High gas prices good for sugar workers

High oil and gasoline prices have led to higher world prices for sugar, and that is good news for Hawaii’s sugar industry and workers.

How can the price of oil affect the price of sugar? The answer is ethanol. Brazil is a major producer of sugar and also a major producer of ethanol which is blended with gasoline. When gasoline prices are high enough, Brazil can earn more money by using its cane crop to make ethanol for fuel instead of making sugar for food. This reduces the supply of sugar on the world market which in turn pushes the price higher.

The world price for raw sugar hit a 25-year high in February 2006 when it sold for 19.73 cents a pound. The price has dropped somewhat but still averaged over 17 cents a pound for the first half of 2006, compared with 11.35 cents for 2005.

Two other developments are expected to keep sugar prices high for the near future. Sugar exports from the European Union will be sharply reduced after the Europeans carry out an agreement to end government subsidies to their sugar farmers, and the people of China and India are consuming more of the world supply of sugar as their incomes have been increasing.

The worldwide demand for sugar has enabled sugar growers in the United States to sell their raw sugar for an average of 23.56 cents for the first half of this year, which is more than high enough to cover the cost of production. ◆