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Outlook Not Sweet for #1 and #2 Sugar Producers

As the U.S. prepares for its November mid-term elections, Brazil – the world’s #1 sugar producer, controlling an estimated 40 percent of the global market – is poised to elect a new president who could significantly alter that nation’s sugar policies, which might also result in even more government meddling in the market.

Embattled President Dilma Rousseff is seeking another term in the October 5th election.  But challenger Marina Silva is leading in the polls and, according to a report this week in the Wall Street Journal, if she wins she “has said that she would support the production of sugar-cane-derived fuel and electricity.”

It is hoped that increased use of cane-based ethanol will help boost the fortunes of the industry as “ethanol can be more profitable than sugar for processors,” however, a global sugar glut is still depressing prices across the board.

As such, Brazilian sugar industry group Unica is lobbying Ms. Silva for help.  The Journal reports the group recently “presented her with a document outlining the sugar-cane sector’s ‘worst crisis in its history’ and asked for measures to increase ethanol demand, such as tax incentives.”

Tax “incentives” – subsidies – do not a free market make.

Meanwhile, Abinash Verma, director-general of the Indian Sugar Mills Association, writes this week in The Hindu Business Line that in India’s Uttar Pradesh state – where “66 mills generally produce 2/3rd of the State’s sugar production and supply 3/4th of the ethanol and cogenerated power” – the sugar industry “is passing through its worst financial crisis ever.”

The problem, Verma explains, is the “unrealistic and unreasonably high cane price, announced by the State Government every year, with no relation to the revenue realisation of the sugar mills.  The high cane prices are not determined on economic considerations.”

“The 70 percent increase in cane price in UP in the last four years, compared with an increase of just about 7-8 percent in sugar prices during the same period, is a proof of the problem,” Verma writes.

Government price controls that have no relation to the market does not a free market make.

And yet this unsettled, government-manipulated global market for sugar is the same market some in the U.S. want to force American farmers and processors to compete in with no U.S. government protections whatsoever.

The answer isn’t to throw American farmers to the international wolves; it’s to get each major sugar-producing government around the world to simultaneously zero out their government meddling so that everyone is competing in the same government-free market.