|
As globalization has brought the world closer together, it has also forced the destruction of inefficient suppliers. In a world where information and products are transferred quicker and cheaper, those who can produce more efficiently will survive, while other must adapt and change. These observations are universally true whether the game is computer programming or commodity/international investing. While this has been a topic of frequent conversation surrounding the outsourcing of IT jobs, it applies most evidently in the area of commodities to the sugar market. Sugar is derived from one of two plants, the sugar cane or the sugar beet. Sugar cane, which is only able to survive in tropical areas such as Cuba and Brazil, has become the dominant force in this market, while the sugar derived from beet has seen its share of world supply slip from 40% in 1990 to 26% today. Cane, with a much higher sugar yield than beet, allows farmers to grow and produce the commodity at extremely low costs compared to beet producers. And although beet is still being grown today, its influence is likely to continue to decline with the increase in globalization. In the late 18th and early 19th centuries, Cuba and Jamaica, both colonized by the Europeans, became the two dominant producers of sugar in the world. This sugar was shipped back to Europe and used mainly in tea. As sugar became more affordable, candies and chocolates became more popular.
This arrangement worked out well, until the Napoleonic Wars, when England started to blockade French shipments from the Caribbean, and effectively shut off the importation of sugar to Paris. The French adapted to this by producing sugar from the sugar beet. Although far less efficient, the beet was able to survive the harsh climate of France, a feat that sugar cane has never been able to accomplish. The ramifications of this are still evident two hundred years later, as the French continue to subsidize the sugar industry very heavily. The WTO and EU today are attempting to fight with France on the level of government handouts still given to sugar beet farmers. Without that money, the sugar beet would have been destroyed years ago. Today, sugar from cane can be produced at about half the cost of sugar from beet. Brazil, the largest producer in the world, has a cost of production of around $.10/pound, while France produces its sugar at $.23/pound. At these differences, even large tariffs and subsidies are unable to keep the sugar beet industry alive for very long. If globalization and free trade continues, it is likely that inefficient producers like France, England, and China may see a decline in their sugar production and may import the commodity instead. The may beneficiaries of this would be low cost producers in Africa such as Zimbabwe, Malawi and Zambia. |
