* / - (DraftReport) Institute of Development Studies Institute of Social and Economic Research UNIVERSITY OF GUYANA UNIVERSITY OF THE WESTINDIES Caribbean Technology Policy Studies Project-Il THE THREAT rtND THE PROMISEm (An Assessment of the Impact of Technological Developments in theHighFructose Corn Syrup and Sucro-cheznioals Industries) by CLIVE Y. THOMAS (October, 1982) This is an internaldocumentof the Caribbean Technology Policy Studies Project-Il. Quotation or reproduction is expressly prohibited without the permission of the Caribbean Technology Policy Studies Project and theauthor. ARCHly 64254 LIST OF CONTENTS Page List of Tablcs iii Preface V PART I THE THREAT THE TECHNOLOGICAL IACT OF HIGH FRUCTOSE CORN SYRUP CHI?TER 1.: Salient Characteristics of the World Sweetener Industry 2 Sugar in the Caribbean 2 Technology and End-Use: The Concept of Sweetener 8 The Global Sweetener Market 15 CHAPTER 2; Innovation in a Mature Industry: The Case of High Fructose Corn Syrup 27 The Develoent of HFCS Technology 27 Analytical Observations 35 CHAPTER 3: The Structure of the High Fructose Corn Syrup Industry 43 7orld Structure 43 The USA Industry 46 The Canadian Industry 64 The Japanese Industry 71 The EEC Industry 76 Other HFS Producers 85 CHAPTEj? 4: TheEconomics of High Fructose Corn Syrup 88 CHAPTER5: HFCS and the Future: An Assessment 105 Some Current Views 105 y-Run Csideat.oi 1O The Cari5ean ioition 113 ii Page PART II THE )MISE - THETECH!'OLOGICAL IMPACT OF 125 SUCIt-HEMICPLS a 126 iflPTER 6: The Industrial Uses of Cane Sugar Thy-Products aU1PTER 7: The Potential of Sucrose as a chemicai. Feedstock 132 The PropertiGs of Sucrose 132 Chemical Operations with Sucrose 136 Conclusions 146 RAPTER 8: Historical-Functional analysis of Sucro-chemistry 149 CP2TER 9: ucro-Chen%ica1S - Some General Issues 158 CUPTER 10: Tate and Lyle: Sucro-Chemicals and Transnationa]. Enterprise 174 The Importance of Tate and Lyle 174 Tate and Lyle: Besearch and Development Activities 183 esearch Directions: AnAssessment 194 CHAPTER 11: The Threat and the Promise: PnAssessment 204 Context 204 RecouunendatiOflS 210 PEFERCES 221 iii List of Tables Page Table 1 Indices of Per Capita Food Production -. (Czibb ei) 19'i-19GO. 5 I, 2 Percentage Contribution of Agricultural Sector 5 to GDP, by Country, (Caribbean). 3 Viscosity ofHFCSand Other Sweeteners. 11 'I 4 Selected Comparisons of High Intensity Sweeteners. 14 I, 5 Per Capita Sugar Consumption (Number of Countries 16 by Continent). 'I 6 World Supply and Demand for Centrifugal Sugar. 10 I, 7 World Sweetener Consumption: Projections. 20 8 World Sugar Production/Stocks. 22 U 9 Raw Sugar Spot Prices. 23 I, 10 WorldHFCSProduction and Projections 44 U 11 Projections of WorldHFCSProduction. 45 12 USA: Estimated Nutritive Sweetener Deliveries 48 I, 13 USA: Nutritive Sweetener Deliveries (Per Capita). 49 I, 14 USA: EstimatedHFCSDeliveries by Product. 52 I, 15 USA: Industrial Sugar andHFCSDeliveries by 53. Market. 'I 16 USA: HFCSApproved Replacement Levels in Soft 55-56 Drinks. ft 17 USA: Structure of Sucrose Market. 57 18 USA: Estimates of Long Term Theoretical Penetration by Market. 58 I, 19 USA: EstimatedHFCSDeliveries by Market. 60 I, 20 USA: HFCSMarket Shares 61 U 21 USA: Expansion of HFCS Capacity by Firms. 63 'I 22 Canada: Estimated Nutritive Sweetener Consumption. 65 'I 23 Canada: Estimated Nutritive Sweetener Consumption (Per Capita). 66 iv List of Tables (cont'd) Estimated Production HFCSCapacities. 6 Table 24 Canada: Industrial U Canada: Estimated Consumption of 25 69 Sugar by Industry. HFCSPenetration Possibilities.7f) 'I 26 Canada: Long Term Sweetener DeliverieS. 72 tt 27 Japan: Estimated Nutritive Estimated Nutritive SweetenerDeliveries 73 It 28 Japan: (Per Capita). HFCSProduction Capacity.75 I, 29 Japan: Estimated Annual Market Shares for CornSweeteners. 77 30 Japan: Consumption. 2c I, 31 EEC: Estimated Nutritive Sweetener Consumption It 32 EEC: Estimated Nutritive Sweetener (Per Capita). and Capacities.t3 It 33 EEC: Estimated Quotas, Production Production Cost. 91 I, 34 Major Components ofHFCS (USA). 'I 35 Ratio of IfCS/Sugar Prices (USA). 94 II 36 Seasonality of HFCS Consumption HFCS(USA). 95 It 37 Production Coats of By-Products Credits 97 II 38 Corn Prices and Production. 100 I, 39 Cost Components ofHFCS HFCS 101 I, 40 Cost Estimates for Producing (Various Plant Sizes andOperating Rates). Analysis of Turnover. 176 'I 41 Tate and Lyle Ltd.: Analysis of AssetsEmployed.177 I, 42 Tate and Lyle Ltd.: Analysis of Allocationsof182 II 43 Tate and Lyle Ltd.: Research Expenditure ChlorodeOXySuCroses. 189 II 44 Relative Sweetness of Analysis of Trading 197-l9 II 45 Tate and Lyle Ltd.: Profit. Preface This study of the impact of technologicaldevelopments in tho hijh fructose corn syrup and sucro-chemicals industrieshas been conducted as part of the second phase of' the Caribbean Technology PolicyStudies Project - a comprehensive joint project of theUniversity of Guyana, University of the West Indies, and the International Development Research Centre-(Ottawa). The description given here is to be taken as moro than simply formal,for the research work underlining this study has been at all stages executed within the stated framework of the project. As a consequence the full signi- ficance of what is being att'rnpted here can only be appreciated inthe overall context of' the principal foci of the project, namely an examination of the issues of indigeneous technological capability; search evaluation and bargaining; science and technology policy planning; and size, scale and technological transformation of the Caribbean. Within these overarching foci, the study is located in the specific area of the technological impact assessment studies undertaken by the project in the area of science and technology policy planning. In this area of the project's concerns the objective is to evaluate from the perspective of the concernsof the Coribbcn region, certain fundämenthl technological transformations which have been occurring on a world scale with a view towards developing a technological planning capability to cope with these developments. The choice of topics within this subset has not been random, great care and attention were directed towards the topics chosen for study in this area of' the project and the method of approach. vi Having said all this it is importantthat the reader immediately understands that this is therefore not astudy of the world's sugar industry in general (or more accuratelysweetener industry), or that of' the Caribbean in particular. The study treats with the sugar(sweetener) industry from two angles, namely thedevelopment of the high fructose corn syrup industry (HFCS), known inEurope as the isog].ucose industry, onthe basis of recent technological innovations andthe threat which this poses ta the world's traditional sweetenerindustry in general and the Cribbecn's in particular, and the opportunities beingcreated by recent technological approach advances in the field of sucro-chemicala. It is from this conceptual that the title of the study has beenderived, namely 'the threat and the early stage that this is promose'. It should be appreciated even at this not just the simple aggregationof two different studies of the same industry or the study of two entirelydifferent industries. The interfaccD and between technological developments andtheir applications in the HFCS sucro-chemical industry is a matter of central concernto us. In fact, beceus. traditional the same transnationals (TNCs) are frequently involved in suggest that any sugar, other sweeteners, HFCSand sucro-chemicals it would additively, attempt to isolate the two areas of thestudy, or treat them merely interface which would be very unwise. Indeed it was recognition of this propelled the study from its early stagesof conceptualisation of' being concerned with sucro-chemical technologicaldevelopment alone, into the form it has taken here. The leading edge in the developmentand application of new technology and to a in the case of the HECS industry isthe United States of' America vii Canada, and certain tern- lesser extent .Japan the European Community, The study will naturally tories in South-ESt Asiaand Latin America. will be with the focus on these territories,but our predominant concern overwhelming USA where eleven firms and someseventeen plants constitute the In bulk of the world's resourcescurrently committed to HFCS production. innovations the case of the sucro...chemicals,the loading edge of technological Here considerable is located in a United Kingdombased TNC, Tate and Lyle Ltd. focus will naturally fall on thisenterprise. In pursuit of this study a numberof sub-themes of some general significance are briefly touched upon fromtime to time the principal ones being: innovation and response in a matureindustry; the industrialization of atraditional tropical staple; the uniqueness of the circumstancescreated by competition between developed and underdevelopedregions in producing a widely consumed commodity renewable versus finite resources in industrialdevelopment; land use for food versus manufacturirloutput; the role of government policy in thedevelopment of technology and its application; and so on. Concern over possible diversion from themain thrusb of the study has in some instances limited ourintervention on these issues to a few hints. In conclusion it should be noted thatrelatively little accessible work has been done on the HFCS industry, andfa less on the sucro-chemicals aims, contributing to the industry. Thus