andrew pangilinan brady irwin carmelo ramirez vicki yow

International Sugar Trade & Policy

Andrew PangilinanBrady Irwin

Carmelo RamirezVicki Yow

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

Content

History and Evolution of Sugar Production

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)

Origin

http://en.wikipedia.org/wiki/History_of_sugar

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

The New World


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

The Sugar Beet


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

Mechanization and Modernization

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

The Modern Sugar Industry

Related Products Industry Trends

The Role of Policy

Related Products

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

On The Market

Molasses

Animal feed Some human consumption

Husk Field mulch Basket weaving

Post Processed- powdered and brown Processed Goods Rum!

Joint and Related Products

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

Substitutes in Consumption

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

Ethanol

Industry Trends

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

Sugar Market

http://www.fas.usda.gov/sugar_arc.asp

http://www.fas.usda.gov/sugar_arc.asp

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%

Major Players in 2012/13

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

Trends

Total Sugar Production

1992/93 112099 1997/98 122229 2002/03 147336 2007/08 163536 2012/13 174453

Production, ConsumptionExports, Imports

Exports

1992/93 28937 1997/98 35900 2002/03 45724 2007/08 50903 2012/13 58326

Total Sugar Consumption

1992/93 114037 1997/98 124759 2002/03 137725 2007/08 150855 2012/13 163014

Imports

1992/93 28937 1997/98 35900 2002/03 39169 2007/08 45715 2012/13 49105

*values in 1000 metric tons

% Exported and Imported

Exports

1992/93 26%1997/98 29%2002/03 31%2007/08 31%2012/13 33%

Imports

1992/93 26%1997/98 29%2002/03 27%2007/08 28%2012/13 28%

Brazil Export Share

1992/93 8%1997/98 18%2002/03 31%2007/08 38%2012/13 43%

Brazil Production to Exports

1992/93 13%1997/98 34%2002/03 59%2007/08 62%2012/13 67%

Production, Consumption, Imports, & Exports Over Time

year 92/93 year 97/98 year 02/03 year 07/08 year 12/130

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

ProductionConsumptionImportsExports

% Change & Brazil Over Time

year 92/93 year 97/98 year 02/03 year 07/08 year 12/130%

10%

20%

30%

40%

50%

60%

70%

80%

%Exported%ImportedBrazil World Market ShareBrazil Production to Exports

Total Sugar Production

92/93-97/98 9%

97/98-02/03 21%

02/03-07/08 11%

07/08-12/13 7%

92/93-97/98 9%

% Changes in Production, Consumption, Exports, Imports

Exports

92/93-97/98 24%

97/98-02/03 27%

02/03-07/08 11%

07/08-12/13 15%

92/93-97/98 24%

Total Sugar Consumption

92/93-97/98 9%

97/98-02/03 10%

02/03-07/08 10%

07/08-12/13 8%

92/93-97/98 9%

Imports

92/93-97/98 24%

97/98-02/03 9%

02/03-07/08 17%

07/08-12/13 7%

92/93-97/98 24%

% Change

92/93-97/98

97/98-02/03

02/03-07/08

07/08-12/13

0%

5%

10%

15%

20%

25%

Production

Production

92/93-97/98

97/98-02/03

02/03-07/08

07/08-12/13

0%5%

10%15%20%25%30%

Exports

Exports

92/9

3-97

/98

97/9

8-02

/03

02/0

3-07

/08

07/0

8-12

/13

0%4%8%

12%

Consumption

Consumption

92/93-97/98

97/98-02/03

02/03-07/08

07/08-12/13

0%5%

10%15%20%25%30%

Imports

Imports

International Market Relationships

Correlation matrix 1960-2011 | world_p us_p eu_p -------------+--------------------------- world_p | 1.0000 us_p | 0.8501 1.0000 eu_p | -0.1035 -0.2242 1.0000

Correlation matrix 1989-2004 | world~04 us_p_04 eu_p_04 -------------+--------------------------- world_p_04 | 1.0000 us_p_04 | 0.0429 1.0000 eu_p_04 | -0.7016 -0.4159 1.0000

Correlation matrix 2005-2011 | world~11 us_p_11 eu_p_11 -------------+--------------------------- world_p_11 | 1.0000 us_p_11 | 0.8933 1.0000 eu_p_11 | -0.9249 -0.8897 1.0000

Data collected from the World Bank

Date

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

10

20

30

40

50

60

70

80

Price Movement Over Time

World_PUS_PEU_P

Market Relationship


Correlation matrix 2005-2011 % change | world_.. us_p_c~e eu_p_c~e -------------+--------------------------- world_p_ch~e | 1.0000 us_p_change | 0.6663 1.0000 eu_p_change | 0.1495 0.1826 1.0000

Correlation matrix 1989-2004 % change | world_.. us_p_0~e eu_p_0~e -------------+--------------------------- world_p_04~e | 1.0000 us_p_04_ch~e | 0.2389 1.0000 eu_p_04_ch~e | -0.5827 -0.2995 1.0000

Correlation matrix 1960-2011 % change | world_.. us_p_1~e eu_p_1~e -------------+--------------------------- world_p_11~e | 1.0000 us_p_11_ch~e | 0.4601 1.0000 eu_p_11_ch~e | -0.4398 -0.9540 1.0000

Market Relationships % change


Date_

all

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

-1.5

-1

-0.5

0

0.5

1

1.5

% change over time

World_P_ChangeUS_P_ChangeEU_P_Change

% change over time


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

Conclusions on relationships

The Role of Policy

BrazilIndia

European UnionUnited States

Brazil Sugar Policy

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

Brazilian Cost of Production

Brazilian Cost of Production

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

Brazilian Ethanol

Source: Rothkopf, Garten, A Blueprint for Green Energy in the Americas

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

Brazilian Ethanol

Within the period between 2005 to 2010,

ethanol production has grown from 3649 million gallons to 7270 million gallons

Brazilian Ethanol

India Sugar Policy

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)

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

India

Source: http://www.fao.org/fileadmin/templates/est/meetings/sugar_fiji_2012/Kaison_Chang_-_FAO_Policy_Overview.pdfhttp://www.fao.org/docrep/005/X0513E/x0513e16.htmhttp://www.ers.usda.gov/topics/international-markets-trade/countries-regions/india/policy.aspx

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

U.S. Sugar Policy

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.pdfhttp://www.ers.usda.gov/topics/crops/sugar-sweeteners/policy.aspx

Price Supports

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.pdfhttp://www.ers.usda.gov/topics/crops/sugar-sweeteners/policy.aspx

Import Quotas

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

Role of the Sugar Lobby

Traditional European Union Sugar Policy

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

Sugar reform

Price guarantees

Production levies and export refunds

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Pillars (I-IV)


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


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


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

The Future of the Sugar Industry

European Union; a Case StudySugar post 2006 ethanol and beyond

EU and the Future of

Sugar Policy

Prices Over Time Revisited

Date

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

10

20

30

40

50

60

70

80


World_PUS_PEU_P

Post 2000 Reforms of EU Policy

Decrease of guaranteed prices paid to EU farmers and refineries

Production quota level increased due to expansion of EU, merging of quotas ABC, and a general policy for more trade liberalization


Post 2000 Reforms

Eliminated levies of over quota imports in 2006

Continued export subsidies of white processed sugar, but at lower level

Established single farm payments by paying fixed amount to producers

http://browse.oecdbookshop.org/oecd/pdfs/product/5107101e.pdfOECD, Sugar Policy Reform in the European Union and in World Sugar Markets

http://browse.oecdbookshop.org/oecd/pdfs/product/5107101e.pdf

EBA (Everything-but-Arms)

In March 2001 the European Union adopted the EBA initiative; was not initiated until 2006

Purpose: to give duty free access to all exports from least developed countries (LDCs) except arms and armaments

Essentially opened the EU to cheaper world imports of raw sugar


Simplified Model of EU Trade

Liberalization

Prices Over Time Revisited

Date

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

10

20

30

40

50

60

70

80


World_PUS_PEU_P

Future of Sugar

Production

Tech continues to evolve

Both in production and processing More efficient cultivars expanding growing region New harvesting methods becoming more efficient New cultivation practices decrease input cost, both

human and chemical Developing world taking advantage of fair trade

policies, continue to increase out put, major players still dominate the market

Production expected to expand by 50 Mt by 2020 to over 209 Mt

Advancements in Industry

http://www.oecd.org/site/oecd-faoagriculturaloutlook/48184295.pdf

Growing income levels in developing world

have and will continue to increase demand Growing social and political pressure to

liberalize trade restrictions Prices expected to remain volatile due to the

nature of cultivation (fast responding perennial production)

Advancement in the Market

http://www.oecd.org/site/oecd-faoagriculturaloutlook/48184295.pdf

andrew pangilinan brady irwin carmelo ramirez vicki yow

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