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Export market
Sugar projection to 2005
Introduction
The projections were based on a world sugar model which was
developed for examining the potential effects of alternative
scenarios of trade liberalization in different parts of the
world. Consistent with other commodities covered by the present
projections, those for sugar also assume the continuation
of current policies to the year 2005 and do not therefore
make hypotheses about possible future directions of policy
change. In common with other agricultural commodities, by
far the most notable aspects of recent sugar policy changes
concern the commitments made in the URAs in terms of reduction
of domestic support, reduction of export subsidies, commitments
on minimum market access for imports and tariffication. These
features of policy change are taken into account in the projections
presented here, but no further commitments are hypothesized
to take effect by the year 2005.
The model used is a multi-region, non-spatial equilibrium
model, consisting of production, consumption and stock demand
equations for each country/region. Throughout, quantities
of sugar produced, consumed and stocked, and hence traded,
are expressed in raw equivalent. Sugar cane and beet are combined
where necessary into one supply response relationship. Demand
for sugar is derived from final uses of sugar, both direct
and indirect. The stock equations reflect combined public
and private stockholding behavior. Net trade (exports less
imports) is determined by the usual identity. Domestic prices
are incorporated (with other variables) in the supply, demand
and inventory equations, and further equations link the border
or world price and the domestic price by means of ad valorem
tariffs. Finally, the model is closed by resort to the usual
market clearing condition that the sum of all net trade across
countries/regions equals zero.
Production
As is to be expected from market clearing models of commodity
markets, sugar production at the global level is projected
to keep pace with consumption, allowing for stock changes,
to reach 137.7 million tons by 2005 (Table 1). The growth
rate, 1.9 percent per annum, would somewhat exceed the average
growth rate of 1.6 percent obtained in the 1980s. The global
situation, however, obscures some major regional and national
changes. In aggregate, the developing countries are projected
to account for virtually all of the global increase in sugar
production, thus raising their share of world production from
63 percent in 1993-1995 to about 70 percent by the year 2005.
Regionally, Latin America and the Caribbean is expected to
play the leading role in raising output, accounting for over
14 million tons of the total increase of nearly 25 million
tons projected for the developing countries during 1993-95
to 2005. Most of the remaining additional output in these
countries is projected to originate in the Far East, thus
helping to meet that region's burgeoning demand.
By contrast, the developed countries overall are projected
to have virtually no net increase in their sugar production.
Two low-cost producers, Australia and South Africa, are projected
to be the major exceptions, with production growth rates projected
at 2.5 percent and 5.3 percent a year respectively. Output
in North America is expected to show little change while production
in Western Europe is projected to edge down by 0.6 percent
a year on average during 1993-1995 to 2005. In the same period,
output in the area of the former USSR is projected to contract
more sizably (2.5 percent per annum) although other countries
in transition are projected to raise slightly their combined
production.
Consumption
World sugar consumption, under the baseline assumptions about
income and population growth, is projected to expand by nearly
27 million tons between 1993-1995 and 2005, to reach 137 million
tons (Table 2). The implied annual growth rate, 2 percent
would thus approximate that achieved over the 1980s. The bulk
of the increase in consumption, over 22 million of the 27
million tons total, would be in the developing countries,
raising further their share of global sugar consumption to
65.1 percent by the year 2005. Among developing regions, particularly
notable growth, of 3 percent annually, is projected for Africa
and the Far East, followed by the Near East (2.5 percent per
annum), Oceania (2.3 percent per annum) and Latin America
and the Caribbean (1.9 percent per annum). Developed countries
as a whole are projected to increase their total sugar consumption
between 1993-1995 and 2005, by only one-third of the annual
growth rate projected for developing countries' consumption.
The fastest growth in total consumption in the developed regions
would be in North America (1.2 percent per annum) while the
slowest growth rate is projected for the economies in transition
(0.5 percent per annum).
Disparate trends in demand and production at the national
level, coupled in some instances with increased market access
opportunities arising from policy changes in recent years,
are projected to give new impetus to international trade in
sugar (Table 3). Among the main exporters, the most substantial
increases in net trade are projected for Brazil, up by 6.7
million tons over the projection decade to 11.0 million tons
by 2005, and Cuba, up by nearly 1.9 million tons to 5.0 million
tons over the same period. Thailand's net exports are also
projected to be substantially larger (nearly 1.4 million tons
more) by 2005 and a similar increase is projected for Australia.
South Africa, whose net exports are projected to rise by 1.1
million tons from a relatively low base in 1993-1995, would
achieve one of the largest percentage increases (17 percent
per annum). By contrast, the EC - which was the largest net
exporting market in the base years - is projected to cut its
net exports from about 4.5 million tons in 1994* to less than
2.1 million tons by 2005.
The bulk of the market opportunities for exporters, however,
are expected to arise in markets where domestic production
cannot keep pace with demand. Regionally, it is projected
that Africa's net imports would increase by 7.3 percent a
year followed by the Far East (5.5 percent per annum notwithstanding
the increase in Thailand's projected export expansion), and
the Near East (3.1 percent per annum). Among developed regions,
too, some large increases in net imports are projected, including
North America with net import growth of 4.0 percent per annum
(and 5.9 percent in the United States alone) and 4.1 percent
per annum for the area of the former USSR.
Historically, the world sugar market has been faced with recurring
supply/demand imbalances that were reflected in extremely
volatile prices on free markets. For most years in the past
four decades, world production of sugar has been in excess
of consumption, leading to low prices and stock overhangs.
But there have, of course, been periods of deficit, usually
caused by crop failures in one or more of the main producing
countries, in which prices rose very sharply, followed by
equally sharp declines. As such events and, indeed, collapses
in demand, cannot be foreseen in commodity models, price movements
in such models tend to be smooth and gradual. Indeed, in the
present projections the world free market price projected
for the year 2005 shows practically no change in real terms
from the average level in the base period. As price developments
in the present sugar season (October 1998-September 1999)
demonstrate, however, with the ISA daily price plunging by
more than 35 percent - to a 13-year low of US cents 4.78 per
lb. by the end of April 1999 - price volatility seems set
to remain a notable feature of the world sugar market.
Conclusions
and main development issues
Volatility of prices in the free market has been a long-standing
feature of international trade in sugar. The 1980s, for instance,
opened with a world sugar price "spike", raw prices
soaring to US cents 47 per lb. against a long-term average
of about 10 cents per lb. Typically such price booms were
followed by long periods of relatively depressed prices with
occasional dips to below the costs of production in major
low-cost exporting countries. It has long been expected that
the development and diffusion of alternative sweeteners would
help to stem the magnitude of such price spikes. Also, the
growing involvement of developing countries in global sugar
consumption, with their greater sensitivity of demand to prices,
has been cited as a possible contributor to the reduced variability
of prices in recent years. The price elasticity of demand
for sugar estimated for the present projections add some weight
to this hypothesis, although estimates made for countries
in Latin America and the Caribbean and Africa are generally
smaller than those estimated for the Far East.
Source: FAO
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