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Sugar: The Commodity.com Guide


How Is Sugar Produced & Why Is It Critical to the World's Economy?

Why is Sugar Valuable?

Sugar is a carbohydrate that has been used as an ingredient in food for thousands of years.

Evidence suggests that people in New Guinea domesticated the sugarcane plant as far back as 8,000 BC and that civilizations in Asia began extracting sugar from the crop shortly thereafter.

Today consumers use sugar to flavor foods (e.g. chocolates), to help retain moisture in baked goods (e.g. cakes), and to preserve and gel other foods (e.g. jellies and jams). Sugar can also be used to make ethanol fuel.

These diverse applications make sugar an important commodity on the global markets.

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How is Sugar Produced?

Global production of sugar exceeds more than 120 tons annually and takes place in 121 countries.

Although sugars reside in the tissues of most plants, the sugar cane and sugar beet plants provide most of the sugar grown commercially for production.

The sugarcane plant, which is a tall grass with thick stems, accounts for about 70% of the annual global supply of the commodity, while the sugar beet plant supplies the remaining 30%.

Historically, only the sugarcane plant produced sugar, and it yielded very small quantities. However, modern technology has increased the yield.

Sugarcane Farming
Sugarcane Farming via Pixabay

Although sugar is produced all over the world, the ten largest producing countries account for about three-quarters of all sugar production. Two countries, Brazil and India, produce about half of the global supply. This concentration of production makes sugar an especially volatile commodity.

World's Biggest Sugar Producing Regions

Top 10 Sugar Producing Regions

RankFlagCountrySugar Production per Year (1,000 Metric Tons, Raw Value)
#1Flag of BrazilBrazil39,150
#2Flag of IndiaIndia22,200
#3Flag of European UnionEuropean Union16,500
#4Flag of ThailandThailand10,033
#5Flag of ChinaChina9,300
#6Flag of USAUnited States of America8,135
#7Flag of pakistanPakistan6.140
#8Flag of MexicoMexico6,314
#9Russia6,200
#10Flag of AustraliaAustralia5,100

As much as 70 to 80% of sugar produced is consumed in its country of origin. The principal reason for this phenomenon is that many countries heavily subsidize sugar farmers and place tariffs on sugar imports.

The largest consumers of sugar are India, European Union, China, United States and Brazil.

Sugar not only sweetens food, but it also functions to preserve and maintain the freshness of many foods. Some of the most important applications of sugar in food include:

5 Main Uses of Sugar

Use of SugarDescription
Baked Goods
Cake Icon
  • Sugar inhibits the growth of certain microorganisms. This in turn slows down the spoilage of baked goods and helps them maintain their moisture.
  • Sugar softens bakery products.
  • Sugar provides a source of nutrition for the growth of yeast, which helps the leavening process.
  • Jellies and Preserves
    Jam Icon
  • Sugar enhances the colors and flavors of many fruits, which makes it ideal in jellies and jams.
  • Sugar aids the gelling process, which helps give texture to these products.
  • Candies
    Candy Logo
    Sugar is the main ingredient in most candies. Its solubility makes sugar perfect for forming and shaping candies.
    Cooking
    Pizza Icon
    Sugar is a key ingredient in custards and puddings as well as in savory dishes in many cultures.
    Non-Food Uses
    Beer Icon
  • The fermentation process to make alcoholic beverages uses sugar.
  • Certain pharmaceuticals contain sugar.
  • The textile industry uses sugar to size and finish fabrics.
  • Sugar slows the setting of cements and glues.
  • Sugar can be used to produce biofuels.
  • What Drives the Price of Sugar?

    1. Global Supply
    2. Global Demand
    3. The Brazilian Real
    4. Government Subsidies
    5. Weather
    6. Health Concerns
    7. Ethanol Demand
    8. The US Dollar

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    Global Supply

    The key driver of sugar prices is the global output of the commodity.

    The typical planting to harvest of sugarcane takes 12 to 18 months. Farmers have to prepare the soil, seed, irrigate and harvest the crop during this cycle. When farmers expect a favorable demand climate, they plant more crops, and when they expect weak demand, they plant fewer crops. When demand exceeds or fall short of supply, prices react accordingly.

    Global Demand

    An important constituent of global demand is the correlation between affluence and sugar consumption.

    Since sugar is viewed as more of a luxury than a necessity, wealthier economies generally have higher consumption than poor economies. Emerging economies in Asia and South America are the fastest growing consumers of sugar, so continued strength in these economies is positive for prices, while an emerging market bust could depress prices.

    The Brazilian Real

    Brazil produces and exports such a large percentage of the annual sugar crop that fluctuations in its currency can have a major impact on sugar prices.

    Brazilian Farmers Load Their Trucks with Sugarcane
    Brazilian Farmers Load Their Trucks with Sugarcane – Image via Wikimedia Commons

    When the real is weak, Brazilian farmers have an incentive to produce more sugar for export to countries with strong currencies and greater purchasing power.

    When the real is strong, Brazilian farmers are more likely to sell in the local market, where sugar is used to make ethanol, and receive reals for their sugar.

    A weak real means greater supply on global markets and lower prices.

    Government Subsidies

    The sugar industry has a long history of government subsidies and tariffs being used to protect local sugar producers.

    Subsidies and tariffs distort the market by creating artificially high supply and depressing prices. If the largest sugar-producing countries stopped subsidizing growers, then production could fall and prices could rise.

    Weather

    Successful sugar crop production requires frost-free conditions and ample rain during the growing season. Since sugar production is heavily concentrated in a small handful of countries, poor weather conditions in one or more of these countries can have a very disruptive effect on supply.

    Health Concerns

    Sugar consumption has been linked to diabetes, obesity, heart disease, tooth decay and other ailments. Governments are under pressure to address high obesity rates, and this could lead to taxes and restrictions on high-sugar items. Health concerns could lead to a decline in sugar consumption and a fall in prices.

    Ethanol Demand

    Sugar can be crushed and used as an ingredient to make ethanol. Since ethanol competes with gasoline as a fuel source, its demand often moves inversely with oil and gasoline prices.  A fall in oil prices could depress sugar demand for ethanol, while higher oil prices could increase demand.

    Factory Produces Ethanol from Sugar
    Factory Produces Ethanol from Sugar – Image via Flickr

    The US Dollar

    Sugar, like other commodities, is quoted in US dollars. Sellers of sugar receive fewer dollars for their product when the US currency is strong and more dollars when the currency is weak. A strong US dollar depresses sugar prices, while a weak US dollar lifts them.

    Further Reading

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