Sugar Handbook Commoditiosand Export Projections Division Economicanalysis and Projections Department

Home , Bagasse, History of sugar, Sugar industry, Sugar marketing

4-- h -

Sugar Handbook Commoditiosand Export Projections Division EconomicAnalysis and Projections Department

B Foebruray1991

TABLEOF CONTENTS

Page No.

I. INITRODUCTION...... 1

II. THE PRODUCT...... 1 III. SUGARPRODiUCTION ...... 1 A. Production ...... 1 B. Cost of Production ...... 4 C. Production Policy ...... 5

IV. SWEETENER CONSUMPTION ...... 1...... A. Sugar Consumption ...... 1 B. Sweeeceners ...... 4 C. End Uses of Sugar ...... 8

V. SUGAR TRADE ...... 1 A. Transportation, Stoiage and Stocks ...... 4 B. Market Structure ...... 10 C. Trade Protection of Sugar ...... 10 D. The United States ...... 11 E. The European Community ...... 12 F. Japan ...... 13

VI. SUGAR PRICES ...... 1...... A. The World Market Price ...... 1 B. Refined Sugir Price versus Raw Sugar Price. 4 Febmruiy1IAI List of Tab'-.and Figures Page No. Tables II-1 Centrifugaland Non-CentrifugalSugar Production, 1976-78 Average,by Major Producers ...... 11-3 III-Al Sugar Production1954/56 - 1974/76, by Country ...... 111-2 III-AZ PriceElasticities of Productionat Average1955-1977 ProductionLevels and at Two Different1970 Price Levels, by Country .*94*4&."*....***e********...... 111-3 IV-Al Sugar Cowus ptloa1954/56 - 1974/76,by Country ...... TV-2 IV-A2 Sugar - Per CaFita Conscuption, Per Capita Income and Constant Income and Price Elasticities of Demand by Country ...... IV-3 IV-A3 Sugar Consumption Equations, 1961-77, By Country ...... IV-5 IV-Bl Deliveriesof Sugar and HFCS in the US Between 1972/73 and 1975/76 ...... V-7I IV-32 High FructoseCorn Syrup Productionand Production Capacity,by Country...... IV-9 IV-C1 End Uses of Sugar in the United states...... IV-8

V-1 Sugar Exports1954/56 - 1974/76, By Country ...... -2 V-2 Sugar Imports1954/56-1974/76, By Country ...... V-3 V-3 Trade in Raw and Refined Sugar, 1976-78Average by Major Countriesand Regions . V-5 V-Al Freight Rates Caribbean- Or For Sugar in Bulk, in ; Sterling Per Metric Ton .. V-7 V-A2 StorageCosts per Metric Ton of Sugar, Selected Countries,1975 ...... V-8 V-A3 Sugar Closing Stocks, 1975-77, By Region ...... V-9 VI-Bl L.D.P. (White Sugar) As a Percentageof L.D.P. (Raw Sugar), August 1975-December1979 ...... VI-5

Figure

VI-1 Sugar - Yearly Average ...... VI-2 February 1981 I-1

INTRODUCTION

1. Sugar is one of the most importantagricultural crops. Although it -. vers only about 23 iillionhectares worldwide (comparedto 750 million hectares for cereals) suppliesnearly 9 percent of human calorv intake. In this respect it is ,reimportant than any other category of agricultural products (e.g. roots and tubers, fruits and vegetables, fats and oils) with the exception of cereals, which provide about 50 percent of the calories consumed by man.

2. Although sugar is containedin virtuallyevery agricultural crop, it can be efficientlyextracted only from two major crops; sugar cane and sugar beets. Sugar cane can be grown in tropicaland subtropicalclimates. Sugar beets are grown in temperateclimates. Since sugar beets produce less sugar per hectaze than does sugar cane, sugar beet growers generallyneed governmentprotection to survive. Because of this, and because sugar is a very importantitem in the human diet, there is hardly a countrywhere the sugar market operates without governmentintervention.

3. The world produced around 90 million tons of sugar in the late 1970s, allowing a consumptionof around 21 kilogramsper capita. About 25 million tons of sugar entered internationaltrade in this period. From the point of view of developingcountries, sugar is the third most importantearner of foreign exchange,after petroleumand coffee.

4. Sugar faces few importantcompetitors. Apart from non-caloric sweetenersconsumed for dietary purposes the sole importantcompetitor is high-fructosecorn syrup (HFCS),a product that is marketed in large quanti- ties only in the US.

5. The two main byproducts from sugar manufacturingare molasses and bagasse. 'Molasses,a sweet syrupy juice of which about 1 ton is generated for everv 3 tons of sugar produced, is used as a cattle feed and as a raw material in the manufacturingof industrialalcohol. Bagasse, the sugar cane February 1981 I-2

from which the juice has been extracted,is used as a fuel, making the manu- facturingprocess of sugar from cane, an energy-surplusoparation.

6. Sugarcaneis importantnot only as a raw material for sugar production,but also as a source of alcohol that can be used as a motor fuel. In 1979, alcohol productionfrom sugar cane displacedabout 4 million tons of sugar in Brazil, and the importanceof sugarcaneas a source of energy will increase in the future. February 1981 II-1

II. THE PRODUCT

1. Sugar accounts for over 90 percent of all sweetenersconsumed in most countries. However, in some countriesthere is substantialcompetition from other sweeteners. Some of these sweetenerscomece with sugar in the basis of specialcharacteristics (non-caloric sweetenerc, honey, maple syrup), w1,ereasothers compete on the basis of price (high-fructosecorn syrup, non- centrifugalsugar). Further, sugar can also be used as a raw material in the productionof products other than sweeteners. Alcohol for blendingwith gasoline is the most well-knownexample, but there are other possibilitiesas well. The byproductsthat arise in the manufacturinrof centrifugalsugar are molasses and bagasse Molasses,which originatesin the productionof sugar from both cane and beets, is the most important. It is used for cattle feed as well as for the manufacturingof industrialalcohol. Bagasse,a by- product of cane manufacturing,is used as a fuel. Spent sugar beets are used as roughage in cattle feed.

Sugar and Other Sweeteners- Sugar in its refined form is almost pure sucroseand it is impossibleto determinewhether the sugar came from cane or from beets. World average per capita consumptionis around 60 grams per day, and sugar thus accounts for about 230 calories out of an average daili'calory supply of 2,600.

3. There are four types of sweetenersbesides subar. First, there is non-centrifugalsugar. World statisticson sugar productionand consumption always refer to centrifugalsugar -- sugar produced from cane or beet juice by spinning off (centrifuging) the liquids from the sugar crystals in mesh baskets. However, in a number of countriessugar is produced from sugarcane by more primitivemethods. This sugar is nearly always consumedlocally and goes under a large variety of names in different countries (e.g., chancaca, gur, iaggery, papelon muscovado, rapadura).

Non-centrifugal sugar production is important only in selected developing countries. However, _n some of those countries it is more February 1981

important than centrifugalsugar production. The distributionuf non-centrifugal sugar productionis summarizedin Table II-1, which also contains the figureson centrifugalsugar productionfor compa'ison.

5. Table II-1 shows that, although the world production of non- centrifugalsugar is far from insignificant, it is concentrated in only a few countries. The Indian subcontinentalone accounts for 75 percent of the world total, and developingAsia as a whole (includingcentrally planned Asia) accounts for fully 90 percent of total world productionof non-centrifugal sugar. Colombia,the only importantproducer of non-centrifugalsugar outside Asia, accounts for more than half of the remaining 10 percent.

6. A second group of sweetenersis the natural sweetenersother than sugar. This group includeshoney and edible syrups. Most of these sweetenershave a market of their own because they possess important characteristicsof taste and substancein addition to their sweetness,and they are often consumedbecause of their specific taste rather than because of their sweetness. They are, therefore,competing with sugar to only a very limiteddegree, and in studiesof the total sweetenermarket they are often ignored.

7. Concerns over the dietary effectsof sugar consumptionhas led to the developmentof non-caloricsweeteners. There are two major non-caloric sweeteners. The first one, saccharin,is made from coal tars, and was first commerciallyproduced in the US around 1900. One pound of saccharinhas a sweetnessequivalent to 300 pounds of sugar, and consumptionstatistics always are given in sugar sweetnessequivalents. The second major non-caloric sweetener,called cyclamatewas First produced in the US around 1950. It is about 30 times as sweet as sugar by weight.

8. Good lata cn the consumptionof non-caloricsweeteners are availableonly for the US. Here consumptionincreased very slowly, reaching levels of 0.3 and 1.0 kilogramsper capita in 1938 and 1960 respectively. Only during and just after both 'orid Wars did consumptionexceed this trend because of the sugar scarcity in chose periods. February 1981 II-3

Table YT-1: CENTRIFUTGALAND NON-CENTRIFUGALSUGAR PRODUCTION, 1976-78 AVERAGE,BY MAJORPRODU'CERS

Productionof bon-Centr. as Share in total Centrifugal Non-Centrifugal 2 of centr. non-centr. sugar Producer Sugar Sugar sugar production

- ('000 metricton)------()--

WORLD 89,422 13,736 15.4 '00.0

Developed Countries 26,518 12 0.0 0.1

Centrally Planned Economies 13,099 0 0.0 0.0

Centrally ?lanned Asia 4,709 876 18.6 6.'.

Developing Countries 45,095 12,848 28.5 93.5

Africa 3,890 73 1.9 0.5

t atin-America 26,642 1,374 5.2 10.0 Colombia 960 849 90.3 6.2

Asia & Oceania 14,563 11,401 78.3 83.0 Bangladesh 142 380 267.6 2.8 I-.dia 5,641 8,346 148.0 60.8 Pakistan 741 1,596 215.4 11.6 Thailand 1,851 593 32.0 4.3

Source- FAO Production Yearbook 1978. February 1981 II-4

9. Growth in the consumption of non-caloric sveeteners was much more rapid after 1960,and per capita consumption tripled between 1960 and 1966. This was partially because a combination of cyclamatesand saccharin proved very satisfactoryas a sweetenerIn diet drinka (both sweeteners have a bitter aftertaste,but this effect is not additive). The upward trend was broken when in 1970 the use of cyclamateswas prohibitedbe-ause of 4.tt possible carcinogeniceffects. Since then the consumptionof non-caloric sweeteners (now exclusivelysaccharin) has stabilizedin the US at eround 3 kilogramsper capita.

10. The last group of sweetenersother than sugar are the sweeteners derived from starch. Commercialproduction started around 1850 in the US, the only country in which starch syrups are of major importance. Since corn is the source of starch used in this country for the productionof starch syrups they are commonlycalled corn syruDs.

11. The hydrolysisof starch yields a syrup which, if the hydrolysis is complete, is pure glucose. The typicalglucose syrup in practice contains 92-94 percent glucoseon a dry weight basis. If moisture is removeda crystallineproduct emerges that is called dextrose. The statisticson corn syrup and dextroseare always given on a "dry basis".

12. The per capita consumptionof cor sweetenersin the US increased from about 2 kilogramsin the early 1900sto 8 kiiograms in 1970, or from 6 to 14 percentof total sweetenerconsumption. The ratio between corn syrups and dextrosehas been fairly constant at around 3 to 1. Although corn sweeteners have consistentlybeen cheaper than sucrose, their consumptionhas been limited by their lower sweetnessand by their instabilityat different temperatures.

13. A major new developmentin the sweetenermarket was the discovery of a process to convert giLucoseinto fructose,leading to a productwith a higher degree of sweetnessthan the conventionalcorn syrups. The process, made by an euzyme called glucose isomerase,led to the first prcductionof February 1981 11-5 high-fructosecorn syrup, HFCS, in the US in 1972.

14. The productionof HFCS has been increasingrapidly in the US. In 1979 per capita consumptionof HFCS alreadywas close to 7 kilogramsper capita. With per capita conswmptionof conventionalcorn strup end dextrose at a level of just over 10 kilograms,corn sweetenersaccounted for nearly 30 percent of total caloric sweetenerconsumption in the US in that year. A further increaseshould be expected, especially now that the Coca Cola and Pepsico companieshave announcedthat they will allow their bottlers to switch from using sugar to using HFCS (the beverage industryaccounted for over 20 percent of US suga; consumptionin 1979, and the Coca Cola company alone accounts for about half of this).

15. The main limitingfactor in the growth of HFCS consumptionis that it is availableonly in liquid form. Brook (1977)estimates that, because of this, HFCS consumptionin the US will peak at around 15 kilograms per capita.

16. The productionof HFCS outside che US is not expected to be very important. First, the high level of technologyrequired as well as the lower domestic price of sugar will prevent its large scale production in developing countries. In developedcountries outside the US, the higher price of corn is a deterrent. Moreover, in the EEC the sugar lobby has been successfulin getting authoritiesto imposea tax on HFCS productionwhich essentiallymakes HFCS productionunprofitable. February 1981 11-6

REFERENCES

1. CommonwealthSugar ExportersAssociation. Annual Review, London, 1969.

2. Draycott,A.P., Sugar - Beet Nutrition. Applied Science Publishers, London, 1972.

3. InternationalSugar Council. The World Sugar Economy; Structureand Policies (London)1963.

4. Licht, F.O., Internationa.e5.Zuc'erwirtschaftliches Jahrund Adressbuch. InternationalSugar EconomicYear Book and Directory. Ratzeburg.

5. Mcade, G.P., and J.C.P. Chen, Cane Sugar Handbook;a Manual For Cane Sugar Manufacturersand Their Chemists, 10th ed. John Willey, N.Y. 1977.

6. The Sugar Situation. Washington U.S. Dept. of Agriculture,Agricultural MarketingService. Quarterly.

7. U.S. Departmentof Agriculture,Foreign AgriculturalService, "Foteign AgriculturalCircular: Sugar". WashingtonD.C. (Monthly). Februnry 1981 III-1

III. SUGAR PRODUCTION

A. Production

1. Most of the world's sugar.,almost 50 percent, is produced in developing countries with Latin America (including Cuba) accountingfor more than half, Cuba and Brazil being the major preducers. India is the main producer in Asia, while Africa is a very small producer. Developed countries account for 31 percent of global output, the EuropeanCommunity and the US being the major producers. The USSR is the largestcentrally-planned producer.

2. Sugar output is growingat 3 percent per annum. Most expansion is occurring in developingcountries where growth rates in several countries are 6-7 percent per year. Since sugar cane is cne crop where certain developingcountries have an uneaquivocalabsolute advantage-over temperate countries,this pattern should come as no surprise. Table III-Al presents production,shares and growth rates for sugar for certain countriesand regions of the world. As tne table illustratesaverage global sugar productionin 1974/76was 82 million metric tons. In 1980/81production is estimatedto be 87 million metric tons.

J. The pattern o. ougar product-onis heavily influence;by national policies affectingsugar. These includeproduction subsidies, import duties, quotas, export inc.ntives and sometimesoutright regulationof price. Thus the continuaJLyevolving structure of world productiondoes not always reflect that which would evolve under free market conditions. The EuropeanCommunity, for example,has emergedas a major market force in recent years as a result of price supportpolicies. Thailand,has also increasedsugar production dramaticallyin responseto incentives. Cuba, on the other hand, has only experiencedmarginal increasesin productionover the past decade because of shortagesof labor and land. Supply elasticitiesare given in Table III-A2. Table 11-Al SU(;AR PAODUCTION 1954/56 - 1974/76, BY COUNTRY

10 __roduction of Ir Shires in World Tltat Production lu Grovtb Rate /a 1'54/156 196.166 1974/76 La~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~F 1954/56 1964/66 1974/76 1951177 1966/77 ri

------(000 metri-c ton) ------(------(rcenL)------(percentper atiawui)----- OD W0Rl.D .8,888 63,068 82,345 100.( 100.0 100. 0 3.7 3.0 Devel"oiedCminitries 13,818 20,621 25,507 35.S 32.7 31.0 3.3 2.S ll.i 4,34,7 5,753 5,930 11.2 9.1 7.2 1.7 Caviada 0.7 123 151 125 0.3 0.2 0.2 0.0 -0.8 lii:C: 5,956 8,233 10,278 15.3 13.0 12.5 3.0 3.0 otiler Wcste,imEnlrope 1,328 2,471 3,540 3.4 3.9 4.3 * 4.7 4.0 lapan 60 505 530 0.2 0.8 0.6 12.4 -1.1 cdlii lint1,211 2,174 3,081 3.1 3.4 3.8 5.1 3.0 S,-ithAlrica 791 1,335 2,017 2.0 2.1 2.4 5.3 3.1 Ceii1tirlly I'la,ik,ed Ecoi.o.iIea 7 278 ,,343 16,598 18.7 24.3 20.2 4.1 0. USI:,:iH 3,623 8,787 8,409 9.3 13.9 10.2 4.4 -0.9 Eua,tern,Etarouje 2,916 4,355 4,222 7.5 6.9 5.1 1.6 0.6 Asi.. 739 2,2(0) 3,967 1.9 3.5 4.8 9.0 4.9

Deve1'.pill Cllitriesi 17,810 27,t05 !-14i 45. 8 43.0 48.9 3.8 4.5 Atrica 1,190 2,074 3,344 3.1 3.3 4.1 T 4.0 Asid 4,942 7,970 12,6113 12.7 12.6 15.4 4.8 l lit] 6.0 ,7a8 3,3-22 4,8 7 4.4 5.3 5.9 5.1 * 5.4 I,du.l,es i a 785 698 1,1(5 2.0 1.1 1.3 2.0 6.7 Illiiipl.i.es 1,273 1,611 2,771 3.3 2.6 3.4 Tiltw.ll 3.7 6.5 763 963 803 2.0 1.5 1.0 0.7 IliaIla,id 0.5 40 252 1,3l9 0.1 0.4 1.6 16.3 21.8 oller Asla 163 1,124 1,828 0.9 1.8 2.2 8.6 3.4 I.at IitA,s'e'!co 11,67H 17,061 24,213 30.0 27.0 29.4 3.2 3.9 AsteL,ti,sa 726 1,112 1,480 1.9 1.8 1.8 3.3 6.3 ItJ-azil 2,153 3,94'J 6,822 5.5 6.3 8.3 5.7 7.0 Ct:uItomb I a 252 4H3 933 (1.6 0.8 1.1 6.8 4.8 i'er.i 651 7H4 962 1.7 1.2 1.2 2.0 2.7 Ogilvr S,ltlt Akerica 548 1,156 1,754 1.4 t.8 2.1 6.1 2.8 Cilla 4,719 5,180 6,168 12.1 8.2 7.5 0.5 - '1.5 Iknl,111bcallitepublic t 692 700 1,229 1.8 1.1 1.5 2.6 5.8 tiexil8 893 2,102 2,728 2.3 3.3 3.3 5.6 1.8 I)iler Mlddle Amilerica 1,045 1,595 2,136 2.7 2.5 2.6 3.6 3.3

L CO11pl1te8dby regressinlg tile logarithn of pi-odiaction on rtlt.a. hieatirting and the 1t1d(n1gyear of dinescond period eachs foLlow toy iliree years the years of record sugar prices of 1963 and 1974 respectively.

Souirce: inLternmat ional Sutgar Organil zat ion. February 1981 III-3

Table III-A2:PRICE ELASTSt3TIES OF PRODUCTION A- .VE?.A.GE1955-1977 PRMDUCTION LEVELS AND AT TWODIFFERENT 1970 PR:C_ L_'.ELS,BY COMNMTY

MtediumTerm Short Long Run Elasticityat :er-- Elastic±tv'at. Country t'Sc 10/kg t:Sc 2Oi/k Elasticity * Sc 10/k tSc aT

WORLD .050 .099 .046 .791 1.202

L?S - - .036 .225 .22Z Canada .088 .176 - .106 .212 EEC .061 .122 .047 .629 .984 Other Western Europe .1i9 .318 .062 1.120 1.927 Japan - - - - - Oceania .099 .199 .015 .812 1.518 South Africa .1150 .249 _ .666 1.330

Soviet L"nion .012 .023 - .035 .069 Eastern Eurooe .041 .082 .0A6 .178 .297 Centrally ?Ianr.edAsia .062 .123 .14' .884 1.114

Africa .056 .111 .004 .512 .987 . India .041 .082 .120 .462 .580 -Indonesia .19' .382 .206 .581 .861 Philippines .009 .017 .17 1.364 '.-;1 Taiwan .090 .181 . .167 .304 Thailand 1.093 2.186 .-o 4.i59 .7.,'9 Other Asia .165 330 - .717 1.434

Argentina .064 .128 .171 .692 .380 3razi1 .151 .301 .083 2.026 3.334 Colombia .014 .029 .076 .666 .773 Peru - - .059 .183 .133 Other South America .006 .012 .062 .314 .342 Cuba .079 .158 .009 .123 .233 Dominican Republic .037 .075 .035 .255 .387 Mexico .027 .054 .033 .26c .390 Other Central America .075 .150 .052 1.063 1.693

Note: -he elasticities are deri'vedbv esti=ating fcr eac. countrV or -he period 1955-1977the fol1ow4ng ecuat'on: C - a + b 'og QAV - cPAV + d log ?C vhere:

Q = production QAV - chree-year zer.:ered average cf -rcduct:-n P - world free .ar.ket pr±ce _f sugar (TA dai_y price) def'atet by t-e 3ank's 'noex of .n;ernationa_ ?-ices. ?AV = :nree-vear -en:ered average c- wor'd free -nar'e pr'ze C= average of wortd free mar.ket price _- ourrentand previous year. February 1981 III-4

B. Cost of Production

4. The cost of production(in 1977 constant dollars)among major producersof raw sugar ranges from about 14 to 18¢/lb. for beet sugar and from about 9 to 17¢/lb.for cane sugar. The positionof a countrywithin these ranges of costs depends on tne followingcharacteristics in their sugar economy: (i) the productivityand cost of cane or beet per unit of land; (ii) the extractionrate of sugar from sugar cane or beet; (iii) the age and managementefficiency of processingfacilities; and (iv)wage rates.

5. The lower cost producersare those with advantages in some or all of these elements (e.g. Brazil,Colombia, El Salvador,Guatemala, Fiji, and the Philippines). Although there is considerablevariation among them, developingcountries generally have the advantageover developedcountries with regard to labor. Some developedcountries (Australia)are, however, able to offset this disadvantagewith better managementand higher land pro- ductivity. In general,however, the high opportunitycost of using land in developedcountries further contributesto their problem of high unit costs.

6. There are severaldisadvantages that productionof beet sugar in the temperatezone of developedcountries, suffers in comparisonwith cane sugar produced in the developingcountries: first, land charges and rent are relativelyhigher in developedcountries than in developingcountries; second,beet sugar, being an annual crop, is constrainedby competitionfor cropland with other annual crops; third, the overhead cost of producingsugar beet is nornally higher than of producingsugar cane because the harvesting season for beet is only about three months compared with cane (about five to six months), thereby causing sugar factoriesto remain idle longer if they are to depend on beet rather than cane as the source of sugar; fourth, labor and managementcosts are generallylower in developingcountries than in developedcountries producing beet sugar, and the labor componentin total cost in cane producingcountries is about 70 percent. 0 February 1981 III-5

C. ProductionPolicy

7. Generallyspeaking the developingsugar producingcountries do not regulate their productionthrough price support programs or other protectivemeasures, although some of them tend to subsidizeconsumption, forcing domestic prices below productionand distributioncosts. Sugar production in the USSR and Eastern Europe is regulatedthrough production goals and import quotas, but we have few detailson this. Countrieswhich take strong measures to regulate their domestic productionare the United States, the European Communitiesand Japan.

8. Domestic production (and imports)in the United States have long been regulatedthrough successiveU.S. Sugar Acts, which date from the 1930s. The primary purposeof these acts was to provide a remunerativeand stable income to domestic sugar producersthrough direct governmentsubsidies.

9. The European Communitiessugar policy was agreed to in 1966 and became operative in July 1968. It is essentiallya system of trade barriers and productionsubsidies designed to supportdomestic producersand to en- courage self-sufficiencyin sugar. This arrangementis totally impenetrable to imports,and in fact penalizesmember countriesthat fail to achieve self- sufficiency.

10. In Japan, governmentpolicy is aimed at protectingdomestic producersof sugar througha system of subsidiesand controllingthe increase in consumptionthrough a consumer tax. The system has not been able to encourageexpansion of sugar production in the 1970s due to competitionfrom similar incentivesto other crops. Japan remains the second largest importer of sugar from the free market. Further details on productionpolicy and how it impactson trade are given in SectionV, Trade Protectionof Sugar. February 1981 III-6

REFERENCES

1. Anwar, Abdul Aziz; Productionof Sugar: Policiesand Problems. Lahore, 1971. Poard of Economic Irqluiry. Punjab (Pakistan). Publications No. 148.

2. Brunner, Heinnich; Cuban Sugar Policy from 1963 to 1970. Translated by MargueriteBorchardt. Universityof Pittsburgh Press, 1977.

3. David Livingstone;Institute of Overseas DevelopmentStudies, Glasgow. "A Report on a Pilot Investigationof the Choice of Technologyin DevelopmentCountries", 1975.

4. de Vries, J., "The World Sugar Economy:An EconometricAnalysis of Long Term Developments",World Bank StafT CommodityWorking Pzper No. 5, November 1980.

5. Frank, Charles R. "The Sugar Industry in East Africa; and Analysis of Some Problems and Policy QuestionsRelating to the Expansion of the Sugar Industry in a DevelopingEconomy". (Nairobi). East African Instituteof Social Research,by East African PublishingHouse, Nairobi, 1965.

6. Hagelberg,E., "The CaribbeanSugar Industries:Constraints and Opportunities". Antilles ResearchProgram, Yale University; New Haven, Conn., 1974.

7. InternationalSugar Council. The World Sugar Economy; Structureand Policies (London)1963.

8. InternationalSugar OrganizationStatistical Bulletin, London, Annual.

9. U.S. Departmentof Agriculture,Foreign Agricultural Service, "Foreign AgriculturalCircular: Sugar". WashingtonD.C. (Monthly).

10. U.S. Departmentof Agriculture,Foreign Agricultural Service. "Sugar: World Supply and Distribution", Washington, D.C. (Annually from 1976).

11. Warley, T.K., ed. Agricultural Producers and Their Markets. Blackwell, Oxford, 1967.

12. World Bank "The World Sugar Economy: Review and Outlook for Bank Lending", 3oard Paper No. 1394, February 1978. . February 1981 IV-1

IV. SWEETENER WONSUHPTION

A. Sugar Consumption

1. Between 1966 and 1977, world consumptionof sugar grew at an average anr._.alrate of about 2.8 percent, rising from 59 million to 82 million tons. Growth in the developingcountries averaged about 4.6 percent per year while in centrallyplanned economies it was 3.3 percent. Consumptionin developedcountries, however, grew at only about 1.1 percentannually during the same period (TableIV-A1). The differencesin consumptiongrowth are essentiallyaccounted for by (a) differencesin populationgrowth; (b) income growth and differentresponses to income growth (i.e. income elasticities); (c) the effect of prices and changing tastes. Higher per capita consumption is usuallyaccompanied by a lower consumptionresponse to increasedincome. Growth in consumptionover the last decade has been at a slower rate than the previous decade.

On a per capita basis, the yearly growth in world consumption during 1959/61to 1974/76averaged about 1.3 percent. The yearly growth was rather sharp in the centrallyplanned economies (2.4 percent) followed by the developingcountries (2.0 percent) and the developedcountries (0.9 percent). However, per capita consumptionin the developedcountries (41.7 kg.) still remains three times as high as in the developingcountries (Table IV-A2).

3. In most of the developedcountries that consume over 40 kg. of sugar per capita (especiallythe US, Canada and Western Europe), income elasticitiesare low (between0.1 and 0.2) so that consumptionincreases at about the same rate as polpulation(under relativelystable price conditions). For the developedcountries at the lower range of per capita consumption (Greece,Turkey, Spain, Portugaland Yugoslavia),demand is more elastic (0.3 - 0.8) and populationarowth is invariablyhigher, so that consumption growth is also faster (6-7 oercentannually). * 0 * }

Table IV-Al: Stl(ARCONSlIMPTtION 1954/56 - 1974/76, 8Y COUNTRY

Consmipt tLni of Sugar___ Shiares intWorld Total Consugtion Crovth Raoe a! 1954/56 1964/66 1974/76 1954/56 1964/66 1974/76 19S1/77 1966/77

------('000 metric tons) ------(perceut) ------(percent per annum)--- w

WORID 39,444 59,0%6 9j814 100.0 100.0 100.0 . 2.B

Developed Cotintrles 2 960 2674 ~ !433 53.1 45.3 39.4 2.3 1.1 US 7,881 9,309 9,822 20.0 15.8 12.3 1.4 0.2 Cafada 730 916 1,002 1.8 1.6 1.2 2.1 0.2 E8(C 7,738 9,663 10,684 19.6 16.4 13.4 1.8 0.2 OtLher Western Europe 2,230 3,322 4,621 5.6 5.6 5.8 4.0 2.9 Ja1)anl 1,111 1,939 3,105 2.8 3.2 3.9 6.0 3.6 Oceanuia 675 808 980 1.7 1.4 1.2 1.8 1.8 SomitbiAtrica 596 825 1,220 1.5 1.4 1.5 3.3 4.9

Ceiutmally Planned Economies 7 146 15,141 20,862 18.6 25.6 26.1 S 3 3.3 USSR 4,185 9,309 11,518 10.6 15.8 14.4 5.1 2.6 Eastern Etirope 2,267 3,299 4,614 5.8 5.6 5.8 3.7 2.8 Asia 897 2,524 4,730 2.3 4.3 5.9 9.3 5.6

DevelupihigCo1iutries 11,137 17,172 27.519 28.2 29.1 34.5 4.7 4.6 Alrica 1,579 2,462 3,899 4.0 4.2 4.9 4.6 4.7 Asia 4,471 6,772 10,791 11.3 11.5 13.5 5.0 4.6 I[ndia 2,034 2,811 3,888 5.2 4.8 4.9 4.0 . 4.0 li,dcloetIa 585 594 1,287 1.5 1.0 1.6 4.0 8.3 Iiuilippilles 271 520 881 0.7 0.9 1.1 5.9 5.1 Taiwall 107 141 304 0.3 0.2 0.4 5.S 6.6 'IlmlaoI.,d 65 178 539 0.2 0.3 0.7 10,5 10.9 O)I)er Asia 1,405 2,537 3,892 3.6 4.3 4.9 5.6 3.3 Latin Amlerica 5,086 7,937 12,829 12.9 13.4 16.1 4.6 4.6 Augeuttina 665 852 1,059 1.7 1.4 1.3 2.1 2.0 Biazil 1,903 2,776 4,886 4.8 4.7 6.1 4.6 5.7 Colombia 223 390 788 0.6 0.7 1.0 6.3 7.7 1'eru 197 336 550 0.5 0.6 0.7 4.8 5.4 ttthrlm South America 613 975 1,427 1.6 1.6 1.8 4.5 3.5 CiIad 241 478 518 0.6 0.8 0.6 3.7 -2.2 lhoiil,,ican Repuiblic 56 108 16t 0.1 0.2 0.2 5.3 4.3 N fN-xi:2o 872 1,485 2,540 2.2 2.5 3.2 5.4 5.1 OtLiMLHiddle America 317 535 893 0.8 0.9 1.1 5.1 5.2 in Comiptitedby regressing the logarithm of consumlption on time. Thle starting anid the ending year of tho &o*ooperiod ench follow by Litree years thieyears of record augar pricea of 1963 and 1974 reapoctively.

Source: Iiiternational Sugar Organization. February 1981 IV-3

Table IV-A2:SUCAR- PER CAPITA C0NSU TTiON:, prR CAPITA INCOMEAND CONSTANT IN'CCE AN:DPRICE ELASTICITIES OF D'.AND BY COUNTRY

Consunption Production Income Price Country of sugar of sugar Income Elasticity Elasticity 1974-1976 1974-1976 1975 of demand of demand

( -Kg/cap ------MiSScap,

US 45.9 28 7,079 .09 -.036 Canada 43.9 5 6,824 .21 -.077 EEC 41.3 40 5,209 .22 -.044 Other Western Europe 43.6 33 3,673 .80 -.048 Japan 28.0 5 4,392 .65 -.086 Oceania 46.3 146 4,562 - -.001 South Africa 4cf.4 82 1,399 .29 -

USSR 45.2 33 1,902 .34 - Other Eastern Europe 42.5 39 2,512 .51 -.036 Centrally Planned Asia 5.6 5 367 1.i4 -.117

India 6.3 8 147 1.31 - _ Indonesia 9.5 3 223 1.18 -.036 Philippines 19.9 62 353 1.43 -.006 Taiwan 19.0 50 921 .73 -. 006 nThailand 12.8 31 344 1.94 - Other Asia 8.8 4 579 .60 -.125

Argentina 41.7 58 1,840 .22 - Brazil 44.5 62 995 .41 Colcmbia 30.4 36 524 1.60 Peru 35.8 63 807. .90 - Other South America 34.0 42 1,178 1.06 -.039 Cuba 54.6 651 1,151 - -.176 Dominican Republic 32.9 240 705 .43 -.050 Mexico 42.9 46 1,336 .68 - Other Midd.e Imerica 27.9 67 938 .94 -

Africa 12.2 11 417 .78 -.021

NB: The elasticitieshave been estimatedby fitting the following equation to data for :he period 1961-1977 for each countr7: log CCAP - a + b log YCAP + c log P

where: CCAP - zer capita ccnsumption YCAP = per capita income at 975 prices and excnange ra-es. P - world market pr4ce of sugar (ISA daily price) def:atec by t..e 3ank's 'nde:x of Trnternat"onal Prices. February 1981 IV-4

4. Consumptionper capita of sugar in East Europe has caught up with Western Europe,both in actual level and growth. In contrast,consumptionper capita in the Asian centrallyplanned economies (mainlyin China) is relativelylow (about 5 kg.), even as compared to Asian developing countries.

5. Among the developingcountries, per capita consumptionof sugar is relativelyhigh (30-50kg.) in the Central and South American countries which export sugar (e.g.,Brazil, Colombia,Dominican Republic) and their income elasticitiesare close to those in SouthernEurope, ranging from 0.3 to 1.0 . On the other hand, consumptionper capita is generallylow (between 5 and 20 kg) in Asia and Africa (even for sugar exportingcountries) 1/. income elasticitiesare consequentlyhigh (between0.8 and 2.0). (See Tables IV-A2 and IV-A3).

B. Sweeteners

6. Sugar demand, in the United States,has been affected by substitute sweetenerswhose share in the total sweetenersconsumption has been increasing significantlyin the past few years. Corn sweeteners,particularly the newly developedhigh fructosecorn syrup, have become the major compe- titors of sucrose. Globally,however, corn syrup remains a relativelvsmall percentageof world sugar consumption(about 2 percent).

7. One of the most importantfactors which has contributedto the fast developmentof HFCS productionis its cost advantagevis-a-vis sugar, acquired in recent years. That advantagemay not hold if the price of sugar declines substantially,but indicationsare that the average cost of production of HFCS is substantiallybelow the average cost of productionof sugar in the United States. Studiesby some authoritativesources indicatethat the

1/ Such a situationis largely due to the fact that either a large proportion of sugar is still consumed domesticallyin unimilledform, and/or government policieshave been geared to encourageoroduction for exports rather than for domestic consumption. *February 1981 I-

Table IV-A3: sueazcmst?w:o,g zourrzos, t96i.", 3c couwrw

Cmmtry 3quasIa b t-walu. c 6-value Ns8 it

Devalou.d Counertaa

Uis C.ega46WY G 9.5St -461 11.1 -. t0 5.5 1.34 .8 1gCGA9..a.b/ICAI.OF 4.43 -. 66 2.2 -.. 0s 6.35 1.34 .74 C..aia leS~~~~~~~~~toCo a+b/T + P 7.38 - so 7.8 -004 2.3 3.05 .40 legCCP a 4.b/YCAP *-cP 4.11 - 1.09 2.1I .005 2.3 2.66 .32 UC l~~~~~~~ogC .a+b/T .- et 9.60 -369 7.2 *.003 1.6 1.81 .78 log 0C61 - a+*b#'tCA2- @P 3.97 -.98 3.7 -.004 2.7 1.70 .51 Other Vasceru Zuropo lot C * a 4. /Y * @6 9.06 -224 24.4 -.002 2.1 0.84 .98 lag CCAP * a+.b/TCAY cP 4.42 - 2.16 24.5 -.003 3.0 1.10 .98 .:apai log C * a b log Y c.P 3.86 .710 25.6 -.007 6.6 1.53 .98 log CCAl * a *b/YCAP 4. P 3.82 - 1.66 15.8 -.006 2.83 1.06 .94 Oceania log C - a+b /Y 7.16 - 30 14.8 1.02 .93 loo COAl - a- * P 3.83 -.000 0.2 1.60 .03 South AfircaLa log C .a.b log Y 2.65 1.19 16.6 1.4.8 .95 log CC"l * a. b/YCAP 4.07 -.33 2.2 0.32 .23 Caoctratl 7'.arnndEcccmy.ois

3SSR log C - a 4. b/Y 9.63 -138 9.0 2.27 .84 log CCAP * a*..b/YCAP 4.05 .45 5.7 2.33 It? -aster!n Europe log C * a*b /Y - @7 8.82 - 95 28.5 -.001 1.7 1.05 .98 log CCAP -a-b/YCAP4.cP 4.13 -.8& 21.0 -.002 1.9 1.00 .97 ASa. C - a +b log y c iOj ? -20.897.20 4597 19.2 .249 2.4 1-21 .97 OCl - a ob CA2 - log0 7 -1.4.4 -23.07 14.1 -.473 3.3 1.45 .94 CCOA * 4.b log YCAP * c log P 12.51 6.20 9.6 -.347 1.8a 1.78 .88

Africa -Os C a -o10lo Y 4. lot ? 3.99 .89 38.0 -.021 1.9 1.41 .99 CCAP *a - b CAP - eleg P 23.1 24... -81.242 2.0 1.69 .96 CCOA. a-, log 7CAP - alog ? 20.27 8.55 :~o -. 134 1.4 1.41 .9 ~~~~~~~~~~~~~~lot C *a 6 log Y 3.12 1.13 7.1 1.30 .76 cCCP a-ta TC- -233 60 2.4 1.30 26 CCAP -a - 6log YC~.. z2.21 6.22 2. 4 1.30 .26 'ndonesLa *a I; 1~lg.98 1.22 9.1 16 8 0052 a-1. 6 P -c2.45 52.87 7.6 1.61 .75 CCOAl a b4 log TCAP 24.62 l0.14 7.5 1.66 .79 2.ili.ppines log C -a+t, o log 7 7.54 -11.42 15.1 -.006 0.2 1.39 .95 CcAp a+.b log YCA c t og 7 40.75 18.63 5.5 -. 671 0.S 1.18 .711 Taivan lov~~~~bC *a+b 6log Y 4. o log P .52 .51 17.2 -.009 0.2 1.06 .96 C.:AP a4. 6log ?CAP 19.26 110.47 12.7 0.96 .91 ThailanA log C a 4 6log Y 2.II's 1. 1.95 9 COA - a-b YCAP 27.57 14.79 10.0 1.52 .54 Other Asia log C * a+.blCg 'Y * o lag 7 6.61 .74 16.8 -. 131 4.4, 1.11 .95 CCOA* a .. b YCAP - c log P 6.14 10.69 7,.2 -1.353 3.6 0.54 .78 COA - a -b log !CA. - c log P 15.57 5.!3 2.0 -1.094 3.5 1.08 .81 A.rgantinm log C - a -P 6lag ? 5.15 .47 7.0 2.40 .76 CUPl - a4. log !CAP 35.68 8.77 2.2 2.2.3 .23 3radil log C - a+4 6log Y5.51 .63 24.1. 2.3'. .91 CCOA - a4. 6log YCA2 43.37 i5.39 9.3 1,92 54 C010lomi lC$ C - a - 6log Y 2,42 .96 211.5 1.48 .98 CCOA - a+ 6log YwA 55.4.4 39.68 17.0 . 1.1 .95 P.ru log C - a 6 lag 7 3.35 .96 211.5 0.97 .97 COA - a4.6log YCA 40..24 27.50 8.1 0.388 Othber South %4marizA IC$ C - a4. log .f- c log ? 3.37 1.03 15.4 -31 1.6 2.21 .95 CCA" - a4. log VWA .- c log?P 32.48 31.92 7.0 -1.1.03 1.5 2.18 .78 Cuba log C - a+b/Y + c log P 8.10 -10.54 3.7 ...290 3.7 0.96 .52 OCAp - a4.c log ? 56.53 -11.411 3.3 0.70 .40 Domic.n Rapubt1c C - a h l.og Y 4. c log ? 74.48 87.34 11.9 -6.127 1.4 1.60 .92 COAP - a+4 6lag YCA -c 103 ? 41.90 12.59 3.0 -1."8 1.0 1.36 .40 Mlexico log C - a .b log Y 4.12- .55 40.0 1.14 .99 CCOA - a4. log XtAP 34.85 24.93 13.1 1.216 .94 Other !-dd't A.ervcs log C - a * log Y 3.42 .9S 25.21 0.4,7 98 OCA - a 4 log YCAP 27.85 -1.42 12.6 0.35 .91

* he ecuatioc.s in this tab2.e use the following notatifon:

.C = total consumpt±cn i-n thousands of metrLc tons CCV= per zapita consumption in ki'ograms Y - GDP at 1975 constant p-ices and e:zchange ra-es 4i billi14ons of !S ~4C!7arS YCAP2= per capita GD?Pin thousacorSdlas P - .free market price cf sugar in :970 TUScents a kU.-'cgran, (defl-ator: Tadex of i.-te=naticnaI' ?r~ces)- February 1981 IV-6 cost of HFCS production (includingcapital cost) is in the range of 14-16c/ lb. (refinedsugar equivalentbasis). This implies that if raw sugar prices fall below 10C/lb. (f.o.b. Caribbeanports) 1/, HFCS will lose its cost advantage. However,adomestic US sugar producer cannot produce sugar pro- fitably at 10¢/lb. Therefore in the long run sugar is expected to continue to lose ground in some end uses in competitionwith EFCS 21.

8. Table IV-Bl presents data on sugar and HFCS for the US. Because cf an almost doubling of manufacturingcapacity for HFCS since 1976, HFCS now replacesapproximately 20 percent of US sugar consumption.

9. Developmentof HFCS in Europe is likely to be slower. While North America exports corn and imports sugar, the reverse is true for most of Europe (particularlythe EC). In addition,the European sugar beet lobby is powerful. It nas alreadycampaigned to bring HFCS into the Common Agri- culturalPolicy for sugar,which would mean productionquotas.

10. On the other hand, politicaland economic difficultiesin the way of producingHFCS in the EC could be somewhat reduced if wheat were used insteadof corn, since it is normally in surplus in the EC. In fact, a Belgian firm is already attemptingthis, although several technicalproblems related to producingHFCS from wheat remain unresolved.

Productionof HFCS in Japan started in 1976, but initialprogress is likely to be even slower than in Europe, since Japan is an importerof sugar, corn and wheat.

1/ The refiningmargin is about 5-6c/lb.

2/ Details are given in E. Brook, "High Fructose Corn Syrup: Its Significance as a Sugar Substituteand Its Impact on the Sugar Outlook",Commodities and Export ProjectionsDivision, Commodity Paper No. 25. February 1981 IV-7

Table IV-B1: DELIVERIES OF SUGARAND IFCS IN THE US BETWEEN 1972/73 AND 1975/76 (thousand metric tons)

Quarter 1972/73 1/ 1973/74 1974/75 1975176 Year

A. U.S. Sugar and HFCS Deliveries 2/ I 2,406 2,533 2,245 2,451 II 2,497 2,556 1,698 2,435 III 2,713 2,712 2,477 2,782 IV 3,000 2,969 2,954 3,007

TOTAL 10,) 16 10,770 9,374 10,675

B. U.S. Su$ar Deliveries

1 2,360 2,477 2,153 2,301 II 2,444 2,499 1,589 2,272 III 2,659 2,654 2,352 2,536 IV 2,944 2,892 2,812 2,740

TOTAL 10,407 10,522 8,906 9,849

C. XT..C, TCC neliviries

I 45 56 93 150 II 53 56 109 163 III 54 59 124 245 IV 56 77 141 268

TOTAL 208 248 467 826

1/ Year beginning October 1.

2/ Ir dry weight refined sugar equivalent.

Sources: USDA and Schnittker Associates. . February 1981 IV-8

12. HFCS developmentwill be very limited in developingcountries because industrialuse of sugar is limited, the availabilityof corn is also limited, and sophisticated distribution, storage and handling systems would be required. Table IV-82 presents detailsof HFCS output.

C. End Uses of Sugar

13. Data providing statisticson the final product of which sugar is an ingredientare difficultto obtain for most countriesezcept the US. However, to the extent that consumptionpatterns in developedcountries are similar to the US (adjustingfor income and taste differences)so the end uses of sugar will be similar. In developingcountries most sugar is consumed as sugar in the household.

14. In the United States, sugar and its substitutesare used mainly for household purposes and in the manufacture of beverages, canned food, dairy ice creams,bakery productsand cereal products (TableIV-Cl).

Table IV-Cl: END USES OF SUGAR IN THE UNITED STATES

Food Industry Share in Total (%)

Beverages 22.3 Bakery and Cereal 13.7 Confectionary 9.7 Canned Foods 9.0 Dairy Ice Cream 5.4 Other 6.1 Domestic Use 33.8 TOTAL 100.0

Sources: USDA, Sugar Shipment; First Manhatten Co., and Westwav Newsletter. . February 1981 nV-9

Table IV-B2:HIGH FRUCTOSECOR. SYRUP PRODUCTIONAND PRODUCTION CAPACITY, BY COLNTRY

Production Production XECS as X of Sugar Councry . Capacity 1979 Consumption /a Jan. 1980

US 2,400 1,650 17

Canada 150 135 /a 12

EEC 272 170 2

Japan 310 280 /a 9

Total 3,132 2,235

Total Raw Sugar Equivalent /b 3,350 2,400 10

/a IBRD guesswqork.

/b Assuming ':-'equivale-.ce between HFCS dry basis and white sugar.

Source: figh Fructose Co= Syrur World Outlook, San Francisco: McKeany Flavell Conpar.y, Inc., March 25, 1980 (mimeo).

NB: There is no knowr. HFCS capacity outside the countries in this table.

JdeVr- es:dk April 10, 1950 EPZCz 0 February 1981 IV-10

15. The largest users of sugar are householdswhere it is used as a sweetenerin beveragesand cereals, and in home baking, preserving,etc. In manufacturing,the beverage industry (largelycarbonated "soft" drinks)are the largest consumersfollowed by bakery and cereal manufacturing.

. February 1981 IV-ll

REFERENCES

1. Brook, E., "High Fructose Corn Syrup: Its Significanceas a Sugar Substitute",World Bank, CommodityPaper No. 25, April 1977.

2. de Vries, J., "The World Sugar Economy:An EconometricAnalysis of Long Term Developments",World Bank Staff CommodityWorking Paper No. 5, November, 1980.

3. InternationalSugar Council. The World Sugar Economy; Structureand Policies (London)1963.

4. InternationalSugar OrganizationStatistical Bulletin, London, Annual.

5. Smith, Ian; The European Community and the World Sugar Crisis. Staff Paper No. 7. Trade Policy Research Center, London, 1974.

6. The Sugar Situation. Washington U.S. Dept. of Agriculture, Agricultural Marketing Service. Quarterly.

7. U.S. Dept. of Agriculture, Foreign Agricultural Service, "Foreign Agricultural Circular: Sugar". Washington, D.C. (Monthly).

8. U.S. Dept. of Agriculture, Foreign Agricultural Service. "Sugar: World Supply and Distribution", Washington, D.C. (Annually from 1976).

9. Viton, Albert and F. Pignalosa, "Trends and Forces in World Sugar Consumption", International Sugar Council, London, 1959.

10. World Bank, "The World Sugar Economy: Review and Outlook for Bank Lending", Board Paper No. 1894, February 1978. February 1981 V-1

V. SUGAR TRADE

1. In 1974-76world sugar trade amounted to some 22 million tons, or about 25 percent of world production. The share of productionthat enters world trade has been slowly decliningover the past 20 years. Industrialized country policieswere the main reasonsfor this decline. In these countries production increasedat about the same rate as elsewhere in the world (about 3 percent per year), but consumptionincreased aL only about 2 percent annually, and the region'snet import requirementsdecreased in absolute terms.

2. Of world gross exports,around half came from the developing countries. For a long time the Philippineswas the largestexporter among the developingcountries, but it was recentlyovertaken by Brazil, which now accounts for about 8 percent of world exports. Most of the exports of this group came from Australia,which suppliesabout 10 percentof the world export market. Another importantexporter is the EC, which recentlybecame a net exporter. Since it also reexportssugar importedfrom associatedcountries, its exportsare a major factor in the world sugar market. The remainderof world exports come mainly from Cuba, which alone exports about one quarter of the world total (TableV-1).

3. Over half of total world importsare absorbedby the in- dustrializedcountries, with the US and Japan accountingfor about 20 percent and 12 percent of the world total respectively. A further 20 percent of world importsgo to the centrallyplanned economies. Well over ha.'fof this goes to the c ?,ietUnion. The remaining20 percent to 25 percent goes to the developing countries,with most of it going to countriesin Asia and Africa (TableV-2).

4. About 25 percent of internationaltrade occurs under special arrangementswhich insulate it from the free market. The EC importsabout one and one half million tons of sugar from associatedcountries at prices as much as double the prevailingworld market price, and the Soviet Union and Eastern Europe provide a guaranteedmarket for a part of Cuba's sugar at unknown prices. Until 1974, trade with the US was also conductedat preferentialprices, but this arrangementhas since been abolished. * 0 ,f

atale V-I: SIICAR EXP'OWRS1954/56-1974/76, IBY COUNTRY

Export! ot Su&!r Shares in World Total Elport Growth ia!R Lte 1954/56 1964/66 1974176 1954/56 1964/66 1974/76 1951/77 1966177

----- ('000 uietric tons) ------(percent)------(percent per *nnum)--

WWIX).I) 14,016 18.504 21 618 I0) 100.0 100.0 2.4 2.4

Developed Couintries 3_020 3 648 4,587 21.5 19.7 21.2 3.0 5.1 lit; 39 I III .3 .0 .5 -5.0 42.3 (Catiad 1 17 61 .() .1 .3 - 17.7 EEC 2,058 1,587 1,233 14.7 8.6 5.7 -1.5 5.7 Oliter Western Europe 34 150 164 .2 .8 .8 6.2 4.5 Japan 25 2 43 .2 .0 .2 - 16.7 t)ea nia 655 1,349 2,142 4.7 7.3 9.9 7.4 4.1 Soutilh Africa 209 539 832 1.5 2.9 3.8 11.5 4.1

Cent rally Plannued Economies l(103 L511 64 2 1 _6. .0 -16.9 tlSSR 215 776 85 1.5 4.2 .4 - ,9 -35.5 Eastern Europe 838 1,251 501 6.0 6.8 2.3 -1.0 -8.5 Asia 10 4H7 63 .1 2.6 .3 9.0 -21.2

Developing Countries 9 947 ? 1342 _ 16401 70.9 66.7 75.8 2.4 3.6 Atrica 668 1,037 1,151 4.H 5.6 5.3 3.1 1.9 Asia 2,079 2,897 3,938 14.8 15.7 18.2 3.0 6.9 lindia - 55 792 - 1.8 3.8 - 10.0 Indonesia 195 81 - 1.4 .4 - - Pll lippines 949 1,101 1,385 6.8 6.0 6.4 2.6 5.7 Talwall 617 826 491 4.4 4.5 2.3 - .6 -2.4 Tia iladi d - 55 792 - .3 3.7 - - Otlier Asia 318 507 436 2.3 2.7 2.0 1.6 - .7 I.stiti Atinerica 7,200 8,498 11,314 51.3 45.4 52.3 2 1 2.7 Argentina 28 53 383 .2 .3 1.8 - 22.7 l-iazil 251 697 1,762 1.8 3.8 8.1 13.6 8.0 ColombIa 29 80 142 .2 .4 .7 - Pein 444 416 3119 3.2 2.2 1.8 .0 - .7 Ottlier Soutik America 255 347 47'1 1.0 1.9 2.2 3.0 .4 C Cuba 4,755 4,642 5,666 33.9 25.1 26.2 .3 1.6 D)oultnican RepuiblIc 617 585 1,010 4.4 3.2 4.7 2.3 6.1 Mexico 62 515 242 .4 2.8 1.1 - OtlIer Middle Aneicrca 758 1,072 1,250 5.4 5.8 5.8 3.1 2.1

|a Cousputed by regressing tihe logarithm of exports on time. If there were no exports reported in one or more of the yers concerned, no growtih rate was computed. The starting arid ending years of the secon4 period esch follov by tbree years the yeats of record auigar prices of 1963 and 1974 respectively.

Source: lniternaimonal Sugar Organization. * . . ,

Table V-2: SU(AR IMPORTS 1954/56-1974/76, lY COUNTRY

Insjports ofS5u ar Sihares In World Total _ Wort Crovth Rate_ 1954/56 1964/66 1974/76 1954156 1964/66 1974176 1951/77 1966177t 4 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0~

('000 metric tons) ------(percent)------(percent per annulsl)--

WO)RLD _ ,012 7,69 21,456 100.0 100.0 100.0 2.4 2.5

Developed Counttries 9.708 10.809 11 961 69.3 60.2 55.8 . .9 US 3,694 3,675 4,331 26.4 20.4 20.2 1.2 .5 Canada 622 784 976 4.4 4.4 4.6 2.8 1.5 E(: 3,349 3,410 2,132 23.9 19.0 9.9 -2.8 -3.8 Other iJdsterniEtirope 879 1,266 1,642 6.3 7.0 7.6 2.6 2.3 Japos 1,047 1,463 2,637 7.4 8.1 12.3 5.2 4.8 Ocealia 118 152 204 .8 .8 1.0 2.7 3.5 S.,uti Africa - 58 39 - .3 .2 - -

Centrally Planned Economtes 938 4 62 6.7 17.8 21.7 9.7 4.9 USSSIt 630 2,008 2,951 4.5 11.2 13.8 8.5 7.0 EasteiuiEtirope 137 510 904 1.0 2.8 4.2 14.5 1.3 Asia 171 677 807 1.2 3.8 3.8 10.6 2.4

D)evelopling couittries 3.363 4.836 24.0 22.0 22.5 7 3.8 AfrJca 1,087 1,612 1,859 7.8 8.7 8.7 3.0 3.5 Asia 1,869 2,179 2,727 13.3 12.0 12.7 3.3 3.8 lildia 467 - - 3.3 - - - - I idouicsia - 8 121 - - .6 - 15.7 Philippines - - - - - Ta I wa-- - -_ -_ 'liailanio 20 - - .2 - - . - Olther Asia 1,380 2,172 2,606 9.8 12.0 12.2 3.6 3.1 1.atii America 407 247 250 2.9 1.4 1.2 -1.6 4.7 Argect iiia ------Brazil Coolombia

Peru ------Otiher Souti America 369 226 220 2.6 1.3 1.0 -1.8 3.7 Cuiba ------Dominican Republic ------Mlexico 11 .1 - - - Oth\er Middle America 28 21 29 .2 .1 .1 2.4 7.4

/a Coumputedby regressing tl,elogarithm of imports on time. If ehere were no imports reported in one or wore of the yerea concerned, no growti rate was coniputed. The starting and the ending years of the sec,ndperiod each follow by three years the years of record sugar prices of 1963 and 1974 respectively.

Source; Iiternational Sugar Organization. February 1981 V-4

5. Most sugar is traded in its raw form (approximately 73 percent), and is shipped in bulk to be refined at the country vhere it is consumed. However, as Table V-3 demonstrates,a number of countriesimport raw sugar and export refined sugar. These tend to be developed countries such as the US, Canada,and Japan. The corollaryis that many exportingcountries export raw sugar and import refined sugar. This pattern of trade has recentlycome under scrutinyfrom severaldeveloping country exporterswho would like to add domestic value to their exportsby furtherrefining their raw products. Such developmentsare resistedby refiners in developedcountries becaue they already have plants in place which might be idled.

6. InternationalSugar Agreementshave been in effect inter- mittentlysince 1954. The 1968 Agreementexpired in 1972. A new Agreement was negotiated in 1977. Participationis more comprehensivethan in the 1968 Agreementbecause most of the large importingcountries, including the US have become members. An importantexception is the EC, which decided not to join the Agreement at this stage.

7. The Agreementcovers the followingmain elements: (a) a target price range of 11-21c/lb;(b) a reserve stock of 2.5 million tons (to be accumulatedover three years), held by exportingcountries and controlledby the Council of the InternationalSugar Organization;and (c) export quotas, which will be suspendedat 15¢/lb.and reimposedat 14¢/lb. Despite the fact that the Agreemententered into force in 1978, however, its provisionsare not yet fully operativesince ratificationof the Agreementby the US has been held up by the inabilityof the US Congress to agree on domestic sugar legislation. Also the EC and a number of importingdeveloping countries did not accede to the Agreement. Because of the recent price increases,export quotas were suspendedin January 1980.

* A. Transportation,Storage and Stocks

3. Most sugar is transportedin bulk in its raw form. The most frequentlyused shippinglane which is used as the standard indicatorshipping rate, is the one between Caribbean ports and Western Europe (usually Liverpool * * 4' I

Table V-3; TRAI)E IN RAW AN!) RE DINEItSUGAR, 1976-78 AVERAGE BY HtAJORCOIJNTRIYS AND RECIONS

F___xts ______Imports s Refined as a -Refned as a Iaw Refined Total % of total Raw Reftned Total Z of total

--- ('000 metric tons)------(X)- -(000 mnet:r]c tons) -- ()-- lwOiI.n 19 138 6 26,062 27 1I,102? 6 883 1 27 TudiastrJallzed Countrfea 3,573 3,691 7,266 51 10,379 2,027 12,406 16 uIS 0 35 35 10( 4,074 347 4,421 8 (:anad a 0 111 111 10( 989 11 1,000 1 *Iapati 0 4 4 100 2,471 0 2,471 100 FFCll:259 3,347 3,606 93 2,073 884 2,957 30 Ot lier Western Europe 3 45 48 94 558 583 1,141 25 Otlier Ind(ustrialized 3,311 151 3,462 4 214 202 416 49 Ceni raidly I'wlaitnedl Economies 442 84(1 1,282 66 5,578 1,082 6,660 16 isS; 0 115 115 It0 3,873 306 4,179 7 Other Eastern Eulrope 0 63(0 630 100 308 484 792 61 As I. 442 95 537 18 1,397 292 1,689 17 DevelopDing Couitries 15,123 2,391 17,514 14 2,345 3,775 6h120 62 Aftica 1,229 115 1,344 N 533 1,817 2,350 77 Latin America 10,682 1,438 12,120 12 384 132 516 26 Asia 2,923 839 3,762 22 1,426 1,774 1,200 55 01t herX- 289 0 289 t 2 53 54 97

NB: Figures imiay not add up due to rounding.

Somirce: FAO rra(le Yearbook, 1978.

Ci February 1981 V-6

or Rotterdam). These charter rates are presentedin Table V-Al. As can be seen there has been a rapid escalationin transportationcosts over the 19703 (16.5 percent per annum) caused mainly by increasedoil prices. As shipping costs become a larger proportion of the value of the product attemptswvill be made to save on transportationby adding value prior to shipment. However, while increasingshipping costs give added impetus to increasingthe amount of sugar that is refined prior to shipment,this tendency is partiallyoffset by the fact that refined sugar is shipped in bags rather than ii bulk. The loadingand unloadingcharges of bags are greater than for bulk. Bulk handling of refined sugar is possiblebut has not become widely accepted because of the possibility of contamination in transit and because of its solubility if it gets wet.

9. Table V-A2 presents the costs of storingsugar. As is seen storagecosts are quite variable from country-to-country.These chargesmust be added to the purchase price of sugar held as stocks by a country.

10. Sugar stocks in excess of "pipeline"stocks are held by most major producingand consumingcountries. Developed countries,because of their financialcapability, hold over 50 percent of world stocks. The European Communityaccounts for more than half of this total, much of the stocks having accumulatedas an uninternationalside-effect of their domestic sugar production policy (TableV-A3). Developingcountries hold 30 percent of global stocks, Brazil, India and the Philippinesbeing the major stockholders. Centrailyplanned economieshold 19 percentof world stocks with the UjSR holding the largest share.

11. Sugar stocks usuallvamount to an equivalentof 6 months' con- sumptionbut at times of low prices (abundantsupplies) may go to an equivalent of 9 months' consumption. Currently (January1981) stocks are equivalentto less than 10 weeks' consumptionand this is considereda criticallylow level. Raw sugar deteriorates if stored for more than a few months. Thus stock managementpolicies must incorporateprovisions for rotatingstocks. Refined sugar, in bags, keeps well in temperateclimates but will deterioratein tropicalclimates. February 1981 V-7

Table V-Al: FREIGHT RATES CARIBBEAN - OR FOR SUGARIN BULK, IN i SERLI';G PER XETRIC TON

1971 1972 1973 1974 1975 1976 1977 1978 1979

January 4.43 3.69 5.41 17.72 14.76 8.86 12.80 11.00 11.00 February 4.43 3.44 6.89 16.73 13.78 8.86 12.00 11.00 11.00 March 4.43 3.44 6.89 15.75 9.84 8.37 12.00 10.50 11.50

April 4.43 3.44 7.38 17.72 9.84 8.86 12.00 10.50 12.50 May 4.43 3.44 7.87 19.69 8.86 9.84 12.00 11.00 12.50 June 4.18 3.44 8.86 19.69 8.37 10.83 12.00 12.00 12.50

July 4.18 3.69 8.86 18.70 7.87 10.83 11.00 lt .50 12.50 August 4.18 3.69 8.86 15.75 7.87 10.83 11.00 11.50 12.50 September 4.18 3.94 10.33 14.76 7.87 10.83 11.00 11.00 12.50

October 3.94 4.43 11.81 14.76 7.87 11.32 11.00 11.00 12.50 November 3.69 4.92 12.80 14.76 7.87 11.32 10.50 11.00 12.50 December 3.69 4.92 14.76 14.76 8.37 12.80 10.50 11.00 12.50

Source: HVA Internationaal 3.V., Am:sterdam. February 1981 V-8

Table V-A2: STORAGECOSTS PER METRIC TON OF SUGAR, SELECTED COUNTRIES, 1975

Type of Rental Total Storage Country - Sugar Costs In/Out Costs /a

Brazil inland raw bulk 15.00 2.86 20.72 port raw bulk 20.00 2.86 25.72

Colombia raw bulk 15.60 4.65 24.90

France port raw bulk 20.32 4.43 29.18 distribution refined bags 46.00 13.82 46.00

W. Germany port raw bulk 21.60 16.00 53.60

India inland raw bags 24.00 1.10 26.20 port raw bags 1.20 1.10 3.40

Japan port raw bulk 23.76 3.94 31.64 inland refined bags 36.00 6.00 36.00

Mexico inland raw bags 9.60 2.91 15.42 port raw bulk 18.00 2.90 23.80

Us port raw bulk 14.40 3.76 21.92 port refined bags 41.00 20.40 41.00

/a Rental costs plus twice in/out costs, assuziingthat raw sugar has to be rotated twice a year.to avoid quality deterioratio.,.No rotatfon is required for refined bagged sugar 'n temperate climates.

Source: Stora2e Costs and Warehouse Facqlities, Geneva: U!.;CTAD,1978. February 1981 V-9

Table V-A3:SUCAR CLOSING STOCKS, 1975-1977,BY REGION

Closine Stocks 1975 1976 1977 1975-77 S-.aes in Average World Total

------('000 metric tons)-- …--…- WORLD 32,406 36,664 43,563 37,544 100.0

Developed Countries 17,043 18,440 20,994 18,826 50.1 US 2,613 3,206 4,130 3,316 8.8 Canada 356 436 451 414 1.1 EEC 8,984 9,220 10,840 9,681 25.8 Other Western Europe 2,607 3,275 3,730 3,204 8.5 Japan 563 391 442 465 1.2 Oceania 1,345 ' 338 1,061 1,248 1.3 South Africa 575 575 339 496 3.3

Centrally Planned Economies 6,347 6,496 8,625 7,156 19.1 USSR 2,805 2,986 4,559 3,450 9.2 Other Eastern Europe 2,438 2,427 2,744 2,536 6.8 Asia 1,104 1,084 1,322 1,170 3.1

Developing Countries 9,016 11,728 13,944 11,562 30.8 Africa 1,222 1,580 2,107 1,636 4.4 Asia 3,880 4,855 5,229 4,655 12.4 India 1,237 1,340 1,850 1,476 3.9 Indonesia -55 113 347 135 .4 Philippines 1,108 1,737 818 1,221 3.3 Taiwan 161 125 221 169 .4 Thailand, 144 187 279 204 .5 Other Asia 1,284 1,353 1,715 1,451 3.9

Argentina 579 851 590 674 1.8 Brazil 1,790 2,683 3,895 2,790 7.4 Colombia 30 20 62 37 .1 Peru 130 201 148 160 .4 Other South America 501 633 674 603 1.6 Cuba 557 413 609 526 1.4 Dominican Republic 67 188 153 136 .4 Mexico 25 46 159 76 .2 Other YfiddleAmerica 235 257 319 270 .7 Total DevelopingAmericas 3,914 293 6,609 5,272 14.0

Source: ISO Statistical Bulletin, August 1978. 0 February 1981 V-10

B. Market Structure

12. More than 50 percent of world sugar trade is conductedon a negotiatedgovernment-to-government basis or on a multilateralbasis.

13. Major government-to-governmentsales on a continuinglong term basis are between USSR and Cuba, Japan and Australia,and Japan and Brazil. The only significantmultilateral arrangement is the Lome Sugar arrangementfrom ACP countriesto the EC.

14. The remainderof the sugar trade is freely handled by what appears to be a competitivetrading channel. There are many "commodity houses" that act as intermediariesin the purchaseand sale of sugar and many cf the houses will further process the sugar from raw to refined.

75. At the producer level there are many producers,and at the final product level there are many consumers. In some countriesthere is market concentrationin the crushing of sugar. Often farmerswill have only one crushing plant to whom they can sell their crop, but in other countries the farm price is regulatedor farmer-ownedcooperatives run the crushing mill. In total, governmentintervention is the only apparent source of market failure.

C. Trade Protectionof Sugar

16. Generallyspeaking the major developingsugar producing countrieswhich are also the main suppliersto the free market, do not regulate their productionthrough price supportprograms or other prctective measures. Sugar productionin the USSR and East European countriesis regulated throughestablishmant of productiongoals and import quotas. Their policies undoubtedlyaffect the behavior of the world market for sugar but presentlyimports of these countriesdo not constitutean integralpart of the free market and are not therefcrediscussed here. Nonethelessit is recognizedthat productioncosts in these countriesare probably significantly higher than those in the developingexporting countries and thus their production representsa misallocationof scarce resource. February 1981 V-11

17. Currentlythe countrieswhich have a significantimpact on the free market are the United States,Japan, Canada and the EC. In recent years the United State, and Japan have been importing40-50 percent and 70- 75 percentof their consumptionrequirements, respectively. These countries have significanttrade barriers in the form of import duties,but in addition there are also price supportprograms for domestic producers. In the EC both the trade barriers,and the price supportsare extremelyimportant because they are instrumentalin promotingthe EC to a position of net exporters rather than net importers. In Canada there are neither any trade barriers affectingsugar importsnor any price supportprograms. This section, therefore, reviews the protectivesugar systems in the United States, the EC and Japan.

D. The United States

18. Domestic productionand imports into the United States have been long regulatedchrough successiveUS Sugar Acts, whose primary purpose has been to provide a remunerativeand stable income to domestic sugar producers. Domestic producersreceived direct Governmentsubsidies. In 1971-75, these averaged $14 per ton of raw sugar and were financedby a processingtax and import duties levied on sugar. Sugar importswere subject to quantitative restrictionswhich were particularlysevere in the case of refined sugar. In 1974, for example, only 68,000 tons out of total sugar importsof more than 5 million metric tons could be importedas refinedsugar.

19. Despite the protectionwhich was provided to the domestic sugar industryfor over 30 years, the share of domesticproduction in the total supplieshas been only 50 to 60 percent. The foreign producerssupplying the US market (largelythe Philippinesand CentralAmerican Caribbeancountries) under the quota system received a financialbenefit as these prices were usually above the world market price. 1/

1/ From 1961 through 1970, the price premiumaveraged 114 oercent. February 1981 V-12

20. It has been estimatedthat the annual cost of the sugar program * to American consumersand taxpayerswas between $500-730million at 1972 levels of United States prices and consumption.1/ Approximatelyone third of the gross transferwent to foreign quota holders and the remainderto domestic sugar producers. The premiumwhich foreign suppliersreceived over and above free market prices made sales in the latter less attractiveand downgraded the free market to a residual status.

21. The last US Sugar Act, which expired in January 1975, coincided with the commodityprice boom of 1973-74and was consequentlynot renewed. The US sugar producers (mainlythose producingbeet) respondedto increasing productionby 21 percent from i974 to 1976. The decline in sugar pric!s since 1975 caused domestic producersto successfullypressure for a reintroduction of protectivemeasures.

E. The European Communitv

22. The EC Sugar Policy is part of the Common AgriculturePolicv (C@P) and became operativein 1968. It is essentiallya system of trade barrinrsand productionsubsidies designed to supportdomestic producersand to encourageself sufficiencyin sugar. The sugar regulationsof the Common AgriculturePolicy (CAP) were designed initiallyto maintain self sufficiency in member countriesand to reconcilevariations between cost of production and prices. They set a relativelyhigh internalprice and impose variable import levies in order to preserve the domesticmarket. This arrangementis totally impenetrableto imports,and consistsof three sets of measures: (a) price support; (b) productionquotas; and (c) import levy.

23. The price supportmechanism of the common sugar policy consists of a system of minimum prices to farmers. Sugar refinersare similarly protectedby supportprices fixed in relationto the farm target price.

24. Production is controlledthrough a system of quotas allocated to sugar factoriesin EC, and to the French OverseasDepartments (Guadeloupe,

I/ D. Gale Johnson, The Sugar Program,Amnarican Encerprise Institute for Public Volicv Pesearch, "'ashingtonD.C., ADril 1974, p.3. February 1981 V-13

Martinique,Reunion) and to the associatemembers by virtue of the Lome Con- vention Agreement (and UK's entry). There are three types of quotas. The A quota (fixed basic quota) is set equal to approximately 95 percent of the * country'sconsumption. B quotas are additionalquotas adjusted annually dependingon world market conditions. For 1977, they were fixed at 45 per- * cent of the A quota. Any sugar produced in excess of the A and B quotas is consideredC quota and cannot be sold in the producingcountry.

25. Sugar produced within the B quota range is entitled to an export subsidy. The subsidy is assessedby referenceto the difference between the interventionprice and the price ruling on the world market. Any sugar produced in excess of 135 percentof the individualfactory quota will not be allowed Ko be sold within the EC and will not be subsidizedwhen exported.

26. Sugar importsare subjectto variable levies designed to exclude imports from third countries. There is a drawback provision for imports of sugar provided it is re-exported after processing. Another exception is the imports of sugar, by virtue of the Lome Convention, from Africa, Caribbean and Pacific countries which are associate members of the EC, amounting to about 1.4 million metric tons (largely imports into the United Kingdom).

F. Japan

27. Government policy regarding sugar has two purposes: first, to stimulate and protect domestic producers by a system of subsidies; and second, to control consumption through a consumer tax.

28. The government purchases domestic sugar at a high suppo t level and resells it at a price competitive to imported sugar. For this purpose, the government announces predetermineedmaximum, minimum and target prices f or imported sugar. Under that system, a surcharge is imposed if the average import price falls below the target price. In addition, an import duty of 41,500 yen per ton (about US $154.00), is also imposed bringing the import price to about the government resale price. Finally, a 16,000 yen per ton (about US S59) consumer tax is imposed on a refined sugar. February 1981 V-14

29. The direct subsidy to producers is currentlyabout 43,782 yen per ton (aboutUS $62.00)most of which is generatedby the surchargeon importedsugar. Despite domestic productionand a consumptiontax Japan remains the second largest importerof sugar in the free market. The subsidy system did not encouragesufficient expansion of sugar productionin the 1970s due to competitionfrom similar incentivesto other crops. February 1981 V-15

REFERENCES

1. Agency for InternationalDevelopment. "Analysis of World Sugar Market", Washington,D.C., 1973.

2. Ballinger,R.A., A Historyof Sugar Marketing. U.S. Dept. of Agriculture, EconomicResearch Service,Washington, D.C., 1971.

3. Brook, E., and D. Nowicki, "Sugar:An EconometricForecasting Model of the World Sugar Economy",World Bank, CommodityNote No. 10, March 1979.

4. __ , "The Sugar Market: Review and Outlook", World Bank, Commodity Paper No. 20, March 1976.

5. de Vries, J., "The World Sugar Economy: An Econometric Analysis of Long Term Developments",World Bank Staff CommodityWorking Paper No. 5, November, 1980.

6. Grissa, Abdessatar;Structure of the InternationalSugar Market and Its Impact on DevelopingCountries, Development Center, Organizationfor EconomicCooperation and Development,Paris, 1976.

7. Harris, Simon, and Ian Smith; World Sugar Markets in a State of Flux, AgriculturalTrade Papers No. 4, Trade Policy Research Center,London, 1973.

8. Hiller, Rudolf; Beet Sugar and Cane Sugar: A Survey of International Problems. Comite' Europeen des Fabricantsde Surce, Paris, 1965.

9. Jay, Keith; "The Nature and Lmpact of the InternationalMarket for Sugar". Dept. of State, Agency for Internatonal Development, Office of Program and Policy Coordination,Washington, D.C., 1971.

10. Johnson, D. Gale; The Sugar Program: Large Costs and Small Benefits. American EnterpriseInstitute; Washington D.C., 1974.

11. Payer, Cheryl, ed., CommodityTrade of the Third World. John Weley and Sons, N.Y., 1975. February 1981 V-16

REFERENCES

12. United Nations Sugar Conference, Geneva, 1968 (International Sugar Agreement, 1968). Text of Agreement .... (TD/Sugar 7.9) Geneva, 1968.

13. United Nations Sugar Conference, Geneva, 1973. United Nations Sugar Conference, 1973. N.Y. MN, 1974. United Nations (Document) TD/Sugar 816.

14. U.S. Dept. of Agriculture, Foreign Agricultural Service, "Foreign Agricultural Circular: Sugar". Washington, D.C. (Monthly).

15. Warley, T.K., ed. Agricultural Producers and Their Markets. Blackwell, Oxford, 1967.

16. World Bank "The World Sugar Economy: Review and Outlook for Bank Lending", Board Paper No. 1894, February 1978. February 1981 VI-i

VI. SUGAR PRICES

A. The World Market Price

1. About 70 percent of all the sugar traded in the world is now sold through the free market. 1/ In this market, although prices are not set by administrativeacts or decrees, the supply of sugar has been regulated since 1953 during severalperiods by successiveinternational sugar agree- ments directedat stabilizingworld sugar prices within a range agreed to by the exportingand importingmembers. The fourth InternationalSugar Agreement entered into force on January 1, 1978 for a five year period.

2. Overall performancein the internationalsugar market in the past two decades has been characterizedby cyclical imbalancesbetween supply and demand. The free market has gone through short spells of supply deficits and sharp price advances,despite the overall tendencyof world production to exceed consumptionfor extendedperiods. These sharp price increaseshave tended to induce overexpansionof output, thus ushering new surplus "phases" into the demand-supplycvcle (FigureVI-1). A correspondingcontraction in output is preventedby the downward inflexibilityof sugar production, particularlvcane sugar, becauseof the fact that it is a perennialcrop.

3. The price upsurge in 1963-64was the result of a series of events that startedwith the exclusionof Cuban sugar exports from the US market (late 1960) and the cessationof the InternationalSugar Agreement (1961). These events were followed by two consecutiveshort crops in Cuba at a time when demand in Western Europe was increasing. This situationin- duced a productionexpansion in both exportingand importingcountries that finally resulted in excess suppliesand a large and persistentaccumulation of stocks that forced sugar prices in the free market to their lowest levels

1/ The balance is made up of trade under bilateralagreements such as the Lome Agreement, the CommonwealthSugar Agreement (until 1975) and the tradingarrangement between Cuba and USSR. February 1981 _z Fiture: VT-. 1

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el .

| ! , * ~' 0 T :: - February 1981 VI-3

in the post World War-II period: less than 2c/lb. from 1965 to 1968. Free market prices were well below the cost of productionin most exporting * countries.

4. The depressedmarket conditionsconstituted the main influence that led to a new InternationalSugar Agreement in 1968, coveringabout 90 percent of free market sugar exports. The Agreementaimed at stabilizing prices within a range of 3.25¢ to 6.5¢/lb. The Agreementwas relatively successfulin that members did not increasetheir export volumes between 1968-72. In contrast,the EC countrieswho were not members of the Inter- national Sugar Organizationincreased their exports to the free market from 600,000 tons in 1968 to 1.5 million in 1972. World market prices, never- theless, continuedto recover.

5. The trend of rising prices since 1969 turned into a price boom in 1974, peakingat a 30¢/lb.average for that year. The boom was triggered by productiondeclines in Cuba and the USSR, that resulted in world consumption exceedingproduction in 1971.

6. Market developmentssince 1975 have been similar to those of the period precedingthe 1968 InternationalSugar Agreement. Reaction to the unprecedentedlyhigh prices of 1973/74resulted in a decline in consumption in the US, the EC, and net importingdeveloping countries, where import ex- penditureswere cut because of balance of payments problems. Between 1974 and 1976, productionresponded sharply to the price increases;particularly in the United States (by 19 percent),the EC (17 percent),Australia (16 percent) and Thailand (78 percent) 1/. Consequently,sugar prices declined to 13- 15c/lb.in the latter half of 1975 and remained at that level for the first half of 1976. Prices fell furtber and in 1977 and 1978 averaged a low of 8c/lb. These are below production costs in most countries.

1/ The growth of production in the US, the EC and Australia accounted for

- about 40 percent of the g:owth in world production for the same period. February 1981 VI-4

7. The followingtwo years saw a drop in productionand global consumptionexceeded production for the two years causing a precipitous decline in stocks. Again, crop failure in Cuba and the USSR triggered&he situation. Prices subsequentlyrose to over 40¢/lb.and have held at levels of approximately30 to 38¢/lb.for almost a year. As prospectsfor 1981 become more clear, so sugar prices are subsidingfrom t"eir high levels.

8. The volatilityof sugar prices exceeds by a factor of two that of any other commoditycovered by the Bank. The average annual percentage change in sugar prices is 37.4 percent compared to around 17 percent for vegetableoils and rice.

B. Refined Sugar Price versus Raw Sugar Price

9. The rule of thumb sed to convert raw sugar prices to refined prices is 7c/kg. plus an 8 percent weight loss. However, since there is a market for both raw and refined sugar direct comparisonsare also possible (TableVI-Bi). Expressedas a percentageof white to raw it can be seen that the differentialvaries from 6 to 16 percent, ard averages 9 percent.

0 February 1981 VI-5

Table VI-Bl: L.D.P. (WHITE SUGAR) AS A PERCENTAGE OF L.D.P. (RAW SUGAR), AU'GU'ST1975-DrC%3ER 1979

1975 1976 1977 1978 1979 1980

January 112.0 118.9 102.8 100.5 February 112.1 112.9 109.2 102.3 March 106.6 106.6 104.3 100.4

April 102.6 100.3 105.0 May 101.5 107.3 106.7 June 110.7 110.4 109.8

July 114.3. 109.9 112.2 August 103.6 126.2 98.6 111.7 September 107.9 140.3 97.6 105.2

Oc:ober 104.0 135.1 '05.2 103.5 November 109.7 130.0 110.9 102.8 December 111.6 127.1 105.2 99.8

Average 116.3 106.9 106.0

.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ February 1981 VI-6

REFERENCES

1. Agency for InternationalDevelopment. "Analysisof World Sugar Market", * Washington,D.C., 1973.

2. Ballinger,R.A., A History of Sugar Marketing. U.S. Dept. of Agri- culture. Economic Research Service,TWashington, D.C., 1971.

3. Brook, E., and D. Nowicki, "Sugar:An EconometricForecasting Model of the World Sugar Economy",World Bank, Comodity Note No. 10, March 1979.

4. , "The Sugar Market: Review and Outlook", World Bank, Commceiry Paper No. 20, March 1976.

5. CommonwealthSugar Exporters'Association. Annual Review,London, 1969.

6. de Vries, J., "The World Sugar Economy:An EconometricAnalysis of Long Term Developments",World Bank Staff CommodityWorking Paper No. 5, November 1980.

7. GertrudeLovasy;"Medium-Term Trends in the InternationalSugar Market". Economic Department,IBRD, August 1970. No. EC-176a.

8. Harris, Sinon, and Ian Smith; World Sugar Markets in a State of Flux, AgriculturalTrade Papers No. 4, Trade Policy

9. India. AgriculturalPrices Commission. "Reporton Price Policy for Sugar Cane". New Delhi (Annual).

10. Johnson,D. Gale; The Sugar Program: Large Costs and Small Benefits. American EnterpriseInstitute; Washington, D.C., 1974.

11. Smith, Ian; The EuropeanCommunity and the World Sugar Crisis. Staff Paper No. 7. Trade Policy Research Center, London, 1974.

12. U.S. Dept. of Agriculture,Foreign Agricultural Service, "Foreign Agricultural Circular: Sugar". Washington, D.C. (Monthly).