Project Management

Selection of site for Sugar Industry to serve US market

Submitted to: Prof. Deepak Jakate

Group Members: Yogesh Shinde Pallavi Naik Ninad Vedak Swapnil Nandanwar Milind pawar

Introduction The Food and Agricultural Organisation (FAO) reports that 133 countries produce sugar. Sugar is the conventional name for sucrose, which is extracted commercially from two plant sources, sugar beet and sugarcane. ‘Sugarcane accounts for 70% and sugar beet for 30% of sugar production throughout the world’ (Vidal, 2000). Chemically, both types of sugars are identical and consist of 99.9% sucrose. The largest sugarcane producers are Australia, Brazil, Cuba, India, Indonesia, Mexico, South Africa, and Thailand. The largest sugar beet producing countries are the EU, Canada, Algeria, Turkey and Poland. Other countries such as China, the USA, Japan and Egypt. produce both beet and cane sugar. Most sugar produced in the world is consumed domestically, and the residual is sold on the world market. The worldwide average sugar consumption – as per statistics released by Rabobank International (1999) is 21 kilos per capita, but this varies considerably by region and continent. Sugar consumption in Brazil has grown to 55 kilos per capita in comparison to 6.5 kilos per capita in China. On the basis of the current trends, world sugar consumption is expected to increase to more than 135 million tonnes by 2003/2004. The Australian Bureau of Agricultural and Resource Economics (ABARE, 1999) reports that an important feature of the bulk trade in sugar is that it is internationally traded in both raw and white (refined) forms. Furthermore, though the majority of sugar imports in recent years have been in raw form, nearly all consumption is in the form of white sugar. Imports of raw sugar constitute an important feedstock for refineries in a number of countries. Sugar can be divided into three product categories: white granulated sugar, liquid sugars and specialty sugars. Industrial users of sugar are the food processing industry, and the chemical and the pharmaceutical industry. The export of sugar is dominated by Brazil, the European Union, Australia, Thailand and Cuba, which together account for 65% of sugar exports. The majority of the world’s raw sugar imports are dominated by – the European Union, Russia, the United States, South Korea, Canada and Malaysia and the major importers of white sugar are Indonesia, Russia, and some African and Middle East countries. The export of raw sugar takes place from the cane producing countries while that of white sugar (refined) from the beet producing region. Less than 30% of world sugar production is traded internationally. A proportion of this trade takes place under bilateral long-term agreements or preferential terms. Around 20% of world sugar is traded freely. The world sugar market is characterised by long-term growth in production and consumption of almost 2% per annum. However, production, which is often controlled or influenced by government policy decisions, is more volatile than consumption. World sugar prices are very unstable. Sugar is one of the most regulated food commodities of the world. The world sugar market is heavily influenced by domestic government policies of many countries leading to distortions in the world sugar trade. The main directions of the sugar policies in the developed economies are towards maintenance of farm incomes,
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7% in Western Australia (WA). have historically been isolated from volatilities in the world sugar market through the use of import restrictions. Australia has over 545 000 hectares (ha) devoted to cane growing of which the sugarcane area in Queensland now exceeds 508 000ha. Australia is currently one of the world’s largest exporters of raw sugar. However. 1999). in effect. So. Sugar is thus excluded from many regional free trade agreements like the Australia-US FTA or it is given special treatment (Canada/US. 2002). especially in the developed economies. Australia also exports refined 3 . At the same time however. Additionally. liberalisation has not been a priority. Sugar is Australia’s second largest export crop and Queensland’s largest rural commodity and is a major contributor to the Australian economy (SRI. the domestic prices get associated with world prices and therefore the viability of the industry depends largely on the conditions and prices prevailing in the world market for sugar. South Africa/Swaziland). sugar industries. and safeguards from unstable price cycle. 1999). It’s a substantial foreign exchange earner (APSRU. 2002). 2004) and is also instrumental in generating additional revenues for the allied sectors of the economy (Sugar Industry Submission. Australia The Australian sugar industry produced 5. The sugar trade is characterised by protected markets. the market for freely traded sugar is large and deep compared with other agricultural commodities. 2002). Sugarcane is produced on the coastal plains and river valleys along 2100 kilometres of the eastern coastline between Mossman and the Atherton Tableland in Northern Queensland to Grafton in Northern New South Wales and in the Ord River region of Western Australia. Almost 100% of raw sugar exports originate in Queensland. special trade arrangements and volatile prices. which introduces deregulation of American agriculture. it produces only 4% of world sugar supply. Typically. three in NSW and one in WA. There are 26 raw sugar mills in Queensland (including one mill that processes sugarcane to syrup stage only). around 5% in New South Wales (NSW) and 0.35 million tonnes of raw and refined sugar from sugarcane in the year 2002/03.industry expansion. Cane fields represent 20% of Queensland’s total crop area (SRI. Raw sugar is produced from sugarcane in three Australian states: almost 95% in Queensland. in the developing economies domestic government policies are directed at earning and/or conserving foreign exchange. The impact of all these policies on the world sugar market is to increase the volatility of the price and also the variability in production and supply. Besides these considerations. with Queensland exporting about 80 to 85% of its total raw sugar production. Sugar has also been excluded from the US “Freedom to Farm Act”. It exports approximately 12% of the sugar traded worldwide (SRDC. Australia is exceptional among sugar producing countries as it exports around three quarters of its sugar production. The extremely volatile prices on free markets of world sugar reflect the recurring supply/demand imbalances (Borrell and Pearce.

Exports of white sugar have also increased as a result of this increased capacity. the Brazilian Government has regularly given priority to the industry to ensure that production is 4 . The remaining 15%-20% of raw sugar production is refined for domestic consumption and export. mostly through government support and control. and ethanol (fuel alcohol). In addition. The establishment of additional refinery capacity has increased competition in this segment of the market over recent years. generating credits for the Brazilian trade balance. The remaining 55 to 65 percent is direct consumption. Brazil ranks fifth as a sugar-consuming nation.7 million tonnes of sugar and 12. Brazil vies with India to be the world’s largest producer of raw sugar. Brazil’s production of sugarcane reached 321 million metric tonnes and produced 23. with annual consumption measured at 9. Its foreign exchange earnings through exports are around US$ 2 billion. Accompanying the considerable expansion in the Australian sugar industry are the government deregulation policies – especially the reduction of central controls on areas planted and the removal of import tariffs on sugar. two in Queensland (Mackay and Bundaberg).45 million tonnes.5 million people. Since Brazil can produce either sugar or ethanol from sugarcane. it is one of the few countries that can adjust sugar production rapidly to take advantage of potential world sugar (or oil) shortfalls and high international prices. Food manufacturers. Australia advocated the cause of world agricultural trade reform at the Uruguay Round and in the circumstances introduced a number of reforms in its own economy. This has led to a situation where Australian cane growers do not enjoy the protective subsidies and price support as enjoyed by their European counterparts. Per capita consumption is about 50 kilograms of sugar per year and has increased nearly 10% in recent years as more sugar is used in processed products. It is a very powerful commodity that can be exported. sugarcane is important for job generation. Its export of sugar alone is in the range of 8-9 million metric tonnes. and one in Victoria (Melbourne). including those that produce carbonated drinks. being more environmental friendly and renewable.6 billion litres of ethanol (anhydrous and hydrated) in the marketing year 2002/03. chocolate. sugar. Brazil was innovative by turning to biomass of sugarcane as an alternative energy source and began developing its ethanol industry. Consumption of sugar largely reflects Brazil’s population growth. Brazil is one of the world’s largest consumers of sugar. It is used in the country as an alternative fuel (to gasoline). With the fifth largest world population and a long tradition of high per capita sugar consumption. For Brazil. one in New South Wales (Harwood). crackers. icecream. Currently there are four sugar refineries in Australia. its producers are among the most efficient of all major sugar producers. Given the economic importance of sugar in the national diet.sugar. Brazil produces 60% of the world ethanol production made from sugarcane and has important challenges. Sugar directly employs 1. and pasta (massas) account for approximately 35 to 45 percent of domestic sugar consumption. The country also produces and exports a diverse number of sugar products. The oil crisis of the 1970s created a need for self-sufficiency and import substitution of oil. Brazil Brazil is among the world leaders in the production of sugarcane.

of whom there are 335. In the EU. and 3 tariff-rate quotas and import tariffs to restrict imports in terms of country of origin and volume. In this world’s largest beet sugar producing area. About a million people are involved in the European sugar industry. the Common Agriculture Policy (CAP) is protective in nature and provides high incomes for its farmers. the Caribbean and Pacific. The main features of the regime were as follows: • Production quotas for every producing country. which was part of the Common Agricultural Policy (CAP). 2000).sufficient to cover consumers’ needs. Rabobank International (2002) reports that the current EU sugar policy is founded on three key principles: 1 production quotas and guaranteed price to regulate the sale of sugar. in the late 1960s the EU-6 came under the umbrella of the EU sugar regime. France and Germany account for about 50% of the total EU sugar production. This has reduced costs and speeded up the flow of exports to the world market. freight rates fell in the wake of the Asian financial meltdown. Brazil is enhancing its export ability by improving transportation and loadin facilities. 2002).3 million tonnes of white sugar equivalent from third world countries in Asia. and Indonesia more attractive. Two million hectares are given over to sugar-beet growing on generally medium-sized farms (CEFS. practically all sugar – 98% of total production – comes from sugar beet (Vidal.000 employees in the sugar manufacturing industry. According to various sources. (Bolling and Suarez. has been secondary. The continued devaluation of its floating currency increases the attractiveness of Brazilian sugar. while vital to the national economy.000 beetgrowers and 52. The sugar industry forms an integral part of the rural economy. All national sugar policies of the members were abolished for the overall EU sugar regime. • Mechanism to export surplus production to the world sugar market through 5 . The European Union (EU) The European sugar industry produces around 18 to 19 million tonnes of sugar annually from sugar beet and imports over 1. • Variable tariffs to protect against imports from the world market. Brazil is the second largest quota holder to the US market and ships that US sugar quota from the northern ports of Maceio and Recife. making shipping to distant Asian markets such as South Korea. Sugar for export. Malaysia. This level of production puts the EU among the world’s leading sugar producers and at the same time accounts for around 19% of the internationally traded sugar. • Fixed prices for sugarbeets and sugar. 2001) There are major factors that make Brazil a strong competitor in the world sugar market including: In 1999. 2 a system of intervention buying and export restitutions to maintain a high internal price.

6 .levies paid by the sugar producers on sugar sales. suppressing world prices. The main objectives were: • Inclusion of sugar beet agriculture in the reform of the CAP by reducing the price of beets. • Allocation of sugar production quotas to the most efficient growing regions via a restructuring of the sugar sector. thereby limiting market growth. The EU offered export subsidies to close the gap between the world price and internal prices. beet prices were reduced by 45% and the sugar price was reduced by 36%. The oversupply of EU sugar led to five to six million tons of surplus sugar being placed on the world market. In 2006 the EU adopted a farreaching reform of its sugar policy. as had been done with grains. Initially. In 2004 the World Trade Organization (WTO) ruled that the EU had been cross-subsidizing its out-ofquota surplus sugar. • Production quotas given to producers of HFCS.

ex-factory and free-on-board purchaser’s transport and is also. and is applicable to bulk sugar. the price the EU considers growers should obtain for sugar. The intervention price applies for the processed product (white sugar) and is set at 7 . on average. The target price is fixed only for white sugar of a standard quality.The basic tools of the EU’s sugar policies are: (1) Internal support prices that ensure returns to producers for fixed quantities of production and permit the maintenance of refining capacity: This is done through the mechanism of ‘target’ and ‘intervention’ prices for refined sugar.

The A-quota. on which the full intervention price is paid. (3) Export Subsidies/Import Controls: The EU’s production of A and B quota sugar exceeds domestic consumption. However. 8 . It has to be sold on the world markets ‘before January 1 following the end of the marketing year’ in which it was produced with the exception that processors are allowed to carry over a quantity of sugar. up to a maximum equal to 20% of their A quota into the following production year. and then this excess production is exported. When world prices are less than the EU support prices. Every EU member is allocated a base quantity of refined sugar. Any sugar which is produced outside the sum of total A and B quotas is referred to as ‘C’-sugar. protection against imports is provided through system of import levies and ‘threshold’ prices. a time limit is applied. an export subsidy is granted to make EU sugar competitive on the world market.95% of the target price and is also the price at which the national intervention agencies will buy all Union-produced sugar that is required to be purchased. All of the EU’s imports form part of a ‘preferential system’ aimed at helping the least developed countries in the African-Caribbean-Pacific zone by bringing an essential market within their reach. Intervention prices have been substantially above the world market prices. To ensure that the ‘C’ production is exported. This A-sugar (produced within the A-quota) is subjected to a maximum levy of 2% of the basic beet price. Together. According to the EU legislation. Intervention price differs among the EU members depending on the production conditions and transport costs. the ‘A’ and ‘B’ quotas make up what is termed the ‘maximum’ quota. EU sugar is subjected to an export levy in order to ensure adequate supply to the domestic market. When the price level in the EU is lower than the world market. (2) Production Quota System: Each EU member state is allocated a quota under which the quantity produced is supported by a three-tier pricing system. The B-sugar is subjected to higher levies. C-sugar must be sold on the world market without export subsidies or carried over to the following marketing year.

Comparison of Current Sugar Industry Situations in Australia. Brazil. and the EU 9 .

Raw sugar is produced in 3 states – Queensland(around 95%). and ethanol (fuel alcohol). on 3 key principles: • Enhancing • Production quotas infrastructure & guaranteed price facilities to further to reduce costs and regulate the sale of speed up export sugar. NSW (around 5%). sugar. About a million people are involved in the sugar industry of which 335. 3 in NSW. • A system of intervention buying • Fall in and export international restitutions to freight rates as a 10 maintain a high result of Asian internal price. in the world’s largest beet sugar • Second largest producing area. Industry produces around 18-19 mt of sugar from sugar beet – accounting for around 19% of internationally traded sugar – putting EU among the world’s leading sugar producers.Australia. Exports around 75% of its production. Among the most efficient sugar producers in the world. WA (0. Brazil enjoys: Flexibility due to its natural resources and capability to adjust sugar production rapidlyas per the world market demand. Queensland exports 80-85% of its raw sugar production and 100% of Australia’s raw sugar export. Sugar Industry forms an integral part of the rural economy.000 ha is in Queensland – 20% of total crop area in Queensland Brazil European Union Among the world leaders in production Supply sugarcane. financial crisis has facilitated exports .7%). flow to world market. 15-20% of remaining raw sugar is CAP that is protective in nature and provides high incomes for its farmers regulates the sugar industry.Supply Position Australia Produces raw & refined sugar from sugarcane. Over 545. and one in WA. • Continued devaluation of its currency that increases the attractiveness of sugar exports. Sugarcane is produced along 2100kms coastal line in Northern Queensland & in W.000 ha devoted to cane growing of which over 508. 000 employed in sugar manufacturing. quota holder to US Sugar policy is founded market. Second largest export crop and Queensland’s largest rural commodity. Produces around 4% of world sugar supply and exports around 12% of world traded sugar.000 are beet growers and 52.There are 26 mills in Queensland.

export oriented sugar industry based on sustainable production that benefits those involved in the industry and the wider community. As a result of this review. Brazil exports between 0. Before Australia reformed its sugar policies. Hydrous alcohol in Brazil is used as fuel for vehicles that are powered by 100% alcohol though the number of vehicles powered by hydrous alcohol gas has declined sharply over recent years. Anhydrous alcohol in Brazil is used to blend with gasoline as mandated by the Brazilian government. There has been three-fold increase in the efficiency of ethanol produced from sugarcane from the year 1975. Sustainable resource management.0 billion litres of ethanol per year. While Brazil is the largest producer of raw and refined sugar in the world. The Australian and Queensland Governments reviewed the country’s sugar policy in 1996. In 2000. Brazil Brazil exports both raw and refined sugar. Subsequent legislation. Reforms began in 1989-90. a large portion of sugarcane production in Brazil goes towards the production of ethanol – the fuel (anhydrous and hydrous) alcohol. These frameworks are for: Negotiation of contracts for cane supply and processing between farmers and millers. The stated principal objective of The Sugar Industry Act 1999 is To facilitate an internationally competitive.5 and 1. the Act was amended to allow for the transfer of bulk sugar terminals to industry ownership and for the creation of an industry-owned marketing company to replace the previous statutory marketing authority. and Marketing of raw sugar. as well as ethanol produced by processing sugarcane. 11 .Australia About 95% of Australia’s sugar is produced in Queensland. it maintained stringent production and marketing controls. which varies this framework in ways which are as yet unclear. when an import tariff replaced the import ban. The Sugar Industry Act 1999 will suffice for current purposes. The various elements of the new legislation are to take effect in subsequent future years (like in the year 2005 and 2006). the Sugar Industry Reform Act 2004. The Act seeks to achieve this objective through establishing a series of frameworks relating to the operation of the industry. the federal government eliminated import tariffs in July 1997 The regulatory framework for the Queensland sugar industry is established primarily by the Sugar Industry Act 1999.

• The efficient utilisation of sugarcane. The relative ex-mill prices of ethanol and sugar in Brazil are a key determinant of the volume of sugar that Brazil produces for export to the world market. and Uruguay). 12 . The ethanol market today still profits and gains from a captive market of anhydrous alcohol as mandated by a gasoline/ethanol blending ratio. However. During the 1970s and 1980s. • Import-substitution of oil. Finally. Such economic conditions resulted in the creation of the government program PROALCOOL in 1975 to promote domestic production of fuel alcohol from sugarcane production. The commercial viability of ethanol from sugar crops depends on the following key factors (Banerjee and McGovern. Imports of ethanol are taxed at 30%. product. the production of sugarcane. the cost of bio fuels production has typically been higher than the world market price for gasoline. However. o The price of crude oil and the ethanol production costs. there is no tax on intra-zone trade of ethanol for MERCOSUR (the regional trading block created by Argentina. Brazil’s drive for modernisation and growth in agriculture resulted in their borrowing from international institutions. This caused further financial distress and the ever-increasing need to export commodities. Brazil.Brazil’s history has been that of an agro-exporting nation. and The prices of this fuel alcohol is to a great extent determined by the market. there have been some policy changes that have affected the Brazilian sugar sector such as: A common external tariff of 20% on sugar imports was established in 2001. This resulted in: • The creation of a ‘home-grown’ technology. 2003): o The price of sugar in relation to ethanol. sugarcane production received considerable government support under PROALCOOL. Paraguay. Since 1998. The oil crisis of the 1970s worsened their terms of trade. This led Brazil to reorient their commodities producing abilities towards exporting and earning foreign exchange. without facing competition from other low-cost exporters on the domestic Such policies ensure that sugar and ethanol producers receive a higher price for their market. there still remains a support mechanism that compensates for sugarcane-cost differentials across regions that is well under the “de minimis” clause of the WTO The production environment of sugarcane in Brazil and the beneficial utilisation of sugarcane in the Fuel Ethanol Program stem from some of the crucial factors that are developing and shaping the commercial viability of the fuel ethanol production. Government policies affecting sugarcane production and use of ethanol were the main determinants of growth in sugar output and exports. and • Conservation of scarce foreign exchange. sugar and ethanol in Brazil is intricately intertwined with a direct and indirect role (through the fuel-alcohol ratio) of the government that has bearing on the production of sugar. Summarily. Despite technological advances in bio fuel/ethanol production process that helped in lowering the production cost.

and rules establishing and governing production and trade in the agricultural sector. Production quotas and levies. Intervention purchases. Refining Regime.The European Union (EU) The policies that govern the EU sugar regime have helped nurture the region to become a formidable force in the global sugar market. The Swedish Competition Authority Report (2002) on the present production and trade in sugar states: The common organization of the markets in the sugar sector (CMO Sugar) is one of the components of the Common Agriculture policy (CAP) of the European Union. to ensure a fair living standard for the agricultural society. These support prices guarantee a certain level of income for the sugar beet growers and for the sugar producing industry. Self-Financing Regime – Production levies are charged as a means of recouping for the EU budget the entire cost refunds on sugar exports to the world market. EC competition rules do not necessarily apply to anti-competitive agreements between undertakings. to stabilise markets. Export refunds. CMO Sugar has remained almost intact since it came into force. such as the intervention price. regulating both the total EU quality of sugar production and the quantity of sugar production in each sugar producing member state. or by the EU Commission. The intervention price and quota system under CMO Sugar has in principle such anti-competitive features which since they are incorporated into the CMO Sugar cannot be tackled by either national or competition law in EU. to ensure the availability of supplies and to ensure that supplies reach consumers at reasonable prices. prodution Quota System Price Guarantees Trade Regimes Storage Cost Equalisation Scheme – Reimbursement fixed at level necessary to cover stock financing costs. and the CMO Sugar has been in place since 1967. The main objectives of the CAP are: • • • • • A B C D to increase productivity. E. When a market is covered by the Common Agricultural Policy. insurance and rent. the basic beet price and the minimum beet price. F. While most of the regulations regarding other products covered by the CAP have been subject to reforms over the years. The EC Treaty contains both rules or the safeguarding of competition on the different EU markets. Institutional support prices. either by the member states’ intervention agencies. safeguarding that sugar producers/exporters receive a guaranteed price for 13 . The CAP was put in place in 1962.

intervention buying does not apply to the farm products (sugar beet or sugarcane). but is restricted to production within quota. Sugar producers (growers and processors jointly) are responsible for paying (through their producer levies) the full costs to the EU budget of disposing of surplus quota sugar. safeguards on the one hand that the price for imported sugar is not lower than the EU sugar price. Production refunds for the chemical and pharmaceutical industries. but to the products as processed (raw or white sugar) as sugar beet and cane sugar are not storeable. EU support is not open-ended.exported sugar if the world market sugar price is lower than the EU intervention price. compensating these industries for the high sugar prices in their competition with such industries outside the European Union. There is guaranteed access to the EU market for a significant quantity of Third Country sugar. Good quality. Strengths 14 . Increased productivity – Recovery rate is highest in the world (around 90%). Highly mechanised sugar industry in the world. however. It also provides for “special preferential” treatment in relation to some countries. • • • SWOT Analysis Australia Good infrastructure Cost efficient – low production costs. has ensured that: • The mechanism of target and intervention prices exists. in respect to the above. principally from ACP countries associated with the EU by the Lome Convention. Import duties and preferential imports. and on the other hand that sugar imported from certain countries receive a preferential status. The EU sugar regime. The principle of “co-responsibility” has been applied most fully to the sugar regime.

Lie in use of differentiated & value-added Opportunities sugar. assistance. Threats Brazil 15 .Weakness Exports around 80% of production at low world price. Balance quantity sold domestically also at world price. Export relies on unstable market like Russia or Arabian countries where import volumes fluctuate significantly. Climatic variability. Enjoys high currency exchange rates. Expected based on policy changes especially in the triad economies of EU. Most vulnerable to fluctuations of world sugar prices with no Govt. Operating in a high wage environment. & Japan. Diversifying in energy sector. Growers and millers are tied contractually & cannot expand or contract production. Industry threatened from environmental issues. Lacks competition domestically as all sugar is marketed through state trading enterprise. USA. Brazil’s increase in sugar production will find its way in international market.

but creates jobs. Sugar-alcohol & related industry has attracted FDI. Operating in a high wage environment. Enjoys high currency exchange rates. Lacks competition domestically as all sugar is marketed through state trading enterprise. Weakness Opportunities Threats European Union 16 . Cheap labour costs. Lie in exporting ‘home-grown’ technology in producing fuel-alcohol from sugarcane production. Balance quantity sold domestically also at world price.Strengths Vast natural resources remain long-term economic strength. In the use of differentiated and value-added sugar. Devaluation of currency increases exports. Over Exports around 80% of production at low world price. Growers and millers are tied contractually & cannot expand or contract production. Expected with opening up of triad economies. World’s largest & most efficient producer of sugar. Sugar buyers – like food & beverages industry cannot apply supply management concepts. Entrance of large MNCs to tap domestic market and international markets when liberalised. Concentrates around 60% of world ethanol production from sugar cane – an alternative to fuel. Export relies on unstable market like Russia or Arabian countries where import volumes fluctuate significantly. Climactic variability.

Strengths EU firms have structured through concentration of production & economies of scale EU has highly regulated sugar market. Internal Weaknesses 17 . Most technically efficient with low production cost and recovery rate being highest in the world.g. Good infrastructure. From Brazilian sugar in future (otherwise the market is protected). Good quality of product and services. With increased in world prices. Reduced policy intervention will result in significant gains to EU member states. Without subsidies & protection. the survival of EU sugar companies is threatened. Strategy Options for Australia Internal Strengths • • • • • • • • • Educated. Large areas of cultivable land with suitable climatic conditions. High concentration on R&D. Selffinancing sugar programs. EU’s (almost) total sugar production is from sugar beet – production cost of which is substantially high. Strong Australian dollar (also weakness). Beet sugar is mainly grown in developed countries with temperate climates – does not enjoy the favourable energy balance that makes cane so attractive for renewable energy source. EU manufacturers can better export. Highly deregulated market (also weakness). export). skilled labour force. Weakness Opportunities Threats WTO requirements and pressure for liberalisation threaten EU to reduce protection afforded to EU sugar producers – that threatens EU sugar firms. Protected EU market from competition reduces incentive to upgrade technology and efficiency. Highly experienced in global market (e.

18 . Extensive national R&D network that has a proven track record in PROALCOOL program. USA. Concentrates around 60% of the world ethanol production from sugar cane. Strategy Options for Brazil Internal Strengths • • • • • • • Vast natural resources with suitable climatic conditions. support. Pacific Rim & Asia: increased wealth. Strong sugar-alcohol industry and network. High reliance on exports (75% of production) on low world price. Constant economic instability due to fluctuating world sugar prices. & management expertise. and Japan: expected based on policy changes in the triad economies. investment opportunities. External Threats • • Government policies on sugar in the triad economies of USA. Relatively no Govt. Export relies on unstable market – Russia & Arabian countries. Good infrastructure. EU. External Opportunities • • • Brazil: increased natural wealth. and Japan. Climatic variability.• • • • • • • • • • High labour & social costs. Small domestic market size. Lacks domestic competition due to ‘single desk selling’. investment opportunities. Strong Australian dollar (also strength). Weak currency increases exports. alternate agricultural production options are limited. In the sugar belt. where import volumes fluctuate widely.Cheap labour force but source of job creation. Growers and millers are tied contractually & cannot expand or contract production. EU. World’s largest and most efficient producer of sugar.

and Japan: expected based on policy changes in the triad economies. Experience in global market(e. Stable labor-management relations. Economy relies heavily on sugar. interest rates & heavy external debt burden.g. Highly protected market with external competition (also weakness). Strengths in large companies in sugar and in chemical. Constant economic instability due to fluctuating world sugar prices. Govt. 19 . Climatic variability. Several mills have financial problems. EU. External Threats • • Government policies on sugar in the triad economies of USA. Family management still in place and modern techniques are needed to be employed. policies are at times not clear. and the image of the industry does not convey the advantages that it has. Poor infrastructure facilities. EU. pharmaceuticals. Sugar millers lack international exposure and/or experience. External Opportunities • • Various open economies like Australia and other developing and prospering economies like India. for ethanol production. Millers are perceived as protected entrepreneurs. skilled labour force.Internal Weaknesses • • • • • • • • • Harvesting workforce not qualified. USA. pride in quality. Good infrastructure. Mechanisation is causing problem for workforce reallocation. Strategy Options for the European Union Internal Strengths • • • • • • Educated. Strong Euro (also weakness) Accession of C&EECs* to EU. and food industry. export). High inflation. and Japan.

Brazil: increased natural wealth. Relatively high unemployment rate. Under restriction of EU sugar. investment opportunities. if required. & management expertise. No incentive in responding to external changes. C&EECs: political & economic uncertainties. investment opportunities. Strong Euro (also strength). perfected concentration of production & economies of scale. External Opportunities • • • C&EECs: expansion & investments opportunities of EU companies. Import concession to sugar exporting countries of C&EECs due to their accession to EU. Australia & Brazil have initiated dispute proceedings at WTO against EU sugar subsidies. Few natural resources. Internal Weaknesses • • • • • • • • • • High labour & social costs. C&EECs: structural imbalances due to high unemployment & migration. High cost of accession of C&EECs. Lacks favourable advantages of sugar cane – cost of production & energy balance. Regulated market with protection (no growth prospect) & subsidies (also strength). legal & economic structures still in transition. Strong lobby groups for change (also weakness). can partially protect themselves from any adverse effect 20 . Slowness in innovation. Preferred Location In drawing a conclusion from the three analyses conducted on the three nations Brazilian firms have acquired assets and capabilities that are simultaneously valuable and unique. the sugar industry has strategically aligned itself with generation of fuel alcohol resulting in a situation wherein Brazilian firms and the sugar industry. External Threats • • • • • • WTO pressure for liberalisation of EU sugar. Pacific Rim & Asia: increased wealth. Strong lobby groups for change (also strength). This has enabled the firms to place themselves in such a position wherein they can reap efficiencies through economies of scale and diversification. Moreover.• • • Strong government support. EU: Economic instability due to accession of C&EECs.

These factors help us to manage our operating costs. our operations also are in close proximity to our customers. Increasing mechanization in our agricultural processes and 21 . such an environment in Brazil has been provided by the political effects that have been shaped by changing economic imperatives. and reduces its transportation costs from the mill to the port. These policies may be affected by trends in international prices of crude oil. societal realities and the underlying historical developments of the institutions. modernizes its ports. Also their involvement at the WTO against EU sugar export subsidies reflects the political imperatives that the Brazilian government is so keen to impart in keeping with the interests of concerned groups. Brazilian sugar can be expected to remain competitive in the world market because of increased internal efficiencies as Brazil deregulates its industry. although cold and dry winters are an important factor for the sucrose concentration of sugarcane. in Sao Paulo state. Brazilian Government policies supporting economic liberalization are likely to stimulate greater sugar production and result in increased Brazil sugar export availability. the main determinant of growth in sugar output and exports is likely to be government policies affecting production and use of ethanol. Brazil is among the world’s largest producer and exporter of sugar and has a significant effect on world sugar prices. as well as by Brazil’s approach to environment issues such as air quality. As it is in South America (Latin America) it will be better to serve US market. However.of the world sugar market. Sugarcane is a tropical grass that grows best in locations with stable warm temperatures and high humidity. SELECTION OF SITE Sao Paulo Factors Considered While Selecting Sao Paulo As Site For The Sugar Industry: • Raw Material: Sugarcane is the principal raw material used in the production sugar. sugarcane fields owned by us and growers. Additionally. port terminals and other transportation infrastructure and warehouses. The Brazilian Government’ intention to maintain its involvement in the pursuit of international competitiveness by its firms can be gauged from the fact that it continues to formulate national policies effecting the relative costs and factor endowments of the food-energy sector of the economy.e. • Proximity to market: Our mills and other facilities will be located in the Center-South region of Brazil i. The annual sugarcane harvesting period in the Center-South region of Brazil begins annually in May and ends in November.

This will be used further in electricity production. should allow us to continue to lower our operating costs. Grupo São Martinho and Grupo Irmãos Biagi. Copersucar is comprised of 28 producers in the states of São Paulo. topography. The soil. Availability of water and power: There is enough supply of water and power in Sau Paulo State as it consists of various sugar industries. There are many sugar-loading terminal is equipped with modern freight handling and shipment machinery.improvements in industrial operations. Many ethanol and sugar producers in Brazil. the industry remains highly fragmented with more than 320 sugar mills and 100 company groups participating. The close proximity of our mills to the port will enable us to benefit from lower transportation costs. In our process. We will further going to create our own electricity by creating it through the By-product It’s called as Cogeneration process: It is as follows Cogeneration of Electrical Power Cogeneration is the production of two kinds of energy—usually electricity and heat—from a single source of fuel. By-product (Process of preparing Ethanol): 22 . The Center-South region of Brazil accounted for approximately 87. • • • • Disposal of waste. • Land: We would lease certain hectares of land and then we will also purchase some sugarcane from third party growers. Currently. Copersucar is a private cooperative that was created in 1959 by 10 sugar mills in the State of São Paulo in order to provide a shared commercial distribution for their ethanol and sugar production. heating the water that is transformed into steam. sugarcane bagasse is burned at very high temperatures in boilers. Most of this activity has involved companies and facilities located in the Center-South region of Brazil. including Grupo Zillo Lorenzetti.5% of Brazil’s sugarcane production. one of the most productive sugar producing regions in the world. Despite this recent wave of consolidation. market their ethanol and sugar products through the Copersucar cooperative. which is located in Sao Paulo itself. Availability of Competing and competitive Industry: The sugar industry in Brazil has experienced increased consolidation through merger and acquisition activity during the last several years. Transportation : (Ports) Our export of sugar will be shipped through the sugar loading terminal at the Port of Santos. combined with our energy self-sufficiency. climate and land availability of the Center-South region of Brazil are ideal for the growth of sugarcane.

which prohibits land use in certain permanently protected areas. After the yeasting process. a by-product we will use as fertilizer in our sugarcane fields. we will process the sugarcane used in ethanol production the same way that we process sugarcane for sugar production. sucrose and other sugar molecules (glucose and fructose) and minerals. or “CETESB”. In order to produce anhydrous ethanol. Cogeneration Process will be used to create our own electricity (It is explained in the point Availability of water & power) 2. Brazilian Forestry Code. The molasses resulting from this process is mixed with clear juice and then with yeast in tanks. Initially. we separate the water. We are subject to the regulations of the Companhia de Tecnologia de Saneamento Ambiental—CETESB. through the so-called cogeneration process. and the by-product resulting from the yeasting process. and obligates us to maintain and register a forestry reserve in each of our rural landholdings covering at least 20% of the total area of such land. b. which causes the ethanol to separate from other liquids. the pollution control and remediation agency of the State of São Paulo.Sugarcane is composed of water. and are left with sugarcane bagasse. 1. sugar and minerals from the fibers. which is a process of fermenting the sugars contained in both sugarcane juice and molasses. and it is will be used as fuel for the boilers in our plants. We will then boil the yeasted wine at different temperatures. c. state and local environmental protection and health and safety laws and regulations as well as foreign environmental protection and health and safety laws and regulations. hydrous ethanol undergoes a dehydration process. Sugarcane bagasse is an important by-product of sugarcane. Hydrous ethanol is produced after different distillation stages. fibers. • Legal & Environmental Issues: a. When the sugarcane goes through the milling process. 23 . Ethanol is produced as a by-product of sugar bagasse: Ethanol Production Process: We will produce ethanol through a chemical process called yeasting. so that we can separate the yeast from the liquid. The liquid remaining after these processes. We are subject to the Brazilian Forestry Code. We are subject to various Brazilian federal. the yeasted wine will be centrifuged.

cnn. (1991). Agribusiness (1986-1998). Debrecen. Australia New Zealand International Business Conference.Bibliography Aaker. C. and McGovern. 1 – 16. pp. Influences on Competitiveness from Sugar Production and Marketing Regimes. Agribusiness. Banerjee. D.apsru. Vol. 7 No. 2.. pp.au/apsru/Documents/sugar. J-C. Guyomard. 7 No. Vol. 23 Iss. M. G. pp. V. G.gov. 6. The Use of Cognitive Mapping Technique in Management Research: Theory and Practice. The Brazilian Sugar Industry: Recent Developments. Vol. N. and Requillart.C. USDA. Nov. 91 – 106.htm Arburn.com/2004/08/04/news/international/wto_sugar. Presented at the Conference “Evolution of Institutions and the Knowledge Economy”. An Observation on the Political Economy of Agricultural Policy Making in the European Community. Bureau. Antony.W. 659 – 667. Soybean Production and Trade Policy Changes in Argentina and Brazil: Implications for the Competitive Position of the United States. On Inefficiencies in the European Sugar Regime.A. (2003).and Suarez.N. pp. 4. R. (2002).A. C.. Managing Assets and Skills: The Key to a Sustainable Competitive Advantage. G. Management Research News.ib. 375 – 388. 4-5 October 2002. 489 – 502. and Ali. Ames.C. 7. Journal of Policy Modeling. 2003. Ahmad. Economic Research Service.P. A.W. (1989). Bolling. (2003). (1991). 26 No. http://www.htm http//money. Vol. Hungry. 31 Iss.O. Nyankori. http://www. J. (2001).reut 24 . pp. and Higgins. . Torn between Social Equity and Economic Efficiency: The Evolution and Crisis of Institutional Relationships in the Australian Sugar Industry.R (2001). 5. Vol. California Management Review. 6-7. H. Sugar and Sweetener Situation & Outlook/SSS-232/September 2001. S..be/cefs/sugarindustry. Rosson.

“Brazil: Outlook for Ethanol Demand and Implications for Sugar Exports. USDA Increases Sugar Marketing Allotments. Licht’s International Sugar and Sweetener Report. Vol.rabobank. Peter. S. Vol. International Policies Affecting Market Expansion. 12 pp. Brazil Attache Sugar Reports.htm http://www. Contemporary Economic Policy. “The Brazilian Sugar and Ethanol Industry: Performance and Prospects. pp. S. USDA.com http://www.O.com/content/services/corporates/ research/ http://www. 462 – 476.gov.rabobank.” Sweetener Analysis. pp. Economic Research Services. 14. Buzzanell.au/industry\industry.html http://www. N. (2000). Licht.srdc. 3 – 41.Haley.M. F.biotech-info.rabobank. 34 No. (2003). Latin American Research Review. Interest Groups and Economic Policy: Explaining the Pattern of Protection in the Brazilian Agricultural Sector.” Sugar and Sweetener Situation and Outlook Report.14.” pp.net/farming_Eden. 52-69.R. “Australian Sugar Industry Fears Rising Brazil Threat. July 1988.asp http://www.M.nytimes. Helfand. (1999). “Sugar.ucdavis. Economic Research Service. 4. 213-219. Helfand. and John C. March 2001. S. http://sugarbeet.htm LMC International.O. Ronney. pp. Vol. No.edu/sbchap. The Political Economy of Agricultural Policy in Brazil: Decision Making and Influence from 1964-1992. Apr. 18 No. and Suarez. Sugar and Sweetener Situation & Outlook/SSS-236/January 2003..com http://www. 26. 131.” F. Sugar and Sweetener Situation & Outlook/SSS-232/September 2001 25 .com/asp/Press/document. 2. 1999. various issues. ABARE Research report 99.

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