Saturday, July 08, 2006
Global sugar consumption in 2006 is estimated to rise to 148 million tones (MT) due to expected growth in consumption in the developing countries of the Far-East and Latin America. Sugar consumption in developing countries is estimated to reach 100 MT in 2006, in line with rising income and population growth. Among developed countries, where demand had been relatively stable, consumption has been forecasted to remain relatively unchanged in the EU, South Korea, and the US. With the WTO ruling, the subsidised export of 5 MT of white sugar by the European Union is also nearing an end. In the current situation, beyond the month of May 2006, no such subsidised sugar would be sold. The price reduction has been to the tune of 36%. With this situation continuing, the international sugar prices are expected to harden.
The top seven producing countries account for 60% of total world production. The top three producers, Brazil, India, and the EU account for over 40% of total world production. Two of the top four producers, India and China are not among the top exporting countries. In this article we give an insight into the dynamics of the large sugar exporters.
Brazil: Brazil is by far the world's largest producer and exporter of sugar. The country accounts for 20% of the world production and nearly 38% of total world exports in 2005. More than half of Brazil's sugarcane production is devoted to the production of alcohol. The increase in the domestic demand for fuel alcohol is due to the increase in flex–fuel autos. Total sales of these vehicles, which can run on any mixture of hydrous, anhydrous alcohol or gasoline rose to 3.8 m units in 2004. In 2005, production of sugar and ethanol in Brazil totaled 28.7 m metric tons and 4.8 bn gallons respectively, continuing the record trend witnessed over the past couple of years. The record production has resulted in sugar exports of 18.2 m metric tons and 0.6 bn gallons of ethanol in 2005. In Brazil, a large number of plants are dual plants and can switch easily between the production of sugar and ethanol based on relative prices. Thus, sugar and ethanol prices tend to move closely together. If both ethanol and sugar prices remain competitive in the near future, Brazil is expected to continue to increase sugarcane production for both ethanol and sugar. The country has enough land to easily double sugarcane area harvested. Sugar production is expected to increase by 21.5 % between 2005 and 2015 (Source: Centre for agriculture and rural development).
European Union: The EU is in the unusual position of being both a leading exporter and importer of sugar. The Customs Union manages this feat by extending its production and export subsidies to developing countries that were former British, French and Portuguese colonies. Under this program the EU imports raw sugar, which it refines and re-exports. The EU is the world's only major producer, exporter, and importer. Due to favorable weather conditions, which produced higher sugar beet production than expected and an above average sugar content in the beets, the EU's total production for 2005 was 21.8 MT.
Sugar production within the EU was limited by quota. Since sugar that could be sold in the EU was limited by quota, the excess production was exported, effectively cross-subsidized by high domestic prices. While the EU had high import tariff barriers, it allowed preferential imports of raw sugar from African, Caribbean and Pacific countries, which was generally processed into white sugar and re-exported.
New EU regime: The change in the EU regime includes cuts in EU subsidies. These include cumulative cuts in intervention pricing by 36%. This is likely to cause a cut in sugar production within the EU and also cause a reduction in EU exports.
Others: With the exception of China, the second tier of producers such as Thailand and Australia are significant exporters. China is a significant importer. Australia exports more than 4 MT, the largest percentage of domestic production of all major world exporters and producers. The third group of significant producers and exporters consists of South Africa, Guatemala, Columbia, and Cuba. Together these countries produce between 8 and 9 MT of sugar and export between 4 and 6 MT.
Conclusion: Though India is not only one of the world's leading producer it does not export, because to be self-sufficient, India must produce about 20 MT of sugar each year. However, total production is forecast at 18.4 MT, which led to the inventories filling the gap for the third year in a row. Being deficient, the government is still not very keen on exports. However with increased production in coming years, this is likely to be allowed.