Brazil has been the undisputed OPEC of sugar. It’s long been the world’s biggest producer, and it controls nearly 50% of the world’s sugar exports(For context, Saudi Arabia of the real OPEC only controls 19% of crude oil exports).
But these are interesting times in the world sugar market as sugar stockpiles rise by nearly 20-million tonnes around the globe and prices crash to levels that cover barely half the cost of producing the crop. In short, it’s a horrible time to be in sugar.
Ben Fessler, a market analyst with C. Czarnikow Sugar, discussed the market realities during the International Sweetener Symposium in August and explained that Brazilian production is down 19% this year as a result of the lower prices.
India, on the other hand is expanding production as prices collapse, he said.
Few countries’ sugar production is as government controlled as India’s, which dictates prices, imports, exports, and terms of sales. And India is using that government control to buck market signals and rapidly increase production. Reuters summed up the situation in an article last week:
India will surpass Brazil as the world’s top sugar producer next year, with the South American country losing its lead for the first time since the 1990s as its mills allocate increasingly more cane for ethanol production and as low investments dent cane yields.
At the same time, with subsidy schemes for a politically sensitive sector, India is expected to churn out a record sugar production of about 35 million tonnes in 2018/19 year starting in October, while Brazil’s output could retreat by about 10 million tonnes from a year ago to about 30 million tonnes.
The change in leadership over sugar production, which Brazil has held since the 1990s, is expected to reflect in trade flows around the world, with Brazilian exports losing a slice, while Asia gains a foothold in the global market amid a glut in supplies, especially in India.
Among India’s subsidy goodies, according to Fessler: A 3 million tonne surplus bankrolled by the government; a price floor for in-country sugar sales; and mandatory export quotas for sugar mills. And that’s on top of the loan programs, import tariffs, and other handouts, totaling $1.7 billion a year, that have been well documented.
Unfortunately, India isn’t alone. Thailand is also expanding production, contrary to market signals, and is projected by Fessler to have a record harvest this year, adding to record stocks already overhanging its market.
Thailand too, is fueled by subsidies – estimated at $1.3 billion a year in a recent study – and the resulting influx of unneeded sugar will only depress global prices further.
This is the world in which American farm families would have to compete in the absence of a strong no-cost sugar policy – a world that is stressing even the original OPEC of sugar.
Without such a policy, America’s efficient farmers and sugar businesses would be crushed by foreign cheaters, which is why it’s so important to pass the 2018 Farm Bill without delay.