4-- h -

Sugar Handbook
Commoditiosand Export Projections Division
EconomicAnalysisand 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
Listof Tab'-.and Figures Page No.
Tables
II-1 Centrifugaland Non-Centrifugal
SugarProduction,
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
Production
Levelsand at Two Different1970Price
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 ...... I
.V-7
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
; SterlingPer 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 importantagriculturalcrops. Although

it -. vers only about 23 iillionhectaresworldwide (comparedto 750 million
hectares for cereals) suppliesnearly 9 percent of human calorv intake.
In this respect it is ,reimportant than any other categoryof 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 con-
sumed by man.

2. Althoughsugar is containedin virtuallyevery agricultural

crop, it can be efficientlyextractedonly 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
governmentprotectionto survive. Because of this, and because sugar is a very
importantitem in the human diet, there is hardly a countrywhere the sugar
market operateswithout governmentintervention.

3. The world producedaround 90 million tons of sugar in the late

1970s, allowinga 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

sweetenersconsumedfor dietary purposes the sole importantcompetitoris
high-fructosecorn syrup (HFCS),a product that is marketed in large quanti-
ties only in the US.

5. The two main byproductsfrom 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
materialin the manufacturingof industrialalcohol. Bagasse,the sugar cane
February1981 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
increasein the future.
February 1981 II-1

II. THE PRODUCT

1. Sugar accountsfor over 90 percent of all sweetenersconsumedin

most countries. However, in some countriesthere is substantialcompetition
from other sweeteners. Some of these sweetenerscomece with sugar in the
basis of specialcharacteristics(non-caloricsweetenerc,honey, maple syrup),
w1,ereasothers compete on the basis of price (high-fructose
corn syrup, non-
centrifugalsugar). Further,sugar can also be used as a raw material in the
productionof productsother 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 molassesand 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 accountsfor about 230 caloriesout 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 producedfrom cane or beet juice by
spinning off (centrifuging) the liquids from the sugar crystals in mesh
baskets. However, in a number of countriessugar is producedfrom 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-centri-

fugal 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 accountsfor 75 percent of the
world total, and developingAsia as a whole (includingcentrallyplannedAsia)
accountsfor fully 90 percent of total world productionof non-centrifugal
sugar. Colombia,the only importantproducerof non-centrifugalsugar outside
Asia, accountsfor 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 additionto their sweetness,and
they are often consumedbecause of their specifictaste rather than because
of their sweetness. They are, therefore,competingwith sugar to only a very
limiteddegree, and in studiesof the total sweetenermarket they are often
ignored.

7. Concernsover 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
sweetnessequivalentto 300 pounds of sugar, and consumptionstatisticsalways
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-caloricsweetenersare

availableonly for the US. Here consumptionincreasedvery 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

SUGARPRODUCTION,
ANDNON-CENTRIFUGAL
Table YT-1: CENTRIFUTGAL
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 ProductionYearbook 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
possiblecarcinogeniceffects. 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. Commercialproductionstartedaround 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 practicecontains
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 constantat around 3 to 1. Althoughcorn 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 giLucose
into 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 sweetenersaccountedfor nearly
30 percent of total caloric sweetenerconsumptionin the US in that year.
A further increaseshould be expected, especially now that the Coca Cola and
Pepsico companieshave announcedthat they will allow their bottlersto
switch from using sugar to using HFCS (the beverage industryaccountedfor
over 20 percent of US suga; consumptionin 1979, and the Coca Cola company
alone accountsfor about half of this).

15. The main limitingfactor in the growth of HFCS consumptionis

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

16. The productionof HFCS outside che US is not expectedto be very

important. First, the high level of technologyrequiredas well as the lower
domesticprice of sugar will prevent its large scale productionin developing
countries. In developedcountriesoutside 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 JahrundAdressbuch.
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. WashingtonU.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 EuropeanCommunityand 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 developingcountrieswhere growth rates in several countries
are 6-7 percent per year. Since sugar cane is cne crop where certain
developingcountrieshave an uneaquivocal absoluteadvantage-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 1980/81productionis estimatedto
be 87 million metric tons.

J. The pattern o. ougar product-onis heavily influence;by national

policiesaffectingsugar. These includeproductionsubsidies,import duties,
quotas, export inc.ntivesand sometimesoutrightregulationof price. Thus
the continuaJLyevolvingstructureof 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 Grovtb Rate
lu /a
1'54/156 196.166 La~~~~~~~~~~~~~~~~~~~~~~~~~~~~
1974/76 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 0.7
Caviada 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 Cllitries
i 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 6.0
l lit] ,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 3.7 6.5
Tiltw.ll 763 963 803 2.0 1.5 1.0 0.7 0.5
IliaIla,id 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:uItombI 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 t
itepublic
Iknl,111bcall 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 by regressinlg
CO11pl1te8d tile logarithn of pi-odiaction on rtlt.a. hieatirting and the year
1t1d(n1g 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

1955-1977
Table III-A2:PRICE ELASTSt3TIES OF PRODUCTION A- .VE?.A.GE
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
India
-Indonesia
.056
.041
.19'
.111
.082
.382
.004
.120
.206
.512
.462
.581
.987
.580
.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 constantdollars)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 followingcharacteristicsin 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
managementefficiencyof processingfacilities;and (iv)wage rates.

5. The lower cost producersare those with advantagesin some or all

of these elements (e.g. Brazil,Colombia,El Salvador,Guatemala,Fiji, and
the Philippines). Although there is considerablevariationamong them,
developingcountriesgenerallyhave 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
developedcountriesfurther contributesto their problem of high unit costs.

6. There are severaldisadvantagesthat 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 developedcountriesthan in developingcountries;
second,beet sugar, being an annual crop, is constrainedby competitionfor
croplandwith other annual crops; third, the overheadcost of producingsugar
beet is nornallyhigher than of producingsugar cane because the harvesting
season for beet is only about three months comparedwith 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
developedcountriesproducingbeet sugar, and the labor componentin total
cost in cane producingcountriesis about 70 percent.

0
February 1981 III-5

C. ProductionPolicy

7. Generallyspeakingthe developingsugar producingcountriesdo

not regulatetheir productionthrough price support programsor other pro-
tectivemeasures,although some of them tend to subsidizeconsumption,forcing
domesticprices below productionand distributioncosts. Sugar productionin
the USSR and Eastern Europe is regulatedthroughproductiongoals and import
quotas, but we have few detailson this. Countrieswhich take strong
measures to regulatetheir domesticproductionare the United States, the
EuropeanCommunitiesand Japan.

8. Domesticproduction(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 domesticsugar producersthroughdirect governmentsubsidies.

9. The EuropeanCommunitiessugar policy was agreed to in 1966 and

became operative in July 1968. It is essentiallya system of trade barriers
and productionsubsidiesdesigned to supportdomesticproducersand to en-
courage self-sufficiency
in 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 consumertax. The system has not been able to
encourageexpansionof sugar productionin 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;Instituteof OverseasDevelopmentStudies,Glasgow.

"A Report on a Pilot Investigationof the Choice of
Technologyin DevelopmentCountries",1975.

4. de Vries, J., "The World Sugar Economy:An EconometricAnalysisof Long

Term Developments",World Bank StafT CommodityWorking
Pzper No. 5, November 1980.

5. Frank, Charles R. "The Sugar Industry in East Africa; and Analysisof

Some Problemsand Policy QuestionsRelating to the Expansion
of the Sugar Industryin a DevelopingEconomy". (Nairobi).
East African Instituteof Social Research,by East African
PublishingHouse, Nairobi, 1965.

6. Hagelberg,E., "The CaribbeanSugar Industries:Constraintsand

Opportunities".Antilles ResearchProgram,Yale University;
New Haven, Conn., 1974.

7. InternationalSugar Council. The World Sugar Economy;Structureand

Policies (London)1963.

8. InternationalSugar OrganizationStatisticalBulletin,London, Annual.

9. U.S. Departmentof Agriculture,ForeignAgriculturalService,"Foreign

AgriculturalCircular:Sugar". WashingtonD.C. (Monthly).

10. U.S. Departmentof Agriculture,ForeignAgriculturalService."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

rate of about 2.8 percent,rising from 59 million to 82 million
average anr._.al
tons. Growth in the developingcountriesaveragedabout 4.6 percent per year
while in centrallyplannedeconomies it was 3.3 percent. Consumptionin
developedcountries,however,grew at only about 1.1 percentannuallyduring
the same period (TableIV-A1). The differencesin consumptiongrowth are
essentiallyaccountedfor by (a) differencesin populationgrowth; (b) income
growth and differentresponsesto income growth (i.e. income elasticities);
(c) the effect of prices and changingtastes. Higher per capita consumption
is usuallyaccompaniedby a lower consumptionresponseto increasedincome.
Growth in consumptionover the last decade has been at a slower rate than the
previousdecade.

On a per capita basis, the yearly growth in world consumption

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

3. In most of the developedcountriesthat consume over 40 kg. of

sugar per capita (especiallythe US, Canada and Western Europe),income
elasticitiesare low (between0.1 and 0.2) so that consumptionincreasesat
about the same rate as polpulation(under relativelystable price conditions).
For the developedcountriesat 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(ARCONSlIMPTtION1954/56 - 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 by regressing
Comiptited the logarithm of consumlption on time. Thle starting anid the ending year of tho &o*oo
period ench
follow by Litree years thieyears of record augar pricea of 1963 and 1974 reapoctively.

Source: Iiiternational Sugar Organization.

 February1981 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,con-
sumptionper capita in the Asian centrallyplanned economies (mainlyin China)
is relativelylow (about 5 kg.), even as comparedto Asian developing
countries.

5. Among the developingcountries,per capita consumptionof sugar

is relativelyhigh (30-50kg.) in the Central and South Americancountries
which export sugar (e.g.,Brazil, Colombia,DominicanRepublic)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 affectedby substi-

tute sweetenerswhose share in the total sweetenersconsumptionhas been in-
creasingsignificantlyin 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 importantfactorswhich has contributedto the

fast developmentof HFCS productionis its cost advantagevis-a-vissugar,
acquired in recent years. That advantagemay not hold if the price of sugar
declinessubstantially,but indicationsare that the average cost of pro-
duction 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 consumeddomesticallyin unimilled form, and/or government
policieshave been geared to encourageoroductionfor exports rather than
for domesticconsumption.
*February 1981 I-

Table IV-A3: sueazcmst?w:o,gzourrzos, 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~~~~~~~~~toC
o 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 C .a+b/T .- et
l~~~~~~~og 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
SouthAfircaLa 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 Ecccmy.ois
7'.arnnd

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~~~~b
C *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 - .freemarket 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,adomesticUS sugar producer cannot produce sugar pro-
fitably at 10¢/lb. Therefore in the long run sugar is expectedto continue
to lose ground in some end uses in competitionwith EFCS 21.

8. Table IV-Bl presentsdata on sugar and HFCS for the US. Because
cf an almost doublingof manufacturingcapacity for HFCS since 1976, HFCS
now replacesapproximately20 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 alreadycampaignedto bring HFCS into the Common Agri-
culturalPolicy for sugar,which would mean productionquotas.

10. On the other hand, politicaland economicdifficultiesin the

way of producingHFCS in the EC could be somewhatreduced if wheat were used
insteadof corn, since it is normally in surplus in the EC. In fact, a
Belgian firm is already attemptingthis, althoughseveral 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 FructoseCorn Syrup: Its Significance

as a Sugar Substituteand Its Impact on the Sugar Outlook",Commodities
and Export ProjectionsDivision,CommodityPaper No. 25.
 February 1981 IV-7

Table IV-B1: DELIVERIES OF SUGARANDIFCS 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.

.
 February1981 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 presentsdetailsof 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 consumptionpatternsin developedcountriesare
similar to the US (adjustingfor income and taste differences)so the end
uses of sugar will be similar. In developingcountriesmost 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 between HFCS dry basis

':-'equivale-.ce 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
February1981 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 consumersfollowedby bakery and cereal manufacturing.

.
February1981 IV-ll

REFERENCES

1. Brook, E., "High FructoseCorn Syrup: Its Significanceas a Sugar

Substitute",World Bank, CommodityPaper No. 25, April 1977.

2. de Vries, J., "The World Sugar Economy:An EconometricAnalysisof 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 OrganizationStatisticalBulletin,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
productionincreasedat about the same rate as elsewhere in the world (about
3 percent per year), but consumptionincreasedaL only about 2 percent annually,
and the region'snet import requirementsdecreasedin absoluteterms.

2. Of world gross exports,around half came from the developing

countries. For a long time the Philippineswas the largestexporteramong the
developingcountries,but it was recentlyovertakenby Brazil, which now
accountsfor 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 importantexporteris 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
Union. The remaining20 percent to 25 percent goes to the developing
the c ?,iet
countries,with most of it going to countriesin Asia and Africa (TableV-2).

4. About 25 percent of internationaltrade occurs under special

arrangementswhich insulateit from the free market. The EC importsabout one
and one half million tons of sugar from associatedcountriesat 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

1954/56
Export! ot Su&!r Shares in World Total Elport Growth ia!R Lte
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
4
1964/66 1974176 1951/77 1966177t ~~~~~~~~~

('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
Etirope
Other iJdsterni 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

USS SIt 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 eherewere 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,nd
period 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 exportingcountriesexport
raw sugar and import refined sugar. This pattern of trade has recentlycome
under scrutinyfrom severaldevelopingcountry exporterswho would like to
add domesticvalue to their exportsby furtherrefiningtheir raw products.
Such developmentsare resistedby refinersin developedcountriesbecaue
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 negotiatedin 1977. Participationis more comprehensivethan in the 1968
Agreementbecause most of the large importingcountries,includingthe 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 exportingcountriesand 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 Congressto agree on domesticsugar legislation.
Also the EC and a number of importingdevelopingcountriesdid 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 standardindicatorshipping
rate, is the one between Caribbean ports and Western Europe (usually Liverpool
 * * 4' I

Table V-3; TRAI)E IN RAWAN!) RE SUGAR, 1976-78

DINEIt 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
ll:259
FFC 3,347 3,606 93 2,073 884 2,957 30
Otlier 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
is;S 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 increasingshippingcosts give added impetus to increasingthe amount
of sugar that is refined prior to shipment,this tendencyis 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
handlingof refined sugar is possiblebut has not become widely acceptedbecause
of the possibility of contamination in transit and because of its solubility
if it gets wet.

9. Table V-A2 presentsthe costs of storingsugar. As is seen

storagecosts are quite variable from country-to-country.These chargesmust
be added to the purchaseprice 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
Communityaccountsfor more than half of this total, much of the stocks having
accumulatedas an uninternationalside-effectof their domesticsugar pro-
duction policy (TableV-A3). Developingcountrieshold 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
managementpoliciesmust incorporateprovisionsfor rotatingstocks. Refined
sugar, in bags, keeps well in temperateclimatesbut 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,

SELECTEDCOUNTRIES, 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.
 February1981 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-government

sales on a continuinglong
term basis are between USSR and Cuba, Japan and Australia,and Japan and
Brazil. The only significantmultilateralarrangementis the Lome Sugar
arrangementfrom ACP countriesto the EC.

14. The remainderof the sugar trade is freely handled by what

appears to be a competitivetradingchannel. 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 producerlevel there are many producers,and at the

final product level there are many consumers. In some countriesthere is
market concentrationin the crushingof sugar. Often farmerswill have only
one crushingplant to whom they can sell their crop, but in other countries
the farm price is regulatedor farmer-ownedcooperativesrun the crushing
mill. In total, governmentinterventionis the only apparentsource of
market failure.

C. Trade Protectionof Sugar

16. Generallyspeakingthe major developingsugar producing

countrieswhich are also the main suppliersto the free market, do not
regulatetheir productionthroughprice supportprogramsor other prctective
measures. Sugar productionin the USSR and East Europeancountriesis regu-
lated throughestablishmantof productiongoals and import quotas. Their
policiesundoubtedlyaffect the behaviorof the world market for sugar but
presentlyimportsof these countriesdo not constitutean integralpart of
the free market and are not therefcrediscussedhere. Nonethelessit is
recognizedthat productioncosts in these countriesare probably significantly
higher than those in the developingexportingcountriesand thus their pro-
duction representsa misallocationof scarce resource.
February1981 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 domesticproducers. In the EC both
the trade barriers,and the price supportsare extremelyimportantbecause
they are instrumentalin promotingthe EC to a positionof net exporters
rather than net importers. In Canada there are neither any trade barriers
affectingsugar importsnor any price supportprograms. This section,there-
fore, reviews the protectivesugar systems in the United States, the EC and
Japan.

D. The United States

18. Domesticproductionand imports into the United States have

been long regulatedchrough successiveUS Sugar Acts, whose primary purpose
has been to provide a remunerativeand stable income to domesticsugar pro-
ducers. Domesticproducersreceiveddirect 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 providedto the domestic

sugar industryfor over 30 years, the share of domesticproductionin the
total supplieshas been only 50 to 60 percent. The foreign producerssupplying
the US market (largelythe Philippinesand CentralAmerican Caribbeancountries)
under the quota system receiveda 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 Americanconsumersand 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
domesticsugar producers. The premiumwhich foreign suppliersreceivedover
and above free market prices made sales in the latter less attractiveand
downgraded the free market to a residualstatus.

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 domesticproducersto successfullypressure for a reintroduction
of protectivemeasures.

E. The EuropeanCommunitv

22. The EC Sugar Policy is part of the Common AgriculturePolicv

(C@P)and became operativein 1968. It is essentiallya system of trade
barrinrsand productionsubsidiesdesigned to supportdomesticproducersand
to encourageself sufficiencyin sugar. The sugar regulationsof the Common
AgriculturePolicy (CAP)were designedinitiallyto maintain self sufficiency
in member countriesand to reconcilevariationsbetween cost of production
and prices. They set a relativelyhigh internalprice and impose variable
import levies in order to preservethe domesticmarket. This arrangementis
totally impenetrableto imports,and consistsof three sets of measures:
(a) price support; (b) productionquotas;and (c) import levy.

23. The price supportmechanismof 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. Productionis controlledthrougha system of quotas allocated

to sugar factoriesin EC, and to the French OverseasDepartments (Guadeloupe,

I/ D. Gale Johnson,The Sugar Program,AmnaricanEncerpriseInstitutefor

D.C., ADril 1974,p.3.
Public Volicv Pesearch, "'ashington
 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 adjustedannually
dependingon world market conditions. For 1977, they were fixed at 45 per-
* cent of the A quota. Any sugar producedin excess of the A and B quotas is
consideredC quota and cannot be sold in the producingcountry.

25. Sugar producedwithin the B quota range is entitledto an

export subsidy. The subsidy is assessedby referenceto the difference
between the interventionprice and the price ruling on the world market. Any
sugar producedin 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 variablelevies designedto

exclude imports from third countries. There is a drawback provision for
imports of sugar provided it is re-exported after processing. Another ex-
ception 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 for
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 domesticproductionand a consumptiontax Japan
remains the second largest importerof sugar in the free market. The subsidy
system did not encouragesufficientexpansionof sugar productionin the
1970sdue 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,

EconomicResearchService,Washington,D.C., 1971.

3. Brook, E., and D. Nowicki, "Sugar:An EconometricForecastingModel 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;Structureof the InternationalSugar Market and Its

Impact on DevelopingCountries,DevelopmentCenter,
Organizationfor EconomicCooperationand 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' Europeendes 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.
AmericanEnterpriseInstitute;WashingtonD.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, althoughprices are not
set by administrativeacts or decrees, the supply of sugar has been regulated
since 1953 during severalperiods by successiveinternationalsugar 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 cyclicalimbalancesbetween supply
and demand. The free market has gone through short spells of supply deficits
and sharp price advances,despite the overall tendencyof world productionto
exceed consumptionfor extendedperiods. These sharp price increaseshave
tended to induce overexpansionof output, thus usheringnew surplus "phases"
into the demand-supplycvcle (FigureVI-1). A correspondingcontractionin
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 followedby two consecutiveshort crops in Cuba
at a time when demand in Western Europe was increasing. This situationin-
duced a productionexpansionin both exportingand importingcountriesthat
finally resultedin 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 bilateralagreementssuch as the

Lome Agreement,the CommonwealthSugar Agreement (until 1975)and the
tradingarrangementbetween Cuba and USSR.
 February 1981 _z
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 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 conditionsconstitutedthe 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-
nationalSugar Organizationincreasedtheir 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 productiondeclinesin Cuba and the USSR, that resultedin world consumption
exceedingproductionin 1971.

6. Market developmentssince 1975 have been similar to those of

the period precedingthe 1968 InternationalSugar Agreement. Reactionto the
unprecedentedly
high prices of 1973/74resultedin a decline in consumption
in the US, the EC, and net importingdevelopingcountries,where import ex-
penditureswere cut because of balance of paymentsproblems. Between 1974 and
1976, productionrespondedsharply to the price increases;particularlyin
the United States (by 19 percent),the EC (17 percent),Australia (16 percent)
and Thailand (78 percent) 1/. Consequently,sugar prices declinedto 13-
15c/lb.in the latter half of 1975 and remainedat 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

consumptionexceededproductionfor 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 commoditycoveredby the Bank. The average annual percentage
change in sugar prices is 37.4 percent comparedto 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
 February1981 VI-5

Table VI-Bl: L.D.P. (WHITE SUGAR) AS A PERCENTAGE OF L.D.P. (RAW SUGAR),

AU'GU'ST
1975-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

.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
 February1981 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. EconomicResearchService,TWashington, D.C., 1971.

3. Brook, E., and D. Nowicki, "Sugar:An EconometricForecastingModel

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 EconometricAnalysisof Long

Term Developments",World Bank Staff CommodityWorking Paper
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7. GertrudeLovasy;"Medium-Term
Trends in the InternationalSugar Market".
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8. Harris, Sinon, and Ian Smith; World Sugar Markets in a State of Flux,
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11. Smith, Ian; The EuropeanCommunityand the World Sugar Crisis. Staff
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12. U.S. Dept. of Agriculture,ForeignAgriculturalService,"Foreign

Agricultural Circular: Sugar". Washington, D.C. (Monthly).