Sugar is a sweet-flavored ingredient, used in many types of food and drinks around the world. It can be found in almost every plant, but it can only be extracted, in an economically efficient manner, from sugarcane and sugar beet. This sweetener has become a preferred ingredient in almost every food product. The health-effects are being intensely discussed and examined although there are still no completely conclusive results on the effects of sugar-consumption. The three biggest producers of sugar are: Brazil, India and the European Union.
Sugar is being consumed by humans since ancient times, with its origins in the Indian sub-continent. There are also indications of early consumption in South-East Asia. In ancient times honey was the most common sweetener in food products, as it was more commonly available and easier to transport. Sugar was originally being consumed by chewing on raw sugarcanes. The first records in which it was crystallized to make it easier for transportation, dates back to around 500 BC. Sugar remained a rare commodity for an extensive period, as it slowly spread across China and via trade routes toward the Middle-East. The crusades first introduced sugar to the Europeans, who were immediately very fond of the product. They took it back with them to Europe and it quickly became an important substitute for honey, which was previously the only available sweetener. During the 15th century, Venice started setting up their own plantations and with their trade network made them the primary supplier for Europe. The supply and production was still limited and sugar remained a luxury product. During the various explorations travels to the Americas and Africa, the explorers introduced sugar to these areas and started setting up plantations as the climates were very. In Africa and the Caribbean islands, these plantations were being operated mainly through the use of slave labor, which has been an important factor for the multi-national character of these countries. Production quantity continued to increase over the years and towards the end of the 18th century it was a common product, available for all layers of society.
Production of Sugar
Sugar can be produced from either sugarcane or sugar beet. However sugarcane is by far the more popular resource in the production, it is used for approximately three quarters of the production. There are a number of reasons why sugarcane exceeds sugar beet in production volume, the two most notable are the climate and production costs. These two factors are to a great extend intertwined. Thailand, China, Brazil and India are major producers of sugarcane due to their favorable tropical climate. This climate provides a significant longer production period (nine months) per year, in comparison to sugar beet. Sugar beet is produced mainly in Europe and the U.S. political and economical conditions also highly favors the sugarcane producing countries. The labor and land costs in these countries are significantly lower in comparison to Europe and the U.S., which makes producing sugarcane far more cost-effective. Environmental costs account for a substantial portion of the total production costs of sugar beet, where as these costs have a limited impact in the sugarcane producing countries. Although the production efficiency in beet producing countries is much higher, the high labor-, land- and environmental costs undo the technological advantages.
Production using Sugarcane
Producing sugarcane requires a tropical climate as it demands both sunlight and water in considerable quantities and does not tolerate frost. The plants take up around twelve months to mature plants that can be harvested. When the leaves have fallen from the plants, they are ready to be harvested.
The first step is setting the field on fire. This fire burns for a short period and burns off the leaves and a layer of wax, after which only the stalks remain. The sugarcane can now be harvested either by hand or by machine. Harvesting by machine can only be performed on very flat ground and therefore more than half of the harvesting is performed by hand. The stalks are cut into smaller pieces, called billets, which are more suitable for transportation and further processing. The cane is cut slightly above the ground which leaves the root intact after which it will re-grow once again into a full-grown sugarcane. This allows farmers to harvest their sugarcane multiple times without needing to sow their field after each harvest.
After harvesting, the cane must be crushed within 24 hours to ensure the quality of the product. The juice is extracted from the cane during this process and must be collected carefully to increase the extraction efficiency. Next, the juice will be filtered in order to remove any remaining trash from the juice. When the juice is purified, it will be boiled. Through this boiling process the juice is crystallized until it transforms into molasses-rich sugar crystals. These crystals are finally pushed through a rapidly spinning centrifuge in order to remove the molasses and leave only pure sugar crystal. These crystals are the basis for any further processing to create one of the various types of sugar.
Production using Sugar beet
The beets require specific conditions to support their growth and the quality of the beet. It demands a tempered climate and the soil needs to contain plentiful food and be able to retain sufficient moisture to feed the crop and heighten the sugar content of the beets.
The first step, before sowing, is preparing the soil for the crops. The soil is ploughed to easily allow the beet to grow deep roots and prevent it from growing above the ground. After preparations, the beets can be planted and will grow into maturity as soon as within a hundred days, depending upon the climate. The beet itself grows beneath the ground and it’s leaves can be seen above ground-level.
Upon reaching maturity the beet will be harvested, which is done almost exclusively by machines. Firstly the foliage must be removed from the beet. This is completed by a machine which employs rotating blades to cut the foliage from the beet. During the next step the beets are lifted from the ground by a harvesting machine, which typically can harvest six rows of beets at one time. The beets are directly loaded into a truck to be transported to a factory for refinement.
Upon arriving at the factory the beets will be further processed in order to eventually produce sugar. The beets are first washed and then sliced into thin chips called cossettes. These cossettes are placed in a diffuser, which is filled with hot water. Herein, the cossettes are slowly being pushed forward and the water moves in the opposite direction. This causes diffusion, where the sugar (still called juice at this point) is extracted from the beet. This method not only extracts the juice, but also removes much of the superfluous content form the juice. The juice is now separated from the water and the cossettes are pressed in a screw press to extract any remaining sugar. Now that all the juice is collected, it will be boiled. By boiling the juice, the sugar will crystallize and be moved into the final step. The product is finally placed in a huge centrifuge, where the remaining liquid is removed from the crystals. These are dried by hot air for one last time, after which the sugar is ready to be stored or transported.
The most common application of sugar is as a sweetener. It can be found in virtually any food nowadays, although health awareness is causing a decreasing use of sugar as a sweetener. The use of it in food production is not solely for its sweetening effect. It can also function as a preservative to protect certain food from spoiling.
Sugar is a major input in the production of ethanol. Due to environmental awareness, the demand for biofuels is increasing. Sugar is becoming the popular input in this production process, as the efficiency of sugar is significantly higher than corn.
Health awareness has made a major impact on the use of sugar in food production. The numerous studies on the effect of sugar in human diets have not been entirely conclusive on the severity of the impact on human health. They do agree however that high consumption can increase the chance for one or more of the following conditions: obesity, diabetes, cardiovascular disease, teeth deterioration and even Alzheimer’s disease. The awareness of these harmful effects have caused food producers to reduce sugar content levels in their products.
There are a four different types of contracts traded on various exchanges around the world.
On the NYMEX, they trade sugar [Derivatives|futures contract] no. 11 for raw sugar.
On the ICE, they trade sugar futures contract no. 16 for raw sugar.
On the NYSE Euronext LIFFE, they trade sugar futures contract no. 407 which is either for white beet, cane crystal or refined sugar.
On the Olsa de Mercadorias & Futuros (Brazil), they trade sugar futures contract for cane crystal sugar.
These contracts are mainly based on the origin of the product and the country of area in which they are being traded. The number one exchange for trading sugar is the New York Mercantile Exchange (NYMEX), the prices on this exchange function as a benchmark for sugar prices. Two other exchanges, that actively trade sugar, are the Intercontinental Exchange (ICE) and the Multi Commodity Exchange (MCX).
Similar to many other agricultural commodities, the weather can greatly influence the supply and thus the price. Bad weather conditions can damage the crops and reduce the supply. In these situations the price will rise significantly as demand will remain high. Demand is continuing to rise, because sugar is no longer exclusively used in food production, but also as an input in the production of biofuels.
The increasing environmental awareness is causing a rise in the demand for biofuels, in which sugar is an important input material. It is replacing corn as the leading input in biofuel production, because of its efficiency advantage over corn. These two factor combined are raising the demand for sugar and should be monitored in order to be able to make a realistic and calculated price forecast.
Governments from virtually every country are exercising influence in the price-creation of sugar. This is either done by subsidizing the farmers and manufacturers or by limiting the import/export of their country. This may result in significant price difference between countries. Apart from price differences, governmental intervention will also affect the regular market workings. This may result in highly volatile market prices and unexpected price shifts.
Health awareness has a negative effect on the demand. Recent studies are instructing the population on the negative effects of large consumption. This causes producers to reduce sugar content in their products or use substitutes.
NYMEX Sugar Futures Contract
The Sugar Futures Contract on the New York Mercantile Exchange (NYMEX) has the following specifics:
|Contract Size||112,000 pounds (50 long tons)|
|Contract Months||March, May, July, October|
|Tick Size||one-half cent 1 point or 1/100 cent/lb., equivalent to $11.20 per contract.|