People still eat sugar in a recession

Last week I went for my annual trip to the London Docklands for the International
Sugar Organization seminar
about the economics of the sugar industry.
Despite the world’s economic problems, the sugar industry doesn’t seem too
gloomy. Although Michael Whitehead of Rabobank said that the
capital-intensive nature of the sugar industry would cause problems — you need
to borrow a lot of money to build or upgrade a sugar factory (and to use it
intensively to recover what you’ve spent), and farmers often need to borrow to
invest in crop production — he expected things to improve by 2010; and the
evidence from previous recessions indicates that people still keep eating sugar
when times are hard. Other speakers argued that continued growth in developing
economies, resulting in rapid expansion of the middle classes in historically
poor countries, would ensure that demand for sugar continued to increase.

As usual there was much interest in biofuels; the majority of speakers made
some mention of the subject, and several concentrated on it. Despite recent
falls in oil prices, Plinio Nastari of DATAGRO in Brazil predicted that in 2 years’
time world ethanol production would (in terms of sugar equivalent) exceed that
of sugar, and that the longer term trend would be for ethanol to get cheaper and
oil more expensive.

Anne Ruth Herkes of BP said that although
fossil fuel reserves weren’t declining (I’d need to know more about what exactly
she meant to comment on that), they were becoming concentrated in a small number
of countries to the detriment of energy security. In any case, development of
biofuels was necessary to help deal with the climate change problem. She argued
that it was important not to reject good ideas along with bad ones; some
biofuels could be good for the environment, the economy and society, so it was
important to develop these and improve them further. Sugarcane (for ethanol) is
currently the best feedstock, but biobutanol and lignocellulosic ethanol may
offer greater benefits in future, enabling a significant proportion of the
world’s fuel to be obtained from less than 5% of crop land.

Biofuels are not the only product into which the sugar industry can
diversify, as there is much else that can be made from cane, beet or sugar
industry byproducts. For example, according to Mark Carr of British Sugar, his company’s products
include such things as topsoil, animal feed, tomatoes and electricity. One
reason for their diversification is the reform of the European Union sugar
regime, a perennial topic which came up again this year. Jos van Campen,
representing European beet growers, said that after significant contraction in
the European sugar industry, there were good opportunities for the remaining
growers and factories. Nidhen Singh, representing the African, Caribbean and
Pacific countries which have in the past had preferential access to the EU sugar
market, was still worried about their ability to adapt to the new regime of
lower prices and more competition.

My blog entry about last year’s conference can be found here. More
information about the issues discussed at the conference is available to
subscribers to CAB
or its relevant subsets.

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