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  • 1. 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 | 1-800-330-3772 | info
  • 2. 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 National Agriculture Statistics Service US Census Bureau 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
  • 3. 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
  • 4. 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
  • 5. 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
  • 6. 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
  • 7. 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.
  • 8. 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.
  • 9. 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.
  • 10. 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 Hay&CropFarming 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
  • 11. 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.
  • 12. 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
  • 13. 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.
  • 14. 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,
  • 15. 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
  • 16. 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
  • 17. 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
  • 18. 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.
  • 19. 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.
  • 20. 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.
  • 21. 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
  • 22. 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
  • 23. WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011   23Competitive LandscapeBarriers to Entry companies and banking institutions manufacturing sectors. Sincecontinued 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 theGlobalization 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 sugarcaneLevel & Trend governments, and this has hindered production. Historically, the number ofGlobalization in trade. However the phasing out of foreign firms operating in the industrythis industry is import quotas for countries covered by has been negligible. Unlike otherL ow and the trend NAFTA has seen a strong increase in agricultural industries, sugarcane import competition for sugar farmers are not required to deal withis 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. SOURCE: WWW.IBISWORLD.COM
  • 24. WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011   24Major CompaniesUnited States Sugar Corporation   |   Other CompaniesMajor players(Market share) 77.5% Other United States Sugar Corporation 22.5% SOURCE: WWW.IBISWORLD.COMPlayer Performance United States Sugar Corporation (US of 6.0% per year, primarily driven by the Sugar) is a vertically integrated rising price of sugar. A weak crop during agribusiness, owned by farmers and the 2010-2011 growing season resultedUnited States Sugar processors. The company provides about in declined production but higherCorporation 10.0% of the sugar produced in the average prices. This helped revenue grow arket share: 22.5%M United States each year and farms over 7.2% through 2011. 180,000 acres in Florida. In addition to US Sugar produces cane sugar from a sugarcane, the company also produces combination of its own sugarcane and oranges and orange juice products in cane sourced from third party growers Florida. In April 2011, US Sugar under contract. Sugarcane is processed at celebrated its 80th anniversary. two raw sugar mills and marketed by The company is privately owned; no United Sugars under a partnership with annual sales figures are publically Minnesota and North Dakota beet sugar available. However, according to news cooperatives. The company estimates releases by US Sugar, IBISWorld that 75.0% of its sugar is sold to food estimates that its revenue from manufacturers and the remaining 25.0% sugarcane harvesting totaled about is packaged for retail sales. $234.8 million in 2011, representing Foreign trade is a major threat for the 22.5% of the Sugarcane Harvesting company as free-trade agreements lurk in industry’s total sales. Over the five-year the near future. Cheap imports could period to 2011, the company’s harvesting replace domestically made sugar, which revenue grew at an average annual rate would severely hurt the Sugarcane UnitedStatesSugarCorporation(sugarcanefarmingsegment)– financialperformance*  Revenue NetIncome Year ($ million) (% change) ($ million) (% change) 2006 175.5 14.3 19.5 N/C 2007 194.7 10.9 2.3 -88.2 2008 175.6 -9.8 6.7 191.3 2009 192.9 9.9 8.7 29.9 2010 219.0 13.5 14.2 63.2 2011 234.8 7.2 12.2 -14.1 *Estimates SOURCE: COMPANY WEBSITE
  • 25. WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011   25Major CompaniesPlayer Performance Harvesting industry (in addition to US government. The purchase’s purpose is tocontinued sugar beet farmers and sugar processors). preserve the Florida Everglades, a US Sugar has invested in capital to depleting ecosystem also used extensively modernize and streamline its operations. for sugarcane farming. Defeating The Clewiston Refinery, the most recently opposition from the Florida Crystals upgraded facility, is the country’s newest sugar company and the Miccosukee Tribe and only fully integrated cane refinery. of Indians, the state was able to approve In November 2010, the Florida the use of federally-allocate funds to Supreme Court upheld a sugar land protect the Everglades. US Sugar purchase made by the Florida state supports the preservation of the area.Other Companies The US Sugarcane Harvesting industry is Florida Crystals Corporation overwhelmingly characterized by the Estimated market share: 2.0% presence of many small, individually run Florida Crystals Corporation is a farms. In most cases, sugarcane producers sugarcane grower and sugar producer. operate as partnerships and sole The company is privately owned and proprietors rather than corporations. participates in sugar farming and Despite some farm amalgamations, the refining, rice farming and real estate. number of companies currently operating Its headquarters in Florida holds about in the industry is generally limited. Given 155,000 acres of land, on which it the size of most farms, forward integration farms, mills, refines, packages and into downstream sugar processing is distributes sugar. The company also restricted to the industry’s largest players. has a biofuel facility on the premises. Even so, smaller growers will sometimes Florida Crystals is the first and join forces with other producers to form (currently) only producer of certified processing or wholesaling businesses. organic sugar in the United States. This Often, these structures are formed as helps the company reach a small, but cooperatives that service the interests of a growing, market of health- and eco- group of sugarcane growers in a particular conscious consumers. region or state.
  • 26. WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011   26Operating ConditionsCapital Intensity   |   Technology & Systems   |   Revenue VolatilityRegulation & Policy   |   Industry AssistanceCapital Intensity A high level of capital intensity characterizes the Sugarcane Harvesting Capital intensity Capital units per labor unit industry. This is because sugarcaneLevel growers employ a small labor force 1.2The level of capital compared to the amount of capital used.intensity is High This is reflected in the capital-to-labor 1.0 ratio, which indicates that for every 0.8 dollar spent on labor costs, $1.02 is 0.6 allocated toward capital depreciation. 0.4 The level of depreciation costs 0.2 incurred by sugarcane growers is rising slowly. Expensive tractors, harvesters 0.0 Economy Agriculture, Sugarcane and, in some cases, irrigation systems Forestry, Fishing Harvesting and Hunting are common features on sugarcane Dotted line shows a high level of capital intensity farms. In order to protect themselves SOURCE: WWW.IBISWORLD.COM from the threat of cheap imports, farmers have invested heavily over the Since labor is not a fixed factor, it past five years. These items are treated fluctuates in response to changing as depreciable assets. industry conditions. Labor requirementsToolsoftheTrade:GrowthStrategiesforSuccess NewAgeEconomy InvestmentEconomy Recreation,PersonalServices, Information,Communications, HealthandEducation. Firms Mining,FinanceandReal benefit from personal wealth so Estate.To increase revenue stable macroeconomic conditions firms need superior debt are imperative. Brand awareness management, a stable and niche labor skills are key to macroeconomic environment product differentiation. and a sound investment plan. CapitalIntensiveLaborIntensive Fertilizer Manufacturing SugarcaneHarvesting SugarProcessing Hay&CropFarming TraditionalServiceEconomy Organic Crop OldEconomy WholesaleandRetail. Reliant Chemical Services AgricultureandManufacturing. Manufacturing on labor rather than capital to Traded goods can be produced sell goods. Functions cannot using cheap labor abroad. be outsourced therefore firms To expand firms must merge must use new technology or acquire others to exploit or improve staff training to economies of scale, or specialize increase revenue growth. in niche, high-value products. ChangeinShareoftheEconomy SOURCE: WWW.IBISWORLD.COM
  • 27. WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011   27Operating ConditionsCapital Intensity in sugarcane growing have declined in Compared to the rest of the farmcontinued response to industry developments. For sector, capitalization in sugarcane instance, the introduction of new labor- farming is high. In 2007 (the most recent saving machinery has been the catalyst data available through the US Agriculture for structural change within the industry Census), the average value of plant and in past decades. Similarly, the trend machinery per sugarcane farm was toward replacing some on-farm services $602,994, and is the highest capital level with off-farm services has reduced the among all agricultural industries. This need for workers. Together, these factors can be compared with a farm average of have helped reduce labor requirements. $108,515 across the crop farming sector.Technology The basic principles of sugarcane offset by the increased efficiency in& Systems farming have not changed significantly harvesting power brought on by the in the last century. Plowing, planting use of these harvesters.Level and harvesting remain the cornerstone Biotechnology promises the potential activities of this industry. However, the for improving the properties ofThe level of introduction of new technology and sugarcane. Research in this area includesTechnology Change improved plant knowledge have changed the development of sugarcane strainsis Medium the way these activities are undertaken. that contain higher sucrose content and The introduction of mechanical improved juice color for the production harvesters signaled a major of higher quality raw material. Other new development in sugarcane production. strains show increased plant resistance to Innovations in the areas of irrigation, weeds and pests. To date, there has been crop rotation and insect pesticides have no commercial production of genetically also made important contributions to modified (GM) sugarcane in the United the industry’s technology base and have States because consumer resistance to contributed to rising yields. the technology has kept farmers from The use of combines, also known as using it. However, there are a number of a chopper harvester, has increased the GM sugarcane crops growing on test efficiency and preservation of sites. Experience in other GM crops sugarcane farming. These machines suggests that the production of GM can quickly and effectively cut the stem sugarcane is likely in the future. of the cane close to the ground and Currently, more than 90.0% of total keep the length of each cane consistent. soybean production and about 86.0% of Any damage inflicted on the plant is total corn acreage is genetically modified.Revenue Volatility Industry volatility is a function of several from these fluctuations by various factors. These include local and global government policies. These ensure local sugar prices, exchange rates, weather prices for sugar are up to 150% higherLevel conditions, plant disease, and the than world prices. While prices are fairlyThe level of introduction of new plant varieties. stable, industry volatility stems fromVolatility is High Although global sugar markets can be production volumes, which are affected quite volatile, US growers are insulted by climatic conditions and plant diseases.
  • 28. WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011   28Operating ConditionsRevenue Volatility A higher level of revenue VolatilityvsGrowthcontinued volatility implies greater industry risk. Volatility can 1000 Hazardous Rollercoaster negatively affect long-term Revenuevolatility*(%) strategic decisions, such as 100 the time frame for capital investment. Sugarcane 10 When a firm makes poor Harvesting investment decisions it may face underutilized 1 capacity if demand suddenly falls, or capacity 0.1 Stagnant BlueChip constraints if it rises –30 –10 10 30 50 70 quickly. Fiveyearannualizedrevenuegrowth(%) * Axis is in logarithmic scale SOURCE: WWW.IBISWORLD.COM The introduction of new plant varieties can also be designed to increase the can reduce crop damage caused by sucrose content of sugarcane. These weather conditions and pest. New strains developments can determine crop yields.Regulation & Policy Regulation of the US Sugarcane crops stay within safety standards. The Harvesting industry is generally carried EPA is given this authority through out at the state level. Most states operate the operation of the Food QualityLevel & Trend agricultural departments that act as Protection Act.The level of regulatory agencies. At the national level,Regulation is regulatory agencies like the US Department of AgricultureM edium and the Environmental Protection Authority The USDA regulates the manufacturing (EPA) and the US Department of and the trade of sugar as part of thetrend is Steady Agriculture (USDA) regulate aspects of assistance offered to farmers. The sugarcane farming. The extent to which USDA estimates the annual the industry is regulated varies between consumption of sugar and determines geographic regions. the federal market allocations available to each sugar manufacturer. This Environmental Protection Agency ensures the sugar market in the United The Sugarcane Harvesting industry uses States remains balanced, and reduces farm chemicals such as pesticides and volatility for farmers. soil conditioners. This has given rise to The Sugar Re-Exports Program concerns about the environmental effects regulates sugar trade. This program allows of chemicals in sugarcane growing. Like companies to import sugar at world prices other crop farmers, sugarcane growers for refining and sale, provided they export are subject to conditions relating to the the resulting refined sugar or sugar- use of fertilizers and pesticides in containing products. Although not directly production. The use of pesticides in this affecting the industry, since farmers rarely industry is regulated by the EPA. This engage directly in trade, this program government agency is responsible for protects the industry from the effect of ensuring that pesticide residues in food cheaper imports.
  • 29. WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011   29Operating ConditionsRegulation & Policy Similarly to other US farming standards are designed to meet thecontinued industries, sugarcane farmers cannot demands of local and international publicly claim that they produce organic customers seeking assurance that sugarcane without approval from the sugarcane is organically grown. Although USDA. Producers must comply with still small, this segment of the industry is standards established by the US rising amid concerns about food safety Department of Agriculture to obtain an and consumer preferences. The USDA organic certification. In 2002, the USDA also controls the planting of experimental released national organic standards for GM food crops. All growers of GM crops production and processing of agricultural are required to obtain a permit from the crops, including sugarcane. The uniform USDA before planting.Industry Assistance The US sugar supply chain is highly loan rates through 2013. In 2011, assisted by the federal government; sugarcane rates were 18.25 cents per however, sugarcane farmers receive little pound. The rate is slated to increaseLevel & Trend direct assistance. The outlined programs each year through 2013, when the finalThe level of are aimed at supporting the domestic rate will be 18.75 cents per pound.Industry Assistance sugar market by keeping US sugar pricesis High and the higher than world sugar prices and Marketing allotments limiting the influx of imports. Marketing allotments are also providedtrend is Steady to sugar processors to ensure that Non-recourse loans domestic sugar prices remain above loan One of the main vehicles for government forfeiture rates. The allotments are set to price support is the loan program, at least 85.0% of estimated human defined in the 2008 Farm Act. This consumption domestically and are program allows sugar processors to adjusted by the USDA to avoid loan receive short-term loans at the beginning forfeitures. Sugar produced in excess of of each fiscal year. At the end of the year, these quotas cannot be sold and must be processors must pay back the loan along kept at the processors expense. with any interest payment accrued. If the Processors can reassign their loan cannot be paid back, the processor allotments if they are unable to market must forfeit any sugar to the Commodity their share. The first channel for Credit Corporation (CCC). This makes redistribution is to other processors the loans non-recourse. within the same state. If the allotment To qualify for these loans, processors cannot be distributed this way, then must provide payments to sugar beet the processor may sell it to other and sugar cane growers proportional to sugar-producing states. Finally, if the value of the loan received. The USDA other states are unable to accept the can also set minimum producer quota, it can be sold to the Commodity payment amounts. This type of Credit Corporation (CCC). Any sugar assistance is granted to processors in excess of a processor’s allotted quota rather than producers because cannot be forfeited as payment for the sugarcane is a highly perishable crop non-recourse loans. and must be processed quickly after it The USDA also runs a Feedstock has been harvested to retain its sugar Flexibility Program, which allows content. The Farm Act of 2008 has set processors to channel excess sugar
  • 30. WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011   30Operating ConditionsIndustry Assistance from human food use to ethanolcontinued production. At the end of each fiscal Keytariffs year, the Secretary of Agriculture announces the amount to be paid back Goods Lowrate Highrate to the CCC and the amount to be sold Sugarcane (dollars per ton) 1.24 2.76 to ethanol producers. SOURCE: USITC International trade In addition to domestic programs, the Free Trade Agreement (NAFTA). Central USDA has established several American countries along with the international trade programs. The Tariff Dominican Republic receive small Rate Quota (TRQ) system allows a increases to quotas each year as well as a quantity of sugar to be imported at tariff phase-out over 15 years under the preferential in-quota rates each year. DR-CAFTA (Dominican Republic- Anything above the allowed quota is Central America Free Trade Agreement). subject to much higher rates. The The United States also runs two Secretary of Agriculture may modify the re-export programs: the Refined Sugar set quotas year-on-year if domestic Re-Exports Program and the Sugar- production does not meet domestic Containing Products Re-Export demand for sugar. Currently, in-quota Program. Under the former, companies tariff rates are set at 0.625 cents per with a re-export license are allowed to pound of sugar and above-quota rates import sugar at world prices to refine are 15.36 cents per pound of raw sugar and sell it to replace sugar that has been and 16.21 cents per pound of refined exported. The latter program allows US sugar. Additionally, there are safeguard participants to purchase sugar at world duties charged above quota tariff rates prices for use in products that will be based on the value of imported sugar. exported to the world market. It is Mexico is not subject to the TRQ system important to note that imports entering as it enjoys duty-free trade with the the US under either one of these United States under the North America programs are not subject to TRQs.
  • 31. WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011   31Key StatisticsIndustry Data Industry Domestic Production Revenue Value Added Establish- Exports Imports Wages Demand (Million ($m) ($m) ments Enterprises Employment ($m) ($m) ($m) ($m) short tons)2002 1,170.8 484.2 873 785 5,617 0.4 0.2 201.6 1,170.6 33.92003 1,124.1 459.0 828 741 5,565 0.6 0.5 202.0 1,124.0 31.92004 893.7 279.8 760 678 5,290 0.3 0.2 190.2 893.6 27.22005 786.8 311.8 727 648 6,088 0.3 0.4 177.8 786.9 24.72006 921.5 455.6 675 601 5,937 0.3 0.5 170.7 921.7 28.02007 876.6 341.2 614 547 5,606 0.2 0.6 168.5 877.0 28.32008 796.0 317.4 595 529 3,976 1.0 0.7 142.4 795.7 26.12009 1,014.0 366.9 591 526 3,675 0.4 0.6 138.5 1,014.2 28.52010 1,083.6 461.6 590 524 4,292 0.3 0.7 200.6 1,084.0 25.72011 1,045.3 418.2 566 503 4,292 0.1 0.2 180.6 1,045.4 26.62012 1,033.6 381.6 554 490 4,197 0.1 0.2 177.1 1,033.7 N/A2013 1,066.5 315.1 483 420 3,980 0.1 0.2 169.0 1,066.6 N/A2014 1,081.3 385.0 454 391 4,112 0.1 0.2 175.4 1,081.4 N/A2015 1,036.6 388.9 444 385 4,057 0.1 0.2 174.0 1,036.7 N/A2016 1,014.8 387.9 430 382 3,951 0.1 0.2 172.5 1,014.9 N/ASector Rank 26/30 25/30 28/29 28/29 28/30 23/23 23/23 25/30 20/23 N/AEconomy Rank 686/705 683/705 587/704 563/704 690/705 230/230 230/230 688/705 227/230 N/AAnnual Change Industry Establish- Domestic Revenue Value Added ments Enterprises Employment Exports Imports Wages Demand Production (%) (%) (%) (%) (%) (%) (%) (%) (%) (%)2003 -4.0 -5.2 -5.2 -5.6 -0.9 50.0 150.0 0.2 -4.0 -5.92004 -20.5 -39.0 -8.2 -8.5 -4.9 -50.0 -60.0 -5.8 -20.5 -14.72005 -12.0 11.4 -4.3 -4.4 15.1 0.0 100.0 -6.5 -11.9 -9.22006 17.1 46.1 -7.2 -7.3 -2.5 0.0 25.0 -4.0 17.1 13.42007 -4.9 -25.1 -9.0 -9.0 -5.6 -33.3 20.0 -1.3 -4.8 1.12008 -9.2 -7.0 -3.1 -3.3 -29.1 400.0 16.7 -15.5 -9.3 -7.82009 27.4 15.6 -0.7 -0.6 -7.6 -60.0 -14.3 -2.7 27.5 9.22010 6.9 25.8 -0.2 -0.4 16.8 -25.0 16.7 44.8 6.9 -9.82011 -3.5 -9.4 -4.1 -4.0 0.0 -66.7 -71.4 -10.0 -3.6 3.52012 -1.1 -8.8 -2.1 -2.6 -2.2 0.0 0.0 -1.9 -1.1 N/A2013 3.2 -17.4 -12.8 -14.3 -5.2 0.0 0.0 -4.6 3.2 N/A2014 1.4 22.2 -6.0 -6.9 3.3 0.0 0.0 3.8 1.4 N/A2015 -4.1 1.0 -2.2 -1.5 -1.3 0.0 0.0 -0.8 -4.1 N/A2016 -2.1 -0.3 -3.2 -0.8 -2.6 0.0 0.0 -0.9 -2.1 N/ASector Rank 30/30 30/30 28/29 26/29 16/30 23/23 23/23 30/30 21/23 N/AEconomy Rank 675/705 694/705 680/704 678/704 537/705 230/230 230/230 700/705 220/230 N/AKey Ratios Imports/ Revenue per Share of the IVA/Revenue Demand Exports/Revenue Employee Wages/Revenue Employees Average Wage Economy (%) (%) (%) ($’000) (%) per Est. ($) (%)2002 41.36 0.02 0.03 208.44 17.22 6.43 35,891.05 0.002003 40.83 0.04 0.05 201.99 17.97 6.72 36,298.29 0.002004 31.31 0.02 0.03 168.94 21.28 6.96 35,954.63 0.002005 39.63 0.05 0.04 129.24 22.60 8.37 29,204.99 0.002006 49.44 0.05 0.03 155.21 18.52 8.80 28,751.89 0.002007 38.92 0.07 0.02 156.37 19.22 9.13 30,057.08 0.002008 39.87 0.09 0.13 200.20 17.89 6.68 35,814.89 0.002009 36.18 0.06 0.04 275.92 13.66 6.22 37,687.07 0.002010 42.60 0.06 0.03 252.47 18.51 7.27 46,738.12 0.002011 40.01 0.02 0.01 243.55 17.28 7.58 42,078.29 0.002012 36.92 0.02 0.01 246.27 17.13 7.58 42,196.81 0.002013 29.55 0.02 0.01 267.96 15.85 8.24 42,462.31 0.002014 35.61 0.02 0.01 262.96 16.22 9.06 42,655.64 0.002015 37.52 0.02 0.01 255.51 16.79 9.14 42,888.83 0.002016 38.22 0.02 0.01 256.85 17.00 9.19 43,659.83 0.00Sector Rank 11/30 23/23 23/23 9/30 10/30 1/29 2/30 25/30Economy Rank 301/705 230/230 230/230 341/705 367/705 458/704 389/705 683/705Figures are inflation-adjusted 2011 dollars. Rank refers to 2011 data. SOURCE: WWW.IBISWORLD.COM
  • 32. WWW.IBISWORLD.COM Sugarcane Harvesting in the US December 2011   32Jargon & GlossaryIndustry Jargon BAGASSE The dry pulp that remains after the juice has NORTH AMERICAN FREE TRADE AGREEMENT been drained from sugarcane in the milling and refining (NAFTA) A generally duty-free agreement signed by the processes. governments of Canada, Mexico and the United States, DOMINICAN REPUBLIC-CENTRAL AMERICAN FREE creating a trilateral trade bloc in North America. TRADE AGR A free-trade agreement between the PESTICIDE A chemical used to kill pests. United States and Central America. In 2004, the TARIFF RATE QUOTA (TRQ) Trade regulations under Dominican Republic was added to the agreement. Also which a specified quantity of a product can be imported known as DR-CAFTA. at a relatively low tariff. Quantities above the quota are NON-RECOURSE LOANS Loans against property. In imported at a higher tariff rate. sugar production, processors pledge sugar if they cannot repay the government loans in cash.IBISWorld Glossary BARRIERS TO ENTRY Barriers to entry can be High, INDUSTRY CONCENTRATION IBISWorld bases Medium or Low. High means new companies struggle to concentration on the top four firms. Concentration is enter an industry, while Low means it is easy for a firm identified as High, Medium or Low. High means the top to enter an industry. four players account for over 70% of revenue; Medium CAPITAL/LABOR INTENSITY An indicator of how much is 40 –70% of revenue; Low is less than 40%. capital is used in production as opposed to labor. Level is INDUSTRY REVENUE The total sales revenue of the stated as High, Medium or Low. High is a ratio of less industry, including sales (exclusive of excise and sales than $3 of wage costs for every $1 of depreciation; tax) of goods and services; plus transfers to other firms Medium is $3 – $8 of wage costs to $1 of depreciation; of the same business; plus subsidies on production; plus Low is greater than $8 of wage costs for every $1 of all other operating income from outside the firm (such depreciation. as commission income, repair and service income, and CONSTANT PRICES The dollar figures in the Key rent, leasing and hiring income); plus capital work done Statistics table, including forecasts, are adjusted for by rental or lease. Receipts from interest royalties, inflation using 2011 as the base year. This removes the dividends and the sale of fixed tangible assets are impact of changes in the purchasing power of the dollar, excluded. leaving only the ‘real’ growth or decline in industry INDUSTRY VALUE ADDED The market value of goods metrics. The inflation adjustments in IBISWorld’s and services produced by an industry minus the cost of reports are made using the US Bureau of Economic goods and services used in the production process, Analysis’ implicit GDP price deflator. which leaves the gross product of the industry (also DOMESTIC DEMAND The use of goods and services called its Value Added). within the US; the sum of imports and domestic INTERNATIONAL TRADE The level is determined by: production minus exports. Exports/Revenue: Low is 0 –5%; Medium is 5 –20%; EARNINGS BEFORE INTEREST AND TAX (EBIT) High is over 20%. Imports/Domestic Demand: Low is IBISWorld uses EBIT as an indicator of a company’s 0 –5%; Medium is 5 –35%; and High is over 35%. profitability. It is calculated as revenue minus expenses, LIFE CYCLE All industries go through periods of Growth, excluding tax and interest. Maturity and Decline. An average life cycle lasts 70 EMPLOYMENT The number of working proprietors, years. Maturity is the longest stage at 40 years with partners, permanent, part-time, temporary and casual Growth and Decline at 15 years each. employees, and managerial and executive employees. NON-EMPLOYING ESTABLISHMENT Businesses with ENTERPRISE A division that is separately managed and no paid employment and payroll are known as keeps management accounts. The most relevant non-employing establishments. These are mostly set-up measure of the number of firms in an industry. by self employed individuals. ESTABLISHMENT The smallest type of accounting unit VOLATILITY The level of volatility is determined by the within an Enterprise; usually consists of one or more percentage change in revenue over the past five years. locations in a state or territory of the country in which it Volatility levels: Very High is greater than ±20%; High operates. Volatility is between ±10% and ±20%; Moderate Volatility is between ±3% and ±10%; and Low Volatility EXPORTS The total sales and transfers of goods is less than ±3%. produced by an industry that are exported. WAGES The gross total wages and salaries of all IMPORTS The value of goods and services imported employees of the establishment. with the amount payable to non-residents.
  • 33. | 1800-330-3772 | info @ibisworld.comAt IBISWorld we know that industry intelligenceis more than assembling factsIt is combining data with analysis to answer thequestions that successful businesses askIdentify high growth, emerging & shrinking marketsArm yourself with the latest industry intelligenceAssess competitive threats from existing & new entrantsBenchmark your performance against the competitionMake speedy market-ready, profit-maximizing decisions Who is IBISWorld? We are strategists, analysts, researchers, and marketers. We provide answers to information-hungry, time-poor businesses. Our goal is to provide real world answers that matter to your business in our 700 US industry reports. When tough strategic, budget, sales and marketing decisions need to be made, our suite of Industry and Risk intelligence products give you deeply-researched answers quickly. IBISWorld Membership IBISWorld offers tailored membership packages to meet your needs.DisclaimerThis product has been supplied by IBISWorld Inc. (‘IBISWorld’) solely for use of, or reliance upon, the data or information contained herein. Copyright inby its authorized licenses strictly in accordance with their license agreements this publication is owned by IBISWorld Inc. The publication is sold on thewith IBISWorld. IBISWorld makes no representation to any other person basis that the purchaser agrees not to copy the material contained within itwith regard to the completeness or accuracy of the data or information for other than the purchasers own purposes. In the event that the purchasercontained herein, and it accepts no responsibility and disclaims all liability uses or quotes from the material in this publication – in papers, reports, or(save for liability which cannot be lawfully disclaimed) for loss or damage opinions prepared for any other person – it is agreed that it will be sourcedwhatsoever suffered or incurred by any other person resulting from the use to: IBISWorld Inc. Copyright 2011 IBISWorld Inc