Business update from John Birchall
The expected price per pound of sugar in US$’s.
The price of sugar is a rather good commodity to use when looking as various aspects of business studies. Not long ago the poor weather in the two major grower countries Brazil and India sent prices rising – one thing was certain it wouldn’t drop, at least not quickly or in the near future.
By early 2010 the price was as high as it had been since the early 1980’s. The take-over of Cadbury’s by Kraft also gave the market an extra twist as the consolidation in chocolate related products market took off.
But now the price has collapsed and in an industry where it takes time to plan and decide how much to plant for the future this is bad news. The market is very seasonal and depends on weather, one poor harvest and prices can tumble.
The market also shows us the different directions in which modern business is moving – Indian sugar mainly goes into food, whilst the sugar from Brazil becomes fuel for cars etc At present nearly 60% of Brazil’s sugar goes into fuel production. More than 90% of Brazil’s cars can now run on ethanol. Perhaps that is a clear sign of the future – the EU is thinking of introducing legislation to make 10% of all cars registered in the EU to be capable of running on ethanol. Supporters of this alternative to petrol say it’s already available, whilst electric vehicles seem to be someway off. The sugar can also be used to produce electricity, so it’s a versatile source of energy. The bagasse-fuelled bioelectricity kicks in during the dry season in Brazil, where it provides over 12% of electricity when water levels are low – future entrepreneurs please note!!
Brazil looks set to maintain its position as the world's largest sugar producer and second-biggest ethanol producer.
According to the country's agriculture ministry, it will produce 28.5 billion litres of ethanol in the 2010-11 season, up from 25.8 billion the year before.
But the current low prices for both sugar and ethanol are putting pressure on Brazil's largely family-owned cane mills and forcing consolidation in the industry.
Oil firms are buying into the sector in a big way. Last month, state-owned Petrobras spent $920m on a 46% share of the country's fourth-largest ethanol group, Acucar Guarani.
Other foreign firms are also investing in Brazilian ethanol. In the past three years, the proportion of Brazilian cane ethanol mills with foreign backing has gone up from 7% to 22%..
Although the market is growing in size, Brazil intends to carry on exporting a steady 15% of its ethanol. But it still needs better transport links to allow the product to be shipped more easily to where it is needed.
Lots of business in the above – indeed, managing change, the ethical standards of exploiting non-renewable resources and the impact of all industrial output on the environment – they are all there.
Further information and resources:
http://english.unica.com.br
The official site of the Brazilian sugar industry – and it’s in English.
http://www.naturalnews.com/sugar_industry.html
Stories that relate to the growing and selling of sugar
http://sugarinds.blogspot.com/
An informative blog on the sugar and ethanol industries