Australia looks for a wider entree into the world sugar markets
The tropical storm that lashed the coast of northeastern Australia in May must have had a sweet tooth. It chewed up as much as 90 percent of the sugar cane in some areas.
The storm -- which brought welcome rains to the wheat farmers and cattle ranchers -- cost the sugar industry $75 million to $100 million. However, because the sugar farmers expected a record crop anyway, the damage to the $1.2 billion crop did not hurt them as badly as it could have.
Still, concedes Eric White, deputy chairman of the Sugar Board, the organization in charge of sugar marketing, the wind damage made life for sugar harvesters a little sour. Processing sugar from cane knocked down and covered with dirt is more costly. The week of rain following the storm also delayed harvesting, allowing the sugar content to drop.
On top of these weather problems, the industry is facing low prices and increasing costs. Machinery, fertilizer, and fuel costs have been rising. World sugar prices, set in New York, have sagged. In June the price slid to under 15 cents a pound, triggering export quotas under the International Sugar Agreement (ISA).
Australian exporters, however, will be better protected than exporters in many other countries since they have long- term contracts totaling 1.2 million metric tons. In addition, Australia will be permitted under the USA to increase its exports from 2.4 million tons in 1980 to 2.7 million tons this year. The total Australian crop is expected to increase to over 3.5 million tons this year , compared with 3.34 million tons last year. Acreage planted increased this year by 9 percent.
Last year was a bonanza for the farmers. Sugar prices soared, hitting 33 cents a pound in New York as Cuban production was hurt by infested crops. Even an excellent sugar crop in Europe did not hurt prices.
"We needed high prices last year," says Mr. White, "since the previous two years had been bad ones." Australian growers, confronted by low prices, left some 3 million tons of sugar unharvested in the fields over the two-year period. This year they expect to sell their total harvest.
Because of the wide price swings, Mr. White says the Australians have been pressing for long-term contracts to cover at least 50 percent of their crop. "In the early '70s we realized that long-term contracts meant that you would lose the cream when prices were high, but could still live when prices were low. We still hold to that objective."
If half of the crop were covered by long-term contracts, the other half could be sold on the world markets, taking advantage of high prices when they occur. "If we sell more than 50 percent in long-term contracts," says Mr. White, "we give away too much of the cream."
Recently, the Australians haven't had much success in signing up many long-term customers. Their biggest customer, Japan, has placed a $390-a-ton tariff on imported sugar. The tariff is designed to protect rice and potato farmers, who use this alternate source of sugar for the development of their high cost fructose industry. The Japanese have not renewed a four-year contract that ran out in June, covering 2.4 million tons.
The Aussies have also been unhappy with the European Community (EC), which is not a party to the ISA. For three consecutive years the EC sugar-beet farmers have had excellent crops, producing surpluses. Last year the EC exported 4 million tons of sugar with a $190-a-ton export subsidy.
This year, according to Deputy Prime Minister Douglas Anthony, the EC is selling 70,000 tons a week with a subsidy of $160 a ton. Australia has complained to the Geneva office that oversees the General Agreement on Tariffs and Trade.
In another disturbing trend for the industry, the per capita consumption of sugar in the US has been dropping. "It's not significant at the moment," says Mr. White, "but we can't deny it." Consumption of sugar is falling as more Americans hear of its alleged side-effects.
In spite of these problems, the Queensland and New South Wales sugar industry expects to have a good year. World stockpiles of sugar are low and the Australians fell they are well positioned for the time when prices recover. Today, points out Mr. White, the industry produces between 1,500 and 1,800 tons of sugar cane per hectare.
In addition, the industry has efficient shipping facilities. In northern Queensland, the Lucinda Point terminal, completed in 1979 with three miles of jetties and conveyors, is considered one of the most efficient and modern loading systems in the world.