Sugar Handbook Commodities and Export Projections Division Economic Analysis and Projections Department Februray 191 TABLE OF CONTENTS Page No. I. INTRODUCTION ........................................... 1 II. THE PRODUCT ............................................ 1 III. SUGAR PRODUCTION ..................................... 1 A. Production ....................... .......... .. 1 B. Cost of Production ................................. 4 C. Production Policy ..................................5 IV. SWEETENER CONSUMPTION ....1.............................. A. Sugar Consumption .................................. 1 B. Sweeeceners ....................................... 4 C. End Uses of Sugar ..................................8 V. SUGAR TRADE ............................................ 1 A. Transportation, Stotage and Stocks ................. 4 B. Market Structure ................................... 10 C. Trade Protection of Sugar .......................... 10 D. The United States ................................. 11 E. The European Community ............................. 12 F. Japan ................................... .......... 13 VI. SUGAR PRICES ................................ .......1.... A. The World Market Price ............................. 1 B. Refined Sugir Price versus Raw Sugar Price ......... 4 Febrary 1A81 List of Tab_. and Figures Page No. Tables II-1 Centrifugal and Non-Centrifugal Sugar Production, 1976-78 Average, by Major Producers .................... 11-3 III-Al Sugar Production 1954/56 - 1974/76, by Country ......... 111-2 III-Az Price Elasticities of Production at Average 1955-1977 Production Levels and at Two Different 1970 Price Levels, by Country ................................... 111-3 tV-A1 Sugar Consumption 1954/56 - 1974/76, by Country ........ 1V-2 IV-A2 Sugar - Per Carita Consumption, Per Capita Income and Constant Income and Price Elasticities of Demand by Country ...... .. .... ... ............ ........ * .... IV-3 IV-A3 Sugar Consumption Equations, 1961-77, By Country ....... IV-5 IV-Bl Deliveries of Sugar and HFCS in the US Between 1972/73 and 1975/76 ......................IV-7 IV-32 High Fructose Corn Syrup Production and Production Capacity, by Country. .................................. IV-9 IV-C1 End Uses of Sugar in the United States.................. IV-8 V-1 Sugar Exports 1954/56 - 1974/76, By Country ............ -2 V-2 Sugar Imports 1954/56-1974/76, By Country .............. V-3 V-3 Trade in Raw and Refined Sugar, 1976-78 Average by Major Countries and Regions ........................... V-5 V-Al Freight Rates Caribbean - Or For Sugar in Bulk, in E Sterling Per Metric Ton ..............................V-7 V-A2 Storage Costs per Metric Ton of Sugar, Selected Countries, 1975 ....................................... V-8 V-A3 Sugar Closing Stocks, 1975-77, By Region ............... V-9 VI-Bl L.D.P. (White Sugar) As a Percentage of L.D.P. (Raw Sugar), August 1975-December 1979 ................. VI-5 Figure VI-l Sugar - Yearly Average .................................VI-2 February 1981 I-1 INTRDDUCTION 1. Sugar is one of the most important agricultural crops. Although it . 'vers only about 23 iillion hectares worldwide (compared to 750 million hectares for cereals) . supplies nearly 9 percent of human calorv intake. In this respect it is ,re important than any other category of agricultural products (e.g. roots and tubers, fruits and vegetables, fats and oils) with the exception of cereals, which provide about 50 percent of the calories con- sumed by man. 2. Although sugar is contained in virtually every agricultural crop, it can be efficiently extracted only from two major crops; sugar cane and sugar beets. Sugar cane can be grown in tropical and subtropical climates. Sugar beets are grown in temperate climates. Since sugar beets produce less sugar per hectaze than does sugar cane, sugar beet growers generally need government protection to survive. Because of this, and because sugar is a very important item in the human diet, there is hardly a country where the sugar market operates without government intervention. 3. The world produced around 90 million tons of sugar in the late 1970s, allowing a consumption of around 21 kilograms per capita. About 25 million tons of sugar entered international trade in this period. From the point of view of developing countries, sugar is the third most important earner of foreign exchange, after petroleum and coffee. 4. Sugar faces few important competitors. Apart from non-caloric sweeteners consumed for dietary purposes the sole important competitor is high-fructose corn syrup (HFCS), a product that is marketed in large quanti- ties only in the US. 5. The two main byproducts from sugar manufacturing are molasses and bagasse. Molasses, a sweet syrupy juice of which about 1 ton is generatpd for every 3 tons of sugar produced, is used as a cattle feed and as a raw material in the manufacturing of industrial alcohol. Bagasse, the sugar cane February 1981 1-2 from which the juice has been extracted, is used as a fuel, making the manu- facturing process of sugar from cane, an energy-surplus oparation. 6. Sugarcane is important not only as a raw material for sugar production, but also as a source of alcohol that can be used as a motor fuel. In 1979, alcohol production from sugar cane displaced about 4 million tons of sugar in Brazil, and the importance of sugarcane as a source of energy will increase in the future. February 1981 II-1 II. THE PRODUCT 1. Sugar accounts for over 90 percent of all sweeteners consumed in most countries. However, in some countries there is substantial competition from other sweeteners. Some of these sweeteners compace with sugar in the basis of special characteristics (non-caloric sweetenerc, honey, maple syrup), whLereas others compete on the basis of price (high-fructose corn syrup, non- centrifugal sugar). Further, sugar can also be used as a raw material in the production of products other than sweeteners. Alcohol for blending with gasoline is the most well-known example, but there are other possibilities as well. The byproducts that arise in the manufacturinr of centrifugal sugar are molasses and bagasse Molasses, which originates in the production of sugar from both cane and beets, is the most important. It is used for cattle feed as well as for the manufacturing of industrial alcohol. Bagasse, a by- product of cane manufacturing, is used as a fuel. Spent sugar beets are used as roughage in cattle feed. Sugar and Other Sweeteners - Sugar in its refined form is almost pure sucrose and it is impossible to determine whether the sugar came from cane or from beets. World average per capita consumption is around 60 grams per day, and sugar thus accounts for about 230 calories out of an average daily, calory supply of 2,600. 3. There are four types of sweeteners besides sular. First, there is non-centrifugal sugar. World statistics on sugar production and consumption always refer to centrifugal sugar -- sugar produced from cane or beet juice by spinning off (centrifuging) the liquids from the sugar crystals in mesh baskets. However, in a number of countries sugar is produced from sugarcane by more primitive methods. This sugar is nearly always consumed locally and goes under a large variety of names in different countries (e.g., chancaca, gur, jaggery, papelon muscovado, rapadura). 4. Non-centrifugal sugar production is important only in1 selected developing countries. However, in some of those countries it is more February 1981 important than centrifugal sugar production. The distribution uf non-centri- fugal sugar production is summarized in Table II-1, which also contains the figures on centrifugal sugar production for compa-ison. 5. Table II-1 shows that, although the world production of non- centrifugal sugar is far from insignificant, it is concentrated in only a few countries. The Indian subcontinent alone accounts for 75 percent of the world total, and developing Asia as a whole (including centrally planned Asia) accounts for fully 90 percent of total world production of non-centrifugal sugar. Colombia, the only important producer of non-centrifugal sugar outside Asia, accounts for more than half of the remaining 10 percent. 6. A second group of sweeteners is the natural sweeteners other than sugar. This group includes honey and edible syrups. Most of these sweeteners have a market of their own because they possess important characteristics of taste and substance in addition to their sweetness, and they are often consumed because of their specific taste rather than because of their sweetness. They are, therefore, competing with sugar to only a very limited degree, and in studies of the total sweetener market they are often ignored. 7. Concerns over the dietary effects of sugar consumption has led to the development of non-caloric sweeteners. There are two major non-caloric sweeteners. The first one, saccharin, is made from coal tars, and was first commercially produced in the US around 1900. One pound of saccharin has a sweetness equivalent to 300 pounds of sugar, and consumption statistics always are given in sugar sweetness equivalents. The second major non-caloric sweetener, called cyclamate was First produced in the US around 1950. It is about 30 times as sweet as sugar by weight. 8. Good lata on the consumption of non-caloric sweeteners are availab'a only for the US. Here consumption increased very slowly, reaching levels of 0.5 and 1.0 kilograms per capita in 1938 and 1960 respectively. Only during and just after both Vorld Wars did consumption exceed this trend because of the sugar scarcity in chose periods. February 1981 11-3 Table IT-1: CENTRIFUGAL AND NON-CENTRIFUGAL SUGAR PRODUCTION, 1976-78 AVERAGE, BY MAJOR PRODUCERS Production of Non-Centr. as Share in total Centrifugal Non-Centrifugal % of centr. non-centr. sugar Producer Sugar Sugar sugar production -----('000 metric ton)- -------- ---- WORLD 89,422 13,736 15.4 100.0 Developed Countries 26,518 12 0.0 0.1 Centrally Planned Economies 13,099 0 0.0 0.0 Centrally ?1anned Asia 4,709 876 18.6 6.'. Developing Countries 45,095 12,848 28.5 93.5 Africa 3,890 73 1.9 0.5 Latin America 26,642 1,374 5.2 10.0 Colombia 940 849 90.3 6.2 Asia & Oceania 14,563 11,Z01 78.3 83.0 Bangladesh 142 280 267.6 2.8 India 5,641 8,346 148.0 60.8 Pakistan 741 1,596 215.4 11.6 Thailand 1,851 593 32.0 4.3 Source: FA0 Production Yearbook 1978. February 1981 11-4 9. Growth in the consumption of non-caloric sweeteners was much more rapid after 1960, and per capita consumption tripled between 1960 and 1966. This was partially because a combination of cyclamates and saccharin proved very satisfactory as a sweetener In diet drinka (both sweeteners have a bitter aftertaste, but this effect is not additive). The upward trend was brokev when in 1970 the use of cyclamates was prohibited be-ause of its possible carcinogenic effects. Since then the consumption of non-caloric sweeteners (now exclusively saccharin) has stabilized in the US at eround 3 kilograms per capita. 10. The last group of sweeteners other than sugar are the sweeteners derived from starch. Commercial production started around 1850 in the LS, the only country in which starch syrups are of major importance. Since corn is the source of starch used in this country for the production of starch syrups they are commonly called corn syrups. 11. The hydrolysis of starch yields a syrup which, if the hydrolysis is complete, is pure glucose. The typical glucose syrup in practice contains 92-94 percent glucose on a dry weight basis. If moisture is removed a crystalline product emerges that is called dextrose. The statistics on corn syrup and dextrose are always given on a "dry basis". 12. The per capita consumption of cor sweeteners in the US increased from about 2 kilograms in the early 1900sto 8 kiiograms in 1970, or from 6 to 14 percent of total sweetener consumption. The ratio between corn syrups and dextrose has been fairly constant at around 3 to 1. Although corn sweeteners have consistently been cheaper than sucrose, their consumption has been limited by their lower sweetness and by their instability at different temperatures. 13. A major new development in the sweetener market was the discovery of a process to convert g.Lucose into fructose, leading to a product with a higher degree of sweetness than the conventional corn syrups. The process, made by an euzyme called glucose isomerase, led to the first production of February 1981 11-5 . high-fructose corn syrup, HFCS, in the US in 1972. 14. The production of HFCS has been increasing rapidly in the US. * In 1979 per capita consumption of HFCS already was close to 7 kilograms per capita. With per capita consmption of conventional corn syrup and dextrose at a level of just over 10 kilograms, corn sweeteners accounted for nearly 30 percent of total caloric sweetener consumption in the US in that year. A further increase should be expected, especially now that the Coca Cola and Pepsico companies have announced that they will allow their bottlers to switch from using sugar to using HFCS (the beverage industry accounted for over 20 percent of US sugaz consumption in 1979, and the Coca Cola company alone accounts for about half of this). 15. The main limiting factor in the growth of HFCS consumption is that it is available only in liquid form. Brook (1977) estimates that, because of this, HFCS consumption in the US will peak at around 15 kilograms per capita. 16. The production of HFCS outside che US is not expected to be very important. First, the high level of technology required as well as the lower domestic price of sugar will prevent its large scale production in developing countries. In developed countries outside the US, the higher price of corn is a deterrent. Moreover, in the EEC the sugar lobby has been successful in getting authorities to impose a tax on HFCS production which essentially makes HFCS production unprofitable. February 1981 11-6 REFERENCES 1. Commonwealth Sugar Exporters Association. Annual Review, London, 1969. 2. Draycott, A.P., Sugar - Beet Nutrition. Applied Science Publishers, London, 1972. 3. International Sugar Council. The World Sugar Economy; Structure and Policies (London) 1963. 4. Licht, F.O., Internationa.e5. Zur'erwirtschaftliches Jahrund Adressbuch. International Sugar Economic Year Book and Directory. Ratzeburg. 5. Mcade, G.P., and J.C.P. Chen, Cane Sugar Handbook; a Manual For Cane Sugar Manufacturers and Their Chemists, 10th ed. John Willey, N.Y. 1977. 6. The Sugar Situation. Washington U.S. Dept. of Agriculture, Agricultural Marketing Service. Quarterly. 7. U.S. Department of Agriculture, Foreign Agricultural Service, "Foteign Agricultural Circular: Sugar". Washington D.C. (Monthly). February 1981 Ill-I III. SUGAR PRODUCTION A. Production 1. Most of the world's sugar, almost 50 percent, is produced in developing countries with Latin America (including Cuba) accounting for more than half, Cuba and Brazil being the major preducers. India is the main producer in Asia, while Africa is a very small producer. Developed countries account for 31 percent of global output, the European Community and the US being the major producers. The USSR is the largest centrally-planned producer. 2. Sugar output is growing at 3 percent per annum. Most expansion is occurring in developing countries where growth rates in several countries are 6-7 percent per year. Since sugar cane is one crop where certain developing countries have an unaquivocal absolute advantagr over temperate countries, this pattern should come as no surprise. Table III-Al presents production, shares and growth rates for sugar for certain countries and regions of the world. As tne table illustrates average global sugar production in 1974/76 was 82 million metric tons. In 1980/81 production is estimated to be 87 million metric tons. J. The pattern o. ugar production is heavily influencel by national policies affecting sugar. These include production subsidies, import duties, quotas, export inczntives and sometimes outright regulation of price. Thus the continually evolving structure of world production does not always reflect that which would evolve under free market conditions. The European Community, for example, has emerged as a major market force in recent years as a result of price support policies. Thailand, has also increased sugar production dramatically in response to incentives. Cuba, on the other hand, has only experienced marginal increases in production over the past decade because of shortages of labor and land. Supply elasticities are given in Table III-A2. Table III-A]: SUGAR PRODUCTION 1954/56 - 1974/76, BY COUNTRY Prductonofo t o ar Shares In World Tt tal Production Crom#th Rate La 1954/56 1964166 1974176 1954156 1964/66 1974/76 1951/77 1966/77 ----- ('000 metric t)------------ (percenL)---------- ---(percent per allum)----- Ill.) J8,888 63.068 821 345 100.0 100.0 100.0 3.7 3.0 Developed Contit ries 13,818 20,621 25,507 35.5 32.7 31.0 3.3 2.5 U1 4,347 5,753 5,930 11.2 9.1 7.2 1.7 0.7 123 151 125 0.3 0.2 0.2 0.0 -0.8 5,956 8,233 10,278 15.3 13.0 12.5 3.0 3.0 ther Westerne Eckropc 1,328 2,471 3,540 3.4 3.9 4.3 . 4.7 4.0 -Aapan 60 505 530 0.2 0.8 0.6 12.4 -1.1 Ocednia 1,211 2,174 3,081 3.1 3.4 3.8 5.1 3.0 Soutlj Akrica 791 1,335 2,017 2.0 2.1 2.4 5.3 3.1 Ceiii al ly Plamed FEconoie 7278 1,343 16.598 18.7 24.3 20.2 4.1 0.6 USSR 3,623 8,787 8,409 9.3 13.9 10.2 4.4 -0.9 Ea,tern Eurupe 2,916 4,355 4,222 7.5 6.9 5.1 1.6 0.6 Asia 739 2,20 3,967 1.9 3.5 4.8 9.0 4.9 Develtping Cou,ttrics 17,810 27,105 40 240 45.8 43.0 48.9 3.8 4.5 Airica 1,190 2,074 3,344 3.1 3.3 4.1 4.0 Asia 4,942 7,970 12,6113 12.7 12.6 15.4 4.8 6.0 Inina ,718 3,322 4,857 4.4 5.3 5.9 5.1 5.4 iEdonesia 785 698 1,105 2.0 1.1 1.3 2.0 6.7 1hilippin§es 1,273 1,611 2,771 3.3 2.6 3.4 3.7 6.5 Talwan 763 963 803 2.0 1.5 1.0 0.7 0.5 *liland 40 252 1,319 0.1 0.4 1.6 16.3 21.8 other Auia 363 1,124 1,828 0.9 1.8 2.2 8.6 3.4 l.aiIn Amkler!cO 11,678 17,061 24,213 30.0 27.0 29.4 3.2 3.9 Att;eatilna 726 1,112 1,480 1.9 1.8 1.8 3.3 6.3 firazil 2,153 3,949 6,822 5.5 6.3 8.3 5.7 7.0 Cottmi,i 252 483 933 0.6 0.8 1.1 6.8 4.8 ålerna 651 784 962 1.7 1.2 1.2 2.0 2.7 other Sautl America 548 1,156 1,754 1.4 1.8 2.1 6.1 2.8 Cn,a 4,719 5,180 6,168 12.1 8.2 7.5 0.5 1.5 D01miijhcank lepublic 692 700 1,229 1.8 1.1 1.5 2.6 5.8 Mexico 893 2,102 2,728 2.3 3.3 3.3 5.6 1.8 Other Mliddle America 1,045 1,595 2,136 2.7 2.5 2.6 3.6 3.3 La (:(mta-ipttd by regressiig the logaritinn of produaction on timm. TIte starting and tite ending year of die second period each fullov by eltrec years the years of record sugar pricen of 1963 and 1974 reapectively. sonuce: Internat ional Stigar Organi zation. February 1981 111-3 Table III-A2:PRICE ELASTI:ITIES OF PRODUCTION A AVE?.AGE 1955-1977 RUDUCTION LEVELS AND AT T'O DIFFERENT 1970 PR.C! LzE.LS, !Y COUNTRY Medium Term Short Long Run Elasticity at :er- Elasticit at Country L'Sc 10/kg USc 20/ka Elasticity U Sc 10/kg LS: 20ki WORLD .050 .099 .046 .791 1.202 US - - .036 .225 .225 Canada .088 .176 - .106 .212 EEC .061 .122 .047 .629 .984 Other Western Europe .159 .318 .062 1.120 1.927 Japan - - - - * Oceania .099 .199 .015 .812 1.518 South Africa .1250 .249 - .666 1.330 Soviet Union .012 .023 - .035 .069 Eastern Europe .041 .082 .016 .178 .287 Centrally ?lanned Asia .062 .123 .1-8 .884 1.144 Africa .056 .111 .004 .512 .987 India .041 .082 .120 .462 .580 Indonesia .191 .382 .206 .581 .861 Philippines .009 .017 .17 1.364 1 Taiwan .090 .181 .220 .167 .304 Thailand 1.093 2.186 .06 4.559 7.7'9 Other Asia .165 330 .717 1.434 Argentina .064 .128 .171 .692 .880 Brazil .151 .301 .083 2.026 3.334 Colombia .014 .029 .076 . .666 .773 Peru - - .059 .183 .183 Other South America .006 .012 .062 .314 .342 Cuba .079 .158 .009 .123 .233 Dominican Republic .037 .075 .035 .255 .387 Mexico .027 .054 .033 .26r .390 Other Central America .075 .150 .052 1.063 1.693 Note: The eLasticities are derived by estimating for each countr for the period 1955-1977 the following equation: S a + b log QAV-3 cPAV + d log ?C -3 where: Q = production QAV three-year zencered average of producti.n ? world free 7arket price of sugar (TSA dai.y price) deflatec by the Bank's Index of :nternational ?rices. PAV = three-year -en:ered average of world free =arket prize PC= average of world free market price in zurrent and in previous year. February 1981 111-4 B. Cost of Production 4. The cost of production (in 1977 constant dollars) among major producers of raw sugar ranges from about 14 to 18/lb. for beet sugar and from about 9 to 174/lb. for cane sugar. The position of a country within these ranges of costs depends on tne following characteristics in their sugar economy: (i) the productivity and cost of cane or beet per unit of land; (ii) the extraction rate of sugar from sugar cane or beet; (iii) the age and management efficiency of processing facilities; and (iv) wage rates. 5. The lower cost producers are those with advantages in some or all of these elements (e.g. Brazil, Colombia, El Salvador, Guatemala, Fiji, and the Philippines). Although there is considerable variation among them, developing countries generally have the advantage over developed countries with regard to labor. Some developed countries (Australia) are, however, able to offset this disadvantage with better management and higher land pro- ductivity. In general, however, the high opportunity cost of using land in developed countries further contributes to their problem of high unit costs. 6. There are several disadvantages that production of beet sugar in the temperate zone of developed countries, suffers in comparison with cane sugar produced in the developing countries: first, land charges and rent are relatively higher in developed countries than in developing countries; second, beet sugar, being an annual crop, is constrained by competition for cropland with other annual crops; third, the overhead cost of producing sugar beet is normally higher than of producing sugar cane because the harvesting season for beet is only about three months compared with cane (about five to six months), thereby causing sugar factories to remain idle longer if they are to depend on beet rather than cane as the source of sugar; fourth, labor and management costs are generally lower in developing countries than in developed countries producing beet sugar, and the labor component in total cost in cane producing countries is about 70 percent. February 1981 111-5 C. Production Policy 7. Generally speaking the developing sugar producing countries do not regulate their production through price support programs or other pro- tective measures, although some of them tend to subsidize consumption, forcing domestic prices below production and distribution costs. Sugar production in the USSR and Eastern Europe is regulated through production goals and import quotas, but we have few details on this. Countries which take strong measures to regulate their domestic production are the United States, the European Communities and Japan. 8. Domestic production (and imports) in the United States have long been regulated through successive U.S. Sugar Acts, which date from the 1930s. The primary purpose of these acts was to provide a remunerative and stable income to domestic sugar producers through direct government subsidies. 9. The European Communities sugar policy was agreed to in 1966 and became operative in July 1968. It is essentially a system of trade barriers and production subsidies designed to support domestic producers and to en- courage self-sufficiency in sugar. This arrangement is totally impenetrable to imports, and in fact penalizes member countries that fail to achieve self- sufficiency. 10. In Japan, government policy is aimed at protecting domestic producers of sugar through a system of subsidies and controlling the increase in consumption through a consumer tax. The system has not been able to encourage expansion of sugar production in the 1970s due to competition from similar incentives to other crops. Japan remains the second largest importer of sugar from the free market. Further details on production policy and how it impacts on trade are given in Section V, Trade Protection of Sugar. February 1981 111-6 REFERENCES 1. Anwar, Abdul Aziz; Production of Sugar: Policies and Problems. Lahore, 1971. roard of Economic Irquiry. Punjab (Pakistan). Publications No. 148. 2. Brunner, Heinnich; Cuban Sugar Policy from 1963 to 1970. Translated by Marguerite Borchardt. University of Pittsburgh Press, 1977. 3. David Livingstone; Institute of Overseas Development Studies, Glasgow. "A Report on a Pilot Investigation of the Choice of Technology in Development Countries", 1975. 4. de Vries, J., "The World Sugar Economy: An Econometric Analysis of Long Term Developments", World Bank Staff Commodity Working Pzper No. 5, November 1980. 5. Frank, Charles R. "The Sugar Industry in East Africa; and Analysis of Some Problems and Policy Questions Relating to the Expansion of the Sugar Industry in a Developing Economy". (Nairobi). East African Institute of Social Research, by East African Publishing House, Nairobi, 1965. 6. Hagelberg, E., "The Caribbean Sugar Industries: Constraints and Opportunities". Antilles Research Program, Yale University; New Haven, Conn., 1974. 7. International Sugar Council. The World Sugar Economy; Structure and Policies (London) 1963. 8. International Sugar Organization Statistical Bulletin, London, Annual. 9. U.S. Department of Agriculture, Foreign Agricultural Service, "Foreign Agricultural Circular: Sugar". Washington D.C. (Monthly). 10. U.S. Department of Agriculture, Foreign Agricultural Service. "Sugar: World Supply and Distribution", Washington, D.C. (Annually from 1976). 11. Warley, T.K., ed. Agricultural Producers and Their Markets. Blackwell, Oxford, 1967. 12. World Bank "The World Sugar Economy: Review and Outlook for Bank Lending", Board Paper No. 1394, February 1978. 0 February 1981 IV-1 IV. SWEETENER ONSUMPTION A. Sugar Consumption 1. Between 1966 and 1977, world consumption of sugar grew at an average anr..al rate of about 2.8 percent, rising from 59 million to 82 million tons. Growth in the developing countries averaged about 4.6 percent per year while in centrally planned economies it was 3.3 percent. Consumption in developed countries, however, grew at only about 1.1 percent annually during the same period (Table IV-Al). The differences in consumption growth are essentially accounted for by (a) differences in population growth; (b) income growth and different responses to income growth (i.e. income elasticities); (c) the effect of prices and changing tastes. Higher per capita consumption is usually accompanied by a lower consumption response to increased income. Growth in consumption over the last decade has been at a slower rate than the previous decade. On a per capita basis, the yearly growth in world consumption during 1959/61 to 1974/76 averaged about 1.3 percent. The yearly growth was rather sharp in the centrally planned economies (2.4 percent) followed by the developing countries (2.0 percent) and the developed countries (0.9 percent). However, per capita consumption in the developed countries (41.7 kg.) still remains three times as high as in the developing countries (Table IV-A2). 3. In most of the developed countries that consume over 40 kg. of sugar per capita (especially the US, Canada and Western Europe), income elasticities are low (between 0.1 and 0.2) so that consumption increases at about the same rate as polpulation (under relatively stable price conditions). For the developed countries at the lower range of per capita consumption (Greece, Turkey, Spain, Portugal and Yugoslavia), demand is more elastic (0.3 - 0.8) and population growth is invariably higher, so that consumption growth is also faster (6-7 oercent annually). Table IV-Al: SUGAR CONSUMPTION 1954/56 - 1974/76, BY COUNTRY ConsumptLion of Sugar ___ Shares in World Total Consugtion Growth Rae a 1954/56 1964/66 1974/76 1954/56 1964/66 1974/76 19S1/77 1966/77 ------- ('000 metric tone)------ -----------(percenL)-----------------(percent per annm)--- WORIJ) 39444 596 12,814 100.0 100.0 100.0 .7 2. Developed Countries 20,960 26,744 31 53.1 45.3 39.4 . A1 us 7,881 9,309 9,822 20.0 15.8 12.3 1.4 Canada 730 916 1,002 1.8 1.6 1.2 2.1 0.2 "E:EC 7,738 9,663 10,684 19.6 16.4 13.4 1.8 0.2 Other Western Europe 2,230 3,322 4,621 5.6 5.6 5.8 4.0 2.9 Japan 1,111 1,939 3,105 2.8 3.2 3.9 6.0 3.6 Oceania 675 808 980 1.7 1.4 1.2 1.6 1.8 Souith Africa 596 825 1,220 1.5 1.4 1.5 3.3 4.9 Ceint ally Planned Economies J,46 15,141 20,862 18.6 25.6 26.1 LI 3.3 USSR 4,185 9,309 11,518 10.6 15.8 14.4 S. 2.6 Eastern Europe 2,267 3,299 4,614 5.8 5.6 5.8 3.7 2.8 Asia 897 2,524 4,730 2.3 4.3 5.9 9.3 5.6 Developing Countries 11137 17 172 27,519 28.2 29.1 34.5 4,_ 4.6 Africa 1,579 2,462 3,899 4.0 4.2 4.9 Asia 4,471 6,772 10,791 11.3 11.5 13.5 5.0 4.6 India 2,034 2,811 3,888 5.2 4.8 4.9 4.0 4.0 lindonesla 585 594 1,287 1.5 1.0 1.6 4.0 8.3 11lilippines 271 520 881 0.7 0.9 1.1 5.9 5.1 Taiwan 107 141 304 0.3 0.2 0.4 5.S 6.6 Tllan.1d 65 178 539 0.2 0.3 0.7 10.5 10.9 Other Asia 1,405 2,537 3,892 3.6 4.3 4.9 5.6 3.3 Latin America 5,086 7,937 12,829 12.9 13.4 16.1 4.6 4.6 Argentina 665 852 1,059 1.7 1.4 1.3 2.1 2.0 Brazil 1,903 2,776 4,886 4.8 4.7 6.1 4.6 5.7 Colombia 223 390 788 0.6 0.7 1.0 6.3 7.7 Peru 197 336 550 0.5 0.6 0.7 4.8 5.4 Othe South America 613 975 1,427 1.6 1.6 1.8 4.5 3.5 Cuba 241 478 518 0.6 0.8 0.6 3.7 -2.2 Domiican Republic 56 108 16n 0.1 0.2 0.2 5.3 4.3 4 Mevxio .( 872 1,485 2,540 2.2 2.5 3.2 5.4 5.1 OIWL~ Mliddle America 317 535 893 0.8 0.9 1.1 5.1 5.2 a Computed by regresSing Lte logarithm of consumption on Lime. Ite starting and the ending year of Me esons period eh follow by three years tihe years of record 1ugar price1 of 1963 and 1974 respectively. Source: Inte~rnationa- Sugar Organizataon. February 1981 IV-3 Table IV-A2:SUCAR - ?ER CAPITA C0NSUPTION, PER CAPITA INCOME AND CONSTANT INCCME AND ?RICE ELASTICITIES OF DE.A%D BY COUNTRY Consumption Production Income Price Country of sugar of sugar Income Elasticity Elasticity 1974-1976 1974-1976 1975 of demand of demand (---Kg/cap --- ---- USicap US 45.9 28 7,079 .09 -.036 Canada 43.9 5 6,824 .21 -.077 EEC 41.3 40 5,209 .22 -.044 Other Western Europe 43.6 33 3,673 .80 -.048 Japan 28.0 5 4,392 .65 -.086 Oceania 46.3 146 4,562 - -.001 South Africa 49c.4 82 1,399 .29 - USSR 45.2 33 1,902 .34 - Other Eastern Europe 42.5 39 2,512 .51 -.036 Centrally Planned Asia 5.6 5 367 1.64 -.117 India 6.3 8 147 1.31 - * Indonesia 9.5 8 223 1.18 -.036 Philippines 19.9 62 353 1.43 -.006 Taiwan 19.0 50 921 .73 -.006 Thailand 12.8 31 344 1.94 - Other Asia 8.8 4 579 .60 -.125 Argentina 41.7 58 1,840 .22 - Brazil 44.5 62 995 .41 Colcmbia 30.4 36 524 1.60 Peru 35.8 63 807. .90 - Other South America 34.0 42 1,178 1.06 -.039 Cuba 54.6 651 1,151 - -.176 Dominican Republic 32.9 240 705 .43 -.050 Mexico 42.9 46 1,336 .68 - Other Middle America 27.9 67 938 .94 - Africa 12.2 11 . 417 .78 -.021 NB: The elasticities have been estimated by fitting the following equation to data for the period 1961-1977 for each countr7: log CCAP - a + b log YCAP + c log P where: CCAP - per c2pita consumption YCAP = per capita income at 1975 prices and exchange rates. P - world market price of sugar (ISA daily price) deflated by the Bank 's Index of International Prices. February 1981 IV-4 4. Consumption per capita of sugar in East Europe has caught up with Western Europe, both in actual level and growth. In contrast, con- sumption per capita in the Asian centrally planned economies (mainly in China) is relatively low (about 5 kg.), even as compared to Asian developing countries. 5. Among the developing countries, per capita consumption of sugar is relatively high (30-50 kg.) in the Central and South American countries which export sugar (e.g., Brazil, Colombia, Dominican Republic) and their income elasticities are close to those in Southern Europe, ranging from 0.3 to 1.0 . On the other hand, consumption per capita is generally low (between 5 and 20 kg) in Asia and Africa (even for sugar exporting countries) 1/. Income elasticities are consequently high (between 0.8 and 2.0). (See Tables IV-A2 and IV-A3). B. Sweeteners 6. Sugar demand, in the United States, has been affected by substi- tute sweeteners whose share in the total sweeteners consumption has been in- creasing significantly in the past few years. Corn sweeteners, particularly the newly developed high fructose corn syrup, have become the major compe- titors of sucrose. Globally, however, corn syrup remains a relatively small percentage of world sugar consumption (about 2 percent). 7. One of the most important factors which has contributed to the fast development of HFCS production is its cost advantage vis-a-vis sugar, acquired in recent years. That advantage may not hold if the price of sugar declines substantially, but indications are that the average cost of pro- duction of HFCS is substantially below the average cost of production of sugar in the United States. Studies by some authoritative sources indicate that the 1/ Such a situation is largely due to the fact that either a large proportion of sugar is still consumed domestically in unmilled form, and/or government policies have been geared to encourage production for exports rather than for domestic consumption. February 1981 IV-5 Table IV-A3: smean cwstw-Oi mOtUS, 1961-77, 3Y cowr Comny quelon b C.veu. e C-veluc Ng it 2 Doveloped Counerte US g C - a 4 b/y eP 9.39 -461 11.1 -.006 5.5 1.34 .89 log CC a + b/YCA *CP 4.43 -.66 2.2 -.003 6.5 1.34 .74 C d g C0 a + b/Y + CP 7.38 - S0 7.8 -,~00 2.3 3.03 .80 lag CCAP - a + b/YCAP + CP 4.11 - 1.09 2.1 -.005 2.3 2.66 .32 EC Cog C a + b/Y ecP 9.60 -369 7.2 •.003 2.6 1.81 .78 log CCAP - a + b/WYCA - cP 3.97 -.98 3.7 -.004 2.7 1.70 .51 other VGscern Zuropc log C - a + b/Y + e 9.06 -224 24.4 -.002 2.1 0.84 .98 log CAP - a + b/CAP+ cP 4.42 - 2.16 24.5 -.003 3.0 1.10 .98 japen log C - a . b log Y+ cP 3.86 .70 25.6 -.007 4.6 1.53 .98 log CCAP - a + b/YCAP + cP 3.82 - 1.66 15.8 -.006 2.8 1.04 .94 Oceania log C - i + b/y 7.16 - 30 14.8 1.02 .93 log CCAP - a + cP 3.83 -.000 0.2 1.60 .03 South Africa la log C •a + b tog Y 2.85 1.19 16.6 1.48 .98 log CCAP ? a + b/YCAP 4.07 -.33 2.2 0.32 .23 Caerött, PIanned Ecenoat 3S$R tog C - a + b/Y 9,63 -138 9.0 2.27 .84 log CCAP - a + b/YCA 4.05 .45 5.7 2.33 07 .scern Europc log C - a + b/Y - cP 9.82 - 95 28.5 -.001 1.7 1.05 .98 log CCAP - a b/YCAP cP 4.13 -.84 21.0 -.002 1.9 1,00 .97 Acta C - a + b log Y * c log P -2897.00 4597 19.2 .249 2.4 1.21 .97 CCA + 0 yCA c log ? -1.44 23.07 14.1 -.473 3.3 1.45 .94 CCAP a + log YCAP + c log P 12.51 6.20 9.6 -.347 1.8 1.78 .88 Africa log c a b 10 Y log P 3.99 .89 38.0 -.021 1.9 1.61 .99 CCAP • a -b TCAP c c log P 2.51 24.4 18.1 -.242 2.0 1.69 .96 CCAP a b log TCAP - c lag P 20.27 8.55 16.0 -.194 1.4 1.41 .95 :ndlog C a b lag Y 3.12 1.15 7.1 1.30 .76 CCAP a •b TCAP -2.33 60 2.4 1.30 26 CCAP a -b 0og YC.A2 22.21 j.,2 2.4 1.30 .26 .ndones1a log0 C* a - b log y 2.98 1.22 9.1 1.68 .84 CCAP a - b TCAP -2.45 52.97 7.6 1.61 .75 CCAP * a + b log TCA 24.62 10.1d 7.8 1.66 .79 Itlippines lag C • a + b/Y - c log P 7.54 -11.42 15.1 -.006 0.2 1.39 .95 CcAP - a + b log YWA - c log ? 40.75 18.63 5.5 -.471 0.6 1.18 .71 Livan lo, C - a + b log Y + e log ? 2.52 .91 17.2 -.009 0.2 1.06 .96 C.1 a + b log TCAP 19.26 10.47 12.7 0.96 .91 hailand log C a + b log Y 2.12 1.54 11.8 1.95 .90 CWAP - a - b YCA? 27.57 14.79 :0.0 1.52 .56 Other Acia log C - a + b log Y + c log ? 4.61 .74 16.8 -.131 4.4 1.11 .95 CCAP - + b YCAP + e lo; P 6.14 10.69 7.2 -1.0353 3.6 0.84 .78 CCAP • . - b log TCAP - e log p 15.57 5.53 2.0 -1.094 3.5 1.08 .81 Argentina log C - a - b log Y 5.15 .47 7.0 2.40 .76 CCAP - a + b log TCAP 35.68 8.77 2.2 2.23 .23 3rasLl log C - a + b log Y 5.51 .63 24.1 2.34 .97 CCAP - a + b log YcAP 43.37 15.39 9.3 1.92 54 Calombia log C - a b 6 log Y 3,42 .96 21.5 1.48 .98 CCAP - a + b log YCAP 5.44 39.68 17.0 . 1.10 .95 Peru log C - a b log 7 3.35 .96 21.5 0.97 .97 CCAP - 8 + b log TCAP 40.24 27.50 8.1 0.88 .80 Other South Amcrica log C - a + b log Y + c log ? 3.37 1.03 15.4 -..41 1.6 2.21 .95 CCAP - a + b log TC - c log P 32.48 31.92 7.0 -1.103 1.5 2.18 .78 Cube log C - a + b/Y + c log P 8.10 -10.54 3.7 ..290 3.7 0.96 .52 CCA - 8 + 0 log ? 86.53 -11.411 3.3 0.70 .40 D.nDican ORpubltc C 8 + b log Y + e log ? 74.48 87.34 11.9 -6.127 1.4 1.60 .92 CAP - a + b log YCAP - e log ? 41.90 12.59 3.0 -.48 1.0 1.36 .40 Mexico log C - a +b log Y 4.12 .85 40.0 1.14 .99 CCAP - 8b b log yCAp 34.85 24.93 15.1 1.26 .94 3ther Y4dde Ar.crca log C - a b ;og Y 3.42 .98 28.2 0.47 98 CCAP - a + * log TCA? 27.95 21.42 12.6 0.35 .91 The equations in thi-s table use the following notatifon: C = cotal cor.sumptiocn in thousands of -etric tons CCAF = per capita consumption in kiIograms Y - GDP at 1.975 constan: prices and exchange rates in billions of 1S fc'lars YCAP = per capita GDP in thousands of iS dollars P - free market price of sugar jn 1970 US cents a kilogram (deflator: index of internaticna! ?rices). February 1981 IV-6 cost of HFCS production (including capital cost) is in the range of 14-16c/ lb. (refined sugar equivalent basis). This implies that if raw sugar prices fall below 10f/lb. (f.o.b. Caribbean ports) 1/, HFCS will lose its cost advantage. However,a domestic US sugar producer cannot produce sugar pro- fitably at l0e/lb. Therefore in the long run sugar is expected to continue to lose ground in some end uses in competition with HFCS 2/. 8. Table IV-Bl presents data on sugar and HFCS for the US. Because of an almost doubling of manufacturing capacity for HFCS since 1976, HFCS now replaces approximately 20 percent of US sugar consumption. 9. Development of HFCS in Europe is likely to be slower. While North America exports corn and imports sugar, the reverse is true for most of Europe (particularly the EC). In addition, the European sugar beet lobby is powerful. It nas already campaigned to bring HFCS into the Common Agri- cultural Policy for sugar, which would mean production quotas. 10. On the other hand, political and economic difficulties in the way of producing HFCS in the EC could be somewhat reduced if wheat were used instead of corn, since it is normally in surplus in the EC. In fact, a Belgian firm is already attempting this, although several technical problems related to producing HFCS from wheat remain unresolved. 1Production of HFCS in Japan started in 1976, but initial progress is likely to be even slower than in Europe, since Japan is an importer of sugar, corn and wheat. 1/ The refining margin is about 5-6c/lb. 2/ Details are given in E. Brook, "High Fructose Corn Syrup: Its Significance as a Sugar Substitute and Its Impact on the Sugar Outlook", Commodities and Export Projections Division, Commodity Paper No. 25. February 1981 IV-7 Table IV-Bl: DELIVERIES OF SUGAR AND HFCS IN THE US BETWEEN 1972/73 AND 1975/76 (thousand metric tons) Quarter 1972/73 1/ 1973/74 1974/75 1975/76 Year A. U.S. Sugar and HFCS Deliveries 2/ I 2,406 2,533 2,245 2,451 II 2,497 2,556 1,698 2,435 III 2,713 2,712 2,477 2,782 IV 3,000 2,969 2,954 3,007 TOTAL 10,616 10,770 9,374 10,675 B. U.S. Sugar Deliveries I 2,360 2,477 2,153 2,301 II 2,444 2,499 1,589 2,272 III 2,659 2,654 2,352 2,536 IV 2,944 2,892 2,812 2,740 TOTAL 10,407 10,522 8,906 9,849 C. I.S. WPCq neliveries I 45 56 93 150 II 53 56 109 163 III 54 59 124 245 IV 56 77 141 268 TOTAL 208 248 467 826 1/ Year beginning October 1. 2/ In dry weight refined sugar equivalent. Sources: USDA and Schnittker Associates. February 1981 IV-8 12. HFCS development will be very limited in developing countries because industrial use of sugar is limited, the availability of corn is also limited, and sophisticated distribution, storage and handling systems would be required. Table IV-B2 presents details of HFCS output. C. End Uses of Sugar 13. Data providing statistics on the final product of which sugar is an ingredient are difficult to obtain for most countries except the US. However, to the extent that consumption patterns in developed countries are similar to the US (adjusting for income and taste differences) so the end uses of sugar will be similar. In developing countries most sugar is consumed as sugar in the household. 14. In the United States, sugar and its substitutes are used mainly for household purposes and in the manufacture of beverages, canned food, dairy ice creams, bakery products and cereal products (Table IV-Cl). Table IV-Cl: END USES OF SUGAR IN THE UNITED STATES Food Industry Share in Total (%) Beverages 22.3 Bakery and Cereal 13.7 Confectionary 9.7 Canned Foods 9.0 Dairy Ice Cream 5.4 Other 6.1 Domestic Use 33.8 TOTAL 100.0 Sources: USDA, Sugar Shipment; First Manhatten Co., and Westway Newsletter. February 1981 IV-9 Table IV-B2:HIGH FRUCTOSE CORN SYRUP PRODUCTION AND PRODUCTION CAPACITY, BY COUNTRY Production Production HFCS as 2 of Sugar Country - Capacity 1979 Consumption /a Jan. 1980 US 2,400 1,650 17 Canada 150 135 /a 12 EEC 272 170 2 Japan 310 280 /a 9 Total 3,132 2,235 Total Raw Sugar Equivalent /b 3,350 2,400 10 /a IBRD guesswork. /b Assuming 1:1 equivalece between HFCS dry basis and white sugar. Source: High Fructose Co-- Syrur World Outlook, San Francisco: McKeany Flavell Company, Inc., March 25, 1980 (rimeo). NB: There is no known HFCS capacity outside the countries in this table. JdeVries:dk April 10, 1980 EPDCE February 1981 IV-10 15. The largest users of sugar are households where it is used as a sweetener in beverages and cereals, and in home baking, preserving, etc. In manufacturing, the beverage industry (largely carbonated "soft" drinks) are the largest consumers followed by bakery and cereal manufacturing. February 1981 IV-11 REFERENCES 1. Brook, E., "High Fructose Corn Syrup: Its Significance as a Sugar Substitute", World Bank, Commodity Paper No. 25, April 1977. 2. de Vries, J., "The World Sugar Economy: An Econometric Analysis of Long Term Developments", World Bank Staff Commodity Working Paper No. 5, November, 1980. 3. International Sugar Council. The World Sugar Economy; Structure and Policies (London) 1963. 4. International Sugar Organization Statistical Bulletin, London, Annual. 5. Smith, Ian; The European Community and the World Sugar Crisis. Staff Paper No. 7. Trade Policy Research Center, London, 1974. 6. The Sugar Situation. Washington U.S. Dept. of Agriculture, Agricultural Marketing Service. Quarterly. 7. U.S. Dept. of Agriculture, Foreign Agricultural Service, "Foreign Agricultural Circular: Sugar". Washington, D.C. (Monthly). 8. U.S. Dept. of Agriculture, Foreign Agricultural Service. "Sugar: World Supply and Distribution", Washington, D.C. (Annually from 1976). 9. Viton, Albert and F. Pignalosa, "Trends and Forces in World Sugar Consumption", International Sugar Council, London, 1959. 10. World Bank, "The World Sugar Economy: Review and Outlook for Bank Lending", Board Paper No. 1894, February 1978. February 1981 V-1 V. SUGAR TRADE 1. In 1974-76 world sugar trade amounted to some 22 million tons, or about 25 percent of world production. The share of production that enters world trade has been slowly declining over the past 20 years. Industrialized country policies were the main reasons for this decline. In these countries production increased at about the same rate as elsewhere in the world (about 3 percent per year), but consumption increased at only about 2 percent annually, and the region's net import requirements decreased in absolute terms. 2. Of world gross exports, around half came from the developing countries. For a long time the Philippines was the largest exporter among the developing countries, but it was recently overtaken by Brazil, which now accounts for about 8 percent of world exports. Most of the exports of this group came from Australia, which supplies about 10 percent of the world export market. Another important exporter is the EC, which recently became a net exporter. Since it also reexports sugar imported from associated countries, its exports are a major factor in the world sugar market. The remainder of world exports come mainly from Cuba, which alone exports about one quarter of the world total (Table V-1). 3. Over half of total world imports are absorbed by the in- dustrialized countries, with the US and Japan accounting for about 20 percent and 12 percent of the world total respectively. A further 20 percent of world imports go to the centrally planned economies. Well over half of this goes to the 6 -iet Union. The remaining 20 percent to 25 percent goes to the developing countries, with most of it going to countries in Asia and Africa (Table V-2). 4. About 25 percent of international trade occurs under special arrangements which insulate it from the free market. The EC imports about one and one half million tons of sugar from associated countries at prices as much as double the prevailing world market price, and the Soviet Union and Eastern Europe provide a guaranteed market for a part of Cuba's sugar at unknown prices. Until 1974, trade with the US was also conducted at preferential prices, but this arrangement has since been abolished. Tatle V-1: SUCAR EXPORTS 1954/56-1974/76, BY COUNTRY Exorts! ofSugar Shares in World Total Export Grovtli Rate ej 1954/56 1964/66 1974/76 1954/56 1964/66 1974/76 1951/77 1966/77 ----- ('000 uetric ton&)--------- ------------ (percent)------------ --(percent per a4nufim)-- W01IL.) 14,036 18.504 21,638 100.0 100.0 100.0 2.4 2.4 Developed Countries 3 020 3 648 4.587 21.5 19.7 21.2 3.0 5.1 US 39 3 11 .3 .0 .5 -5.0 42.3 Canada 1 17 61 .0 .1 .3 - 17.7 EEC 2,058 1,587 1,233 14.7 8.6 5.7 -1.5 5.7 Otier Westeri Europe 34 150 164 .2 .8 .8 6.2 4.5 Japan 25 2 43 .2 .0 .2 - 16.7 Oceania 655 1,349 2,142 4.7 7.3 9.9 7.4 4.1 Soitih Africa 209 539 832 1.5 2.9 3.8 11.5 4.1 Centrally Planned Economies Li u, L11 6_4 L6 3. 6§ .0 -16.9 USSR 215 776 85 1.5 4.2 .4 - .9 -35.5 Eastern Euirope 838 1,251 501 6.0 6.8 2.3 -1.0 -8.5 Asia 10 487 63 .1 2.6 .3 9.0 -21.2 Develøping Countries 9 947 12,342 16_401 70.9 66.7 75.8 2.4 3.6 Atrica 668 1,037 1,151 4.8 5.6 5.3 3.1 1.9 Asia 2,079 2,897 3,938 14.8 15.7 18.2 3.0 6.9 India - 55 792 - 1.8 3.8 - . 10.0 Indonesia 195 81 - 1.4 .4 - - - Philippines 949 1,101 1,385 6.8 6.0 6.4 2.6 5.7 Taiwan 617 826 491 4.4 4.5 2.3 - .6 -2.4 Tlia l land - 55 792 - .3 3.7 - - Otier Asia 318 507 436 2.3 2.7 2.0 1.6 - .7 L.atin Aierica 7.200 8208_ 11314 51.3 45.4 52.3 2.1 2.7 Argentina 28 53 383 .2 .3 1.8 - 22.7 Brazil 251 697 1.762 1.8 3.8 8.1 13.6 8.0 Coloiiihla 29 80 142 .2 .4 .7 - - Peiu 444 416 3119 3.2 2.2 1.8 .0 - .7 Other Souih America 255 347 470 1.8 1.9 2.2 3.0 .4 Cuba 4,755 4,642 5,666 33.9 25.1 26.2 .3 1.6 Dominican Iepublic 617 585 1,010 4.4 3.2 4.7 2.3 6.1 Mexico 62 515 242 .4 2.8 1.1 - - Otlher Middle Amerlca 758 1,072 1,250 5.4 5.8 5.8 3.1 2.1 /a Computed by regressing tie logartim of exports on time. If there vere no exports reported in one or mere of the yeare concerned, no growth rate was computed. The starting and ending yeare of the aeconl period eaci follov by tiree year* the years of record augar prices of 1963 and 1974 respectively. Source: International Sugar OrganIzatlon. Table V-2: SUCAR IMPORTS 1954/56-1974/76, BY COUNTRY lu11PortsofS'uar Shares In World Total Import Crowth Rate a 1954/56 1964/66 1974/76 1954/56 1964/66 1974/76 1951/77 1966/77 ('000 metric tons)------- ----------(percent)------------ --(percent per anntum)-- WORLD 14,012 17, 21 456 100.0 100.0 100.0 2.4 2.5 Developed Counttries 9,708 10.809 1I961 69.3 60.2 -.8 1A .9 US 3,694 3,675 4,331 26.4 20.4 20.2 1.2 .5 Canada 622 784 976 4.4 4.4 4.6 2.8 1.5 EU 3,349- 3,410 2,132 23.9 19.0 9.9 -2.8 -3.8 Other Western Europe 879 1,266 1,642 6.3 7.0 7.6 2.6 2.3 Japan 1,047 1,463 2,637 7.4 8.1 12.3 5.2 4.8 Oceania 118 152 204 .8 .8 1.0 2.7 3.5 South Africa - 58 39 - .3 .2 - - Centrally Planned Economies 938 3196 4.662 6.7 17.8 21.7 9.7 4.9 USS 630 2,008 2,951 4.5 11.2 13.8 8.5 7.0 Easterni Europe 137 510 904 1.0 2.8 4.2 14.5 1.3 Asia 171 677 807 1.2 3.8 3.8 10.8 2.4 Developing Countries 3363 4L3 4 836 24.0 22.0 22.5 7 3.8 Africa 1,087 1,612 1,859 7.8 8.7 8.7 3.0 3.5 Asia 1,869 2,179 2,727 13.3 12.0 12.7 3.3 3.8 India 467 - - 3.3 - - - - Indonesia - 8 121 - - .6 - 15.7 Philippines - - - - - . - Tawan - - t1hailand 20 - - .2 - - - - Other Asia 1,380 2,172 2,606 9.8 12.0 12.2 3.6 3.1 1.atini America 407 247 250 2.9 1.4 1.2 -1.6 4.7 Argentina - - - - - - - - Brazil - - - - - - . - Colombi a - - - - - - - - Peru - - - - - - - Other South America 369 226 220 2.6 1.3 1.0 -1.6 3.7 Cuba - - - - - - Dominican Republic - - - - - . . . Mexico 11 - - .1 - - - - Other Middle America 28 21 29 .2 .1 .1 2.4 7.4 /a Computed by regressing the logarithm of imports on time. If there were no imports reported in one or wore of the years concerned, no growth rate was computed. The starting and the ending years of the secnd period each follow by three years the years of record sugar prices of 1963 and 1974 respectively. Source: International Sugar Organization. February 1981 V-4 5. Most sugar is traded in its raw form (approximately 73 percent), and is shipped in bulk to be refined at the country where it is consumed. However, as Table V-3 demonstrates, a number of countries import raw sugar and export refined sugar. These tend to be developed countries such as the US, Canada, and Japan. The corollary is that many exporting countries export raw sugar and import refined sugar. This pattern of trade has recently come under scrutiny from several developing country exporters who would like to add domestic value to their exports by further refining their raw products. Such developments are resisted by refiners in developed countries becaue they already have plants in place which might be idled. 6. International Sugar Agreements have been in effect inter- mittently since 1954. The 1968 Agreement expired in 1972. A new Agreement was negotiated in 1977. Participation is more comprehensive than in the 1968 Agreement because most of the large importing countries, including the US have become members. An important exception is the EC, which decided not to join the Agreement at this stage. 7. The Agreement covers the following main elements: (a) a target price range of 11-21c/lb; (b) a reserve stock of 2.5 million tons (to be accumulated over three years), held by exporting countries and controlled by the Council of the International Sugar Organization; and (c) export quotas, which will be suspended at 15c/lb. and reimposed at 14^/1b. Despite the fact that the Agreement entered into force in 1978, however, its provisions are not yet fully operative since ratification of the Agreement by the US has been held up by the inability of the US Congress to agree on domestic sugar legislation. Also the EC and a number of importing developing countries did not accede to the Agreement. Because of the recent price increases, export quotas were suspended in January 1980. A. Transportation, Storage and Stocks S. Most sugar is transported in bulk in its raw form. The most frequently used shipping lane which is used as the standard indicator shipping rate, is the one between Caribbean ports and Western Europe (usually Liverpool Table V-3: TRADE IN RAI AND REFIMED SIIGAR, 1976-78 AVERAGE BY MAJOR COINTRIES AND RECIONS E xpofts Imports Ref ined ns a Refined aa Raw Refined Total % of total Raw Refined Total 1 of total ---('000 metrie tons)---- --('000 Inetric tons)-- --( )- OI 18 6,924 26,062 27 183.02 6 883 25 81527 Industrialized Countrieu 3,573 3,691 7,266 51 10,379 2,027 12,406 16 1is 0 35 35 100 4,074 347 4,421 8 Caanada 0 111 111 100 989 11 1,000 1 .1apan 0 4 4 100 2,471 0 2,471 100 FFC 259 3,347 3,606 93 2,073 884 2,957 30 Other Western Europe 3 45 48 94 558 583 1,141 25 Olther industrialized 3,311 151 3,462 4 214 202 416 49 Cent rally Planned Economies 442 840 1,282 66 5,578 1,082 6,660 16 1ISSR 0 115 115 100 3,873 306 4,179 7 Other Eastern Europe 0 630 630 100 308 484 792 61 Asia 442 95 537 18 1,397 292 1,689 17 Developing Countries 15,123 2,391 17,514 14 2,345 3,775 6,120 62 Africa 1,229 115 1,344 8 533 1,817 2,350 77 Latin America 10,682 1,438 12,120 12 384 132 516 26 Asia 2,923 839 3,762 22 1,426 1,774 3,200 55 Or her 289 0 289 0 2 53 54 97 NU: Figures may not add up die to rounding. Souerce: FAO Trade Yearbook, 1978. February 1981 V-6 or Rotterdam). These charter rates are presented in Table V-Al. As can be seen there has been a rapid escalation in transportation costs over the 19703 (16.5 percent per annum) caused mainly by increased oil prices. As shipping costs become a larger proportion of the value of the product attempts will be made to save on transportation by adding value prior to shipment. However, while increasing shipping costs give added impetus to increasing the amount of sugar that is refined prior to shipment, this tendency is partially offset by the fact that refined sugar is shipped in bags rather than i1 bulk. The loading and unloading charges of bags are greater than for bulk. Bulk handling of refined sugar is possible but has not become widely accepted because of the possibility of contamination in transit and because of its solubility if it gets wet. 9. Table V-A2 presents the costs of storing sugar. As is seen storage costs are quite variable from country-to-country. These charges must be added to the purchase price of sugar held as stocks by a country. 10. Sugar stocks in excess of "pipeline" stocks are held by most major producing and consuming countries. Developed countries, because of their financial capability, hold over 50 percent of world stocks. The European Community accounts for more than half of this total, much of the stocks having accumulated as an uninternational side-effect of their domestic sugar pro- duction policy (Table V-A3). Developing countries hold 30 percent of global stocks, Brazil, India and the Philippines being the major stockholders. Centrally planned economies hold 19 percent of world stocks with the UjSR holding the largest share. 11. Sugar stocks usually amount to an equivalent of 6 months' con- sumption but at times of low prices (abundant supplies) may go to an equivalent of 9 months' consumption. Currently (January 1981) stocks are equivalent to less than 10 weeks' consumption and this is considered a critically low level. Raw sugar deteriorates if stored for more than a few months. Thus stock management policies must incorporate provisions for rotating stocks. Refined sugar, in bags, keeps well in temperate climates but will deteriorate in tropical climates. February 1981 V-7 Table V-Al: FREIGHT RATES CARIBBEAN - OR FOR SUGAR IN BULK, IN h STERLING PER %MTRIC TON 1971 1972 1973 1974 1975 1976 1977 1978 1979 January 4.43 3.69 5.41 17.72 14.76 8.86 12.80 11.00 11.00 February 4.43 3.44 6.89 16.73 13.78 8.86 12.00 11.00 11.00 March 4.43 3.44 6.89 15.75 9.84 8.37 12.00 10.50 11.50 April 4.43 3.44 7.38 17.72 9.84 8.86 12.00 10.50 12.50 May 4.43 3.44 7.87 19.69 8.86 9.84 12.00 11.00 12.50 June 4.18 3.44 8.86 19.69 8.37 10.83 12.00 12.00 12.50 July 4.18 3.69 8.86 18.70 7.87 10.83 11.00 11.50 12.50 August 4.18 3.69 8.86 15.75 7.87 10.83 11.00 11.50 12.50 September 4.18 3.94 10.33 14.76 7.87 10.83 11.00 11.00 12.50 October 3.94 4.43 11.81 14.76 7.87 11.32 11.00 11.00 12.50 Noverber 3.69 4.92 12.80 14.76 7.87 11.32 10.50 11.00 12.50 December 3.69 4.92 14.76 14.76 8.37 12.80 10.50 11.00 12.50 Source: HVA Internationaal 3.V., Amsterdam. February 1981 V-8 Table V-A2: STORAGE COSTS PER METRIC TON OF SUGAR, SELECTED COUNTRIES, 1975 Type of Rental Total Storage Country - Sugar Costs In/Out Costs /a Brazil inland raw bulk 15.00 2.86 20.72 port raw bulk 20.00 2.86 25.72 Colombia raw bulk 15.60 4.65 24.90 France port raw bulk 20.32 4.43 29.18 distribution refined bags 46.00 13.82 46.00 W. Germany port raw bulk 21.60 16.00 53.60 India inland raw bags 24.00 1.10 26.20 port raw bags 1.20 1.10 3.40 Japan port raw bulk 23.76 3.94 31.64 inland refined bags 36.00 6.00 36.00 Mexico inland raw bags 9.60 2.91 15.42 port raw bulk 18.00 2.90 23.80 Us port raw bulk 14.40 3.76 21.92 port refined bags 41.00 20.40 41.00 /a Rental costs plus twice in/out costs, assuiing that raw sugar has to be rotated twice a year to avoid quality deterioration. No rotation is required for refined bagged sugar in temperate climates. Source: Stora2e Costs and Warehouse Facilities, Geneva: U!NCTAD, 1978. February 1981 V-9 Table V-A3:SUGAR CLOSING STOCKS, 1975-1977, BY REGION Closine Stocks 1975 1976 1977 1975-77 Shares in Average World Total --------('000 metric cons)---------- --- - WORLD 2,406 36664 43,563 37544 100.0 Developed Countries 17,043 18,440 20,994 18,826 50.1 US 2,613 3,206 4,130 3,316 8.8 Canada 356 436 451 414 1.1 EEC 8,984 9,220 10,840 9,681 25.8 Other Western Europe 2,607 3,275 3,730 3,204 8.5 Japan 563 391 442 465 1.2 Oceania 1,345 ' 338 1,061 1,248 1.3 South Africa 575 575 339 496 3.3 Centrally Planned Economies 6,347 6,496 8,625 7,156 19.1 USSR 2,805 2,986 4,559 3,450 9.2 Other Eastern Europe 2,438 2,427 2,744 2,536 6.8 Asia 1,104 1,084 1,322 1,170 3.1 Developing Countries 9,016 11,728 13,944 11,562 30.8 Africa 1,222 1,580 2,107 1,636 4.4 Asia 3,880 4,855 5,229 4,655 12.4 India 1,237 1,340 1,850 1,476 3.9 Indonesia -55 113 347 135 .4 Philippines 1,108 1,737 818 1,221 3.3 Taiwan 161 125 221 169 .4 Thailand 144 187 279 204 .5 Other Asia 1,284 1,353 1,715 1,451 3.9 Argentina 579 851 590 674 1.8 Brazil 1,790 2,683 3,895 2,790 7.4 Colombia 30 20 62 37 .1 Peru 130 201 148 160 .4 Other South America 501 633 674 603 1.6 Cuba 557 413 609 526 1.4 Dominican Republic 67 188 153 136 .4 Mexico 25 46 159 76 .2 Other Middle America 235 257 319 270 .7 Total Developing Americas 3,914 293 6,609 5,272 14.0 Source: 15O Statistical Eulletin, August 1978. 01 February 1981 V-10 B. Market Structure 12. More than 50 percent of world sugar trade is conducted on a negotiated government-to-government basis or on a multilateral basis. 13. Major government-to-government sales on a continuing long term basis are between USSR and Cuba, Japan and Australia, and Japan and Brazil. The only significant multilateral arrangement is the Lome Sugar arrangement from ACP countries to the EC. 14. The remainder of the sugar trade is freely handled by what appears to be a competitive trading channel. There are many "commodity houses" that act as intermediaries in the purchase and sale of sugar and many cf the houses will further process the sugar from raw to refined. 15. At the producer level there are many producers, and at the final product level there are many consumers. In some countries there is market concentration in the crushing of sugar. Often farmers will have only one crushing plant to whom they can sell their crop, but in other countries the farm price is regulated or farmer-owned cooperatives run the crushing mill. In total, government intervention is the only apparent source of market failure. C. Trade Protection of Sugar 16. Generally speaking the major developing sugar producing countries which are also the main suppliers to the free market, do not regulate their production through price support programs or other protective measures. Sugar production in the USSR and East European countries is regu- lated through establishmant of production goals and import quotas. Their policies undoubtedly affect the behavior of the world market for sugar but presently imports of these countries do not constitute an integral part of the free market and are not therefore discussed here. Nonetheless it is recognized that production costs in these countries are probably significantly higher than those in the developing exporting countries and thus their pro- duction represents a misallocation of scarce resource. February 1981 V-11 17. Currently the countries which have a significant impact on the free market are the United States, Japan, Canada and the EC. In recent years the United State* and Japan have been importing 40-50 percent and 70- 75 percent of their consumption requirements, respectively. These countries have significant trade barriers in the form of import duties, but in addition there are also price support programs for domestic producers. In the EC both the trade barriers, and the price supports are extremely important because they are instrumental in promoting the EC to a position of net exporters rather than net importers. In Canada there are neither any trade barriers affecting sugar imports nor any price support programs. This section, there- fore, reviews the protective sugar systems in the United States, the EC and Japan. D. The United States 18. Domestic production and imports into the United States have been long regulated through successive US Sugar Acts, whose primary purpose has been to provide a remunerative and stable income to domestic sugar pro- ducers. Domestic producers received direct Government subsidies. In 1971-75, these averaged $14 per ton of raw sugar and were financed by a processing tax and import duties levied on sugar. Sugar imports were subject to quantitative restrictions which were particularly severe in the case of refined sugar. In 1974, for example, only 68,000 tons out of total sugar imports of more than 5 million metric tons could be imported as refined sugar. 19. Despite the protection which was provided to the domestic sugar industry for over 30 years, the share of domestic production in the total supplies has been only 50 to 60 percent. The foreign producers supplying the US market (largely the Philippines and Central American Caribbean countries) under the quota system received a financial benefit as these prices were usually above the world market price. 1/ 1/ From 1961 through 1970, the price premium averaged 114 percent. February 1981 V-12 20. It has been estimated that the annual cost of the sugar program * to American consumers and taxpayers was between $500-730 million at 1972 levels of United States prices and consumption. I/ Approximately one third of the gross transfer went to foreign quota holders and the remainder to domestic sugar producers. The premium which foreign suppliers received over and above free market prices made sales in the latter less attractive and downgraded the free market to a residual status. 21. The last US Sugar Act, which expired in January 1975, coincided with the commodity price boom of 1973-74 and was consequently not renewed. The US sugar producers (mainly those producing beet) responded to increasing production by 21 percent from 1974 to 1976. The decline in sugar pric.s since 1975 caused domestic producers to successfully pressure for a reintroduction of protective measures. E. The European Community 22. The EC Sugar Policy is part of the Common Agriculture Policy (CaP) and became operative in 1968. It is essentially a system of trade barriqrs and production subsidies designed to support domestic producers and to encourage self sufficiency in sugar. The sugar regulations of the Common Agriculture Policy (CAP) were designed initially to maintain self sufficiency in member countries and to reconcile variations between cost of production and prices. They set a relatively high internal price and impose variable import levies in order to preserve the domestic market. This arrangement is totally impenetrable to imports, and consists of three sets of measures: (a) price support; (b) production quotas; and (c) import levy. 23. The price support mechanism of the common sugar policy consists of a system of minimum prices to farmers. Sugar refiners are similarly protected by support prices fixed in relation to the farm target price. 24. Production is controlled through a system of quotas allocated to sugar factories in EC, and to the French Overseas Departments (Guadeloupe, 1/ D. Gale Johnson, The Sugar Program, Amarican Enterprise Institute for Public olicv Research, "ashington D.C., April 1974, ).3. February 1981 V-13 Martinique, Reunion) and to the associate members by virtue of the Lome Con- vention Agreement (and UK's entry). There are three types of quotas. The A quota (fixed basic quota) is set equal to approximately 95 percent of the country's consumption. B quotas are additional quotas adjusted annually depending on world market conditions. For 1977, they were fixed at 45 per- cent of the A quota. Any sugar produced in excess of the A and B quotas is considered C quota and cannot be sold in the producing country. 25. Sugar produced within the B quota range is entitled to an export subsidy. The subsidy is assessed by reference to the difference between the intervention price and the price ruling on the world market. Any sugar produced in excess of 135 percent of the individual factory quota will not be allowed so be sold within the EC and will not be subsidized when exported. 26. Sugar imports are subject to variable levies designed to exclude imports from third countries. There is a drawback provision for imports of sugar provided it i re-exported after processing. Another ex- ception is the imports of sugar, by virtue of the Lome Convention, from Africa, Caribbean and Pacific countries which are associate members of the EC, amounting to about 1.4 million metric tons (largely imports into the United Kingdom). F. Japan 27. Government policy regarding sugar has two purposes: first, to stimulate and protect domestic producers by a system of subsidies; and second, to control consumption through a consumer tax. 28. The government purchases domestic sugar at a high suppo -t level and resells it at a price competitive to imported sugar. For this purpose, the government announces predeterminee; maximum, minimum and target prices f or imported sugar. Under that system, a surcharge is imposed if the average import price falls below the target price. In addition, an import duty of 41,500 yen per ton (about US $154.00), is also imposed bringing the import price to about the government resale price. Finally, a 16,000 yen per ton (about US 859) consumer tax is imposed on a refined sugar. February 1981 V-14 29. The direct subsidy to producers is currently about 43,782 yen per ton (about US $62.00) most of which is generated by the surcharge on imported sugar. Despite domestic production and a consumption tax Japan remains the second largest importer of sugar in the free market. The subsidy system did not encourage sufficient expansion of sugar production in the 1970s due to competition from similar incentives to other crops. February 1981 V-15 REFERENCES 1. Agency for International Development. "Analysis of World Sugar Market", Washington, D.C., 1973. 2. Ballinger, R.A., A History of Sugar Marketing. U.S. Dept. of Agriculture, Economic Research Service, Washington, D.C., 1971. 3. Brook, E., and D. Nowicki, "Sugar: An Econometric Forecasting Model of the World Sugar Economy", World Bank, Commodity Note No. 10, March 1979. 4. , "The Sugar Market: Review and Outlook", World Bank, Commodity Paper No. 20, March 1976. 5. de Vries, J., "The World Sugar Economy: An Econometric Analysis of Long Term Developments", World Bank Staff Commodity Working Paper No. 5, November, 1980. 6. Grissa, Abdessatar; Structure of the International Sugar Market and Its Impact on Developing Countries, Development Center, Organization for Economic Cooperation and Development, Paris, 1976. 7. Harris, Simon, and Ian Smith; World Sugar Markets in a State of Flux, Agricultural Trade Papers No. 4, Trade Policy Research Center, London, 1973. 8. Hiller, Rudolf; Beet Sugar and Cane Sugar: A Survey of International Problems. Comite' Europeen des Fabricants de Surce, Paris, 1965. 9. Jay, Keith; "The Nature and Impact of the International Market for Sugar". Dept. of State, Agency for Internat onal Development, Office of Program and Policy Coordination, Washington, D.C., 1971. 10. Johnson, D. Gale; The Sugar Program: Large Costs and Small Benefits. American Enterprise Institute; Washington D.C., 1974. 11. Payer, Cheryl, ed., Commodity Trade of the Third World. John Weley and Sons, N.Y., 1975. February 1981 V-16 REFERENCES 12. United Nations Sugar Conference, Geneva, 1968 (International Sugar Agreement, 1968). Text of Agreement .... (TD/Sugar 7.9) Geneva, 1968. 13. United Nations Sugar Conference, Geneva, 1973. United Nations Sugar Conference, 1973. N.Y. MN, 1974. United Nations (Document) TD/Sugar 816. 14. U.S. Dept. of Agriculture, Foreign Agricultural Service, "Foreign Agricultural Circular: Sugar". Washington, D.C. (Monthly). 15. Warley, T.K., ed. Agricultural Producers and Their Markets. Blackwell, Oxford, 1967. 16. World Bank "The World Sugar Economy: Review and Outlook for Bank Lending", Board Paper No. 1894, February 1978. February 1981 VI-i VI. SUGAR PRICES A. The World Market Price 1. About 70 percent of all the sugar traded in the world is now sold through the free market. 1/ In this market, although prices are not set by administrative acts or decrees, the supply of sugar has been regulated since 1953 during several periods by successive international sugar agree- ments directed at stabilizing world sugar prices within a range agreed to by the exporting and importing members. The fourth International Sugar Agreement entered into force on January 1, 1978 for a five year period. 2. Overall performance in the international sugar market in the past two decades has been characterized by cyclical imbalances between supply and demand. The free market has gone through short spells of supply deficits and sharp price advances, despite the overall tendency of world production to exceed consumption for extended periods. These sharp price increases have tended to induce overexpansion of output, thus ushering new surplus "phases" into the demand-supply cycle (Figure VI-1). A corresponding contraction in output is prevented by the downward inflexibility of sugar production, particularly cane sugar, because of the fact that it is a perennial crop. 3. The price upsurge in 1963-64 was the result of a series of events that started with the exclusion of Cuban sugar exports from the US market (late 1960) and the cessation of the International Sugar Agreement (1961). These events were followed by two consecutive short crops in Cuba at a time when demand in Western Europe was increasing. This situation in- duced a production expansion in both exporting and importing countries that finally resulted in excess supplies and a large and persistent accumulation of stocks that forced sugar prices in the free market to their lowest levels 1/ The balance is made up of trade under bilateral agreements such as the Lome Agreement, the Commonwealth Sugar Agreement (until 1975) and the trading arrangement between Cuba and USSR. Jibruary 1981 VI-2 Figure:.VI-.1i -~7A~ La b i n s... --- WC"LD,! R I-•• LC____, R i _ _ _ _ __ _ _ _ _ __ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ' r 0 70I t~t 4 0 , -, in i _ _ _ _ _ _ _ I _______ 3 - ¶ ~ ~Ts I,s .~I4 - r t .-.' - -, r. February 1981 VI-3 in the post World War-II period: less than 2c/lb. from 1965 to 1968. Free market prices were well below the cost of production in most exporting countries. 4. The depressed market conditions constituted the main influence that led to a new International Sugar Agreement in 1968, covering about 90 percent of free market sugar exports. The Agreement aimed at stabilizing prices within a range of 3.25C to 6.5c/lb. The Agreement was relatively successful in that members did not increase their export volumes between 1968-72. In contrast, the EC countries who were not members of the Inter- national Sugar Organization increased their exports to the free market from 600,000 tons in 1968 to 1.5 million in 1972. World market prices, never- theless, continued to recover. 5. The trend of rising prices since 1969 turned into a price boom in 1974, peaking at a 30c/lb. average for that year. The boom was triggered by production declines in Cuba and the USSR, that resulted in world consumption exceeding production in 1971. 6. Market developments since 1975 have been similar to those of the period preceding the 1968 international Sugar Agreement. Reaction to the unprecedentedly high prices of 1973/74 resulted in a decline in consumption in the US, the EC, and net importing developing countries, where import ex- penditures were cut because of balance of payments problems. Between 1974 and 1976, production responded sharply to the price increases; particularly in the United States (by 19 percent), the EC (17 percent), Australia (16 percent) and Thailand (78 percent) 1/. Consequently, sugar prices declined to 13- 15c/lb. in the latter half of 1975 and remained at that level for the first half of 1976. Prices fell further and in 1977 and 1978 averaged a low of 8c/lb. These are below production costs in most countries. 1/ The growth of production in the US, the EC and Australia accounted for about 40 percent of the g:owth in world production for the same period. February 1981 VI-4 7. The following two years saw a drop in production and global consumption exceeded production for the two years causing a precipitous decline in stocks. Again, crop failure in Cuba and the USSR triggered che situation. Prices subsequently rose to over 40C/lb. and have held at levels of approximately 30 to 38;/lb. for almost a year. As prospects for 1981 become more clear, so sugar prices are subsiding from tleir high levels. 8. The volatility of sugar prices exceeds by a factor of two that of any other commodity covered by the Bank. The average annual percentage change in sugar prices is 37.4 percent compared to around 17 percent for vegetable oils and rice. B. Refined Sugar Price versus Raw Sugar Price 9. The rule of thumb sed to convert raw sugar prices to refined prices is 7c/kg. plus an 8 percent weight loss. However, since there is a market for both raw and refined sugar direct comparisons are also possible (Table VI-BI). Expressed as a percentage of white to raw it can be seen that the differential varies from 6 to 16 percent, and averages 9 percent. February 1981 VI-5 Table VI-Bl: L.D.P. (WHITE SUGAR) AS A PERCENTAGE OF L.D.P. (RAW SUGAR), AUGUST 1975-DrCE3ER 1979 1975 1976 1977 1978 1979 1980 January 112.0 118.9 102.8 100.5 February 112.1 112.9 109.2 102.3 March 106.6 106.6 104.3 100.4 April 102.6 100.3 105.0 May 101.5 107.3 106.7 June 110.7 110.4 109.8 July 114.3. 109.9 112.2 August 103.6 126.2 98.6 111.7 September 107.9 140.3 97.6 105.2 October 104.0 135.1 105.2 103.5 November 109.7 130.0 110.9 102.8 December 111.6 127.1 105.2 99.8 Average 116.3 106.9 106.0 February 1981 VI-6 REFERENCES 1. Agency for International Development. "Analysis of World Sugar Market", Washington, D.C., 1973. 2. Ballinger, R.A., A History of Sugar Marketing. U.S. Dept. of Agri- culture. Economic Research Service, Washington, D.C., 1971. 3. Brook, E., and D. Nowicki, "Sugar: An Econometric Forecasting Model of the World Sugar Economy", World Bank, Commodity Note No. 10, March 1979. 4. , "The Sugar Market: Review and Outlook", World Bank, Commodity Paper No. 20, March 1976. 5. Commonwealth Sugar Exporters' Association. Annual Review, London, 1969. 6. de Vries, J., "The World Sugar Economy: An Econometric Analysis of Long Term Developments", World Bank Staff Commodity Working Paper No. 5, November 1980. 7. Gertrude Lovasy;"Medium-Term Trends in the International Sugar Market". Economic Department, IBRD, August 1970. No. EC-176a. 8. Harris, Simon, and Ian Smith; World Sugar Markets in a State of Flux, Agricultural Trade Papers No. 4, Trade Policy Research Center, London, 1973. 9. India. Agricultural Prices Commission. "Report on Price Policy for Sugar Cane". New Delhi (Annual). 10. Johnson, D. Gale; The Sugar Program: Large Costs and Small Benefits. American Enterprise Institute; Washington, D.C., 1974. 11. Smith, Ian; The European Community and the World Sugar Crisis. Staff Paper No. 7. Trade Policy Research Center, London, 1974. 12. U.S. Dept. of Agriculture, Foreign Agricultural Service, "Foreign Agricultural Circular: Sugar". Washington, D.C. (Monthly).