11193 sugarcane harvesting in the us industry report
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 1Bitter future: Falling demand and lessgovernment support will cause revenue to dipIBISWorld Industry Report 11193Sugarcane Harvesting in the USDecember 2011 Nikoleta Panteva2 About this Industry 15 International Trade 31 Key Statistics2 Industry Definition 17 Business Locations 31 Industry Data2 Main Activities 31 Annual Change2 Similar Industries 19 Competitive Landscape 31 Key Ratios2 Additional Resources 19 Market Share Concentration 19 Key Success Factors 32 Jargon Glossary3 Industry at a Glance 20 Cost Structure Benchmarks 21 Basis of Competition4 Industry Performance 22 Barriers to Entry4 Executive Summary 23 Industry Globalization4 Key External Drivers5 Current Performance 24 Major Companies8 Industry Outlook 24 United States Sugar Corporation10 Industry Life Cycle 26 Operating Conditions12 Products Markets 26 Capital Intensity12 Supply Chain 27 Technology Systems12 Products Services 27 Revenue Volatility13 Demand Determinants 28 Regulation Policy14 Major Markets 29 Industry Assistancewww.ibisworld.com | 1-800-330-3772 | info @ibisworld.com
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 2About this IndustryIndustry 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 seedsSimilar 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
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 3Industry at a GlanceSugarcane Harvesting in 2011Key Statistics Revenue Annual Growth 06-11 Annual Growth 11-16Snapshot $1.0bn -0.6% 2.6% Profit Exports Businesses $54.4m $100,000 503 Revenue vs. employment growth Price of sugarMarket ShareUnited States 30 45Sugar Corporation 20 402 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 seedsPrice of sugarDemand from sugarprocessingExternal competition 25% Sugarcane for milled sugarPer capita sugar andsweetener consumptionNatural disaster index 69% Sugarcane for reﬁned sugar p. 4 SOURCE: WWW.IBISWORLD.COM SOURCE: WWW.IBISWORLD.COMIndustry 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
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 4Industry PerformanceExecutive Summary | Key External Drivers | Current PerformanceIndustry Outlook | Life Cycle StageExecutive The Sugarcane Harvesting industry has back up to 5.2% in 2011. SugarcaneSummary 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 – bothprofit, 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
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 5Industry PerformanceKey External Drivers addition, substitutes such as low-cost become more health-conscious, demandcontinued 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 SOURCE: WWW.IBISWORLD.COMCurrent The Sugarcane Harvesting industry is in decline, despite revenue’s average annual world’s largest sugar producer, halted the country’s production during thePerformance 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
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 6Industry PerformanceCurrent Performance end of 2011. Sugarcane harvesting substitutes. Downstream beveragecontinued 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: IBISWORLDArtificial profit- Downstream sugar processors receive a has kept profit positive over the past fivesweeteners 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
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 7Industry PerformanceArtificial profit- an average annual rate of 3.5% over the per year. Sugarcane farms are now fewersweeteners 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.
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 8Industry PerformanceIndustry The Sugarcane Harvesting industry faces more threats than opportunities over the processors and consumers. Americans’ preferences have already begun to shiftOutlook 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: IBISWORLDLooming 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.
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 9Industry PerformanceLooming threats This document dictates that its signorscontinued 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.
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 10Industry PerformanceLife 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 SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 11Industry PerformanceIndustry 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 beverageT his industry Over the 10-year period to 2016, producers, and end consumers, sufferis 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.
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 12Products MarketsSupply Chain | Products Services | Demand DeterminantsMajor Markets | International Trade | Business LocationsSupply 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% Sugarcane for milled sugar 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
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 13Products MarketsProducts Services breaks down sugarcane for milling and combining of the milling and refiningcontinued 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 wayDeterminants 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.
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 14Products MarketsDemand Sugar alternatives consumption of caloric sweeteners hasDeterminants Apart from the competition with sugar been falling due to health concerns, beets as an input into refined sugar while low-calorie demand hascontinued 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 SOURCE: WWW.IBISWORLD.COM 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,
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 15Products MarketsMajor Markets representing about 42.0% of revenue. Grocery store wholesalers and sugarcontinued 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 balanceLevel Trend quickly after its harvest to retain its 1.2 sucrose content. Once cut, the stalksExports in the begin to lose their sweetness. As a result, 0.8industry are Low exports total an estimated $54,636 inand Decreasing 2011, accounting for about 0.01% of 0.4 $ million industry revenue. Likewise, imports ofI mports in the sugarcane are an insignificant factor for −0.0industry are Low this industry, satisfying only 0.02% of −0.4and 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
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 16Products MarketsInternational Trade Mexican sugar into the US market. As a Exports are much more limited for thecontinued 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
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 17 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 0.0West 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 49.1West 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 SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 18Products MarketsBusiness 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.
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 19Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure BenchmarksBasis of Competition | Barriers to Entry | Industry GlobalizationMarket Share As an agricultural industry, SugarcaneConcentration 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 USConcentration 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 affectingI BISWorld identifies to pay higher prices. production volumes.250 Key SuccessFactors for a Ability to alter goods and services Economies of scalebusiness. 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 scaleimportant for this altering the balance between sugarcane achieved in growing. Economies of scaleindustry 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.
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 20Competitive LandscapeCost 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.
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 21Competitive LandscapeCost Structure Rent is not an actual cost for sugarcane Utilities, such as fuel andBenchmarks 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) SOURCE: WWW.IBISWORLD.COMBasis 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 mayLevel Trend sugarcane is largely homogeneous in mean that farmers growing organicCompetition in nature. Therefore, the prices received by sugarcane will be able to demand a higherthis 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 factorstrend 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
WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011 22Competitive LandscapeBasis of Competition production. This competition is limited been decreasing, and sweetenercontinued 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 LevelLevel Trend to other agricultural industries. The Competition Medium capital requirements in this industry Concentration LowBarriers to Entry are the highest in the agricultural Life Cycle Stage Declinein this industry are sector, with land valued at $4.8 million Capital Intensity HighM 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