costs but also have the lowest average per-unit costs. These establishments benefit from cost savings created through economies of scale in production. Since the size of farms is generally increasing, per-unit costs of growing sugarcane are expected to decline in the next five years. Other factors such as the introduction of new technology are also contributing to falling production costs for farmers.

Returns from sugarcane farming are moderate. On average, returns interest and tax represent abound 5.2% of industry sales. However, profitability can vary widely from season to season due to volatility in market conditions, global supply and weather patterns that adversely affect crop harvest volumes. Unlike many other crop farming industries, sugarcane farmers do not receive government subsidies at this level of production. Because the crop is highly perishable and many farmers are vertically integrated in a supply chain with millers and refiners, subsidies are distributed at the processing level. Many farmers benefit from these payments in an indirect way since refiners must pay a portion of their earnings to sugarcane and sugar beet farmers. Over the past five years, sugarcane farming returns have fluctuated in line with prices.

The cost of sugarcane production can vary widely from year to year. Weather conditions and the presence of weeds and pests are often the cause of annual changes in production costs. In drier years, farmers use more soil conditioners and irrigation water to achieve average yields. In other years, the onset of crop disease necessitates the use of great quantities of herbicides and pesticides.

Purchases represent the industry’s greatest costs, accounting for an

estimated 22.6% of industry revenue. Fertilizer and chemical purchases are the major cost items in this category. As fertilizer prices increased in 2008, then again in 2011, so did this expense category. Purchases remain the largest cost segment for the average sugarcane farmer. Over the past five years, sugarcane farmers have increasingly outsourced some on-farm activities to third party contractors to save money. For example, machine repairs and maintenance and chemical application are done by companies that specialize in these areas, thereby minimizing costs to farmers.

Depreciation is another big cost category for sugarcane farmers, accounting for 17.6% of revenue. The widespread use of mechanical harvesters explains the fairly high proportion of depreciation in the cost structure. This share is similar to other industries that use mechanical harvesters, such as wheat and soybean farming. According to the latest Census of Agriculture (published in 2007), machinery and equipment for the average sugarcane farm totals $602,944, significantly higher than the $108,515 for crop farming in general. Because imports of sugar are a growing concern for downstream processors, cooperatives have increasingly invested in new technologies to remain cost competitive internationally.

Wages are also a significant cost for sugarcane farmers. In 2011, 17.3% of revenue is spent on labor payments. About one-third of sugarcane harvesting in the United States is done by hand. This requires sugarcane fields to be set on fire, ridding the plants of dry leaves and pests (like snakes). Workers then use a machete or cane knife to cut the stalks just above the ground. This method is losing popularity as mechanical harvesters become more efficient, cutting down a field of cane more quickly, thus preserving the sugar content of the plant.



Basis�of�Competition Internal competitionThe cost of production is a key competitive factor among growers since sugarcane is largely homogeneous in nature. Therefore, the prices received by farmers are fairly similar and they can only maximize profit by using efficient, low-cost production techniques.

Although cost remains a critical competitive factor, other characteristics like quality are growing in importance. Sugarcane can be graded according to its sugar content. Premium graded sugarcane can demand a marginally higher price than other sugarcane in some cases. The introduction of organically

certified farming is creating a new sub-segment in the market. In the future, consumer concerns about food safety may mean that farmers growing organic sugarcane will be able to demand a higher price. Although a base for competition, quality is difficult to control since it is largely determined by exogenous factors like growing conditions. Rain levels, weather patterns and the presence of plant disease or insects determine the quality of harvested sugarcane.

External competitionDirectly, sugarcane competes with sugar beets as an input into refined sugar

Cost�Structure�Benchmarkscontinued

Rent is not an actual cost for sugarcane farmers, but an implied cost. IBISWorld accounts for the opportunity cost of land, representing the alternative uses for the fields. In 2011, this expense accounts for 13.6% of total revenue. In Florida, where most of the country’s sugarcane is farmed, efforts to preserve the natural habitat of endangered species is leading the state government to purchase back some of the Everglades. Therefore, the opportunity cost of growing sugarcane is increasing and is expected to continue growing over the next five years. Sugar beets are already the major source for sugar produced in the United States, but their stronghold as the preferred input is expected to intensify.

Utilities, such as fuel and electricity, account for a relatively small cost. Over the past five years, however, it has grown as gas prices have increased. Transportation costs are also small, accounting for 4.1% of revenue. Most refineries are located close to the sugarcane farm fields because, once cut, sugarcanes lose their sugar content quickly. Therefore, the product does not have to travel far to get to its next destination, reflected in the low transportation costs. Other expenses include the cost of being part of a farmer-processor cooperative and general farm overhead. These costs remain fairly stable from year to year.

Industry�Costs�and�Average�Sector�Costs■�Profi�t■�Rent■�Utilities■�Depreciation■�Other■�Wages■�Purchases

Industry�Costs�(2011)�

Average�Costs�of�all�Industries�in�sector�(2011)�

22.617.316.017.67.713.6

9.9Profit

36.78.112.413.97.811.2


0 100%

5.2Profit

Level�&�Trend��Competition in this industry is Medium and the trend is Increasing



Barriers�to�Entry Barriers to entry into the Sugarcane Harvesting industry are high compared to other agricultural industries. The capital requirements in this industry are the highest in the agricultural sector, with land valued at $4.8 million per farm and machinery worth $602,944 per farm; sector averages for the respective categories are $951,279 and $108,515. New participants must raise upfront funds to purchase land for cropping, buildings and general farm machinery. Sugarcane farming land is become increasingly expensive as efforts of the Florida state government to protect the Everglades intensify.

In some production areas, access to suitable land is also a restraint on entry. This is partly the result of urbanization. Furthermore, new entrants may encounter problems purchasing tracts of land that are large enough to generate scale economies in growing. This can significantly inhibit the viability of new entrants since data shows that larger sugarcane farms are typically more profitable.

For enterprises already engaged in other cropping, the cost of establishment is significantly lower. Nonetheless, sugarcane harvesting

requires some specialized machinery including a self-propelled mechanical harvester or special wet weather harvesting equipment for the moist nature of sugarcane farming. New growers may overcome the cost of purchasing this machinery by employing a contractor to harvest their crop, a practice that has gained momentum over the past five years.

Although insulated by government policies from price volatility, the profitability of sugarcane farming still varies from year to year. It depends on a range of external factors that are beyond the control of farmers. These include consumer preferences, weather conditions and plant disease. Traditional financing

Basis�of�Competitioncontinued

production. This competition is limited since sugar beet and cane are grown in different areas and go through different processes in order to become refined sugar. However, if availability of sugar beet and refining capacity continue to expand, while consumption of sugar overall continues to decline, competition may intensify.

Indirectly, sugarcane competes with other types of sweeteners, from honey to aspartame. Competition has been intensifying in the past few years, as overall consumption of sweeteners has

been decreasing, and sweetener manufacturers have had to contest a smaller market.

Competition from sugar imports has increased in recent years. Previously, trade policies had protected sugar manufacturers from significant levels of competition. Since the introduction of CAFTA and NAFTA, imports have increased and are increasingly displacing domestic sugar production. This is a form of indirect external competition for sugarcane growers.

Barriers�to�Entry�checklist� LevelCompetition MediumConcentration LowLife Cycle Stage DeclineCapital Intensity HighTechnology Change MediumRegulation & Policy MediumIndustry Assistance High


Level�&�Trend��Barriers to Entry in this industry are Medium and Steady



Industry�Globalization

US sugarcane farmers are exposed to a low level of globalization. The global sugar market is affected to a large extent by tariffs and quotas imposed by various governments, and this has hindered trade. However the phasing out of import quotas for countries covered by NAFTA has seen a strong increase in import competition for sugar manufacturers. The global price for sugar and the US price have been converging over recent years. A lower level of trade protection is facilitating increased globalization of this industry.

In addition, the subsidies paid by the US government have meant that sugar prices in the US are considerably higher than in the rest of the world (for example, in the US the wholesale price for raw sugar was 22.14 cents per pound in 2006, compared with a global price of 15.50 cents). This further insulates farmers from price fluctuations on the global market.

The low level of concentration in the industry has meant that locally owned businesses have traditionally dominated domestic sugarcane production. Historically, the number of foreign firms operating in the industry has been negligible. Unlike other agricultural industries, sugarcane farmers are not required to deal with large, global wholesalers, since trade in this industry is miniscule.

However, sugar subsidies may not continue in their present form. In 2004, the WTO ruled that European sugar subsidies are illegal. More recently, the federal government has indicated it may move to lower support payments to farmers generally. If these decisions are implemented, this may increase the effects of globalization on US sugarcane farmers. Like other commodities, globalization may indirectly place pressure on US sugarcane farmers to become more competitive and improve their productivity and quality.

Barriers�to�Entrycontinued

companies and banking institutions may be reluctant to approve loans for establishment costs.

The US sugar supply chain is highly regulated compared with other food

manufacturing sectors. Since manufacturing volumes are partly determined by the federal government, new growers may find it difficult to sell their sugarcane to processors.


Trade�Globalization Going�Global:�Sugarcane�Harvesting�1999-2011

Expo

rts/

Reve

nue

Expo

rts/

Reve

nue

200

150

100

50

0

200

150

100

50

0

Imports/Domestic�Demand Imports/Domestic�Demand0 040 4080 80120 120160 160

International trade is a major determinant of an industry’s level of globalization.

Exports offer growth opportunities for fi rms. However there are legal, economic and political risks associated with dealing in foreign countries.

Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local fi rms would otherwise supply.

Export ExportGlobal Global

ImportLocal ImportLocal


19992011

Level�&�Trend��Globalization in this industry is Low and the trend is Increasing


Player�Performance United States Sugar Corporation (US Sugar) is a vertically integrated agribusiness, owned by farmers and processors. The company provides about 10.0% of the sugar produced in the United States each year and farms over 180,000 acres in Florida. In addition to sugarcane, the company also produces oranges and orange juice products in Florida. In April 2011, US Sugar celebrated its 80th anniversary.

The company is privately owned; no annual sales figures are publically available. However, according to news releases by US Sugar, IBISWorld estimates that its revenue from sugarcane harvesting totaled about $234.8 million in 2011, representing 22.5% of the Sugarcane Harvesting industry’s total sales. Over the five-year period to 2011, the company’s harvesting revenue grew at an average annual rate

of 6.0% per year, primarily driven by the rising price of sugar. A weak crop during the 2010-2011 growing season resulted in declined production but higher average prices. This helped revenue grow 7.2% through 2011.

US Sugar produces cane sugar from a combination of its own sugarcane and cane sourced from third party growers under contract. Sugarcane is processed at two raw sugar mills and marketed by United Sugars under a partnership with Minnesota and North Dakota beet sugar cooperatives. The company estimates that 75.0% of its sugar is sold to food manufacturers and the remaining 25.0% is packaged for retail sales.

Foreign trade is a major threat for the company as free-trade agreements lurk in the near future. Cheap imports could replace domestically made sugar, which would severely hurt the Sugarcane

�Major�CompaniesUnited�States�Sugar�Corporation�� |�� Other�Companies

77.5%Other

United�States�Sugar�Corporation�22.5%SOURCE: WWW.IBISWORLD.COM

Major�players(Market share)

United�States�Sugar�Corporation��Market share: 22.5%

United�States�Sugar�Corporation�(sugarcane�farming�segment)��–�fi�nancial�performance*

YearRevenue�

($ million) (% change)Net�Income�


2006 175.5 14.3 19.5 N/C

2007 194.7 10.9 2.3 -88.2

2008 175.6 -9.8 6.7 191.3

2009 192.9 9.9 8.7 29.9

2010 219.0 13.5 14.2 63.2

2011 234.8 7.2 12.2 -14.1

*EstimatesSOURCE: COMPANY WEBSITE


Major�Companies

Player�Performancecontinued

Harvesting industry (in addition to US sugar beet farmers and sugar processors). US Sugar has invested in capital to modernize and streamline its operations. The Clewiston Refinery, the most recently upgraded facility, is the country’s newest and only fully integrated cane refinery.

In November 2010, the Florida Supreme Court upheld a sugar land purchase made by the Florida state

government. The purchase’s purpose is to preserve the Florida Everglades, a depleting ecosystem also used extensively for sugarcane farming. Defeating opposition from the Florida Crystals sugar company and the Miccosukee Tribe of Indians, the state was able to approve the use of federally-allocate funds to protect the Everglades. US Sugar supports the preservation of the area.

Other�Companies The US Sugarcane Harvesting industry is overwhelmingly characterized by the presence of many small, individually run farms. In most cases, sugarcane producers operate as partnerships and sole proprietors rather than corporations. Despite some farm amalgamations, the number of companies currently operating in the industry is generally limited. Given the size of most farms, forward integration into downstream sugar processing is restricted to the industry’s largest players. Even so, smaller growers will sometimes join forces with other producers to form processing or wholesaling businesses. Often, these structures are formed as cooperatives that service the interests of a group of sugarcane growers in a particular region or state.

Florida Crystals CorporationEstimated market share: 2.0%Florida Crystals Corporation is a sugarcane grower and sugar producer. The company is privately owned and participates in sugar farming and refining, rice farming and real estate. Its headquarters in Florida holds about 155,000 acres of land, on which it farms, mills, refines, packages and distributes sugar. The company also has a biofuel facility on the premises. Florida Crystals is the first and (currently) only producer of certified organic sugar in the United States. This helps the company reach a small, but growing, market of health- and eco-conscious consumers.


Capital�Intensity A high level of capital intensity characterizes the Sugarcane Harvesting industry. This is because sugarcane growers employ a small labor force compared to the amount of capital used. This is reflected in the capital-to-labor ratio, which indicates that for every dollar spent on labor costs, $1.02 is allocated toward capital depreciation.

The level of depreciation costs incurred by sugarcane growers is rising slowly. Expensive tractors, harvesters and, in some cases, irrigation systems are common features on sugarcane farms. In order to protect themselves from the threat of cheap imports, farmers have invested heavily over the past five years. These items are treated as depreciable assets.

Since labor is not a fixed factor, it fluctuates in response to changing industry conditions. Labor requirements

�Operating�ConditionsCapital�Intensity�� |�� Technology�&�Systems�� |�� Revenue�VolatilityRegulation�&�Policy�� |�� Industry�Assistance

Tools�of�the�Trade:�Growth�Strategies�for�Success


Labo

r�Int

ensi

veCapital�Intensive

Change�in�Share�of�the�Economy

New�Age�Economy

Recreation,�Personal�Services,�Health�and�Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional�Service�Economy

Wholesale�and�Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old�Economy

Agriculture�and�Manufacturing.�Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment�Economy

Information,�Communications,�Mining,�Finance�and�Real�Estate.�To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Hay�&�Crop�FarmingSugar�ProcessingCrop�Services

Organic�Chemical�Manufacturing

Fertilizer�Manufacturing Sugarcane�Harvesting

Capital intensity

1.2

0.0

0.2

0.4

0.6

0.8

1.0

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Sugarcane Harvesting

Agriculture, Forestry, Fishing

and Hunting

Economy

Level��The level of capital intensity is High


Operating�Conditions

Revenue�Volatility Industry volatility is a function of several factors. These include local and global sugar prices, exchange rates, weather conditions, plant disease, and the introduction of new plant varieties. Although global sugar markets can be quite volatile, US growers are insulted

from these fluctuations by various government policies. These ensure local prices for sugar are up to 150% higher than world prices. While prices are fairly stable, industry volatility stems from production volumes, which are affected by climatic conditions and plant diseases.

Technology&�Systems

The basic principles of sugarcane farming have not changed significantly in the last century. Plowing, planting and harvesting remain the cornerstone activities of this industry. However, the introduction of new technology and improved plant knowledge have changed the way these activities are undertaken. The introduction of mechanical harvesters signaled a major development in sugarcane production. Innovations in the areas of irrigation, crop rotation and insect pesticides have also made important contributions to the industry’s technology base and have contributed to rising yields.

The use of combines, also known as a chopper harvester, has increased the efficiency and preservation of sugarcane farming. These machines can quickly and effectively cut the stem of the cane close to the ground and keep the length of each cane consistent. Any damage inflicted on the plant is

offset by the increased efficiency in harvesting power brought on by the use of these harvesters.

Biotechnology promises the potential for improving the properties of sugarcane. Research in this area includes the development of sugarcane strains that contain higher sucrose content and improved juice color for the production of higher quality raw material. Other new strains show increased plant resistance to weeds and pests. To date, there has been no commercial production of genetically modified (GM) sugarcane in the United States because consumer resistance to the technology has kept farmers from using it. However, there are a number of GM sugarcane crops growing on test sites. Experience in other GM crops suggests that the production of GM sugarcane is likely in the future. Currently, more than 90.0% of total soybean production and about 86.0% of total corn acreage is genetically modified.

Capital�Intensitycontinued

in sugarcane growing have declined in response to industry developments. For instance, the introduction of new labor-saving machinery has been the catalyst for structural change within the industry in past decades. Similarly, the trend toward replacing some on-farm services with off-farm services has reduced the need for workers. Together, these factors have helped reduce labor requirements.

Compared to the rest of the farm sector, capitalization in sugarcane farming is high. In 2007 (the most recent data available through the US Agriculture Census), the average value of plant and machinery per sugarcane farm was $602,994, and is the highest capital level among all agricultural industries. This can be compared with a farm average of $108,515 across the crop farming sector.

Level��The level of Technology Change is Medium

Level��The level of Volatility is High



Regulation�&�Policy Regulation of the US Sugarcane Harvesting industry is generally carried out at the state level. Most states operate agricultural departments that act as regulatory agencies. At the national level, regulatory agencies like the Environmental Protection Authority (EPA) and the US Department of Agriculture (USDA) regulate aspects of sugarcane farming. The extent to which the industry is regulated varies between geographic regions.

Environmental Protection AgencyThe Sugarcane Harvesting industry uses farm chemicals such as pesticides and soil conditioners. This has given rise to concerns about the environmental effects of chemicals in sugarcane growing. Like other crop farmers, sugarcane growers are subject to conditions relating to the use of fertilizers and pesticides in production. The use of pesticides in this industry is regulated by the EPA. This government agency is responsible for ensuring that pesticide residues in food

crops stay within safety standards. The EPA is given this authority through the operation of the Food Quality Protection Act.

US Department of AgricultureThe USDA regulates the manufacturing and the trade of sugar as part of the assistance offered to farmers. The USDA estimates the annual consumption of sugar and determines the federal market allocations available to each sugar manufacturer. This ensures the sugar market in the United States remains balanced, and reduces volatility for farmers.

The Sugar Re-Exports Program regulates sugar trade. This program allows companies to import sugar at world prices for refining and sale, provided they export the resulting refined sugar or sugar-containing products. Although not directly affecting the industry, since farmers rarely engage directly in trade, this program protects the industry from the effect of cheaper imports.

Revenue�Volatilitycontinued

The introduction of new plant varieties can reduce crop damage caused by weather conditions and pest. New strains

can also be designed to increase the sucrose content of sugarcane. These developments can determine crop yields.


Volatility�vs�Growth

Reve

nue�

vola

tility

*�(%

)�

1000

100

10

1

0.1

Five�year�annualized�revenue�growth�(%)�–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue�Chip

* Axis is in logarithmic scale


A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Level�&�Trend��The level of Regulation is Medium and the trend is Steady



Industry�Assistance The US sugar supply chain is highly assisted by the federal government; however, sugarcane farmers receive little direct assistance. The outlined programs are aimed at supporting the domestic sugar market by keeping US sugar prices higher than world sugar prices and limiting the influx of imports.

Non-recourse loansOne of the main vehicles for government price support is the loan program, defined in the 2008 Farm Act. This program allows sugar processors to receive short-term loans at the beginning of each fiscal year. At the end of the year, processors must pay back the loan along with any interest payment accrued. If the loan cannot be paid back, the processor must forfeit any sugar to the Commodity Credit Corporation (CCC). This makes the loans non-recourse.

To qualify for these loans, processors must provide payments to sugar beet and sugar cane growers proportional to the value of the loan received. The USDA can also set minimum producer payment amounts. This type of assistance is granted to processors rather than producers because sugarcane is a highly perishable crop and must be processed quickly after it has been harvested to retain its sugar content. The Farm Act of 2008 has set

loan rates through 2013. In 2011, sugarcane rates were 18.25 cents per pound. The rate is slated to increase each year through 2013, when the final rate will be 18.75 cents per pound.

Marketing allotmentsMarketing allotments are also provided to sugar processors to ensure that domestic sugar prices remain above loan forfeiture rates. The allotments are set to at least 85.0% of estimated human consumption domestically and are adjusted by the USDA to avoid loan forfeitures. Sugar produced in excess of these quotas cannot be sold and must be kept at the processors expense.

Processors can reassign their allotments if they are unable to market their share. The first channel for redistribution is to other processors within the same state. If the allotment cannot be distributed this way, then the processor may sell it to other sugar-producing states. Finally, if other states are unable to accept the quota, it can be sold to the Commodity Credit Corporation (CCC). Any sugar in excess of a processor’s allotted quota cannot be forfeited as payment for the non-recourse loans.

The USDA also runs a Feedstock Flexibility Program, which allows processors to channel excess sugar

Regulation�&�Policycontinued

Similarly to other US farming industries, sugarcane farmers cannot publicly claim that they produce organic sugarcane without approval from the USDA. Producers must comply with standards established by the US Department of Agriculture to obtain an organic certification. In 2002, the USDA released national organic standards for production and processing of agricultural crops, including sugarcane. The uniform

standards are designed to meet the demands of local and international customers seeking assurance that sugarcane is organically grown. Although still small, this segment of the industry is rising amid concerns about food safety and consumer preferences. The USDA also controls the planting of experimental GM food crops. All growers of GM crops are required to obtain a permit from the USDA before planting.

Level�&�Trend��The level of Industry Assistance is High and the trend is Steady



Industry�Assistancecontinued

from human food use to ethanol production. At the end of each fiscal year, the Secretary of Agriculture announces the amount to be paid back to the CCC and the amount to be sold to ethanol producers.

International tradeIn addition to domestic programs, the USDA has established several international trade programs. The Tariff Rate Quota (TRQ) system allows a quantity of sugar to be imported at preferential in-quota rates each year. Anything above the allowed quota is subject to much higher rates. The Secretary of Agriculture may modify the set quotas year-on-year if domestic production does not meet domestic demand for sugar. Currently, in-quota tariff rates are set at 0.625 cents per pound of sugar and above-quota rates are 15.36 cents per pound of raw sugar and 16.21 cents per pound of refined sugar. Additionally, there are safeguard duties charged above quota tariff rates based on the value of imported sugar. Mexico is not subject to the TRQ system as it enjoys duty-free trade with the United States under the North America

Free Trade Agreement (NAFTA). Central American countries along with the Dominican Republic receive small increases to quotas each year as well as a tariff phase-out over 15 years under the DR-CAFTA (Dominican Republic-Central America Free Trade Agreement).

The United States also runs two re-export programs: the Refined Sugar Re-Exports Program and the Sugar-Containing Products Re-Export Program. Under the former, companies with a re-export license are allowed to import sugar at world prices to refine and sell it to replace sugar that has been exported. The latter program allows US participants to purchase sugar at world prices for use in products that will be exported to the world market. It is important to note that imports entering the US under either one of these programs are not subject to TRQs.

Key�tariffsGoods Low�rate High�rate

Sugarcane (dollars per ton) 1.24 2.76

SOURCE: USITC


�Key�StatisticsRevenue�

($m)

Industry�Value�Added�

($m)Establish-

ments Enterprises EmploymentExports�

($m)Imports�

($m)Wages�($m)

Domestic�Demand

($m)

Production�(Million

short tons)2002 1,170.8 484.2 873 785 5,617 0.4 0.2 201.6 1,170.6 33.92003 1,124.1 459.0 828 741 5,565 0.6 0.5 202.0 1,124.0 31.92004 893.7 279.8 760 678 5,290 0.3 0.2 190.2 893.6 27.22005 786.8 311.8 727 648 6,088 0.3 0.4 177.8 786.9 24.72006 921.5 455.6 675 601 5,937 0.3 0.5 170.7 921.7 28.02007 876.6 341.2 614 547 5,606 0.2 0.6 168.5 877.0 28.32008 796.0 317.4 595 529 3,976 1.0 0.7 142.4 795.7 26.12009 1,014.0 366.9 591 526 3,675 0.4 0.6 138.5 1,014.2 28.52010 1,083.6 461.6 590 524 4,292 0.3 0.7 200.6 1,084.0 25.72011 1,045.3 418.2 566 503 4,292 0.1 0.2 180.6 1,045.4 26.62012 1,033.6 381.6 554 490 4,197 0.1 0.2 177.1 1,033.7 N/A2013 1,066.5 315.1 483 420 3,980 0.1 0.2 169.0 1,066.6 N/A2014 1,081.3 385.0 454 391 4,112 0.1 0.2 175.4 1,081.4 N/A2015 1,036.6 388.9 444 385 4,057 0.1 0.2 174.0 1,036.7 N/A2016 1,014.8 387.9 430 382 3,951 0.1 0.2 172.5 1,014.9 N/ASector�Rank 26/30 25/30 28/29 28/29 28/30 23/23 23/23 25/30 20/23 N/AEconomy�Rank 686/705 683/705 587/704 563/704 690/705 230/230 230/230 688/705 227/230 N/A

IVA/Revenue�(%)

Imports/Demand�

(%)Exports/Revenue�

(%)

Revenue�per�Employee�

($’000)Wages/Revenue�

(%)Employees�

per�Est.Average�Wage�

($)

Share�of�the�Economy�

(%)2002 41.36 0.02 0.03 208.44 17.22 6.43 35,891.05 0.002003 40.83 0.04 0.05 201.99 17.97 6.72 36,298.29 0.002004 31.31 0.02 0.03 168.94 21.28 6.96 35,954.63 0.002005 39.63 0.05 0.04 129.24 22.60 8.37 29,204.99 0.002006 49.44 0.05 0.03 155.21 18.52 8.80 28,751.89 0.002007 38.92 0.07 0.02 156.37 19.22 9.13 30,057.08 0.002008 39.87 0.09 0.13 200.20 17.89 6.68 35,814.89 0.002009 36.18 0.06 0.04 275.92 13.66 6.22 37,687.07 0.002010 42.60 0.06 0.03 252.47 18.51 7.27 46,738.12 0.002011 40.01 0.02 0.01 243.55 17.28 7.58 42,078.29 0.002012 36.92 0.02 0.01 246.27 17.13 7.58 42,196.81 0.002013 29.55 0.02 0.01 267.96 15.85 8.24 42,462.31 0.002014 35.61 0.02 0.01 262.96 16.22 9.06 42,655.64 0.002015 37.52 0.02 0.01 255.51 16.79 9.14 42,888.83 0.002016 38.22 0.02 0.01 256.85 17.00 9.19 43,659.83 0.00Sector�Rank 11/30 23/23 23/23 9/30 10/30 1/29 2/30 25/30Economy�Rank 301/705 230/230 230/230 341/705 367/705 458/704 389/705 683/705

Figures are inflation-adjusted 2011 dollars. Rank refers to 2011 data.

Revenue�(%)

Industry�Value�Added�

(%)

Establish-ments�

(%)Enterprises�

(%)Employment�

(%)Exports�

(%)Imports�

(%)Wages�

(%)

Domestic�Demand�

(%)Production�

(%)2003 -4.0 -5.2 -5.2 -5.6 -0.9 50.0 150.0 0.2 -4.0 -5.92004 -20.5 -39.0 -8.2 -8.5 -4.9 -50.0 -60.0 -5.8 -20.5 -14.72005 -12.0 11.4 -4.3 -4.4 15.1 0.0 100.0 -6.5 -11.9 -9.22006 17.1 46.1 -7.2 -7.3 -2.5 0.0 25.0 -4.0 17.1 13.42007 -4.9 -25.1 -9.0 -9.0 -5.6 -33.3 20.0 -1.3 -4.8 1.12008 -9.2 -7.0 -3.1 -3.3 -29.1 400.0 16.7 -15.5 -9.3 -7.82009 27.4 15.6 -0.7 -0.6 -7.6 -60.0 -14.3 -2.7 27.5 9.22010 6.9 25.8 -0.2 -0.4 16.8 -25.0 16.7 44.8 6.9 -9.82011 -3.5 -9.4 -4.1 -4.0 0.0 -66.7 -71.4 -10.0 -3.6 3.52012 -1.1 -8.8 -2.1 -2.6 -2.2 0.0 0.0 -1.9 -1.1 N/A2013 3.2 -17.4 -12.8 -14.3 -5.2 0.0 0.0 -4.6 3.2 N/A2014 1.4 22.2 -6.0 -6.9 3.3 0.0 0.0 3.8 1.4 N/A2015 -4.1 1.0 -2.2 -1.5 -1.3 0.0 0.0 -0.8 -4.1 N/A2016 -2.1 -0.3 -3.2 -0.8 -2.6 0.0 0.0 -0.9 -2.1 N/ASector�Rank 30/30 30/30 28/29 26/29 16/30 23/23 23/23 30/30 21/23 N/AEconomy�Rank 675/705 694/705 680/704 678/704 537/705 230/230 230/230 700/705 220/230 N/A

Annual�Change

Key�Ratios

Industry�Data



Jargon�&�Glossary

BARRIERS�TO�ENTRY Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry.

CAPITAL/LABOR�INTENSITY An indicator of how much capital is used in production as opposed to labor. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3 – $8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation.

CONSTANT�PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using 2011 as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the ‘real’ growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC�DEMAND The use of goods and services within the US; the sum of imports and domestic production minus exports.

EARNINGS�BEFORE�INTEREST�AND�TAX�(EBIT)� IBISWorld uses EBIT as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding tax and interest.

EMPLOYMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees.

ENTERPRISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry.

ESTABLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates.

EXPORTS The total sales and transfers of goods produced by an industry that are exported.

IMPORTS The value of goods and services imported with the amount payable to non-residents.

INDUSTRY�CONCENTRATION IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 40 –70% of revenue; Low is less than 40%.

INDUSTRY�REVENUE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY�VALUE�ADDED The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added).

INTERNATIONAL�TRADE The level is determined by: Exports/Revenue: Low is 0 –5%; Medium is 5 –20%; High is over 20%. Imports/Domestic Demand: Low is 0 –5%; Medium is 5 –35%; and High is over 35%.

LIFE�CYCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each.

NON-EMPLOYING�ESTABLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals.

VOLATILITY The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than ±20%; High Volatility is between ±10% and ±20%; Moderate Volatility is between ±3% and ±10%; and Low Volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees of the establishment.

Industry�Jargon

IBISWorld�Glossary

BAGASSE The dry pulp that remains after the juice has been drained from sugarcane in the milling and refining processes.

DOMINICAN�REPUBLIC-CENTRAL�AMERICAN�FREE�TRADE�AGR A free-trade agreement between the United States and Central America. In 2004, the Dominican Republic was added to the agreement. Also known as DR-CAFTA.

NON-RECOURSE�LOANS Loans against property. In sugar production, processors pledge sugar if they cannot repay the government loans in cash.

NORTH�AMERICAN�FREE�TRADE�AGREEMENT�(NAFTA)� A generally duty-free agreement signed by the governments of Canada, Mexico and the United States, creating a trilateral trade bloc in North America.

PESTICIDE A chemical used to kill pests.

TARIFF�RATE�QUOTA�(TRQ)� Trade regulations under which a specified quantity of a product can be imported at a relatively low tariff. Quantities above the quota are imported at a higher tariff rate.

Disclaimer

This product has been supplied by IBISWorld Inc. (‘IBISWorld’) solely for use by its authorized licenses strictly in accordance with their license agreements with IBISWorld. IBISWorld makes no representation to any other person with regard to the completeness or accuracy of the data or information contained herein, and it accepts no responsibility and disclaims all liability (save for liability which cannot be lawfully disclaimed) for loss or damage whatsoever suffered or incurred by any other person resulting from the use

of, or reliance upon, the data or information contained herein. Copyright in this publication is owned by IBISWorld Inc. The publication is sold on the basis that the purchaser agrees not to copy the material contained within it for other than the purchasers own purposes. In the event that the purchaser uses or quotes from the material in this publication – in papers, reports, or opinions prepared for any other person – it is agreed that it will be sourced to: IBISWorld Inc.

At IBISWorld we know that industry intelligence is more than assembling factsIt is combining data with analysis to answer the questions that successful businesses askIdentify�high�growth,�emerging�&�shrinking�marketsArm�yourself�with�the�latest�industry�intelligenceAssess�competitive�threats�from�existing�&�new�entrantsBenchmark�your�performance�against�the�competitionMake�speedy�market-ready,�profit-maximizing�decisions

Who�is�IBISWorld?We are strategists, analysts, researchers, and marketers. We provide answers to information-hungry, time-poor businesses. Our goal is to provide real world answers that matter to your business in our 700 US industry reports. When tough strategic, budget, sales and marketing decisions need to be made, our suite of Industry and Risk intelligence products give you deeply-researched answers quickly.

IBISWorld�MembershipIBISWorld offers tailored membership packages to meet your needs.

Copyright 2011 IBISWorld Inc

www.ibisworld.com��|��1800-330-3772��| ��[email protected]