The U.S. Department of Agriculture reported in June an alarming fact about global sugar production. Apparently, most sugar producers outside of the United States are getting less and less efficient.
Globally, it cost an average of 27 cents to produce a pound of refined sugar during the 2012/13 crop year. That’s up sharply from 15 cents per pound in 2001/02.
The data, which was prepared by LMC International, pinned much of the uptick on rising costs and constricted credit availability in Brazil, a sugar behemoth that controls half of all world exports.
Of course, production costs aren’t the only thing rising in Brazil. The country has been rapidly expanding subsidy programs, too, and its actions have kicked off a subsidy race around the globe.
Not only is Brazil increasing subsidies, but so are other big exporters like India and Thailand.
Meanwhile in North America, Mexican subsidies flowing to highly inefficient producers have resulted in antidumping and countervailing duty investigations by the U.S. government.
With the rising tide of subsidization it’s no wonder global sugar prices have remained depressed. Prices in the 2012/13 crop year averaged less than 23 cents a pound, or four cents below the global average cost to produce sugar. In other words, without the aid of subsidies, money would be lost on most sugar transactions in the distorted world dump market.
This is alarming for the future of sugar production since industries tend to grow less efficient as the certainty of bailouts and subsidies prop them up. And inefficiency only necessitates additional subsidies, which perpetuates the downward spiral.
Of course, U.S. producers are headed the opposite direction, making huge productivity gains over the years thanks to technological investment and vertical integration. In fact, we now rank first in sugarbeet production efficiency, according to LMC International.
Perhaps it’s time for all global producers to lay down their subsidies and let natural supply-and-demand economics drive business decisions. That’s the thinking behind the zero-for-zero policy backed by U.S. sugar producers, which would ensure that the best businesses, not the most subsidized, come out on top.