Sugar is a perennial trade issue, and with Brazil producing ethanol from sugar it has also become an issue in renewable energy production and trade. The September 27 issue of the Sugar and Sweeteners Outlook from the Economic Research Service (ERS) of USDA provided information from the consulting firm LMC International on the cost of producing sugar in 2005/06 for 40 beet-producing and 62 cane-producing countries. The cost estimates allow comparisons of competitiveness across countries and regions and the impact of current and potential market changes.

The lowest cost sugar cane-producing countries in 2005/06 were Australia, the Central/South regions of Brazil, Columbia, Ethiopia, Guatemala, Malawi, Sudan, Zambia and Zimbabwe with an average cost of 8.69 cents per pound for raw cane and 12.39 cents per pound on a white value basis. These countries accounted for 43 percent of world sugar production. Note that five of the nine lowest cost cane producers are in Africa, but Africa produces only 5 percent of the world’s sweeteners. The major cane sugar exporters are Australia, Brazil, Colombia, Guatemala, South Africa and Thailand with average cost of cane in 2005/06 of 9.2 cents per pound. South Africa and Thailand are not among the lowest cost producers, but are major exporters; and none of the five lowest cost producers in Africa are major exporters. If trade in sugar were more free and biofuels production and trade increased, these African countries could play a larger role in sugar production.

The lowest cost beet sugar producers were Chile, China, Czech Republic, United Kingdom and the Red River Valley and Pacific Northwest of the U.S. These countries accounted for 29 percent of the world’s sugar beet production and had average costs in 2005/06 of 21.22 cents per pound on a refined value basis. High fructose corn syrup (HFCS) competes with cane and beet sugar for some uses. The lowest cost producers were Argentina, Bulgaria, Canada, Egypt, Hungary and the U.S. with average costs in 2005/06 of 11.5 cents per pound for 55 percent (dry weight) HFCS.

The ERS analysis of the LMC International production cost estimates also broke out sweetener costs by regions of the world for all three types (cane, beet and HFCS) for 2000/01-2005/06. The world average across eight regions, six years and three products was 18.35 cents per pound on a white sugar basis. South America had a range of 10.51 to 43.17 cents per pound. The range for Sub-Saharan Africa was 12.42 cents to 35.44 cents per pound. Central Asia had a range of 15.63 to 35.68 cents per pound with cost-efficient India influencing the averages. The region of North and Central America, including the Caribbean, was fifth on the list of eight regions at 14.03-40.62 cents per pound. Europe was the highest with a range of 19.62-60.67 cents per pound because it is dominated by relatively high-cost beet sugar. The EU’s commitment to reducing exports of subsidized sugar should create opportunities for lower cost producers.

Subsidies to sugar producers and import restrictions have severely distorted sugar markets around the world. Analysts have speculated on what would happen to the world market price for sugar if all production subsidies and import restrictions were removed. The World Bank’s World Development Report 2008 released in October of 2007 included estimates of price changes under complete trade liberalization for all commodities. The average price increase for primary agricultural commodities was estimated at 5.5 percent. The largest price increases were for cotton at 20.8 percent and oilseeds at 15.1 percent. The sugar price increase under free trade was estimated at only 2.5 percent. The report also showed an average 9 percent increase in trade for developing countries for all agricultural commodities and a 9 percent increase for sugar. Most of the gains in agricultural production from complete trade liberalization were estimated by the World Bank to occur in Latin America and Sub-Saharan Africa. With the LMC International cost estimates for cane sugar production for South America and Sub-Saharan Africa, sugar production increases are likely to fit that larger pattern.

Brazil’s economic success in producing ethanol from sugar has encouraged other sugar producing countries, particularly those countries that expect to lose preferential treatment for sugar exports under future trade agreements, to consider opportunities in biofuels. In 2005, World Bank analysts Masami Kojima and Todd Johnson in “Potential for Biofuels in Transport in Developing Countries” explained that over half the sugar production in the world has costs almost three times that of Brazil because countries not suited to sugarcane production do so because of government programs that protect markets for sugar. No amount of higher yields or other changes in their sugar industries could be achieved to make these producers viable in the biofuels industry. Kojima and Johnson also noted that Zambia, a landlocked country in south central Africa, is a candidate for increased biofuels production because it has a large amount of high-potential uncultivated land that could produce sugar. The LMC International estimate that Zambia is a low cost sugar producer matches with the Kojima and Johnson observation that Zambia has untapped production potential in sugar and biofuels.

Freer trade encourages reallocation of production of goods and services toward the most efficient producers. Sugar production and import policies in most countries have prevented those changes from occurring. If market prices for petroleum and other energy sources justify the current interest in increasing production of biofuels from sugar, the transition to freer trade could be eased by an expanding market for sugar for biofuels. Market conditions would not support production of the highest cost sugar producers, but they would encourage expansion in lower cost countries that have untapped potential to increase production of sugar and renewable fuels.