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Sugar industry confronts changing global market.

Once again, historically volatile world sugar market is facing great uncertainties.

The main factor? Political and economic upheavals in the former Soviet Union, Cuba, and the Central and Eastern European countries (CEE's), according to economist Ron Lord of USDA's Economic Research Service.

Cuba had been supplying 3 to 4 million metric tons of sugar annually to the former Soviet Union and another 1 million tons to the CEE's. In return, Cuba received subsidized inputs and guaranteed high prices for its sugar. But that arrangement has ended, and the new government entities in the former Soviet Union are strapped for cash and will be hard pressed to buy large quantities of sugar.

Without Soviet assistance, the Cuban sugar industry is facing shortages of petroleum, fertilizer, and spare parts.

This year's Cuban sugar crop is forecast at 6.0 million tons, down sharply from the 7.8-million-ton average of the previous 2 years. Lord says the reduction is due to reduced supplies of fuel oil, a 2-month delay in starting the harvest, and a fall-off in yields that reflects the lack of fertilizers and fuel.

Because former markets are not able to take the amounts of sugar purchased in recent years, much of Cuba's sugar may be traded at world market prices--currently 8 to 10 cents a pound.

Cuba's sugar exports to Easter Europe fell from 1.2 million metric tons i 1989 to 68,000 metric tons i 1991 This trade had been dictated more by political than economic imperatives, Lord says. Poland, Hungary, and the Czech and Slovak Federal Republic (CSFR) have all ceased importing sugar from Cuba.

A Highly Protected Commodity

Governments throughout the world have traditionally protected their national sugar industries. However, current developments could alter the levels of intervention.

"Sugar is politically a key commodity, in which many countries have long tried to ensure self-sufficiency," Lord says.

Poland, Hungary, and the CSFR have declared their intentions to move their economic systems toward private control of resources, but have also been implementing policies that continue a significant degrees of government control over sugar prices, Lord says.

In the CEE's, a number of factors can influence the goal of creating market economies, Lord says. Other industries also face fierce competition, especially from overseas, so sugar producers may not succeed in justifying unique treatment. Serve budget constraints have reduced the producer support options available to governments. However, consumers could be forced to pay for producer support through higher prices, if quantities are restricted.

The former centrally planned economies have been moving toward political freedom and economic openness. But if they adopt the Western model for sugar policies, which involves restricted supplies and higher consumer prices, production efficiency and incentives would rise and consumption would likely be depressed, the economist says.
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Publication:Frozen Food Digest
Article Type:Industry Overview
Date:Oct 1, 1992
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