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Sugar, the white gold of the 18th and 19th century made and broke fortunes of British traders who traded Indian sugar and spices with Europe and opium with China while gaining control of the Indian subcontinent in the 19th century. When sugar supplies fell short, production was boosted in the Caribbean islands where the art of sugarcane cultivation was brought by Indian indentured laborers.
At the end of the 19th century, textiles and industrials took precedent and sugar production and its trade receded. But the British retained their hold over it through the Sugar Association of London founded in 1882 and later, the International Sugar Organization created in London in 1992.
Around 75 percent of sugar comes from sugarcane and the rest from beet and other sources. Exporters usually produce raw sugar mostly brown and sell it to refiners who purify, refine, decolorize, package and sell it to consumers.
In countries like India, sugarcane is also milled and processed into “gur” or jaggery, which is coarse and unrefined and mostly in cake form that is fairly crumbly or sometimes rock hard. About 8 percent of total sugarcane output in India becomes jaggery.
The estimated world sugar production for the current season is about 155 to 161 million tons. However, demand is expected to be 10 to 12 million tons higher than supply, which has been so for the past two years. India is the big culprit.
Brazil is the largest producer of sugar at about 42 million tons followed by India at about 18 million tons this year, although it can produce 22 million to 24 million in a good season. Other big sugar producers are the European Union at 22 million tons, China at 10 to 12 million tons, the United States, Mexico and South Africa at about 7 million tons each.
Brazil exports 20 million tons of sugar, Australia 4 million tons, Thailand and the Caribbean 3 million tons each and the EU 8 million tons. If India had received adequate timely rains, it could have exported about 2 to 3 million tons.
About 60 million tons constitute the world’s sugar trade. The United States is not a big player and consumes more than it produces. China has tried to boost its sugar production to about 12 million tons but they do not have a sweet tooth like the Indians or the Europeans. This year they may import about 1 to 2 million tons to overcome the seasonal festive demand.
Interestingly, Brazil is also claiming a fall in production this season saying farms are wet due to incessant rains, which are likely to affect the sugarcane. This is a welcome scenario for Brazil, as their motive is to export sugar at high prices. Brazilians are smart at the shortage game like they did on coffee exports in 1976, claiming frost as the culprit for shortages and securing a high export price in the bargain. They repeated the same trick in 1985 claiming drought.
Next year, India could end up being the biggest sugar importer at 3 to 4 million tons, followed by China at 1 to 2 million tons, the United States at 3 million tons, Egypt 2 to 3 million tons and Pakistan 1 to 2 million tons.
But India’s sugar supply is not critical, as it has 9 million tons of buffer stock on hand although it would be better off if it had 15 million instead. It will import 3 to 4 million tons to balance its consumption and leave the buffer stock alone. The irony is that it had planned to export 3 to 4 million tons in the current season, if the rains had not failed.
To minimize the price impact in local markets, India has allowed duty free import of sugar till the end of 2010. This is a dramatic shift from export to import. If India receives its normal share of rains next season, it can realize its supply target of 24 million tons, which will enable it to enter the export market in a big way.
Sugar prices in the international market have jumped 57 percent in the past 10 months. The price of refined sugar at wholesale levels was 14 cents per pound last December. It is now 22 cents and could rise, as countries scramble to place export orders to tide over domestic difficulties. This year, exporters are expected to reap handsome profits.
Interestingly, there is some international dynamics to crop plantation. Last year in the United States, when corn was pushed to produce ethanol, farmers planted more corn than wheat. In anticipation of lesser U.S. production and unfounded fears of winter rain failures in India, wheat prices skyrocketed worldwide.
India’s winter rains came on time and wheat supply worldwide stayed comfortable and prices dropped. Since sugarcane and wheat plantation acreages are interchangeable, farmers in India might undertake larger sugarcane plantations. The forgoing coupled with high prices can rake in more cash and if that happens, sugar output in India may exceed its 24 million tons target. But there could also be a glut in the market next season and prices may drop like it did to wheat when its supply appeared comfortable.
Excessive consumption of sugar has also become a healthcare issue. Although it is not as serious as tobacco, it is a potent factor behind obesity, diabetes, dental health and other diseases.
The United States and Europe are fully aware of the increased healthcare costs for diseases caused by excessive sugar consumption, but this has not yet become a serious issue in third world countries and it is the developing countries where uncontrolled consumption poses a greater danger.
Finally, farmers in India and Brazil will determine the supply and demand of sugar and its price. While Brazil is the current leader, India is poised to increase production in the next two years if the current high prices hold. Its interest will however decline if prices drop.
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(Hari Sud is a retired vice president of C-I-L Inc., a former investment strategies analyst and international relations manager. A graduate of Punjab University and the University of Missouri, he has lived in Canada for the past 34 years. ©Copyright Hari Sud.)
