Global Sugar Trade
Global Sugar Trade

Fifteen years since the North American Free Trade Agreement (NAFTA) was signed, trade in sugar and sweeteners between Mexico and the U.S. has finally become quota-free. Many U.S. sugar producers are worrying about a potential flood of Mexican sugar, which may drive down prices and profits. Sugar lobbyists in the U.S. have been working on additions to the 2007 Farm Bill and other legislation to limit Mexican sugar.

On the other side of the Atlantic, the European Union (EU) has been consolidating its sugar industry and cutting subsidies to its farmers. The EU has become a net importer of sugar. The EU is re-examining its sugar quota system from the Least Developing Countries (LDCs) and from African, Caribbean, and Pacific (ACP) countries.

Two major developing countries, India and Brazil, also exert a strong influence on the global trade of sugar. Their production of sugar and production of ethanol (made from sugar) impact the global price of sugar. The increasing price of oil and fossil fuels and the increasing interest in ethanol, as a fuel source, is changing the field as well.

Sugar is one of the most regulated commodities and all major producers use subsidies to protect their farmers and manufacturers. This analysis will examine sugar policies in the U.S., Europe, Brazil, and Africa.

Current State of Global Sugar Trade

The current trade in world sugar (for 2006/2007) is estimated at 45.4 million tones.1 Brazil (18.6 percent), the EU (13.7 percent), India (13.3 percent), and China (7.2 percent) are the world’s top sugar producers. In 2008, India is expected to surpass Brazil as the largest sugar producer in the world. Top sugar exporters include Brazil (34.9 percent) and the EU (11.2 percent) and top sugar importers include Africa, Russia, and the EU.2

The price of sugar reached a 25-year high in 2006 and decreased by at least half in 2007.3 The decline was partially a result of increased amounts of sugar in the global market. India returned to being a net exporter rather. (Recently, the Indian government lifted an export ban on sugar.)4 Low sugar prices are not sustainable if the international sugar price cannot cover the production costs; currently, only Brazil can operate at these low costs.

The price may increase if Brazil uses more sugar for ethanol (an estimated 55 percent of Brazil’s sugarcane is currently converted into ethanol). Less sugar on the international market could increase the price for sugar. Nonetheless the Food and Agriculture Organization of the United Nations does not believe that this would stop the decreasing price of sugar since there is expected to be a sugar surplus in 2007-2008.5

U.S. Sugar Policies

U.S. sugar policy takes into a number of factors including sugar imports and exports, sweeteners (including sugar and corn sweeteners) and ethanol. Imports of raw sugar cane, refined sugars, sugar syrups, and sugar-containing products are controlled via tariff-rate quotas (TRQs), which charge different rates depending on the volume. A high tariff is paid for sugar imports in excess of the country’s quota. Forty countries receive TRQs for raw sugar cane. Mexico’s over-quota tariffs ended in 2008.

In addition to TRQs, the U.S. also has a re-export program to help U.S. sugar refineries and manufacturers of sugar-based products.6 There are also domestic marketing allotments and price supports to control the amount of sugar on the U.S. market. The TRQs, domestic marketing allotments, and price supports keep U.S. sugar prices higher than the world market price, which make U.S. sugar manufacturers uncompetitive in the domestic and export market.7 U.S. sugar prices are 2-3 times higher than the world sugar price.

The U.S. is fighting to keep its sugar industry and to make it more efficient and competitive. Automation is being used to cut back on high labor costs. Scientists are developing and using round-up (herbicide) resistant sugar beet seeds. These seeds are one of the first genetically-engineered plants since the 1990s to be widely grown.8 While genetically modified products require labeling in Europe, there is less controversy in the U.S. and no label is required. About three percent of US sugar is exported, so the use of genetically modified seeds is viable.9

The U.S. has the world’s largest corn-based, sweetener industry. The U.S. is converting more of its corn into ethanol, leaving less corn available for the sweetener market. Demand for sugar as an alternative to high fructose corn syrup (HFCS) may rise, since the price of sugar is declining and price of corn increasing. 10 Currently, there is a controversial 54-cent tariff on ethanol imports, which bolsters the US corn industry, but makes it difficult for sugar ethanol products to enter the country.

European Sugar Policy

The EU has an extensive tariff system as well, which underwent major changes in 2006-2007. Sugar subsidies to farmers were cut, certain quotas were merged, and obsolete mills were closed or consolidated. Measures were taken though to ease the burden on EU farmers from increased amounts of sugar from the least developed countries (LDCs), which are given preferential access to the European market under the “Everything but arms” initiative. Sugar from the LDCs will only be allowed duty-free and quota-free access to the European market until 2009.11Other measures taken to ease the burden on European farmers include:

  • extra payments for five years to Member states that cut their sugar production by more than half;
  • subsidies to European farmers that grow sugar beets for ethanol (as long as the plants are not grown on set-aside land); and,
  • a new restructuring fund for European sugar producers that will help them become more competitive.12

Europe’s new sugar policies have not shown a big impact during the short-term. So far, only Ireland, Latvia, and Slovenia have abandoned sugar production.13

Another element of Europe’s sugar policies relate to biofuels, such as ethanol. European ethanol is subsidized through tax-exemptions for producers and by taxes for the users. Europe has been trying to force environmental protection through its ethanol policies. The EU is considering banning fuel crops whose production causes harm to the environment (such as the destruction of rain forests for agricultural land to grow biofuels). To ensure that the biofuels are environmentally-friendly, the EU is considering a tracking system to assess sustainability criteria.14

Brazilian Sugar Policies

Brazil is the world’s largest and most efficient producer and exporter of sugar (raw and refined) and ethanol. Fifty percent of Brazil’s sugarcane is used to produce ethanol; the remaining is used for domestic sugar consumption and for export. Brazilian sugar is exported all over the world; Russia is the top international consumer of Brazilian sugar.15 In 2006, Brazil exported 52 percent of the world’s ethanol market.16

Brazil has supported the use of ethanol since the 1970’s oil crisis. Ethanol was promoted by price controls and favorable taxes in the 1980’s. In the late 1990’s, sugar cane, ethanol, and gasoline prices became independent of government control. Nonetheless, the government still gets involved in promoting ethanol through regulating the ethanol/gasoline mixes at the pump.17 Nearly all cars in Brazil run on an ethanol/gasoline mix and new flex cars can run on both.

African Sugar Policies

Africa only holds 5.7 percent of the global sugar production; the continent is a net sugar importer. South Africa is competitive on the global sugar market and will probably continue to thrive despite the changing sugar policy landscape. On the other hand, countries that rely on preferential access, such as Mauritius and Swaziland, will have a huge problem with changing policies and preferential treatments.

Participating countries in the “Everything but arms” initiatives, including Malawi, Zambia,  Zimbabwe and Sudan, have the potential for growth in their sugar exports when European quotas expire in 2009. Other African (and Carribean and Pacific) countries may benefit from current negotiations with Europe on Economic Partnership Agreements (EPAs) for quota and tariff free access to the EU. However, quota-free and tariff-free sugar from these countries will not be on the table until 2015.18

Conclusion

The challenges facing the sugar industry are similar to other industries that are highly regulated and are slow to liberalize. If sugar prices are too high then the producer is uncompetitive; however, if it is too low, sugar farmers and producers will not be able to make a profit. Efficient countries or countries with low labor costs will fare better with low-cost sugar because they will still be able to make a profit. If there were no quotas or tariffs, sugar producers in Europe and the U.S. could go out of business due to a flood of cheap sugar into their markets. But sugar is major crop for developing countries, whose GDP rely much more on agriculture than other industries. European and American tariffs hurt farmers in developing countries who cannot compete.

In the past, the U.S. has bought-out industries (such as peanuts) if they became uncompetitive. Europe has already begun to offer incentives to its farmers to decrease sugar production or shift into ethanol production. As the price of gasoline continues to rise, with no end in sight, ethanol may prove to be the silver lining to help sugar producers around the world.


 1 Food Outlook Global Market Analysis November 2007. http://www.fao.org/docrep/010/ah876e/ah876e07.htm
2 Sandrey, Ron and Nick Vink. “Future Prospects for African Sugar: Sweet or Sour.” International Food Policy Research Institute. June 1st, 2007. http://www.ifpri.org/events/conferences/2007/20070601sugar/SandreyVink.pdf
3 Food Outlook Global Market Analysis November 2007. http://www.fao.org/docrep/010/ah876e/ah876e07.htm
4 Ibid.
5 Ibid.
6 “Sugar Briefing.” U.S. Department of Agriculture.
http://www.ers.usda.gov/Briefing/Sugar/Trade.htm
7 Hadley, Stephen and Mir Ali. “Sugar Backgrounder.” Outlook Report No. (SSS-249) 50pp, July 2007. http://www.ers.usda.gov/publications/sss/Jul07/SSS249/
8 Pollack, Andrew. “Next up for U.S. farmers: Genetically modified sugar beets.” International Herald Tribune. November 26, 2007. http://www.iht.com/articles/2007/11/26/business/sugar.php
9 Ibid.
10 Ibid.
11 Christophe, Jean, and Alex Gohin, Loic Guinde, and Guy Millet. “EU Sugar Reforms and their Impacts.” International Food Policy Research Institute. June 1st, 2007.
http://www.ifpri.org/events/conferences/2007/20070601sugar/Bureau_etal.pdf
12 Ibid.
13 Ibid.
14 Kanter, James. “EU considers banning the import of certain fuel crops.” International Herald Tribune. January 14th, 2008.
http://www.iht.com/bin/printfriendly.php?id=9208073
15 Sandrey, Ron and Nick Vink. “Future Prospects for African Sugar: Sweet or Sour.” International Food Policy Research Institute. June 1st, 2007. http://www.ifpri.org/events/conferences/2007/20070601sugar/SandreyVink.pdf
16 “Ethanol Demand Driving the Expansion of Brazil’s Sugar Industry.” http://www.ers.usda.gov/Briefing/Sugar/sugarpdf/EthanolDemandSSS249.pdf
17 Brandão, Salazar. “The Sugar/Ethanol Complex in Brazil: Development and Future.” International Food Policy Research Institute. June 1st, 2007. http://www.ifpri.org/events/conferences/2007/20070601sugar/Brandao.pdf
18 Sandrey, Ron and Nick Vink. “Future Prospects for African Sugar: Sweet or Sour.” International Food Policy Research Institute. June 1st, 2007.
http://www.ifpri.org/events/conferences/2007/20070601sugar/SandreyVink.pdf

* Picture Source: Uwe Hermann, http://www.flickr.com/photos/uwehermann/132244825

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