i -ional Agricultural Trade and Policy Center
COMMODITY OUTLOOK 2003: U.S. AND WORLD SUGAR
PBTC 03-14 November 2003
POLICY BRIEF SERIES
Institute of Food and Agricultural Sciences
INTERNATIONAL AGRICULTURAL TRADE AND POLICY CENTER
MISSION AND SCOPE: The International Agricultural Trade and Policy Center
(IATPC) was established in 1990 in the Food and Resource Economics Department
(FRED) of the Institute of Food and Agricultural Sciences (IFAS) at the University of
Florida. Its mission is to provide information, education, and research directed to
immediate and long-term enhancement and sustainability of international trade and
natural resource use. Its scope includes not only trade and related policy issues, but also
agricultural, rural, resource, environmental, food, state, national and international
policies, regulations, and issues that influence trade and development.
The Center's objectives are to:
Serve as a university-wide focal point and resource base for research on
international agricultural trade and trade policy issues
Facilitate dissemination of agricultural trade related research results and
Encourage interaction between researchers, business and industry groups,
state and federal agencies, and policymakers in the examination and
discussion of agricultural trade policy questions
Provide support to initiatives that enable a better understanding of trade and
policy issues that impact the competitiveness of Florida and southeastern
agriculture specialty crops and livestock in the U.S. and international markets
Commodity Outlook 2003: U.S. and World Sugar Markets
This paper provides an overview of U.S. sugar policy and the importance of the
European Union (E.U.) and Brazil in the world sugar market. Both U.S. and E.U. sugar
policies support sugar prices for growers well above world levels. Brazilian sugar
producers are supported by their government sugar-ethanol program in which over 50
percent of the sugarcane grown in Brazil is converted into fuel. Sugar prices for U.S. and
E.U. producers should remain at the current levels. World sugar prices should remain at
near record low levels.
In the United States, a price floor is provided for U.S. sugar growers under the
U.S. sugar program. The sugar program in the 2002 U.S. Farm Bill (in effect for the next
five to six years) contains the following broad provisions:
payments in-kind (PIK).
tariff rate quotas (TRQ).
storage facility loan programs.
There were only minor changes made from the 1996 Farm Bill, which were
incorporated into the Farm Security and Rural Investment Act of 2002. Under the 1996
Farm Bill, the raw cane sugar loan rate was fixed at 18 cents per pound and the refined
beet sugar loan rate at 22 cents per pound. Under the new program, the non-recourse loan
provision has been reauthorized through 2007 for the same amounts. Marketing
assessments are terminated, as are forfeiture penalties. The producer PIK program
continues, and TRQs have been retained. Under the TRQ arrangements, the United States
has to import a minimum of 1.23 million short tons of raw cane sugar. The key
component of the U.S. sugar policy is the import quota provision that protects U.S.
producers from low world sugar prices.
There are two major sugar exporters: the European Union and Brazil.
*Although the European Union does not export raw sugar, it is the leading exporter
of white sugar, followed by Brazil and Thailand. For the period 1995-1996
through 2001-2002, E.U. exports exceeded four million metric tons. Sugar
production in 2002-2003 is forecasted at 16.3 million metric tons, which could
result in near record sugar exports. The European Union continues its high price
support policy through the use of A, B, and C quotas. Exports under C quotas
enter world markets without subsidies. Sugar producers in the European Union
receive prices in excess of 30 cents per pound for raw sugar. Recently, increased
exports from the European Union under the C quota have, in part, caused world
sugar prices to drop to near record low levels.
*Brazil continues to be the largest raw sugar exporter. Brazilian production of
sugarcane has increased by more than 50 percent since 1990-1991 and is expected
to total 340 million metric tons in 2002-2003. Record exports of over 10 million
metric tons of raw sugar are also expected in 2002-2003 even though half of its
sugar is used for the production of fuel. Brazil's fuel policy of mandating the use
of fuel from sugarcane provides an implicit subsidy to Brazilian sugar producers
(in excess of 100 million U.S. dollars annually).
In view of U.S. farm policy, U.S. sugar prices at the farm level will not drop
below the guaranteed minimum of 18 cents per pound for raw cane sugar and 22 cents
per pound for refined beet sugar. It is unlikely that marketing allotments will be needed in
2003 to achieve these minimum prices. Domestic sugar prices have strengthened. As of
December 4, 2002, March sugar futures closed at 22.13 cents per pound in contrast to a
contract low of 19.92 cents per pound. September futures closed at 22.25 cents per pound
in contrast to a contract low of 20.40 cents per pound. For 2003, futures prices are
expected to stay above 22 cents per pound.
World sugar prices are much lower than producer prices in either the European
Union or the United States. As of December 2002, world prices were below 10 cents per
pound on a raw basis. As of December 4, 2002, March futures for "world sugar" traded at
6.90 cents per pound, compared to a contract low of 5.20 cents per pound. October
futures closed at 6.16 cents per pound. World sugar prices are at near record lows and
will remain so unless significant reductions in sugar exports occur. However, this is
unlikely since the European Union has no intention of changing its sugar policy.
Likewise, the U.S. sugar policy has been set for at least five years. Also, unless there is
drought in regions such as Australia and Brazil, there will be little reduction in sugar
exports. The so-called sugar market (often referred to as a "dumping market") will
remain saturated throughout 2003.
Schmitz, Andrew. 2002. The European Union's high-priced sugar-support regime.
Chapter 15 in Sugar and Related Sweetener Markets: International Perspectives, edited
by A. Schmitz, T.H. Spreen, W.A. Messina, and C.B. Moss. UK: CABI Publishing.
Schmitz, Andrew, James L. Seale, Jr. and Troy G. Schmitz. 2002. Brazil as a dominant
player in the world sweetener market: Do prices matter? FAO/Mozambique International
Sugar Conference. Maputo, Mozambique (October).
Schmitz, Troy G., James L. Seale, Jr. and Peter J. Buzzanell. 2002. Brazils domination of
the world sugar market. Chapter 10 in Sugar and Related Sweetener Markets:
International Perspectives, edited by A. Schmitz, T.H. Spreen, W.A. Messina, and C.B.
Moss. UK: CABI Publishing.