11193 sugarcane harvesting in the us industry report

WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 1

Bitter future: Falling demand and less
government support will cause revenue to dip

IBISWorld Industry Report 11193
Sugarcane Harvesting in the US
December 2011 Nikoleta Panteva

2 About this Industry 15 International Trade 31 Key Statistics
2 Industry Definition 17 Business Locations 31 Industry Data
2 Main Activities 31 Annual Change
2 Similar Industries 19 Competitive Landscape 31 Key Ratios
2 Additional Resources 19 Market Share Concentration
19 Key Success Factors 32 Jargon Glossary
3 Industry at a Glance 20 Cost Structure Benchmarks
21 Basis of Competition
4 Industry Performance 22 Barriers to Entry
4 Executive Summary 23 Industry Globalization
4 Key External Drivers
5 Current Performance 24 Major Companies
8 Industry Outlook 24 United States Sugar Corporation
10 Industry Life Cycle
26 Operating Conditions
12 Products Markets 26 Capital Intensity
12 Supply Chain 27 Technology Systems
12 Products Services 27 Revenue Volatility
13 Demand Determinants 28 Regulation Policy
14 Major Markets 29 Industry Assistance

www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com


About this Industry

Industry Definition Farmers in this industry primarily grow known as Saccharum officinarum, its
sugarcane, a tall tropical grass originally thick stems are a major commercial
from Southeast Asia. Scientifically source of sugar.

Main Activities The primary activities of this industry are
Cane farming, sugar, field production

The major products and services in this industry are
Sugarcane for milled sugar
Sugarcane for refined sugar
Sugarcane for seeds

Similar Industries 11199 Hay Crop Farming in the US
Establishments engaged in sugar beet farming are included in IBISWorld report 11199.

Additional Resources For additional information on this industry
www.nass.usda.gov
National Agriculture Statistics Service
www.census.gov
US Census Bureau
www.usda.gov
US Department of Agriculture – Sugar and Sweeteners Briefing Room

I
BISWorld writes over 700 US
industry reports, which are updated
up to four times a year. To see all
reports, go to www.ibisworld.com


Industry at a Glance
Sugarcane Harvesting in 2011

Key Statistics Revenue Annual Growth 06-11 Annual Growth 11-16
Snapshot
$1.0bn -0.6% 2.6%
Profit Exports Businesses

$54.4m $100,000 503
Revenue vs. employment growth Price of sugar
Market Share
United States 30 45
Sugar Corporation 20 40
2
2.5%

Cents per pound
10
35
% change

0
30
−10

−20 25

−30 20
Year 03 05 07 09 11 13 15 17 Year 03 05 07 09 11 13 15 17
Revenue Employment
SOURCE: WWW.IBISWORLD.COM
p. 24
Products and services segmentation (2011)

Key External Drivers 6%
Sugarcane for seeds
Price of sugar
Demand from sugar
processing
External competition 25%
Per capita sugar and
sweetener consumption
Natural disaster index
69%
Sugarcane for reﬁned sugar

p. 4


Industry Structure Life Cycle Stage Decline Regulation Level Medium
Revenue Volatility High Technology Change Medium
Capital Intensity High Barriers to Entry Medium
Industry Assistance High Industry Globalization Low
Concentration Level Low Competition Level Medium

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 31


Industry Performance
Executive Summary | Key External Drivers | Current Performance
Industry Outlook | Life Cycle Stage

Executive The Sugarcane Harvesting industry has back up to 5.2% in 2011. Sugarcane
Summary endured drastic spikes and drops in farmers do not receive direct government
revenue over the five years to 2011. support. Instead, they get payments from
Global weather patterns are responsible sugar processors, who are entitled to
for price and production fluctuations. For subsidies. Because farmers are not
example, sugarcane prices skyrocketed subject to dedicated payments, year-on-
during the 2009-to-2010 growing season year incomes vary with their output.
as a result of heavy rainfall in Brazil, one Sugarcane farmers are not likely to
of the world’s leading suppliers of sugar. catch a break over the five years to 2016.
As a result of the 20.0% price increase In fact, as sugar prices continue to come
and ensuing production growth during down from their 2010 highs, industry
the year, US sugarcane harvesting revenue will suffer. IBISWorld expects
revenue to decline 1.1% in 2012.
Additionally, increasingly health-
T

he industry relies on subsidies for steady conscious consumers will likely turn to
low- and no-calorie sweeteners – both
profit, though revenue fluctuates wildly artificially and naturally derived. This
will increase competition for sugar
revenue shot up 27.4% in 2009. The processors, which will hurt the Sugarcane
effects trickled through to 2010, but are Harvesting industry. Over the next five
likely to wear off in 2011, when industry years, revenue is forecast to decline at an
revenue is expected to decline 3.5% to average annual rate of 0.6% to just above
$1.0 billion. During the past five-year $1.0 billion in 2016. A potential
period, revenue has averaged 2.6% opportunity for sugarcane farmers lies in
growth per year. the production of alternative energy.
Industry profitability is just as volatile Bagasse, a by-product of sugarcane
as revenue. In 2006, the average processing, is currently used to provide
sugarcane farmer took home 11.1% of energy to sugar mills. Commercial use of
revenue as profit; in 2007, this portion bagasse in energy production lies on the
crashed to 1.2% and is expected to reach horizon for the sugar supply chain.

Key External Drivers Price of sugar production levels. This will result in
Prices for sugarcane in the United States greater demand for sugarcane, thereby
are determined partly by government pushing revenue and returns to US
policy, which strives to match supply and growers upward. This driver is expected
demand. As a result, US prices are much to decrease during 2012.
higher than world prices, which
somewhat insulates farmers from External competition
volatility. This driver is expected to Competition from substitute sweeteners
increase during 2012, creating a potential has increased over the past five years.
opportunity for the industry. Consumer preferences for health-
conscious, no-calorie sweeteners have
Demand from sugar processing changed demand patterns.
Demand for sugarcane is primarily Manufacturers of foods and beverages
derived from sugar processors. A rise in are increasingly catering to these
domestic demand and consumption of changed tastes by omitting sugar and
sugar will encourage manufacturers to lift substituting it with alternatives. In



Key External Drivers addition, substitutes such as low-cost become more health-conscious, demand
continued high-fructose corn syrup are attractive for caloric sweeteners (including sugar)
alternatives to producers wishing to cut has decreased. This driver is expected to
costs. Import competition in the decrease slowly during 2012.
downstream sugar processing industry is
also reducing demand for the domestic Natural disaster index
supply chain. This driver is expected to Weather conditions play an important
increase slowly over 2012, posing a role in determining crop yields and
potential threat to the industry. production levels, domestically and
globally. Favorable weather patterns will
Per capita sugar and lift crop yields. The opposite is true when
sweetener consumption weather conditions are extreme, as was
Per capita consumption of sugar the case during the hurricane season of
increases demand for sugarcane. Over 2005. This driver is expected to increase
the past five years, as consumers have over the next year.

Price of sugar Demand from sugar processing

45 10

40
5
Cents per pound

35
% change

0
30

−5
25

20 −10
Year 03 05 07 09 11 13 15 17 Year 05 07 09 11 13 15 17


Current The Sugarcane Harvesting industry is in
decline, despite revenue’s average annual
world’s largest sugar producer, halted
the country’s production during the
Performance growth rate of 2.6% over the five years to 2009-to-2010 harvesting season.
2011. Unpredictable weather conditions Meanwhile, a drought in India, the
have caused erratic spikes and drops in second-largest producer, reduced output
the industry’s performance. In 2005, an from that country. These combined
unusually active hurricane season conditions limited world supplies of
battered the Southeast United States, sugar, leading the United States to
damaging Florida and Louisiana export the crop. Sugarcane is not
sugarcane crops. As a result, industry exported at a high rate because the cane
revenue declined, only to rebound 17.1% must be processed quickly after being
the next year. Similarly, good weather in harvested to retain its sugar content.
2009 allowed revenue to spike 27.4% However, refined sugar exports
and surpass the $1.0 billion mark in increased 52.9% in 2010 and an
2010. Heavy rainfall in Brazil, the additional 60.5% expected through the



Current Performance end of 2011. Sugarcane harvesting substitutes. Downstream beverage
continued revenue is expected to come down from processors made efforts to highlight the
its 2010 high, dropping 3.5% during 2011 benefits of sugar, marketing their soft
to just above $1.0 billion. drinks made with real sugar instead of
Weather conditions aside, the high-fructose corn syrup (HFCS), which
industry has long suffered competition has been linked to obesity. However,
from sugar substitutes. In 2006, the over the past two years, the Corn
average American consumed 139.0 Refiners Association has launched its
pounds of sugar and other caloric own campaign to defend HFCS, claiming
sweeteners per year; in 2011, that figure the human body processes it in the same
has dropped to an estimated 131.7 way it processes cane sugar. The
pounds. Focus on personal health has evidence remains inconclusive, but the
taken center stage, limiting consumers’ counter-efforts are sure to further
demand for sweeteners and encouraging intensify price competition between
them to opt instead for no-calorie sweetener producers.

USSugarProcessingindustryrevenue
Revenue Imports
Year ($ million) (% change) ($ million) (% change)
2006 7,885.4 N/C 1,612.0 40.0
2007 7,847.2 -0.5 1,027.2 -36.3
2008 7,599.0 -3.2 1,270.3 23.7
2009 7,845.9 3.2 1,424.8 12.2
2010 8,071.9 2.9 2,178.5 52.9
2011 8,356.2 3.5 3,497.5 60.5

SOURCE: IBISWORLD

Artificial profit- Downstream sugar processors receive a has kept profit positive over the past five
sweeteners variety of government payments, ranging years, averaging 5.2% of revenue in 2011.
from price supports to import quotas. However, sugarcane growers that do
Sugarcane farmers do not directly reap not contribute a large portion of the input
the benefits of such programs, but they to downstream processors may suffer
do get payments from processors. These from poor returns and government
government programs protect the backing. Farmers receive loan payments
industry from the world market for sugar proportional to the amount of sugarcane
by blocking lower-priced imports from provided to processors. Therefore, while
entering the country. Domestic sugar a farmer may give his entire crop to a
prices are also inflated, remaining high processor, it may still only account for a
above the prevailing world price in any small percentage of the processor’s input,
given year. As a result, sugarcane limiting the payments he or she affords
farmers’ profit margins are less volatile the farmer. As a result, many farms –
than revenue. While farmers sometimes mostly small, unprofitable farms unable
experiences losses, as any other crop to generate enough return from
grower does, the multitude of programs processors – have exited the industry at



Artificial profit- an average annual rate of 3.5% over the per year. Sugarcane farms are now fewer
sweeteners past five years, leaving the total number in number, but have become larger,
of farms at 566 in 2011. Acreage, harvesting an average of 1,458 acres,
continued
however, has only shrunk less than 1.0% compared with 1,254 acres in 2006.

Import competition Imports in the Sugarcane Harvesting
industry are insignificant because the Revenue vs. exports
crop must be processed soon after
500
harvesting to prevent sucrose loss.
Imports in this industry account for 400
only 0.02% of domestic demand and 300
exports represent a mere 0.01% of

% change
industry revenue. However, in the 200
downstream Sugar Processing industry 100
(IBISWorld report 31131), international
trade is much more important. Recent 0
imports for sugar processors are −100
especially notable because they have Year 03 05 07 09 11 13 15 17
increased at an average of 16.8% per Revenue Exports
year since 2006, despite government SOURCE: WWW.IBISWORLD.COM

efforts to restrict them.
The growing volume is largely due to the region enjoy fewer barriers to the US
recently opened trade relations between market, which has caused imports from
the United States and Mexico. Since them to increase over much of the past
2008, Mexico has imported unrestricted five years. Processors and downstream
amounts of sugar into the United States markets use the imports in place of
duty-free under the North American domestically produced sugar to cut input
Free Trade Agreement (NAFTA). costs, which are inflated by the
Likewise, under the Dominican protectionist US government policies
Republic-Central American Free Trade that ensure high domestic prices for
Agreement (DR-CAFTA), countries in sugar growers.



Industry The Sugarcane Harvesting industry faces
more threats than opportunities over the
processors and consumers. Americans’
preferences have already begun to shift
Outlook five years to 2016. After the sugar price away from sugar and other caloric
surge in 2010 due to a global shortage, sweeteners such as high-fructose corn
prices are expected to recede over the syrup. Between 2006 and 2011, per
next five years. To meet demand, US capita consumption of sugar and
farmers have planted and harvested sweeteners fell from 139.0 pounds per
more sugarcane, which will result in year to an estimated 131.7 pounds per
price relief over the next few years. As year; IBISWorld projects consumption to
the price for sugarcane continues to fall even further to 130.0 pounds by
come down from its astronomical high, 2016. This will stifle Sugarcane
revenue will decline 1.1% between 2011 Harvesting industry growth, with
and 2012. In addition to settling prices, revenue forecast to decline at an average
the industry will face reduced annual rate of 0.6% over the next five
downstream demand from sugar years to $1.0 billion in 2016.

USSugarProcessingindustryrevenueforecast
Revenue Imports
Year ($ million) (% change) ($ million) (% change)
2011 8,356.2 -2.1 3,497.5 5.7
2012 8,141.3 -2.6 3,283.9 -6.1
2013 8,314.0 2.1 3,425.5 4.3
2014 7,795.1 -6.2 3,611.2 5.4
2015 7,474.6 -4.1 3,725.4 3.2
2016 7,308.5 -2.2 3,702.5 -0.6

SOURCE: IBISWORLD

Looming threats Almost all sugarcane grown in the United trends and is expected to continue into
States is processed into sugar. This the next five years.
means that as the Sugar Refining Second, the US Department of
industry (IBISWorld report 31131) Agriculture (USDA) and the US
suffers, so will sugarcane farming. International Trade Commission
IBISWorld anticipates revenue declines (USITC) are easing their protectionist
in the downstream industry over the next policies of the US sugar supply chain.
five years, which will reflect poorly on Price supports for sugarcane and sugar
sugarcane growers. The domestic sugar beet farming are slated to expire in 2013.
supply chain is facing a multitude of Unless renewed, domestic producers will
threats. First, consumer health- have to face high input costs without
consciousness is increasing, which is non-recourse government loans.
leading downstream food and beverage Internationally, the United States has
producers to substitute alternative, begun to reduce its barriers to imports.
low- and no-calorie sweeteners in place In 1994, as part of the World Trade
of sugar and other traditional syrups. Organization (WTO), the United States
This shift is already evident in industry signed the Agreement on Agriculture.



Looming threats This document dictates that its signors
continued must reduce domestic agricultural A

mericans are becoming
supports, limit export subsidies and
allow access to their markets. While
more health-conscious
tariff rate quotas (TRQs) and re-export and are consuming less
programs still define the domestic sugar sugar per year
supply chain, the United States’ doors
are opening to trade. In 2008, free trade
of sugar with Mexico was established sugarcane growing and processing land
under the North American Free Trade in the Everglades in 2008. This move is
Agreement (NAFTA). Similarly, under focused at preserving the natural
the Dominican Republic-Central ecosystem and species found in the area.
American Free Trade Agreement (DR- Currently, the company, which accounts
CAFTA), import quotas for these trading for about a fifth of the industry, still
partners have increased since 2006 and operates as usual. However, Florida will
are slated to continue in this manner dismantle the operations in 2013, as
through 2021. After that, quotas are to indicated by officials. This will severely
grow by 2,640 metric tons per year hurt the Sugarcane Harvesting industry,
indefinitely. This effectively exposes with revenue and establishments
domestic sugar processors (and therefore expected to decline most severely in
sugarcane growers) to world sugar, that year. Overall, the number of
limiting domestic price growth and establishments is forecast to decline 5.3%
industry growth. per year to 430 sugarcane farms in 2016,
Additionally, the state of Florida while profit dwindles to about 3.5% of
purchased major player US Sugar’s revenue and competition intensifies.

Potential The future may not be all bad news for to fuel and sustain their operations.
opportunities the industry. USDA support for sugar Commercial use of bagasse for ethanol
producers is likely to continue through remains some way from viability. The
2013, at least. Payments to sugar United States currently lacks technology
processors will trickle back to farmers, efficient enough to convert this waste into
supporting their otherwise weak revenue fuel; the rate of technology change will
streams. The return may be minimal, and determine how quickly bagasse becomes
shrinking, but it will keep some farmers a staple in ethanol production. However,
in business for the next few years. the rising popularity and demand for
Biofuel production is this industry’s biofuel in the United States (the Energy
diamond in the rough. Bagasse, the Policy Act of 2005 mandates increasing
fibrous by-product of sugar processing, is amounts of biofuel to be mixed with
an input in natural gas production. traditional fuel in each year through
Currently in the United States, primarily 2012) could be the spark that turns the
sugar mills and refineries use this matter Sugarcane Harvesting industry around.


Life Cycle Stage Harvested acreage of sugarcane has
dropped over the past five years
Consumer preference for low- and no-calorie sweeteners
has increased competition from substitutes
Farmers’ profitability depends in part on
government policies, which have become less
effective in ensuring US prices stay high

30 Maturity QualityGrowth
%Growthofprofit/GDP

KeyFeaturesofaDeclineIndustry
Company High growth in economic
consolidation; importance; weaker companies Revenue grows slower than economy

level of economic close down; developed Falling company numbers; large firms dominate
importance stable technology and markets Little technology process change
25
Declining per capita consumption of good
Stable clearly segmented products brands

20

15
QuantityGrowth
Many new companies;
minor growth in economic
importance; substantial
10 technology change

5

FertilizerManufacturing
OrganicChemicalManufacturing
HayCropFarming
0 CropServices
SugarProcessing
Shake-out
SugarcaneHarvesting
Shake-out

–5

Decline PotentialHiddenGems TimeWasters
Crash or Grow? Future Industries Hobby Industries
–10
–10 –5 0 5 10 15 20 25 30
%Growthofestablishments



Industry Life Cycle The most important indicator of growth the US International Trade Commission
is the industry’s value added (IVA), or its (USITC) are easing up their protectionist
contribution to the overall economy. policies. Downstream food and beverage
T
his industry Over the 10-year period to 2016, producers, and end consumers, suffer
is Declining IBISWorld expects IVA for the from the inflated price and the barriers
Sugarcane Harvesting industry to on imports. In 2008, the North American
decline at an average annual rate of 1.6% Free Trade Agreement (NAFTA)
while gross domestic product (GDP) extended free trade of sugar with Mexico.
grows at about 1.8% per year. Consumer The assistance offered to sugar
preferences have limited demand for processors is likely to diminish over the
refined sugar, about 45.0% of which next five years, leaving the domestic
comes from sugarcane. Between 2006 supply chain in a state of decline.
and 2011, per capita consumption of However, the industry may see some
sugar and other caloric sweeteners has positive growth if it establishes itself as a
dropped from 139.0 pounds per year to solid supplier to biofuel manufacturers.
an estimated 131.7 pounds, with an In other parts of the world, sugarcane
additional decline expected to 130.0 and bagasse (the fibers that remain after
pounds by 2016. sugarcane is processed) are used to
Historically, the US Sugar Processing produce ethanol and to generate
industry (IBISWorld report 31131) has electricity. Domestically, bagasse is only
been protected from the effects of world used within refineries to promote self-
sugar prices. The domestic price is sufficiency. With the substantial and
consistently higher than the prevailing growing interest in biofuel production in
world price. However, the US the United States, the industry may enter
Department of Agriculture (USDA) and into a new growth phase.


Products Markets
Supply Chain | Products Services | Demand Determinants
Major Markets | International Trade | Business Locations

Supply Chain KEY BUYING INDUSTRIES
11193 Sugarcane Harvesting in the US
Farmers will purchase sugarcane seeds from each other for planting purposes.
31131 Sugar Processing in the US
Sugar manufacturers purchase sugarcane for processing into raw and refined sugar.
32519 Organic Chemical Manufacturing in the US
Sugar can be used as an input into ethanol production.

KEY SELLING INDUSTRIES
11511 Crop Services in the US
Sugarcane farmers purchase off-farm services such as soil testing.
32531 Fertilizer Manufacturing in the US
Fertilizers are used in corn production to life crop yields.
32532 Pesticide Manufacturing in the US
Fertilizers are used in sugarcane growing to improve yields.
33311 Tractors Agricultural Machinery Manufacturing in the US
Agricultural equipment is used for harvesting sugarcane crops.
42382 Farm, Lawn Garden Equipment Wholesaling in the US
Harvesting machinery and other equipment used in sugarcane farming is purchased from
wholesalers.
42491 Farm Supplies Wholesaling in the US
Sugarcane farmers may purchase seed, fertilizer and other farm supplies from these
wholesalers.

Products Services Products and services segmentation (2011)

6%
Sugarcane for seeds

25%

69%
Sugarcane for reﬁned sugar

Total $1.0bn SOURCE: WWW.IBISWORLD.COM

Sugarcane is a perennial grass that grows is stored in the inner core of its stalk.
between six and 19 feet tall. On average, This juice is then processed into sugar.
it takes between six and 24 months to While sugarcane production does not
reach full maturity. Once matured, vary based on its final destination, for
sugarcane is harvested for the juice that the sake of product detail, IBISWorld


Products Markets

Products Services breaks down sugarcane for milling and combining of the milling and refining
continued sugarcane for refining. Sugarcane that process in most developed nations,
is not grown for seeds is taken to a mill including the United States. Because this
where it is washed, chopped and is a more cost-effective and efficient
shredded. It then gets mixed with water method, refined sugar has gained market
and crushed. The resulting products are share over the five years to 2011.
begasse, a fibrous solid output used as Seed production accounts for about
burner fuel, and juice, which later 6.0% of industry revenue. While
gets converted into molasses and raw sugarcane is grown from seed, the plants
sugar. Some of the begasse is used as usually remain in use for two to three
fuel in mills, making them more years. After the cane is harvested, the
self-sufficient, while the remainder is remaining stubble will re-grow and be
used in animal feeds. cropped a year after the first harvest.
Raw sugar can either be consumed in Growing sugarcane seeds is commercially
this form or it can be refined further. separate from sugarcane production (for
IBISWorld estimates that about 69.0% of processing purposes) because field
sugarcane reaches the refining stage of production of seeds results in genetically
the process. In this stage, sugar from the different seeds. Genetic uniformity is
milling process is continuously refined to important for commercial sugar cane
create white sugar and brown sugar. production. Research and development
From there, granulated sugar can be in sugarcane is continually improving the
created by heat drying the white or brown characteristics of sugarcane seeds.
sugar to create small crystals. Refined Scientists are using biotechnology as a
sugar has grown as a share of revenue means of developing strains that increase
over the past five years due to the plant resistance to pests and disease.

Demand Demand for sugarcane is derived from sugar as health concerns pave the way
Determinants a range of factors including activity in for non-caloric alternatives.
sugar manufacturing, sugarcane and
sugar beet prices and competition Sugarcane versus sugar beet
from substitutes. In the past century, sugarcane has been
the secondary source for sugar
Downstream demand production. On average, sugar beet
The demand for sugarcane is strongly accounted for 55.0% of total sugar
influenced by the demand for raw and production in the US since 1980, while
refined sugar. Concern about health cane contributed 45.0%. These shares
and diet has seen per capita change slightly each year, depending on
consumption of sugar stagnate. In weather conditions and yields. Sugar
addition, sugar processors are facing beet and cane are grown in different
increased import competition under areas and go through different processes
the Central America Free Trade to become refined sugar. However, if
Agreement (CAFTA) and the full availability of sugar beet and refining
implementation of the North America capacity continue to expand, while
Free Trade Agreement (NAFTA). In consumption of sugar overall continues
addition, food manufacturers, to decline, demand for sugarcane may
particularly in the confectionery come under pressure and farmers may
industry, have reduced demand for choose to plant smaller areas.


Products Markets

Demand Sugar alternatives consumption of caloric sweeteners has
Determinants Apart from the competition with sugar been falling due to health concerns,
beets as an input into refined sugar while low-calorie demand has
continued
production, sugarcane demand is also strengthened. However, technical
affected by competing sweeteners. constraints limit substitution to an
These range from high fructose corn extent; for example, high fructose corn
syrup (HFCS) to no-calorie syrups are not currently suitable for
sweeteners. Over the past five years, some baked goods.

Major Markets Major market segmentation (2011)

8%
Other industries
12%
Other food
manufacturers

42%
Bakery and cereal
13% products manufacturers
Retailers

25%
Total $1.0bn Wholesalers

Almost all sugarcane produced is sold to (who use the seed for future plantings).
sugarcane mills. The mills are located These buyers (biofuel makers and
close to growing areas because sugarcane sugarcane farmers) represent a growing
must be processed quickly before its portion of the industry’s market. As
sucrose deteriorates. Processing mainly quotas for biofuel mixing increase each
involves chopping and crushing the cane year, demand for alternative fuels made
to extract its juice. The juice is further from biodegradable masses increases.
processed to separate the crystals from Bio-diesel manufacturers are increasingly
the molasses. Crystallized sugar is turning to begasse, the by-product of
usually sold to a refinery, where it is sugarcane milling, as a source of energy.
further processed. The fibers that remain However, this simple breakdown does
after the juices are extracted are known not represent the use of the industry’s
as bagasse. They are widely used for products accurately. Therefore,
energy generation, especially within the IBISWorld presents markets further
refinery itself. downstream to give a more accurate
The immediate market for sugarcane is picture of sugarcane usage. After the
sugar mills, which account for about sugarcane has been milled and refined, it
95.0% of Sugarcane Harvesting industry is usually sold to food manufacturers.
revenue. The remaining 5.0% comes from Bakeries, which produce breads, cereals
sales to other industries, including and confectioneries, are the largest
biofuel producers and sugarcane farmers downstream market for sugar,


Products Markets

Major Markets representing about 42.0% of revenue. Grocery store wholesalers and sugar
continued This market has shrunk slightly over the dealers account for about 25.0% of
past five years as demand for value- industry revenue. Demand from this
added, high-priced foods deteriorated market segment has experienced
during the recession. However, as the polarized pulls. On one end, consumer
economy rebounds over the next five demand for at-home cooking increased
years, IBISWorld expects demand for during the recession, spurring demand
ready-made foods to increase. from wholesalers. On the other end,
Other food manufacturers produce ice retailers have increasingly tried to
cream, canned foods and beverages. bypass the wholesaler in an effort to
These processors account for about cut costs and retain margins. As a
12.0% of revenue, up from about 10.0% result, wholesalers’ share of sugarcane
in 2006. Demand for these ready-to-eat, farmers’ downstream market
low-cost foods grew in the past five years has remained stable. Meanwhile,
because they are attractive alternatives to retailers have gained a slightly
cooking at home, which requires time, larger piece of the pie over the past five
and eating prepared meals at restaurants, years, currently making up 13.0% of
which carry a price premium. the market.

International Trade International trade of sugarcane is very
low. The crop must be processed very Industry trade balance

Level Trend quickly after its harvest to retain its
1.2
sucrose content. Once cut, the stalks
Exports in the

begin to lose their sweetness. As a result, 0.8
industry are Low exports total an estimated $54,636 in
and Decreasing 2011, accounting for about 0.01% of 0.4
$ million

industry revenue. Likewise, imports of
I
mports in the
sugarcane are an insignificant factor for −0.0
industry are Low this industry, satisfying only 0.02% of
−0.4
and Decreasing domestic demand. Imports from Mexico
dropped off drastically in 2011, due to −0.8
the country’s low production and Year 03 05 07 09 11 13 15 17
imposed import quotas. The quotas are Exports Imports Balance
set to expire in January 2012, at which SOURCE: WWW.IBISWORLD.COM

time the country will be able to sell its
product to the United States again. 4.38 cents per pound; beet sugar rates
Trade in the Sugar Processing are 3.66 cents per pound and 6.58,
industry (IBISWorld report 31131) plays respectively. This goes to ensure that the
an increasingly important role. Sugar high demand first gets filled by more
processors are highly protected from expensive domestic sugar rather than
low-priced imports. The US government cheap imports. However, imports have
imposes tariff rate quotas (TRQs), where grown as a portion of domestic demand
imports under a certain volume get over the five years to 2011. In 2008, the
taxed at a lower tariff rate and anything North American Free Trade Agreement
exceeding the quota gets charged more. (NAFTA) opened free trade between
Cane sugar in-quota rates are 1.46 cents Mexico and the United States, which
per pound and above-quota rates are eliminated TRQs and allowed cheaper


Products Markets

International Trade Mexican sugar into the US market. As a Exports are much more limited for the
continued result, imports have increased at an Sugar Processing industry. Domestic
average annual rate of 16.8% over the demand is high and processors within
past five years. Because the US the United States are protected, which
Department of Agriculture (USDA) is keeps most domestically milled sugar
unable to accurately forecast the within the country. In 2011, exports to
volumes of imported sugar under accounted for 9.4% of revenue. Because
NAFTA, it is also unable to determine there is a high level of demand
quotas for other importing countries. domestically and US sugar prices are
This could result in an over-supply in the above the world price for sugar,
domestic market, pushing prices down IBISWorld expects that exports will
and decreasing revenue and profits for remain a small portion of revenue over
sugar processors. the next five years.

Exports To... Imports From...
2%
6% Brazil
China

91%
Vietnam

25%
All Others
43%
Mexico

32%
Canada

Year: 2011 Total $100,000 Total $200,000
SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: USITC


Products Markets

Business Locations 2011

West
AK
0.0 New
England
ME
Mid- 0.0

Great Atlantic 1 2
Lakes NY 3
WA MT ND 0.0
5 4
0.0 0.0 MN
Rocky
0.0 0.0
WI
OR Mountains SD
0.0
Plains 0.0 MI
0.0
PA
0.0
7
6

0.0 ID IA OH 9 8
0.0 WY 0.0
0.0
NE
0.0
IL IN WV VA
0.0 0.0 0.0

West NV
0.0 0.0
KY
UT MO
0.0 NC
0.0
0.0 CO KS 0.0 0.0
0.0 0.0 TN
SC
Southeast
0.0
CA 0.0
0.0
OK AR GA
0.0 0.0 AL 0.0
AZ MS 0.0
0.0 NM
0.0 Southwest 0.0

TX LA
40.8 FL
4.4 49.1

West
HI
5.7 AdditionalStates(as marked on map) Distributionofrevenue(%)

1 VT 2 NH 3 MA 4 RI Lessthan3%
0.0 0.0 0.0 0.0 3%tolessthan10%
10%tolessthan20%
5 CT 6 NJ 7 DE 8 MD 9 DC
0.0 0.0 0.0 0.0 0.0
20%ormore



Products Markets

Business Locations Sugarcane growing requires tropical
Revenue vs. population
conditions, with an annual rainfall of at
least 24 inches. As a result, the crop is
90
only grown in four states domestically:
80
Florida, Louisiana, Hawaii and Texas. 70
Florida has the largest contribution of 60
sugarcane production and value in the 50
country. Its production is mainly located

%
40
around Lake Okeechobee, which 30
provides fertile soil with adequate 20
moisture and warmth. The area’s ideal 10
climate allows it to account for nearly 0
50.0% of the United States’ sugarcane

West

Great Lakes

Mid-Atlantic

New England

Plains

Rocky Mountains

Southeast

Southwest
production. Over the past five years, the
Florida state government has increased
its efforts to preserve the Everglades
(one of the most popular regions in
Florida for sugarcane farming). In Revenue
2008, the state agreed to purchase Population
major player United States Sugar SOURCE: WWW.IBISWORLD.COM

Corporation and all its facilities in the
area to restore the natural region. The only accounts for 5.7% of industry
company will remain in operation until revenue. Its small surface area limits the
2013, after which its plants will be growth opportunities for farmers in the
dismantled. This will severely alter the region. Over the past five years, Hawaii’s
shape of the domestic Sugarcane sugarcane farming industry has suffered
Harvesting industry. as the state moved toward tourism as its
Louisiana accounts for 40.8% of main source of income. In addition,
sugarcane farming revenue. Like Florida, cheap labor and input costs in the
its warm and moist climate make an ideal Caribbean shifted sugarcane production
growing environment for the crop and its offshore. Texas accounts for a small
vast expanse of readily available land portion of revenue at only 4.4%. Its warm
make the state an ideal choice for climate can sometimes be too dry for the
industry operators. Hawaii, while crop, but its available land allows for
globally known for its sugarcane farming, cane production.


Competitive Landscape
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks
Basis of Competition | Barriers to Entry | Industry Globalization

Market Share As an agricultural industry, Sugarcane
Concentration Harvesting has a low level of Farmsbyharvestedacreage
ownership concentration. The large
(2011)*
majority of farms are small, family-
Level Numberof Share
owned operations. According to the US
Concentration in
Agriculture Census, 57.3% of farms in Harvestedacres farms (%)
this industry is Low this industry generate annual revenue 1 to 14 41 7.2
less the $500,000. However, that 15 to 24 17 3.0
vertical integration is an important 25 to 49 33 5.8
and increasingly common feature in 50 to 99 31 5.5
the sugar supply chain. Vertical 100 to 499 145 25.6
integration ensures a constant supply 500 to 999 128 22.7
of raw materials for sugar refineries 1,000 or more 171 30.2
and is also easier to achieve in an Total 566 100
industry with a very high degree of *IBISWorldestimate
geographical concentration. SOURCE: US DEPARTMENT OF AGRICULTURE

This pattern has also been attributed
to competitive and cost pressures that are across the agricultural sector. A possible
encouraging the industry to move toward outcome of higher integration will be
large-scale production. This trend reflects greater profitability among large farms as
the continuing consolidation occurring fixed costs fall relative to production.

Key Success Factors Production of premium goods/services Appropriate physical growing conditions
Farmers that produce premium Location and regional weather conditions
sugarcane can find buyers that are willing affect sugarcane yields, thereby affecting
I
BISWorld identifies to pay higher prices. production volumes.
250 Key Success
Factors for a Ability to alter goods and services Economies of scale
business. The most produced in favor of market conditions The size of a sugarcane farm determines
Growers can maximize returns by the extent of the economies of scale
important for this
altering the balance between sugarcane achieved in growing. Economies of scale
industry are: crops and other products in response to affect a farm’s cost structure and
changes in market conditions. profitability.

Easy access to further appropriate Ability to take advantage of
land for development government subsidies and other grants
The availability of suitable land is critical The US sugarcane industry receives
for expansion of sugarcane farming. substantial assistance from the Federal
This can be difficult, given that sugarcane Government, which can insulate farmers
can only be grown in tropical or from market volatility.
semitropical regions.



Cost Structure Cost structures can vary widely among estimated 22.6% of industry revenue.
Benchmarks industry players. Production costs for Fertilizer and chemical purchases are
sugarcane farming are partly a function the major cost items in this category.
of farm size. Larger farms have the As fertilizer prices increased in 2008,
greatest total costs but also have the then again in 2011, so did this expense
lowest average per-unit costs. These category. Purchases remain the largest
establishments benefit from cost savings cost segment for the average sugarcane
created through economies of scale in farmer. Over the past five years,
production. Since the size of farms is sugarcane farmers have increasingly
generally increasing, per-unit costs of outsourced some on-farm activities to
growing sugarcane are expected to third party contractors to save money.
decline in the next five years. Other For example, machine repairs and
factors such as the introduction of new maintenance and chemical application
technology are also contributing to falling are done by companies that specialize
production costs for farmers. in these areas, thereby minimizing
Returns from sugarcane farming are costs to farmers.
moderate. On average, returns interest Depreciation is another big cost
and tax represent abound 5.2% of category for sugarcane farmers,
industry sales. However, profitability can accounting for 17.6% of revenue. The
vary widely from season to season due to widespread use of mechanical harvesters
volatility in market conditions, global explains the fairly high proportion of
supply and weather patterns that depreciation in the cost structure. This
adversely affect crop harvest volumes. share is similar to other industries that
Unlike many other crop farming use mechanical harvesters, such as wheat
industries, sugarcane farmers do not and soybean farming. According to the
receive government subsidies at this level latest Census of Agriculture (published
of production. Because the crop is highly in 2007), machinery and equipment for
perishable and many farmers are the average sugarcane farm totals
vertically integrated in a supply chain $602,944, significantly higher than the
with millers and refiners, subsidies are $108,515 for crop farming in general.
distributed at the processing level. Many Because imports of sugar are a growing
farmers benefit from these payments in concern for downstream processors,
an indirect way since refiners must pay a cooperatives have increasingly invested
portion of their earnings to sugarcane in new technologies to remain cost
and sugar beet farmers. Over the past five competitive internationally.
years, sugarcane farming returns have Wages are also a significant cost for
fluctuated in line with prices. sugarcane farmers. In 2011, 17.3% of
The cost of sugarcane production can revenue is spent on labor payments.
vary widely from year to year. Weather About one-third of sugarcane harvesting
conditions and the presence of weeds and in the United States is done by hand. This
pests are often the cause of annual requires sugarcane fields to be set on fire,
changes in production costs. In drier ridding the plants of dry leaves and pests
years, farmers use more soil conditioners (like snakes). Workers then use a
and irrigation water to achieve average machete or cane knife to cut the stalks
yields. In other years, the onset of crop just above the ground. This method is
disease necessitates the use of great losing popularity as mechanical
quantities of herbicides and pesticides. harvesters become more efficient, cutting
Purchases represent the industry’s down a field of cane more quickly, thus
greatest costs, accounting for an preserving the sugar content of the plant.



Cost Structure Rent is not an actual cost for sugarcane Utilities, such as fuel and
Benchmarks farmers, but an implied cost. IBISWorld electricity, account for a relatively
accounts for the opportunity cost of land, small cost. Over the past five years,
continued
representing the alternative uses for the however, it has grown as gas prices
fields. In 2011, this expense accounts for have increased. Transportation costs
13.6% of total revenue. In Florida, where are also small, accounting for 4.1% of
most of the country’s sugarcane is revenue. Most refineries are located
farmed, efforts to preserve the natural close to the sugarcane farm fields
habitat of endangered species is leading because, once cut, sugarcanes lose
the state government to purchase back their sugar content quickly. Therefore,
some of the Everglades. Therefore, the the product does not have to travel
opportunity cost of growing sugarcane is far to get to its next destination,
increasing and is expected to continue reflected in the low transportation
growing over the next five years. Sugar costs. Other expenses include the cost
beets are already the major source for of being part of a farmer-processor
sugar produced in the United States, but cooperative and general farm
their stronghold as the preferred input is overhead. These costs remain fairly
expected to intensify. stable from year to year.

■Profit
IndustryCostsandAverageSectorCosts
■Rent 0 100%
Industry
■Utilities
Costs 5.2 13.6 7.7 17.6 16.0 17.3 22.6
■Depreciation Profit
(2011)
■Other
■Wages
AverageCosts
■Purchases
ofallIndustries 9.9 11.2 7.8 13.9 12.4 8.1 36.7
Profit
insector(2011)

Basis of Competition Internal competition certified farming is creating a new
The cost of production is a key sub-segment in the market. In the future,
competitive factor among growers since consumer concerns about food safety may
Level Trend sugarcane is largely homogeneous in mean that farmers growing organic
Competition in
nature. Therefore, the prices received by sugarcane will be able to demand a higher
this industry is farmers are fairly similar and they can price. Although a base for competition,
M
edium and the only maximize profit by using efficient, quality is difficult to control since it is
low-cost production techniques. largely determined by exogenous factors
trend is Increasing
Although cost remains a critical like growing conditions. Rain levels,
competitive factor, other characteristics weather patterns and the presence of
like quality are growing in importance. plant disease or insects determine the
Sugarcane can be graded according to its quality of harvested sugarcane.
sugar content. Premium graded
sugarcane can demand a marginally External competition
higher price than other sugarcane in some Directly, sugarcane competes with sugar
cases. The introduction of organically beets as an input into refined sugar



Basis of Competition production. This competition is limited been decreasing, and sweetener
continued since sugar beet and cane are grown in manufacturers have had to contest a
different areas and go through different smaller market.
processes in order to become refined Competition from sugar imports
sugar. However, if availability of sugar has increased in recent years.
beet and refining capacity continue to Previously, trade policies had
expand, while consumption of sugar protected sugar manufacturers from
overall continues to decline, significant levels of competition. Since
competition may intensify. the introduction of CAFTA and
Indirectly, sugarcane competes with NAFTA, imports have increased and
other types of sweeteners, from honey to are increasingly displacing domestic
aspartame. Competition has been sugar production. This is a form of
intensifying in the past few years, as indirect external competition for
overall consumption of sweeteners has sugarcane growers.

Barriers to Entry Barriers to entry into the Sugarcane
Harvesting industry are high compared BarrierstoEntrychecklist Level
Level Trend to other agricultural industries. The Competition Medium
capital requirements in this industry Concentration Low
Barriers to Entry

are the highest in the agricultural Life Cycle Stage Decline
in this industry are sector, with land valued at $4.8 million Capital Intensity High
M
edium and Steady per farm and machinery worth Technology Change Medium
$602,944 per farm; sector averages for Regulation Policy Medium
the respective categories are $951,279 Industry Assistance High
and $108,515. New participants must
raise upfront funds to purchase land for SOURCE: WWW.IBISWORLD.COM

cropping, buildings and general farm
machinery. Sugarcane farming land is requires some specialized machinery
become increasingly expensive as including a self-propelled mechanical
efforts of the Florida state government harvester or special wet weather
to protect the Everglades intensify. harvesting equipment for the moist
In some production areas, access to nature of sugarcane farming. New
suitable land is also a restraint on growers may overcome the cost of
entry. This is partly the result of purchasing this machinery by
urbanization. Furthermore, new employing a contractor to harvest their
entrants may encounter problems crop, a practice that has gained
purchasing tracts of land that are large momentum over the past five years.
enough to generate scale economies in Although insulated by government
growing. This can significantly inhibit policies from price volatility, the
the viability of new entrants since data profitability of sugarcane farming
shows that larger sugarcane farms are still varies from year to year. It
typically more profitable. depends on a range of external
For enterprises already engaged in factors that are beyond the control of
other cropping, the cost of farmers. These include consumer
establishment is significantly lower. preferences, weather conditions and
Nonetheless, sugarcane harvesting plant disease. Traditional financing



Barriers to Entry companies and banking institutions manufacturing sectors. Since
continued may be reluctant to approve loans for manufacturing volumes are partly
establishment costs. determined by the federal government,
The US sugar supply chain is highly new growers may find it difficult to sell
regulated compared with other food their sugarcane to processors.

Industry US sugarcane farmers are exposed to a The low level of concentration in the
Globalization low level of globalization. The global industry has meant that locally owned
sugar market is affected to a large extent businesses have traditionally
by tariffs and quotas imposed by various dominated domestic sugarcane
Level Trend governments, and this has hindered production. Historically, the number of
Globalization in
trade. However the phasing out of foreign firms operating in the industry
this industry is import quotas for countries covered by has been negligible. Unlike other
L
ow and the trend NAFTA has seen a strong increase in agricultural industries, sugarcane
import competition for sugar farmers are not required to deal with
is Increasing
manufacturers. The global price for large, global wholesalers, since trade in
sugar and the US price have been this industry is miniscule.
converging over recent years. A lower However, sugar subsidies may not
level of trade protection is facilitating continue in their present form. In 2004,
increased globalization of this industry. the WTO ruled that European sugar
In addition, the subsidies paid by subsidies are illegal. More recently, the
the US government have meant that federal government has indicated it may
sugar prices in the US are considerably move to lower support payments to
higher than in the rest of the world (for farmers generally. If these decisions are
example, in the US the wholesale price implemented, this may increase the effects
for raw sugar was 22.14 cents per of globalization on US sugarcane farmers.
pound in 2006, compared with a global Like other commodities, globalization may
price of 15.50 cents). This further indirectly place pressure on US sugarcane
insulates farmers from price farmers to become more competitive and
fluctuations on the global market. improve their productivity and quality.

International trade is a TradeGlobalization GoingGlobal:SugarcaneHarvesting1999-2011
major determinant of
an industry’s level of 200 Export Global 200 Export Global
globalization.
Exports offer growth 150
opportunities for firms. 150
Exports/Revenue
Exports/Revenue

However there are legal,
economic and political risks 100 100
associated with dealing in
foreign countries.
50
Import competition can Sugarcane 50
bring a greater risk for Harvesting 2011
companies as foreign 0 Local Import 1999
0 Local Import
producers satisfy domestic 0 40 80 120 160 0 40 80 120 160
demand that local firms Imports/DomesticDemand Imports/DomesticDemand
would otherwise supply.

11193 sugarcane harvesting in the us industry report

11193 sugarcane harvesting in the us industry report

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