Then, Now, & Beyond; International Sugar Policy

International Sugar Trade & Policy Andrew PangilinanBrady IrwinCarmelo RamirezVicki YowHistory and evolution of the sugar industryHistory of productionModern production practicesRecent developments; the sugar industry todayMajor playersThe roll of policyThe future of sugarContentHistory and Evolution of Sugar ProductionSugarcane domesticated ~8000 years ago in SE AsiaCrystallization developed around 350 AD in India, spread to China by 650 ADSpread to middle east and Latin Europe during the Muslim Agricultural Revolution (8th-13th century) Originhttp://en.wikipedia.org/wiki/History_of_sugarClimate in Caribbean, Central, and South America perfect for sugar productionProduction so efficient and prevalent it drove the price down so that the common man could afford itLargely driven by slave labour State own enterprisesPlantation production

The New Worldhttp://en.wikipedia.org/wiki/History_of_sugarDuring the Napoleonic wars central Europe was cut off from foreign tradePolish agronomist found a way to economically produce sugar from a beetSugar can now be produced in temperate climate~20% of worlds sugar comes from sugar beetsThe Sugar Beethttp://en.wikipedia.org/wiki/History_of_sugarCane is propagated from cuttings First harvest 9-14 months, can produce for 7 yearsFarmers quick to respond to boomsHighly dependent on sunlight (GDDs)Traditional cultivationHighly labour intensiveModern cultivationHighly mechanized Prone to spoilage, most initial processing occurs near point of originProcessing is very energy intensive Mechanization and ModernizationModernized v Traditional http://www.biofuelstp.eu/images/sugar_cane.jpg

http://cdn1.vtourist.com/15/4071273-Harvest_of_Sugar_Canes_Rio_de_Janeiro.jpgThe Modern Sugar IndustryRelated Products Industry TrendsThe Role of PolicyRelated ProductsRaw sugarUnbleachedTraded on cash marketRefined sugarTraded as No.7, 11, 14, or 16 white refined FOB Caribbean portTokyo Grain Exchange, London Exchange, NY Board of TradeOn The MarketMolasses Animal feedSome human consumptionHuskField mulchBasket weaving

Post Processed- powdered and brownProcessed GoodsRum!Joint and Related ProductsArtificial sweetenersAcesulfame potassium (Sunett, Sweet One)Aspartame (Equal, NutraSweet)NeotameSaccharin (SugarTwin, Sweet'N Low)Sucralose Natural sweetenersCorn syrup (high-fructose)HoneyMaple syrup/other natural syrups

Substitutes in ConsumptionSugarcane is a very efficient source of ethanolBrazil was an early leader in ethanol production beginning in the 1970s55% of Brazils sugarcane production goes into ethanol as of 2008EthanolIndustry TrendsData obtained from USDA Sugar World Market and Trade Circular Archives then calculated in ExcelMay 2012, November 2003, November 1997http://www.fas.usda.gov/sugar_arc.aspModerately 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 MarketTop 4 Producers: Brazil, India, EU, & ChinaTop 4 Consumers: India, EU, China, Brazil, & USTop 4 Importers: EU, Indonesia, US, & China%CR4 = 24%Top 4 Exporters: Brazil, Thailand, Australia, & India%CR4 = 69%

Major Players in 2012/13Production, consumption, imports and exports all increasing from 1992-2012Amount imported and exported from total production also increasingBrazils export market share rising sharplyTrendsTotal Sugar Production1992/93112099 1997/98122229 2002/03147336 2007/08163536 2012/13174453 Production, ConsumptionExports, ImportsExports1992/9328937 1997/9835900 2002/0345724 2007/0850903 2012/1358326 Total Sugar Consumption1992/93114037 1997/98124759 2002/03137725 2007/08150855 2012/13163014 Imports1992/9328937 1997/9835900 2002/0339169 2007/0845715 2012/1349105 *values in 1000 metric tons% Exported and ImportedExports1992/9326%1997/9829%2002/0331%2007/0831%2012/1333%Imports1992/9326%1997/9829%2002/0327%2007/0828%2012/1328%Brazil Export Share1992/938%1997/9818%2002/0331%2007/0838%2012/1343%Brazil Production to Exports1992/9313%1997/9834%2002/0359%2007/0862%2012/1367%Production, Consumption, Imports, & Exports Over Time% Change & Brazil Over TimeTotal Sugar Production92/93-97/989%97/98-02/0321%02/03-07/0811%07/08-12/137%92/93-97/989%% Changes in Production, Consumption, Exports, ImportsExports92/93-97/9824%97/98-02/0327%02/03-07/0811%07/08-12/1315%92/93-97/9824%Total Sugar Consumption92/93-97/989%97/98-02/0310%02/03-07/0810%07/08-12/138%92/93-97/989%Imports92/93-97/9824%97/98-02/039%02/03-07/0817%07/08-12/137%92/93-97/9824%% ChangeInternational Market Relationships

Data collected from the World BankMarket RelationshipData collected from the World Bank

Market Relationships % changeData collected from the World Bank% change over timeData collected from the World BankPre mid 2000s Europe and US were largely isolated from the world marketProhibitive trade barriers main source of isolationChanges in trade policy and fuel costs lead to a dramatic shift in the market in the mid 2000sConclusions on relationshipsThe Role of PolicyBrazilIndiaEuropean UnionUnited StatesBrazil Sugar PolicyAccording to a study by the Economic Research Service of the USDA, Brazilian cost of production had a high correlation with world sugar pricesHighlights the concept that Brazil acts as the world market Brazilian Cost of Production

Brazilian Cost of ProductionBrazilian subsidies for ethanol production based on sugar began in 1975, but ended in the late 1980sThis allowed for an increase in the production of ethanol with the abundance of sugar as a feedstockDoing so added to the overall demand for sugar as it gained alternative uses outside of consumptionBrazilian EthanolSource: Rothkopf, Garten, A Blueprint for Green Energy in the AmericasThrough sugars new use in biofuel, it created greater linkages with crude oilOil was linked in the same way that it was linked to other commodities Sugar and crude oil now acted in part as substitutesBrazilian EthanolWithin the period between 2005 to 2010, ethanol production has grown from 3649 million gallons to 7270 million gallonsBrazilian Ethanol

India Sugar PolicySet quota levels on domestic output in order to control pricesSimultaneously sought self sufficiencyWould thus increase these quotas in order to maintain both of these goalsNow plays large role in world sugar market due to high levels of consumption (1st) and production (2nd)

IndiaHighly cyclical due to lack of incentivesUtilizes a mixture of policies on both imports and domestic production in order to control supplyLeads to higher prices and thus lower exports

IndiaSource: 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.aspxU.S. Sugar PolicyGovernment offers loans to producers of sugarThe 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 SupportsRegulates flow of sugar in the USTRQ protects high sugar pricesSets 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 QuotasOne of the biggest and best funded agricultural lobbies. Bulk of members in key Electoral swing state, FloridaVery little for politicians to gain by going against the lobby, a lot to loseGrowing social pressure against the lobby Role of the Sugar LobbyTraditional European Union Sugar Policy CMO of the EUCMO was created in the Common Agricultural policy (CAP) in 1968Objectives: 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 marketOECD, Sugar Policy Reform in the European Union and in World Sugar MarketsSugar reform OECD, Sugar Policy Reform in the European Union and in World Sugar MarketsLocal ProductionEstablished price guarantees for sugar growers and refineries to decrease consumption and help producersQuotas 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 surplusQuota B became more for export and Quota C was put in place to take over the role of safety netImposed levies to acquire quotaOECD, Sugar Policy Reform in the European Union and in World Sugar MarketsForeign TradePut in place import quotasThen placed levies on levels of imports above the quotasAlso established export subsidies for surplus sugar from the B QuotaOECD, Sugar Policy Reform in the European Union and in World Sugar Markets1970s Market Price SupportObjective: 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 marketsResults: 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

49The Future of the Sugar IndustryEuropean Union; a Case StudySugar post 2006 ethanol and beyond

EU and the Future of Sugar PolicyPrices Over Time RevisitedPost 2000 Reforms of EU PolicyDecrease of guaranteed prices paid to EU farmers and refineriesProduction quota level increased due to expansion of EU, merging of quotas ABC, and a general policy for more trade liberalization

OECD, Sugar Policy Reform in the European Union and in World Sugar Markets(with an annual increase of 15% until 2009) , import duty under bilateral agreements is known as the SPS. Exporters receive domestic price for raw cane sugar. 53Post 2000 ReformsEliminated levies of over quota imports in 2006Continued export subsidies of white processed sugar, but at lower levelEstablished single farm payments by paying fixed amount to producershttp://browse.oecdbookshop.org/oecd/pdfs/product/5107101e.pdfOECD, Sugar Policy Reform in the European Union and in World Sugar Markets

EBA (Everything-but-Arms) In March 2001 the European Union adopted the EBA initiative; was not initiated until 2006Purpose: to give duty free access to all exports from least developed countries (LDCs) except arms and armamentsEssentially opened the EU to cheaper world imports of raw sugarOECD, Sugar Policy Reform in the European Union and in World Sugar MarketsSimplified Model of EU Trade Liberalization

Prices Over Time RevisitedFuture of Sugar ProductionTech continues to evolveBoth in production and processingMore efficient cultivars expanding growing regionNew harvesting methods becoming more efficientNew cultivation practices decrease input cost, both human and chemicalDeveloping world taking advantage of fair trade policies, continue to increase out put, major players still dominate the marketProduction expected to expand by 50 Mt by 2020 to over 209 MtAdvancements in Industryhttp://www.oecd.org/site/oecd-faoagriculturaloutlook/48184295.pdfGrowing income levels in developing world have and will continue to increase demandGrowing social and political pressure to liberalize trade restrictionsPrices expected to remain volatile due to the nature of cultivation (fast responding perennial production)Advancement in the Markethttp://www.oecd.org/site/oecd-faoagriculturaloutlook/48184295.pdf