The Truth About Sugar

The buzz says a dizzying price spike is all about sugar for biofuels. But the reality is more complicated.
 
The surprising thing about the price of oil, which hit a new record of $75 a barrel last week, is how little visible impact it has had on a booming global economy. But that hasn’t stopped market watchers from looking for and finding peripheral shocks, even where they don’t really exist. Consider the recent rush to sugar, which spiked to a 25-year high of 20 cents a pound, driven largely by buzz about an old phenomenon: the largest producer, Brazil, devotes half its crop to the production of ethanol, which is an increasingly competitive source of energy for cars as gas prices spike.
Sugar for fuel is an interesting story, but it’s a relatively small one that at the moment is still largely confined to Brazil. The share of global sugar production that goes to biofuels is roughly 15 percent, or about what it was 20 years ago, and the vast majority of that production is now in Brazil. In fact, Brazil used to devote a lot more of its (then much smaller) crop to biofuels, and most of its booming sugar production now fuels a much bigger story: sugar for food. Demand is rising relentlessly, at a pace of about 2 percent a year, driven by increasingly sweet tastes in developing nations, even as sugar consumption slows in the West. Meanwhile, a combination of underinvestment and bad weather in producing regions (from Gulf Coast hurricanes to drought in Thailand and a March cyclone in Australia) has disrupted supply. The result: last year demand reached 151 million tons, against a supply of 149 million tons, driving prices up, with more rises in store.

Newsweek