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World Sugar Market

1. The structure of the market Sugar was up to the seventeenth century an expensive luxury item. Mainly due to increased consumption as a result of an increased production, sugar turned into a necessity in the eighteenth century and is today a mass consumed product all over the world. And sugar commodity returns from the world market are based on global demand and supply. The supply onto the world market is influenced significantly by government policies in major developed economies of the United States and the European Union. They support domestic production through production and export subsidies SUPPLY Production Sugar is produced in 120 countries. Global production now exceeds 165 million tons a year. Approximately 80% is produced from sugar cane, which is largely grown in tropical countries. The remaining 20% is produced from sugar beet, which is grown mostly in the temperate zones of the northern hemisphere. 70 countries produce sugar from sugar cane, 40 from sugar beet, and 10 from both. The 10 largest sugar producing nations represent roughly 75% of world sugar production. Brazil alone accounts for almost 25% of world production. Its share is increasing although the countrys output has witnessed some setback since the 2008-2009 crisis.

World sugar production (2007-2012) (1000 metric tons) Country 2007/08 2008/09 2009/10 2010/11 2011/12 Brazil 31,6 31,85 36,4 38,35 35,75 India 28,63 15,95 20,637 26,65 28,3 European Union China Thailand United States Mexico Russia Pakistan Australia Other Total 15,614 15,898 7,82 7,396 5,852 3,2 4,163 4,939 38,424 163,536 14,014 13,317 7,2 6,833 5,26 3,481 3,512 4,814 37,913 144,144 16,687 11,429 6,93 7,224 5,115 3,444 3,42 4,7 37,701 153,687 15,09 11,199 9,663 7,11 5,495 2,996 3,92 3,7 37,264 161,437 16,74 11,84 10,17 7,153 5,65 4,8 4,22 4,15 39,474 168,247

The largest sugar producing countries in the world consist of both beet and cane sugar producers, which combined account for more than 70 percent of global output. Brazil, Australia and Thailand, included amongst the list of the top ten sugar producing countries from sugarcane, are also considered amongst the lowest cost and efficient of global sugar producers. All three are also ranked amongst the top ten sugar exporting countries. Sugar output in the United States, China and Pakistan is derived from both sugar beet and sugarcane crops. Domestic production in the EU and the Russian Federation is derived from sugarbeet. Sugar production in developed countries is growing very slowly. The largest exporter of sugar was Brazil, distantly followed by Thailand, Australia and India. o DEMAND Consumption In most parts of the world, sugar is an important part of the human diet, making food more palatable and providing food energy. After cereals and vegetable oils, sugar derived from sugar cane and beet provided more kilocalories per capita per day on average than other food groups Developing countries account for 67 percent of global sugar consumption, and are expected to be the primary sources of future demand growth, particularly in Asia. Global

consumption continues to expand, averaging between 1.5 to 2 percent, driven largely by rising incomes, population growth and shifting dietary patterns. The top ten sugar consuming countries account for 64 percent of global sugar consumption, largely based on population balance, particularly in the case of the EU, and the United States, where sugar demand is largely saturated and mostly keeping pace with population growth rates. Sugar consumption is only one part of total sweetener consumption in the case of the United States, where more high-fructose (corn-based) sweetener is consumed annually per capita than sugar. Globally, sugar consumption has continued to grow over the past decade, from 20.7 to 23.2 kgs, driven primarily by higher population and income growth in developing countries, particularly those in the Far East. Global trends toward more westernized diets in many developing countries have resulted in emerging dietary patterns that include more sugar-containing and processed foods, as well as meat and dairy products.
World sugar consumption (2007-2013) (1000 metric tons) Country 2007/08 2008/09 2009/10 2010/11 2011/12 India 22,021 23,5 22,5 23,5 25,5 European Union 16,496 16,76 17,4 17,8 17,8 China 14,25 14,5 14,3 14 14,4 Brazil 11,4 11,65 11,8 12 11,5 United States 9,59 9,473 9,861 10,086 10,251 Other 77,098 76,604 77,915 78,717 80,751 Total 150,855 152,487 153,776 156,103 160,202

2012/13 26,5 17,8 14,9 11,7 10,364 81,75 163,014

2. The fluctuation of price In general, world sugar prices also vary with year-to-year and shifts in world sugar supplies. Through the following analysis we will be clearly about its volatile.

Determinants of World Sugar Prices The factors that contributed to the increase in world prices naturally have to do with a combination of demand and supply factors. Imbalance between supply and demand drives sugar prices to 28 year high. The hike in sugar prices is a classic market response to a rise in demand for sugar. When demand exceeds supply, existing stocks fall and this is a key factor driving prices higher.

For one there has been reduced production in Brazil and India which are two of the largest world sugar producers due to bad weather, as well as, the diversion of sugar resources to ethanol production in the case of Brazil. Developments in Brazil play an increasing role in influencing long-term trends in world sugar prices. Because Brazil is the worlds largest sugar producer (averaging over 20 percent of global production between 2006 and 2011) and largest sugar exporter (over 40 percent, same time period), events there that affect its sugar production are transmitted into the world sugar market. Although Brazil is consistentl y rated among the worlds least-cost producers of sugar, fluctuations in the exchange rate between the U.S. dollar and the Brazilian real have had a strong impact on its production costs when expressed in U.S. dollars. ERS analysis reveals a long-term relationship between dollar-denominated Brazilian production costs and world prices. Since 2003/04, the value of the real has been rising, contributing to a 316-percent increase in nominal world sugar prices between 2003/04 and 2011/12. Changes in oil and energy prices and their implications for the share of sugarcane dedicated as a feedstock for ethanol production, particularly in Brazil, will also influence the market. Sugar cane, which is the most prevalent form of the commodity, is produced all over the world, but only a select few nations produce in mass quantities. Brazil, India, and China are the three largest producers in the world, with Brazils production roughly equaling the next 10 highest producers combined. As for Russia, it ranks among sugar beet output. Though not as popular as sugar cane, sugar beet still has a major impact on the commodity. When looking for trends in sugar, cane should garner the majority of your attention as it is the most prevalent form, though beet is still significant. On the demand side, there is not only the growth of population, but also the stronger presence of what is called the "sweet-tooth" in consumers who are eating more candy and sweets.

Besides, the world sugar market has undergone a number of reforms and structural changes over the past decade. Nonetheless, it remains heavily distorted by government policy interventions that contribute to high price volatility. 3. The solution of reduce the fluctuation in price A solution for reducing the fluctuation sugar prices is not devised soon. So we need to have a sufficient response by concentrating on balance between supply and demand. We will find new producers or substitute products. Beside, one solution is reducing the cost production to maintain the price of sugar stably. Concentration on production side: Weather, natural phenomena and strikes + Technological development & Substitutes The extent to which producers will respond to lower prices depends on: o Alternative crops vs. cane/beet. This depends on alternative crop price movements and the extent to which lower world prices are reflected in the price of cane/beet. o The ratoon cycle. This tends to be shorter in Asia than elsewhere. o Asian producers are characterized by short ratoon cycles and strong competition from alternative crops There is excess a supply of sugar and an excess demand for ethanol so change

the balance of production (in Brazil). The policies of government in economic growth and commercial policy Domestic Price Support Flexible Marketing Allotments Feedstock Flexibility Program Sugar Tariff-Rate Quotas and Other Trade Measures Re-Export Programs