The Overview of Sugar as Agricultural Commodity

Sugar has been a widely-used ingredient in the human diet for many years. Once, refined table sugar was expensive and rare to the point where it was called "white gold." Today, white sugar is considered as a basic food item in everyday use.

Sugar is grown in two main ways. Most of the sugar supply, which is around 80%, comes from sugarcane. Sugarcane requires a tropical climate to grow, like Brazil. The rest of sugar comes from sugar beet, which are mainly grown in the United States and other countries which do not have a tropical climate. Worldwide, more than 100 countries produce sugar either from sugarcane or sugar beet, and some countries from both. Brazil, India, the European Union, China are among the top producers of sugar.

There are many factors which drive the supply and demand of sugar. The price of sugar decreases as increases the demand, following the law of demand. When supply of sugar increases, the price also increases, obeying the law of supply. Since there are limited alternatives for sugar, the supply of sugar is relatively inelastic. This graph displays the recent changes of the supply and demand of sugar.

Sugar supply depends heavily on the weather, like most agricultural commodities. Currently, the favourable conditions have allowed sugar producing countries to prosper and increase production, even creating a surplus. The demand for sugar is continually rising, because now, sugar is not only used in food production, but it is also an important input in biofuel production. Today the international community has become much more aware of the environment. This resulted in the rise of alternative energy resources other than fossil fuels. One of these alternatives is biofuel, where sugar is an important input material, as it is replacing corn due to higher efficiency and is becoming the leading input in biofuel production. Moreover, the population growth of the world resulted in a higher demand for sugar. These changes have resulted in more demand and even more supply of sugar, hence increasing the quantity produced and consumed, while the prices decreased since demand increased.

The highest price point of sugar was in the first half of 2012, from where the graph begins. In phase A, there is an evident decline, with some small exceptions, most notably in the July 2012, where prices significantly rose for a short period. The lowest point of sugar price was in the second half of 2015, where phase A ends. In phase B, there is an increase in sugar prices, with the most rapid growth taking place in the second half of 2015. In the beginning of 2016, the prices declined once again, but soon started to increase again. Another significant decline occurred in the second half of 2016. In the beginning of 2017, it can be noticed how sugar prices started to increase once again.

Since late 2011, sugar prices have seen a decline. Mainly, this downward route of sugar prices is coming from worldwide surplus production. This is why the sugar prices decreased so much between 2012 and 2015. Generally, rising global sugar production and surplus usually send prices lower. On the contrary, decrease global sugar production most likely sends sugar prices high, since there will be less sugar available but the demand remains high. Global sugar production trends are the biggest short-term and long-term movers of sugar prices.

Any activity which influences sugar in the main producing countries will affect sugar price. For example governmental crises, regulations and interventions such as subsidies and import tariffs in these countries could affect this commodity’s prices. These have disfigured sugar markets, and led sugar producing countries to make more sugar cane than on the normal competitive market. There are cases where these changes and increased production levels led to major changes in history. In the 19th century, European countries faced difficulties in the sugar market as they could not produce enough sugar, and this instigated them to start planting sugar beet. Today, the European Union is the second largest exporter of sugar in the world, showing that this trend is still present to this day.

Sugar is highly weather sensitive. Sugarcane, the main source of sugar, requires warm climate and rainfall to grow. If the weather in the producing sugarcane countries does not follow tropical weather patterns, the harvest result will be lower, so sugar prices will be higher due to a limited supply. Bad weather conditions may damage the crops and reduce the supply, hence affecting the price. In this kind of situation, the price will rise to high levels as demand will remain high. Brazil is by far the largest producer of sugarcane and a vital exporter of sugar in the world, so any change occurring here will surely affect the sugar market. For example, following the drought that hit Brazil in early 2014, something which was not expected, led to higher sugar prices in 2015. The drought affected farm outputs, as it reduced the growing global stocks, driving sugar prices up between 2015 and 2016. The latest news shows that Brazil has produced high amounts sugar, much more than before hence largely increasing the supply. As mentioned before, the rise in popularity for clean energy led to more biofuel derived from sugar hence, demand for sugar increased.

Another factor which affects the sugar prices is global outlook on sugar. Excess production drives sugar prices low, and weak global consumption and outlook worsens this. Health is the major reason which affects the outlook of sugar. It is thought to be a leading cause of obesity, diabetes and tooth decay. People are becoming more aware of the risks of sugar over-consumption, and this could affect the growth in sugar demand, as it might slow down in the years ahead. Despite the fact that there are few products that can substitute sugar, there are some examples where alternatives are being used. High-fructose corn syrup is a more natural alternative to sugar that has been widely adopted in the United States.

In 2018 and 2019, prices will decrease as there is surplus in sugar production than, prices will rise, as these will decrease enough to drive prices up. The projected prices of sugar from 2019 to the year 2021 show that the demand for sugar will continue to increase, and so will the supply, given the right conditions. The demand will increase due to the growing consumption of sugar, not only for culinary purposes, but also for energy production, even though factors like health awareness are gaining popularity, this will not stop the demand from increasing. Since both supply and demand will increase, the price of sugar will remain rather steady and will not drastically increase or decrease.