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LONDON, July 4 (Reuters) - From the Arab conquest of the
Mediterranean through the colonisation of the New World to the U.S.
embargo of Cuba, sugar has been one of the world's most important
commodities.
Now the traditional and secretive $6 billion a year market --
second only to grain -- is being revolutionised and opened up by the
explosive expansion in communications networks.
``It is the growth of computer technology and, in particular, the
Internet that will have the biggest effect on the way that the sugar
trade is conducted,'' said Jonathan Kingsman, an independent
Paris-based sugar broker.
The first web-based physical sugar trading exchange was launched
late last year by British-based Comdaq, www.comdaq.net, although
tonnage traded online remains tiny and most deals are still clinched
by phone.
``It will take time for people to get used to trading on the
net,'' said Kingsman, editor of a new Sugar Trading Manual.
The manual, produced by Woodhead Publishing,
www.woodhead-publishing.com, aims to to help producers, traders,
shippers and consumers to buy and sell sugar in an increasingly
sophisticated, fragmented and fast moving market.
Trading margins have been squeezed by a halving of world prices
since 1996 to 13 year lows as a result of over supply and slack
demand.
VICTIMS
Some trading houses have closed their sugar trading desks, others
have had to reinvent themselves.
Victims include one of the world's largest sugar traders, U.S.
based Czarnikow Rionda Sugar Trading Inc, Germany's Metelmann &
Co GmbH,and Swiss-based Andre &Cie.
In February, London-based ED & F Man (quote from Yahoo! UK
& Ireland: EMG.L), one of the world's oldest commodity traders,
announced that it would focus on financial services after selling
its ailing agricultural business, notably sugar.
Despite the setbacks, some 36 million tonnes of sugar are still
traded across the world.
Sugar is unique because it is consumed in every country, produced
in 120, and stirs deep passions.
``It's the most political of all commodities,'' Tony Hannah,
chief economist at the London-based International Sugar Organisation,
told Reuters.
Sugar was a symbol of colonial power and wealth in the Caribbean
and New World where huge numbers of African slaves were imported to
work in sugar plantations.
Initially a luxury, sugar eventually became cheap enough for mass
consumption as more amd more countries started growing and trading
sugar.
During the industrial revolution in Europe, cheap and plentiful
sugar helped keep factory workers content.
``It makes unpalatable foods palatable,'' said Hannah, adding
that sugar was added to many foods, even baked beans.
POOR COUNTRIES LAP UP SUGAR
Sugar has become a major cheap source of energy in the daily
diet, especially in poor countries whose share of world imports has
risen to 80 percent.
However developing countries are more sensitive to price changes
and this has led to greater price volatility.
At the same time Brazil has become an increasingly dominant force
in the world sugar market, both as producer and exporter.
Drought in Brazil's key centre-south sugar cane region recently
helped trigger a world price recovery to 17-month highs.
``Twenty years ago the market would not have emerged from the
trough so quickly,'' said Farideh Bromfield, director of business
development at ED & F Man.
``A forecast halving Brazilian sugar exports this season will
have a dramatic impact,'' Farideh told Reuters.
Brazil now accounts for about one-third of world sugar exports,
75 percent of which are handled by five exporters.
On the buy-side, Russia has become the major importer, taking
nearly six million tonnes of mainly Brazilian raw sugar in 1999.
Brazil's numerous sugar cane millers, along with a growing number
of private Russian importers, Middle East refiners and Indian
merchants are exploiting the new technology to deal directly in
sugar.
DIY INTERNET TRADING
``Everyone is now in the do-it-yourself (DIY) trading business,''
said Kingsman.
A global trend towards privatisation and deregulation in the
early 1990s led to the break-up of sugar import and export
monopolies and influx of new sugar companies and players.
The share of sugar traded on the free market surged to 30 percent
of world production, from 18 percent in 1990.
However freer trade and the participation of many new and unknown
players increases financial risks and the likelihood of defaults
when prices swing in the wrong direction.
The Internet, while enabling producers and consumers to deal
directly, lacks the ``feel factor'' that allows sellers to get to
know clients or buyers to gauge market sentiment, Kingsman said.
Sugar, unlike books, clothes or compact discs, is not a standard
product that can be bought at the click of a button. Long haggling
over quality, colour, price, payment and shipment terms is usually
part of the trading ritual. |