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.
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.
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.
Top 10 Sugar Producing Regions
|Rank||Flag||Country||Sugar Production per Year (1,000 Metric Tons, Raw Value)|
|#6||United States of America||8,135|
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 Sugar||Description|
|Jellies and Preserves|
|Candies||Sugar is the main ingredient in most candies. Its solubility makes sugar perfect for forming and shaping candies.|
|Cooking||Sugar is a key ingredient in custards and puddings as well as in savory dishes in many cultures.|
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What Drives the Price of Sugar?
- Global Supply
- Global Demand
- The Brazilian Real
- Government Subsidies
- Health Concerns
- Ethanol Demand
- The US Dollar
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.
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.
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.
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.
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.
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.
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.
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.