With a dominant 50% market share of global sugar exports, Brazil can exert more control over prices than any other sugar producer. Brazilian subsidies and policy decisions affect consumers and farmers around the world, who are helpless to combat a behemoth whose primary goal is to increase its monopolistic reign.
It’s why Brazil is called the OPEC of sugar, and it’s why we were not surprised to read about how even decisions in Brazil’s gasoline sector can move sugar prices.
According to a January 20 article in the Wall Street Journal:
[S]ugar futures surged to a nearly two-month high, bucking the trend among other soft-commodity markets, after the government in top grower Brazil raised taxes on gasoline.
The move, announced Monday, will likely mean higher prices at the pump for Brazilian drivers, who may then opt to buy more ethanol. Higher demand for ethanol could mean processors use more of their cane to make the biofuel, thereby limiting sugar production, analysts said.
Brazil will raise a tax on gasoline and diesel on Feb. 1 and increase a different tax on fuels after 90 days. Finance Minister Joaquim Levy said the higher taxes are part of a package intended to generate 20.6 billion reais ($7.9 billion) in government revenue this year.
Raw sugar for March rose 3.3% to 15.83 cents a pound, the highest settlement for the most active contract since Nov. 26.
Then, the Brazilian government made additional plans to sweeten its fuel sector and aid sugar farmers with market intervention. A February 2Reuters piece noted:
Brazil’s struggling sugar and ethanol mills got more good news on Monday after the government granted an expected increase in the national blend of the biofuel in gasoline to 27 percent on Feb. 15 from the current 25 percent, industry officials said.
The higher blend is the latest of several measures taken by the government expected to have a positive effect on the industry’s bottom line going forward.
To sum up: The real OPEC floods the world oil market with cheap crude, which makes conventional gasoline more attractive at the pump than Brazilian ethanol. So the OPEC of sugar slaps a tax on cheap gas so that consumers have to choose sugar-based fuel alternatives. Then it increases blending mandates to ensure even more sugarcane is being used for fuel. All the while, Brazilian government coffers grow by nearly $8 billion from increased gasoline tax revenue, which it can use to help fund its ever-growing compilation of sugar subsidies.
Not exactly how a free market is supposed to work. It’s time we reform and end all sugar subsidies once and for all.