Sugarbeet vs.

sugar cane

What are the main forces operating on the world market?

Dr. Martin Thelen (AgroConcept, Bonn)
oday, about 144 million tons (t) of sugar are produced each year in as many as 127 countries around the world. Roughly threequarters of the sugar produced comes from sugar cane, the rest from sugar beet. Sugar beet is cultivated in countries with temperate climates, mainly in Western, Central and Eastern Europe and the United States, China and Japan. Sugar cane, in contrast, is cultivated in tropical and sub-tropical regions mainly in Brazil, Cuba, Mexico, India and Australia. Various factors natural, economic and political influence the relative competitiveness of sugar production in each country and region, and determine the ability of local production to compete on the world market.

prices are subsidized relatively strongly, whereas exports must compete at world market prices. With a refined sugar price of around 37 /100 kg, the level of subsidy in South Africa is relatively high, whereas in Thailand, the domestic price determined by the state for refined sugar is comparable to the world market price. In India, there is relatively strong intervention in the sugar market, in order to protect both sugar cane growers and the poorer sector of the population. The state sets relatively high minimum wholesale prices for sugar cane, and wholesale prices for refined sugar are set at 34 /100 kg, whereas the sugar factories are obliged to sell around a third of their sugar production to the state for 27 /100 kg i.e. almost at production cost towards ensuring food supplies for the poorest part

of the population. Australia practices comprehensive liberalization of the sugar market: the single instrument of intervention is market channeling through the State Marketing Board, which controls all sugar marketing for domestic sales and for export. The fully decentralized and liberalized sugar marketing system in Brazil is run by individual sugar producers. Export prices orient themselves around the world market price. The only protection for domestic prices exists in the form of a 2% import duty. Because about half of the sugar produced is used to make alcohol, the alcohol market which was comparatively strongly subsidized between 1983 and 1999 plays a significant role in determining sugar prices.

portion exported 70 to 80%), followed by Cuba and South Africa. The largest importer of sugar (more than 5 million t a year) is Russia.

Governmental control of the sugar market

Almost all countries intervene in the sugar market to some extent. The various state interventions lead to marked differences between countries in the price of sugar - which is usually significantly higher than long-term average prices on the world market (20 /100 kg raw sugar and 30 /100 kg refined sugar). Among the countries and regions mentioned, price support is at its highest level in the EU, with intervention prices of around 75 /100 kg refined sugar. The price of sugar is only slightly lower in the USA, where the domestic market is protected by import levies because of the national sugar deficit. In Poland, South Africa and Thailand too, domestic sugar

Who are the largest sugar producers?

The three biggest producers are: Brazil, India and the European Union (EU), which each produce between 18 and 23 million t a year. However, these producers differ greatly in their level of self-sufficiency in terms of sugar consumption, so they have different profiles on the world market. Brazil is the largest sugar exporter, at 12 million t a year. The EU exports around 5 million t annually, whereas India, with its high national demand, is actually a net importer of sugar in most years. With annual production of 7 to 9 million t and consumption of 9 to 10 million t, the USA and China are major net importers of sugar (Figure 1). Behind Brazil and the EU in terms of annual net export volume are Thailand and Australia, with production of 5 to 6 million t and consumption of 1 to 2 million t (pro20 COURIER 1/04

Fig. 1 World sugar production and consumption 2002/2003 (selection of countries for comparison) in million tons (Source: WVZ)
24 22 20 18 16 14 12 10 8 6 4 2 0
EU Ind ia Th ail an d Br az il Au str ali a Ch ina Me xic o Cu ba US A Uk rai ne

Sugar beet Sugar cane Consumption

Po lan d

Ru ss ia

1/04 COURIER 21

Sugar production is changing

At the moment, production from sugar cane in the main exporting countries is significantly more competitive than production from sugar beet in the EU. The reasons often have nothing to do with technical efficiency or local production conditions, but rather with favorable economic and political frameworks in the form of lower salary and ground costs, and less demanding governmental regulations. But natural limitations (topography, precipitation and temperature) and competition for limited resources with other agricultural activities mean that the sugar cane-producing countries that now dominate the world market have little opportunity to expand their production. This is particularly true of Thailand, Southeast Asia, Central America and South Africa. In Thailand, sugar cane production is the factor limiting the expansion of capacity: there is considerable excess capacity in the local sugar refining industry. Yield is often low as the result of lack of rain: but the area of sugar cane receiving irrigation is unlikely to increase because the better, more easily irrigated land will be used to grow rice, rather than sugarcane. In South Africa, the fact that most of the cultivation occurs on slopes that do not allow irrigation or mechanization, and the often very long maturation period (of up to 24 months), both mean that any expansion of sugar cane growing will be limited. The only countries with a real potential for expansion are Australia, and in particular, Brazil. Since 1975, the area under sugar cane in Brazil has been expanding continuously: sugar production has increased from 7 million t to between 18 and 23 million t during this time. Despite the increase in production, there has been no increase in the amount of sugar cane being used to produce alcohol for fuel. Around 25% of Brazilian vehicles run on ethanol. The sugar industrys extensive capacity to produce sugar and alcohol provides flexibility regarding how the sugar cane is used. Given this great potential for production and the option of alternate uses, Brazils sugar exports will continue to vary depending on exchange rates and developments in energy and sugar prices but will influence the world sugar market into the future. Any liberalization of the international sugar market will lead to a reduction in production on land that is less favorable for growing sugar cane. This is very true of the US, with its combination of high opportunity costs and often unfavorable natural conditions. Similarly affected will be

Sugar cane-producing countries have a comparatively long production season (up to nine months). But the competitive advantages of some countries are based on low salaries and other worker-related costs.

countries with preferential import quotas into the US (about 40 Central- and SouthAmerican African and a few Asian countries) or the EU (20 ACP countries), which have until now benefited from the high price levels in the USA and the EU. Future developments in India, China und Cuba are less easy to predict. Any effort to improve productivity will be highly political, and thus unlikely to happen overnight. The same applies to producing sugar from sugar beet in Central and Eastern Europe. Poland and the Ukraine in particular possess large agricultural areas with climatic conditions suitable for the cultivation of sugar beet although here too, productivity is low, not only in agriculture but also in the sugar refineries, most of which are in a ruinous state. In the Ukraine, there are major organizational and financial problems that are unlikely to be solved without political initiatives and changes in legislation. For these reasons, no significant increase in sugar production is to be expected in these two countries in the immediate future.

Liberalization of the world sugar market will increase the pressure of competition on European sugar beet growers and sugar companies.

What are the perspectives for the future?

The development potential of the major sugar producers indicates that liberalization of the world sugar market will serve to increase the pressure of competition on European sugar beet growers and sugar companies. However, there will still be opportunities for European sugar produc-

Comparison of production costs

A comparison of costs reveals clear advantages for sugar cane cultivation in Brazil, Thailand und Australia over sugar beet growing in Poland, the USA and Germany, as well as over sugar cane production in the USA (Tab. 1, Figure 2). The sugar cane-producing countries have a comparatively long production season (up to nine months), but their advantage is otherwise based on low salaries and other worker-related costs, factories that are mostly outdated, and low-level environmental constraints: these factors more than compensate, in terms of production costs, for the often very low level of efficiency.

One considerable disadvantage facing most sugar beet-growing countries is their very short growing season. Among the factors contributing to the low international competitiveness of US American sugar production, the most important are the unfavorable climatic conditions, (shortage of water or conversely, flooded soils; frost; soil crustation) and high worker and land costs. In Germany, any competitive advantage that is gained through advanced technology and generally high efficiency is counteracted by high employment- and land-costs, as well as by demanding environmental and social regulations. In Poland and the Ukraine, low efficiency is the main factor contributing to the high cost of sugar production.

tion if every available means is used to compensate for the disadvantages associated with local production conditions. In a global comparison, the European sugar industrys considerable reserve capacity with its high technical standards presents a significant competitive advantage. If environmental and social standards were to be set at the same level internationally, the

framework that has already been established in Europe would probably prove to be a competitive advantage. Moreover, the movement towards renewable resources could prove particularly interesting for the European sugar beet industry, opening up perspectives, for example, in the cultivation of sugar beet as a raw material for ethanol production. s

Table 1: Production costs and profits in sugar beet and sugar cane
Sugar beet Poland Yield of beet/cane Sugar content Sugar yield Profit [t/ha] [%] [t/ha] [/ha] - [/100 kg beet/cane] - [/100 kg sugar] Costs [/ha] - [/100 kg beet/cane] - [/100 kg sugar] 39.5 13.9 5.5 1,011 2.56 18.38 945 2.39 17.18 4.40 180 1.35 6.23 0.635 35 Ukraine 19.5 11.2 2.2 355 1.82 16.13 262.5 1.35 11.93 2.80 150 0.31 3.35 0 0 USA 46.1 14.6 6.7 2,082 4.51 31.06 1,887.5 4.1 28.17 5.42 30 12.50 5.99 4.96 332.5 Germany1) 60.3 16.6 10.0 3,253 5.39 32.55 2,542 4.22 25.4 4.49 24 18.70 7.50 5.32 425 Brazil2) 68.5 11.5 7.9 548 0.80 6.99 762.5 1.12 9.65 2.35 200 1.05 17.50 1.65 100 Australia 97.7 14.0 13.7 1,686 1.725 12.30 1,564.5 1.60 11.42 2.55 35 10.70 3.67 1.83 250 Sugar cane Thailand 42.5 10.0 4.3 636 1.50 14.83 656.5 1.55 15.3 5.10 400-500 0.50 1.07 2.33 100 S. Africa3) 53.62) 11.5 6.22) 1,072 2.00 17.30 951.5 1.77 15.35 4.20 400-500 0.60 2.85 2..01 125 India 73.8 9.9 7.3 1,454 1.97 19.91 860 1.16 11.78 5.98 0.23 0.83 0 0 USA 74.4 11.7 8.7 2,176 2.92 25.00 2,501.5 3.36 28.75 8.68 50 15.00 6.85 4.85 355.5

Fig. 2 Cost of producing sugar in selected countries (/100 kg sugar)

80 70 60 50 40 30 20 10 0
Au str ali a Br az il So uth Afr ica Th ail an d Ind ia Po lan d Uk rai ne US A( ca ne ) US A( be et) Ge rm an y

By-products Refining Transport Raw material

Labour costs [/100 kg sugar] Labour required Cost of labour [h/ha] [/h]

Cost of machinery [/100 kg sugar] Cost of land Cost of lease

1) Database

[/100 kg sugar] [/ha]

Source: USDA, own data, 1999

operated by the Association of South German Sugar Beet Growers, 1996 (particularly successful farms, above the national average); 2) per ha cultivated land (per ha harvested land: raw yield: 71.4 t/ha; sugar yield: 8.2 t/ha); 3) centre/south region; strong devaluation of Brazilian currency Source: Association of South German Sugar Beet Growers, USDA, own data, 1999

22 COURIER 1/04

1/04 COURIER 23