The world sugar market has been declining in the last few months due to overproduction in Cuba. While the sugar production of the whole world exceeds 30 million tons, transactions in sugar on the free world market are in the neighborhood of four million tons. There is no question that Cuba gets the lion's share, but Taiwan ranks next on the free world market and its export almost reaches the half million mark, which is more than 10 %. Taiwan sugar is not insignificant in the world market as is generally believed. In fact, it has been a cause of worry for the Cuban sugar interests, especially when their seven-million-ton crop this year is looking for a market.
I have taken advantage of the leisure between crop seasons to make a survey of the world market personally. The trip commenced on July 15, and in two and a half months has taken me through ten different countries. In all places, prominent persons in the sugar business, whether governmental or private, were contacted and discussions held. In quite a few places transactions were consummated. In each case, the authorities on sugar gave me their outlook of the sugar market in exchange for mine, and I found we were more or less in agreement. I also took the opportunity to visit our customers in various parts of the world and to hear about their grievances if there be any. It is most gratifying that the trip was not only fruitful from a business point of view, but also proved to be most informative as to the future trends of the world sugar market.
II. World Sugar Stock Condition
The high sugar price in 1950 had stimulated planting of sugar cane in that year and the consequence was reflected in the harvest of this crop year. Cuba, which ordinarily produced about 5,000,000 metric tons of sugar, yielded a record crop of around 7,000,000 metric tons in 1952. Up to now, there is more than 1,700,000 metric tons which as yet cannot find a market. It has established a Stabilizing Reserve consisting of 1,750,000 long tons of the 1952 crop, and it will continue to function until 1956. It is also agreed among the producers in Cuba that they should throttle their yearly crop down to a total of 5,000,000 metric tons.
On the other hand, things were happening behind the Iron Curtain which were quite unexpected. Beet sugar in countries like Poland, East Germany, and Czechoslavakia is having an excess production over consumption. They claim a surplus of 1,000,000 metric tons of sugar and threaten to put it on the world market. In Taiwan, our low export stock is not creating any concern.
III. Sugar Price Trend
World sugar price is more or less governed by the New York Coffee & Sugar Exchange. It is influenced at the same time by the willingness of Cuban producers to sell. The present price of 4 U. S. cents per pound for raw sugar has certainly reached the rock bottom. No one who has any financing facilities at all will be ready to make a deal below that figure, because it is very close to cost, and the margin of profit is very narrow indeed. No indication can be found for the price to decline any further.
On the other hand, the price is not likely to rise, unless perhaps a war should break out, which is not likely. The Cuban stock of 1,750,000 tons is a tiger in the cage; it is going to hurt everybody if the cage is let open, and any rise in price would be equal to the opening of that cage.
All factors seem to point to the conclusion that sugar price tends to remain stable in 1952 and 1953. The upward trend of sugar may occur in 1954, and that depends on demand and supply conditions in 1953. Sugar prices like those in 1950 are things of the past and are not likely to happen again in the foreseeable future.
IV. World Sugar Marketing
True, there is a surplus in world sugar, yet in many parts of the world sugar is a scarce item. Cuban refined sugar sells at about 5 U.S. cents a pound, yet there are places in the world where people are paying as high as 20 cents, which from a purely commercial point of view is definitely unnecessary. And there are many countries where the populations can not meet their minimum requirements of sugar, though Cuba is stocking 1,750,000 metric tons of sugar without a market. This is a big paradox.
The explanation is really very simple. People want sugar but do not possess the means to buy it. To buy Cuban sugar one has to use U.S. dollars, of which everybody is experiencing a shortage, and Cuba would not accept many barter transactions. There the story ends.
Another tendency in marketing is the preference for raw sugar in almost all countries. The differential between refined and raw sugar has dropped to only one U.S. cent due to the diminishing demand. Countries which have refineries of their own would naturally save the refining margin for themselves to create jobs for the population. Countries which do not possess refineries are erecting them. It is both good business and sound economy. Only one country in the world discourages the importation of raw sugar, and that is Pakistan. No refinery exists in that country, and furthermore, it does not want raw sugar to create a completion with their native molasses sugar called "gur."
V. Taiwan Sugar in the World Market
Luckily enough, the marketing of Taiwan sugar this year has not presented a big problem. Due to its proximity to the markets of the Eastern Hemisphere it commands a freight advantage. Taiwan sugar may go as far as Cairo and still be competitive. All the countries east of Cairo may be considered as preferential region for Taiwan sugar. Java has not recovered its devastated sugar industry, and it will be many years before she will be a competitor in this area. In the area east of Cairo we can find more than one million tons of potential market for Taiwan sugar easily. The big white Taiwan crystal is preferred in many places in this area. In fact, we were able in one contract to realize an unbelievable sale of U.S.$l06 per metric ton with payment in U.S. dollars. Everyone considered it a miracle. They like Taiwan crystals, and are willing to pay a high price for it. In general, however, the price has to be competitive in spite of the freight differential.
To widen the market for Taiwan sugar, we may consider another angle. The whole world is suffering from dollar shortage. A very big market can be created if barter transactions can be worked out. West Germany, for instance, concluded a barter transaction with Cuba for 300,000 tons of sugar, but it cannot materialize because there are very few things which the two countries can barter. In many cases Cuba can make purchases in the U.S. market at much cheaper prices. But Taiwan is in a very different position because we can use German fertilizers. Taiwan can also use English fertilizers. So we have many channels for marketing Taiwan sugar which are not available to Cuba.
With regard to the sugar market in the Near East and Arabian countries, the satellite nations are making strong endeavors to snatch it from the Free World. For political reasons alone, it is something worth fighting for. Taiwan should make vigorous efforts, and ought to be supported by the free nations of the world.
VI. Cuba Need Not Worry about Taiwan Competition
Cuba used to sell in the free world market somewhere between 2,500,000 and 3,000,00 metric tons of sugar. Taiwan's half a million tons is only one-fifth that figure and can in no way hurt the Cuban sugar trade.
Last year, Cuba sold in the Japanese market more than 200,000 tons, which about equaled the Taiwan sale, though Japan is generally conceded to be Taiwan's market.
As stated above, first, Taiwan has a geographic advantage east of Cairo, and secondly, Taiwan needs many materials which other countries can supply through barter transactions. Therefore, Taiwan has its own market which in no way interferes with the sales of Cuban sugar. To put in another way, Taiwan sells its sugar in markets in which Cuban sugar can not be easily sold.
This viewpoint was conveyed to the Cuban sugar interests and to Washington circles during my visit to the U.S.
VII. Taiwan Endeavors
The fact that Taiwan sugar need not worry about its market does not signify that it can stand the decline of sugar price and still break even. In such keen competition, the only way to keep our head above water is to lower the cost of production. At present, the Taiwan cost can not be compared with Cuban cost. The cost of Taiwan sugar is U.S. dollar is hard to determine, because there is no yardstick to actually measure the Taiwan dollar against the U.S. dollar. No cross rate can be justified by any means to make them mean the same value. Therefore, comparison between the cost of Cuban sugar and that of Taiwan sugar is not possible.
However, there is no question that to stand against world competition, the only way is to decrease cost. To put it specifically, Taiwan must strive to increase its unit area yield of sugarcane. Efforts in this direction are perceptible by comparing the yield of sugar from the mill farms, which was 6.5 tons per hectare in 1950 as compared to 8.1 tons in 1952. There is still plenty of room for improvement, in view of the 22 tons in Hawaii for a 24-month crop.
Another thing that has a great deal to do with the decrease of cost is the lower yield of sugar per unit area from the farmers' fields. Having only a small area the farmer can not afford mechanized equipment or irrigation projects to help increase production. It may be easily seen that the grand average yield of sugar per hectare from Corporation-operated farms went as high as 8.1 tons while the yield from the farmers' land only averages 6.7 tons. But the farmers are contributing 80% of the sugar, and the Corporation 20% of the total crop. With only 20% of the crop under the Corporation's control, even a great improvement in yield would only affect one-fifth of the whole crop, and the farmers' 80 % is still the controlling factor in the total yield. Of course, if more land is under Corporation control, and if a bigger area is brought under scientific cultivation and better management, the total yield can very easily be stepped up. In fact, less land would be required for the same crop if this could be realized.
It is not hard to see that when you have to buy the farmers' sugar at the same price as local rice, it would be a losing proposition, and no amount of improved yield could balance such a deficit. However, these are local problems to be solved in Taiwan itself and have not much to do with the world market, except from the viewpoint of cost.
In order to get a greater yield from the same area, more fertilizer, better irrigation with deep wells, better cultivation with tractors, and better practices of farming all should be emphasized. All these things will need more investment, which unfortunately is lacking. But such a policy should be persistently followed if Taiwan sugar is to show a firm stand in the world market. Help should be given to the sugar industry from all sources, and a shortsighted policy would only spell the doom of the Taiwan sugar industry which is the backbone of the island's economy. While the Taiwan Sugar Corporation should do its best in this direction, sugar is so involved in the whole financial and economic setup that it will not succeed by working alone. To all those who have the welfare of Taiwan at heart we appeal for their cooperation and assistance. One can easily imagine the consequence of a Taiwan without its sugar industry. Unless some genius can think out a general crop to take the place of sugarcane in Taiwan, our economy will always have to depend on sugar. If I can make people see the Taiwan sugar industry in its true perspective, my world tour would not have been made in vain.