The Truth about Sugar

The shock is not only with regard to the spiking price of oil. The dismay extends to the price of sugar too, which reached a 25-year high recently. After all sugar promises ethanol, the fuel alternative

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 hasn8217;t stopped market watchers from looking for and finding peripheral shocks, even where they don8217;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 it8217;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.

The demand is driven by the rather alarming dietary habits of the young, the poor and particularly those who are both. The growing health concerns in rich nations about excessive sugar consumption have no real parallel in the emerging world, says Sergey Gudoshnikov, senior economist at the International Sugar Organization. Demand is rising fastest in the poorest regions 8212; at a peak rate of 4.5 percent a year in equatorial and southern Africa, and at 3.5 percent in South Asia.

India is the largest sugar market on the planet, not only because it is one of the fastest-growing and most populous economies, but also because two-thirds of its billion citizens are under 30 years old, the group most likely to consume sugar worldwide.

Meanwhile, sugar for fuel looks unlikely to expand rapidly beyond Brazil. When sugar prices bottomed out at four cents a pound in the 1980s, most producing nations cut back investment, leaving them with antiquated equipment and backward methods. Brazil was the exception, creating a cutting-edge production system featuring satellites to help pinpoint peak harvest times. That8217;s why Brazil is now the No. 1 producer by far, and has surplus to turn into ethanol. Most other nations use sugar byproducts or other crops to make biofuel; Thailand uses molasses and tapioca. The world8217;s leading energy consumers, the United States and China, prefer corn. ALEXANDRA A. SENO