As we saw last week global output of sugar is huge, reaching as much as 143 million metric tonnes in 2003. In recent years about one-quarter to one-third of this amount has been exported. A significant share of these exports takes place under special trading arrangements such as that Caricom enjoys with the European Union (EU) and the United States. As a result the world free market for sugar is largely a "residual" or "remainder" market in relation to global production. This nature of the world market reflects the broad features of the global sugar industry itself, which as I described it last week are: "by any standard, highly segmented, rigidly protected, heavily administered, and strongly penetrated with political and social conditions unlike any other global commodity".

My purpose in making these observations is to encourage readers to be cautious when interpreting the reported price of sugar in the world market. As we saw over the past five years (1999-2003) that price has only averaged fewer than eight cents per lb. This value is one-third lower than that for the average of the five years, which preceded it (1994-1998). Indeed at some points in time during the past five years (e.g., during 2002) the price of sugar fell to as low as five cents per lb. This price is less than one-quarter the full cost of producing sugar in Guyana, and therefore raises many questions, which we shall be pursuing in the coming weeks. A key issue will be what store should be set on the world price. For today's article I continue to draw attention to certain important aspects of the world market for sugar, because this will have a bearing on how I evaluate the future of sugar not only in Guyana but the wider Caricom.

Residual and Volatile

Because the world's sugar market is a residual or remainder one, it is what analysts would describe as thin and highly volatile. That is, the market does not reflect fully the economic/commercial forces driving global supply nor the preferences and income shaping demand. This volatility is accentuated by the competitive nature of the sweetener market, of which the sugar market is one class among several other classes of sweeteners. As we noted last week there is even competition between sugars produced from beet and that from the sugar cane plant. And, because the former is produced in temperate climates and the latter in tropical and sub-tropical climates, the impact of weather on sugar output and costs, and therefore competitiveness is more demanding than other large-volume agricultural exports.

Among the other sweeteners sugar competes with, some are agricultural-based and others are not (for example, the non-caloric/non-nutritive or artificial sweeteners). The major competitor to sugar however is high fructose corn syrup (HFCS), which is produced from corn and is widely used in the production of soft drinks, other beverages, confectionary and foods, particularly in the USA, Canada, and to a lesser extent Europe. In Europe HFCS is referred to as isoglucose.

In the USA, HFCS output has grown from 6.6 million short tons dry weight in 1992 and is projected to reach 9.4 million short tons this year - an increase of about 40 percent. It is estimated that 20-35 percent of the growth in caloric or nutritive sweeteners is accounted for by HFCS. Partly as a result of the expansion in demand for sweeteners other than sugar, global demand for it has not been keeping pace with increases in world output, leading to the high level of sugar stocks that I identified last week.

All these situations conspire to put considerable downward pressure on sugar prices as well as to making that price highly volatile. As a commodity it is susceptible to many non-economic forces operating on its supply and demand. Furthermore, certain intrinsic features of the sugar industry itself seem to accentuate these effects. One of these is the large number of countries that produce it and therefore the highly varied economic, political, and social environments that impact on output. Another is the central role, which sugar plays in the food chain of countries and consequently the determination by governments not to put its availability and affordability at risk.

By-products and the sugar trading houses

The production of sugar yields an enormous volume of by-products. Consider for example that it takes as much as 10-14 lbs of the sugar cane plant to produce one ton of sugar, thereby yielding an enormous annual volume of biomass worldwide. Some of this is used for electricity (bagasse) but as we shall see later, there are many other uses. Other cane sugar by-products, such as molasses, are also high-volume products. Sales of these contribute to the total returns from sugar production and are an important consideration in the economics of the crop.

Because volumes are so large, transportation and storage costs are important factors as well in the economics of sugar production and sale. About 90 percent of sugar is transported by water, and because of the large volumes involved it follows that freight rates play an important role in fixing the price of sugar in the world market.