The Development of World Sugar Prices

Abstract

The globalization of the world economy is a phenomenon that has historical roots that began in the early 1970s, when the Bretton Woods and the Smithsonian agreements were created. This resulted in freely floating exchange rates and the gradual deregulation of financial markets. In addition, this increased market accessibility for individual and institutional speculators. By increasing market price fundamentals, the price volatility of numerous commodities (including agricultural commodities) has increasingly grown in specific sectors of the financial markets. This is particularly true in agricultural commodity markets. This change has become a possible financial incentive for speculators. Due to the high degree of distortion and government protection, the sugar market has resisted this speculation for quite some time. However, in the context of the recent financial crisis of 2008 and 2009, this market segment could not escape the “incursions” of speculative capital. Sugar prices have “surged” upwards significantly. This is not only due to speculators, but it also due to the growing demand for biofuels. Sugar prices during the period of 2000 to 2016 saw unprecedented price fluctuations. The world sugar price has risen from about 11 cents (in early 2000) to more than 65 cents per pound of raw sugar (2010/2011). Speculative funds (hedge funds), which in recent years have made transactions on average of about twenty million tons of sugar a year, played a major role in this fluctuation. However, their impact on the price of sugar does not lie in the fact that these funds are pushing for a rise or a fall in the price of sugar, but their effect is that these funds cause in particular, price fluctuations in sugar because they attempt to profit on this fluctuation in prices. The impact of speculation on falling or rising prices is significant. In the above period, the number of “price fluctuations” has almost doubled in comparison with the previous period.