# The Sugar Casino * Author: [Jonathan Kingsman](https://www.amazon.comundefined) * ASIN: B015E4Y1F6 * Pages: 244 pages * Publication: September 14, 2015 * Reference: [[https://www.amazon.com/dp/B015E4Y1F6]] * [Kindle link](kindle://book?action=open&asin=B015E4Y1F6) --- Consumers in developing countries prefer white sugar; it is viewed as more sophisticated and as purer than brown sugar. Consumers in developed countries often have a preference for brown sugar in the mistaken belief that it is somehow healthier than white sugar. Consumers in rich countries are often willing to pay more for raw sugar than for white sugar – so much so that some producers actually spray molasses back onto the refined sugar to give it a “healthier” look. — location: [376](kindle://book?action=open&asin=B015E4Y1F6&location=376)Consumers in developed markets prefer lower value sugar in the belief it's healthier. --- World sugar consumption is increasing at around 2% per year, largely driven by the growth in both population and incomes. People in developing countries consume more sugar as their incomes rise, at least up to a certain income level. — location: [384](kindle://book?action=open&asin=B015E4Y1F6&location=384) --- But Brazil is also the world’s biggest consumer of sugar on a per capita basis: on average every Brazilian gets through 62.5 kilos of sugar per year. And as that average figure includes babies and children it means that most Brazilian adults consume more than 62.5 kilos every year. No one really knows why Brazilians eat so much sugar; perhaps it is for historical reasons; perhaps it is because sugar is one of the country’s cheapest sources of calories. (Brazil has one of the world’s lowest domestic prices of sugar.) With such a high level of sugar consumption you would expect Brazilians to have a high level of obesity. But they don’t. The latest figures show that 12.5% of Brazilian men and 16.9% of Brazilian women are obese. These figures are obviously too high but are still relatively low compared to most developed countries. — location: [416](kindle://book?action=open&asin=B015E4Y1F6&location=416) --- India’s sugar production has in the past fluctuated widely, depending on the strength of the monsoon and the competitiveness of other agricultural crops. India has often swung from exporter to importer and back again. — location: [427](kindle://book?action=open&asin=B015E4Y1F6&location=427) --- In terms of employment India’s sugar industry is the second largest in the country after the cotton textile industry. Sugarcane farmers and their families, numbering over 35 million, constitute more than 7% of the rural population. — location: [429](kindle://book?action=open&asin=B015E4Y1F6&location=429) --- The Chinese don’t have a “sweet tooth” and on average consume around 10-11 kilos per capita per year, well below the world average. — location: [457](kindle://book?action=open&asin=B015E4Y1F6&location=457) --- Since China joined the WTO, however, it has been less easy to do this. By maintaining high domestic commodity prices China has sucked in excessive imports and ended up storing the surpluses. This has happened most dramatically in cotton but also in sugar. — location: [465](kindle://book?action=open&asin=B015E4Y1F6&location=465) --- The US sugar and HFCS industries fight like cats and dogs but in reality there is no difference between sugar produced from cane or beet and the sweetener produced from corn. Both are about half glucose and half fructose and both are treated in the same way by the human body. — location: [490](kindle://book?action=open&asin=B015E4Y1F6&location=490) --- The anti-slavery lobby found support from an unexpected source: the East India Company, which by the end of the 18th century was producing sugar in India with hired, not slave labour. The East India Company viewed the slave labour in the West Indies as unfair competition and campaigned vigorously against it. By 1792 the East India Company was claiming that a West Indies sugar slave’s life cost 450 pounds of sugar. It said, “a family that uses 5 pounds of sugar a week will kill a slave every 21 months”. (9) The company distributed sugar bowls with the legend, “East Indian Sugar not made by slaves”. — location: [604](kindle://book?action=open&asin=B015E4Y1F6&location=604) --- We saw earlier how consumer pressure, and particularly consumers’ willingness to pay more for non-slave sugar, helped to eradicate slavery in the 19th century. Oxfam is looking to repeat that success and believes that consumer pressure can help to resolve some of the few remaining issues in the sugar sector. — location: [747](kindle://book?action=open&asin=B015E4Y1F6&location=747) --- Brazil is one country in the world that does have the room to expand its agricultural production and will play a major role in providing that 60% increase in food production that will be necessary by 2050. Most of the available arable land in Brazil is made up of, mostly degraded, cattle pastures that currently cover 198 million hectares. As the cattle industry has become more efficient the sector has “released” substantial areas of pastures each year; these areas are being used to expand the production of sugarcane as well as of grains and oilseeds. — location: [966](kindle://book?action=open&asin=B015E4Y1F6&location=966) --- This means that one hectare of sugar cane can produce 7,000 litres of ethanol. This compares to 3,800 litres from a hectare of corn, 2,500 litres from a hectare of wheat and 5,500 litres from a hectare of sugar beet. — location: [1093](kindle://book?action=open&asin=B015E4Y1F6&location=1093) --- As I mentioned in the previous section, sugarcane is grown on only a small amount of Brazil’s farmland, occupying 9.5 million hectares. Of that amount, 4.6 million is used to grow cane to be processed into ethanol. Using just 1.4% of the country’s arable land, Brazil has managed to replace almost 42% of its gasoline consumption with clean and renewable ethanol. — location: [1115](kindle://book?action=open&asin=B015E4Y1F6&location=1115) --- The domestic market where it is sold as either pure ethanol fuel or blended with gasoline absorbs most of this production. All gasoline sold in Brazil includes a blend of 18 to 27% ethanol. — location: [1123](kindle://book?action=open&asin=B015E4Y1F6&location=1123) --- More than 90% of the new cars sold today in Brazil are flex fuel, and these vehicles now make up about half of the country’s entire light vehicle fleet – a remarkable accomplishment in less than a decade. — location: [1127](kindle://book?action=open&asin=B015E4Y1F6&location=1127) --- A couple of industrial sized cellulosic ethanol plants are now in operation in Brazil and if engineers and technical experts perfect commercial-scale manufacturing, production costs will come down. Cellulosic ethanol might then double the volume of fuel coming from the same amount of land planted with sugarcane. — location: [1137](kindle://book?action=open&asin=B015E4Y1F6&location=1137) --- “This rise in income results in a significant change from a cereal carbohydrate diet to a protein and fat based diet. In the mid-eighties China used to consume 15kg of meat per capita; today it consumes between 52 and 55 kg of meat per capita. To put that in perspective, the US consumes between 110 and 120 kg of meat per capita. In the past we have said that for cultural reasons the Chinese could never eat as much meat as in the US. However, Taiwan and Hong Kong today consume between 90 and 100 kg of meat per capita per year. It is all about incomes and affordability. — location: [1164](kindle://book?action=open&asin=B015E4Y1F6&location=1164) --- “At the same time we have diverted more of our food crops to produce fuel. In the past there were three sources of agricultural demand: food, feed and fibre. Now you have to add fuel to the mix. In the US last year 40% of the corn harvest was used to produce ethanol. Half of Brazil’s sugar cane crop is used to produce ethanol. Ten per cent of the world’s oilseed production goes into biodiesel production. Ten per cent of the world’s acreage is now producing fuel. — location: [1171](kindle://book?action=open&asin=B015E4Y1F6&location=1171)Fuel and Food prices closely connected through the substitution effect. --- “These increases in demand mean that we will have to grow food production by 70% between now and 2050. At the same time we are seeing a decrease in agricultural land through urbanisation and soil erosion and salinization, as well as over-tillage. If the first problem is a decline in agricultural land the second problem is a decline in agricultural productivity growth rates. — location: [1180](kindle://book?action=open&asin=B015E4Y1F6&location=1180) --- “It may come as a surprise to you that about 55-60% of global agriculture is unviable, only supported by government subsidies and transfers from taxpayers to the farmers. In 2012 the thirty OECD countries paid out US$387 billion in farm subsidies. The rest of the world paid out around $615 billion.  The total value or GDP of the global economy was estimated for 2012 at $72 trillion, of which about $1 trillion is in subsidies. This does not include tariff barriers – these are direct farm subsidies. — location: [1200](kindle://book?action=open&asin=B015E4Y1F6&location=1200) --- Our company has price series data for the 23 years that we have been in business on the non-futures traded agricultural commodities. “This data shows very clearly that the volatility in the non-futures traded commodities has been statistically significantly higher than in the futures traded commodities. But there are few, if any, speculators in the non-futures traded commodities. — location: [1216](kindle://book?action=open&asin=B015E4Y1F6&location=1216) --- In India 60% of the consumption basket is spent on food. In Africa it is between 70 and 80% and it is about 45% in China. In Europe it is 9% and in the USA it is about 10%. — location: [1220](kindle://book?action=open&asin=B015E4Y1F6&location=1220) --- The factory owner could theoretically charge a fee for this service but in almost all cases the factory owner assumes at least one third of the price risk. The system works better – and is more likely to result in a “win-win” outcome - if the factory or mill owner has “some skin in the game”. — location: [1327](kindle://book?action=open&asin=B015E4Y1F6&location=1327) --- Just as a reminder, anhydrous ethanol is “drier” than hydrous ethanol; it contains less water and so can be used in most petrol engines without adjustment. Hydrous ethanol contains more water and can only be burnt in specially adapted engines. More than 90% of all light vehicles sold in Brazil are now “flex-fuel”: they can burn any mixture of hydrous or anhydrous ethanol or gasoline without damaging the engine. — location: [2139](kindle://book?action=open&asin=B015E4Y1F6&location=2139) --- Foreign trade houses invested heavily in both “crystallisation” and “distillation” capacity: the former to “crystallise” the cane juice into sugar; the later to distil the juice into ethanol. In addition, trade houses spent heavily on dehydration columns to give them the ability to produce more anhydrous ethanol should it pay more than hydrous ethanol. — location: [2146](kindle://book?action=open&asin=B015E4Y1F6&location=2146) --- In the case of sugar the European Commission grants European sugar producing companies specific production quotas. Because of the high price of sugar in the EU the owners of these quotas can obtain above normal profits, an economic rent. These high profits have given EU based sugar companies the cash flow and the capital to expand. — location: [2566](kindle://book?action=open&asin=B015E4Y1F6&location=2566) --- FO Licht (a leading sugar analyst), — location: [2581](kindle://book?action=open&asin=B015E4Y1F6&location=2581) --- At the time of writing, however, that seems unlikely. A price war broke out between Germany’s producers after the fines were imposed and domestic EU sugar prices collapsed. (As might be expected, the profits of the EU sugar companies also collapsed.) Some commentators argued that the fall in prices was a function of EU sugar reform and the end of production quotas, planned for September 2017. However it seems odd that prices should fall two years in advance of those reforms; increased competition seems a better explanation. — location: [2651](kindle://book?action=open&asin=B015E4Y1F6&location=2651) --- Koon Hong Kuok, a nephew of Robert Kuok (see Chapter Four), founded Wilmar International Limited in 1991 with headquarters in Singapore. The company began in palm oil plantations and entered the sugar business in 2010 when it bought Sucrogen for A$1.5 billion. — location: [2685](kindle://book?action=open&asin=B015E4Y1F6&location=2685) --- Wilmar also owns two refineries in Indonesia, located near Cigading Port in West Java. They are licensed to import raw sugar and supply refined sugar to the food and beverage manufacturing industry. — location: [2689](kindle://book?action=open&asin=B015E4Y1F6&location=2689) --- Wilmar acquired a controlling 27.5% stake in Cosumar. The company is based in Casablanca and is the only sugar producing company in Morocco. It has one refinery in Casablanca and seven sugar beet/cane mills. Cosumar is the third largest sugar producer in the African continent and the second largest refiner. Cosumar is an unusual company in that it produces sugar from both sugar beet and sugar cane in the same country. — location: [2691](kindle://book?action=open&asin=B015E4Y1F6&location=2691) --- A year later, in 2014 Wilmar acquired a 27.5% (joint-controlling) stake in India’s Shree Renuka Sugars. — location: [2695](kindle://book?action=open&asin=B015E4Y1F6&location=2695) --- Because Shree Renuka Sugars is still managed by its founding team, Shree Renuka’s production is not included in Wilmar’s total production. — location: [2702](kindle://book?action=open&asin=B015E4Y1F6&location=2702) --- Raízen is the second largest sugar producing company in the world by tonnage. It is also the third largest Brazilian energy company by revenue and the fifth largest company in Brazil. It is a joint venture formed in 2010 from the merger of the assets of sugar, fuel and ethanol derived from sugar from Cosan and Royal Dutch Shell in Brazil. The company has a market value of approximately US$15 billion and revenue of about US$26 billion. The company traces its origins back to 1936 with the foundation of the Costa Pinto sugar mill in Piracicaba in Sao Paulo State. — location: [2750](kindle://book?action=open&asin=B015E4Y1F6&location=2750) --- Südzucker also owns 25% minus one share of ED&F Man Holdings Ltd. The trade house was founded in 1783 and currently has over 3,400 employees in 60 countries. With headquarters in London ED&F Man trades coffee, molasses, biofuels, edible oils as well as shipping and financial services. — location: [2775](kindle://book?action=open&asin=B015E4Y1F6&location=2775) --- In the agricultural markets some governments, in particular China, may try to keep cane prices high in order to maintain rural incomes and to slow down the migration of the population to the cities. — location: [2862](kindle://book?action=open&asin=B015E4Y1F6&location=2862) --- Beet sugar has an annual production cycle and a much faster price response. However most beet sugar is grown in countries where prices are fixed or production is subsidised. As a result beet sugar rarely responds in world price signals. — location: [2927](kindle://book?action=open&asin=B015E4Y1F6&location=2927) --- At present, mills are required by law to pay growers a “Fair and Representative Price” (FRP) for their cane. The FRP is set each year by the central government and stands at Rps 2,300 per tonne of cane for the 2015/16 harvest. Some states set a minimum cane price higher than the FRP. Uttar Pradesh has set its minimum cane price this season at Rps 2,800 per tonne of cane. — location: [2945](kindle://book?action=open&asin=B015E4Y1F6&location=2945) --- They try to sidestep this problem by running up what are called “cane arrears” whereby they pay the farmers only a percentage of the minimum cane price and give them an “IOU” for the rest. At the time of writing Indian domestic prices are low and cane arrears are in excess of $1 billion. — location: [2951](kindle://book?action=open&asin=B015E4Y1F6&location=2951) --- The FRP and the states’ minimum cane prices have been set so high that cane farming is by far the most profitable agricultural crop now in India. This has in turn led to an expansion in production that has driven prices even lower. — location: [2957](kindle://book?action=open&asin=B015E4Y1F6&location=2957) --- By setting cane prices too high the government is encouraging farmers to grow cane that no one wants but that mills are forced to buy. The only real solution is to abolish minimum cane prices – or at least keep them at a level that does not result in over production – and instead widen the use of a revenue sharing scheme. — location: [2964](kindle://book?action=open&asin=B015E4Y1F6&location=2964) --- India, China and Thailand are just three examples of how governments in developing countries try to control their domestic sugar markets. But the list is long: nearly every developing country interferes in their domestic sugar market. — location: [2992](kindle://book?action=open&asin=B015E4Y1F6&location=2992) --- As well as closely managing imports the EU also controls domestic production through a reference price and a system of production quotas, both of which are due to disappear as of 30th September 2017. — location: [3021](kindle://book?action=open&asin=B015E4Y1F6&location=3021) --- All in all the EU sugar regime is so complicated that if you think you now understand it I haven’t explained it properly. — location: [3023](kindle://book?action=open&asin=B015E4Y1F6&location=3023) --- The USDA provides loans to sugarcane and sugar beet producers and processors that guarantee a minimum price regardless of the market price. At the end of the loan term (generally nine months), sugar producers and processors can either turn over to the government the sugar they produced as payment for the loan, or sell their sugar on the market. — location: [3041](kindle://book?action=open&asin=B015E4Y1F6&location=3041) --- “Water use is always top of my list. Cane is the second thirstiest plant in the world after rice. Cane is very efficient in terms of converting sunlight into energy but because it is such a bulky crop the water use per hectare of cane is very high. This is a problem in water-stressed areas such as in parts of India and Pakistan and some parts of Indonesia and Eastern and Southern Africa. Irrigation is a big issue. “In southern India you see rapidly declining water levels and the government of Maharashtra for example has recently announced legislation that says that you can’t grow sugarcane in 2020 unless you use drip irrigation. — location: [3785](kindle://book?action=open&asin=B015E4Y1F6&location=3785)This could be a bull scenario for European beet sugar. what if India & Pakistan have to cull sugar cane farming due to water limitations.