Sugar

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Nowadays, world sugar production comes mainly from cane, the volume is growing by around 2.8% per annum; only 21% are made from beet with a flat growth rate. The major producing countries are Brazil and India accounting together for about a third in volume; Europe being around 10%. Total production was 150 Mtons in 2008/09 after 169 Mtons the previous year [6]. As a direct outcome of the EU regulation on the common organization of the markets in the sugar sector, several major plant closures have drastically reduced the production capacity. In the EU, sugar production peaked at 22.1 Mtons in the 2005/06 season and has reduced to 14.9 Mtons in 2008/09 [6]. The EU as well as the USA have become sugar importing countries whereas Brazil, India and Thailand are counted among the biggest exporting nations. China is the second largest producer in Asia, however, still importing substantial quantities. Asian consumption accounts for twice the world average, driven by both population and economic growth.

Seasonal variations in pricing are due to meteorological as well as to market reasons. A steady rise in prices in 2005/06, as can be seen in Figure 12.3, made the sugar volumes rise to top volumes during the next two seasons. However, growing demand for other crops like wheat and corn or cassava as starch sources are easily used for switching planting schedules in certain countries. Speculative activity contributed to the 2009 price hike as many investors moved from company shares into raw materials. Crude oil and commodity price spikes were also influenced by this development. Poor monsoon rainfall in India as well as floods in Brazil have led to all-time high sugar prices in 2009/10. The New York stock exchange listed raw sugar futures reached 379 €/ton in September 2009, the highest level recorded since 1981. London listed white sugar futures peaked at 420 €/ton, which was even above the new EU reference price of 404 €/ton valid from October 2009 [7].

Bioethanol derived from sugar can be used as a substitute for fossil fuels and when mixed with gasoline, it is suitable for use in motor engines. The mixture results in a fuel with a cleaner combustion. The Kyoto protocol requires signatory

Figure 12.3 Nominal prices of crude oil, sugar and ethanol per ton [57].

nations to reduce greenhouse gas (GHG) emissions by at least 5% during the period 2008-2012. This has resulted in an unforeseen increase in the price of raw materials, which has doubled since 2005; and the trend is still going strong. In Brazil the relation between sugar and ethanol being produced in the same plants is readily influenced by the respective price relation in the fuel or sugar markets. About 58% of Brazilian sugar went into ethanol production in 2008 thereby reflecting the growing importance of this biofuel (see also Section 12.3.2.3). Many countries have implemented energy policies with the obligation to use certain shares of biofuels (ethanol, biodiesel) distorting the markets for the respective crops by coupling their prices to petrofuels.

12.2.2.3 Starch

The starch industry in Europe processes about 22.5 Mtons of agricultural crops, including 12.5 Mtons of cereals and 10 Mtons of potatoes and produces about 9 Mtons of starch and its derivatives. Starch is an ideal example of a commoditized market that has a wide array of industrial applications, which comprises paper and cardboard making, fermentation, biodegradable plastics and detergents, surfactants, resins, binders, solvents, biopesticides and lubricants. The annual turnover amounts to about 8 BnS and the industry invests approximately 210 MS in R&D every year [7].

The food sector consumes the majority of the starch produced in Europe, about 4.5 Mtons or 50% of the starch production. In the non-food sector, about 1.3 Mtons of starch is used for paper and cardboard making, 1.1 Mtons in plastics and detergents (biodegradable, non-toxic and skin friendly detergents) and 1.2 Mtons in fermentation and other technical applications [8].

Average unit prices in the USA native and modified starch market have been steadily on the rise from 0.5 $/kg in 2004 up to 0.7 $/kg in 2007, where prices around one dollar are predicted for 2014 (see Figure 12.4) [8]. In Europe the prices

Figure 12.4 Nominal prices of different starch types [8].

developed from 0.63 $/kg in 2003 to a predicted 1.19 $/kg in 2013 [7] . The most pertinent aspect affecting the pricing of starch is the rising cost of raw materials. The raw material prices have been influenced by the increasing demand from the biofuels industry, and other issues similar to the sugar sector.

The type of raw material used also influences the pricing to a very large extent. In Europe, among wheat, maize and potato, wheat continues to be cheapest and potato the costliest. Crop yields affected by adverse weather can also play a vital role in increasing the raw material price. The other factors influencing the price of starch are increasing energy costs, supply demand equilibrium, product customization and the supply chain expenditures. The surging energy cost has had a twin effect by increasing the production costs as well as the transportation costs.

The global demand for bioethanol, which is also derived from starch-containing cereals such as maize, wheat etc., is increasing at a phenomenal rate, leading to the same issues as described in Section 12.2.2.2.

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