We're On a Sugar Buzz

With raw sugar prices soaring to a high of 24 cents per pound and the possibility of rising to 30 cents per pound, Brazil, the largest sugar-cane growing area in the world, has a few options. Brazilian factories can either continue producing ethanol, which is used for more than 90% of new cars in Brazil, or they can produce sugar, which can be sold 40% above cost.

India, the world’s second largest producer of sugar, and the world’s largest consumer of sugar, has decided to grow more crops such as rice and wheat instead of sugar-cane. This decision was influenced by better, government-guaranteed prices. Also, due to the weak monsoon rains in Asia over the years, there is a widespread drought which has hurt crops badly and forced India to import more sugar. This recent shift and strain places a high demand for sugar on Brazil’s shoulders because they now have become India’s main supplier. In the past couple of weeks, India has purchased approximately one million tons of Brazilian sugar, at 24 cents per pound, which roughly equates to 480 million dollars!

It is a possibility that switching from producing ethanol to sugar would generate a lot of income for Brazil. This money could then go towards updating and improving their ports, such as Maceio and Cabedelo, which are crumbling due to poor installation. The improvements in return, would boost Brazil’s import and export capabilities.

On the downside, by switching to production of sugar, Brazil would be generating less ethanol. Ethanol was and still is used as a way of reducing the dependence on oil imports. It is also more eco-friendly and it is the primary source of fuel for over 90% of new cars in Brazil. An additional concern is that pump prices have begun to recently increase and are expected to go sky-high when the sugar-cane harvest ends in November.

If Brazil isn’t producing ethanol, they drive gas prices up now, and then soon after, they will have to rely on oil imports. Ultimately, this switch from ethanol production to sugar exports could be more costly because of oil prices and the immediate requirement for their ports to be improved. It would be much better for the ports to improve at a slower rate, as they are operating at close to full capacity today.