Bioethanol may be gone, but sugar is not off the table in Argentina, say those in the know. This product has an importance equal to meat, bread or milk in the idiosyncrasy of Argentines.
Therefore, alarms rang when the price of sucrose or sucrose, as it is known at an industrial level, reached between $860 and $899 per kilogram, depending on whether the point of sale was a supermarket or a neighborhood business. . There are even places where it is priced at more than $1,000, with huge profits.
Throughout the year, it increased almost 350%, last month it took another jump. In a year-to-year comparison (against September 2022) the growth is very large for the family basket: between 450% and 500%, depending on the brand and region of the country, without any comparison with other foods.
Has that price shock passed or could more upside be in the offing? The answer to that question is important for the food industry as a whole. Almost every sector that produces something used as food requires sugar.
According to Córdoba entrepreneurs in the cooking sector, since January the product has always increased every month in the first week. However, from the other end of the chain, in the sugar mills, they confirmed that this drop may slow down because the production for the year is guaranteed.
What is the sector?
How does the sugar industry work in Argentina? According to the Argentine Sugar Center, about 24 million tons of sugar cane are milled every year, grown by about 6 thousand independent producers, on about 400 thousand hectares distributed mostly in Tucumán and a fraction of Jump and Jujuy.
This amount will produce about 1,750,000 tons of sugar, for this year, it is estimated that there will be about 100 thousand tons less. That amount is enough to serve a local market that consumes a maximum of 1,350,000 tons. The difference (about 500 thousand cubic meters) ends up in alcohol and a part is exported as sugar.
In total there are 19 mills, of which five are in the hands of two groups. The remaining 14 belong to one per company. In general, these plants, with some exceptions, have some flexibility to produce sugar or bioethanol interchangeably, depending on the time of supply.
Making sugar or alcohol is not the same. The conversion factor is 1.675 kilograms of sugar per liter of alcohol. But the sugar cane producer who sells to the mill doesn’t care about that relationship: he always pays based on the price of sugar. The mill bought the sugar cane and gave the sacks of sugar to the sugar cane grower as payment.
in the gondola
This year during the drought, it is estimated that 90 kilos of finished sugar will be produced per ton of sugar cane. Of that, between 60 and 75 kilos are returned to the hands of the sugar cane which, in an administrative operation, will be delivered again to the mill to be sold or given to another destination.
And here is one of the keys that explains, according to the production sector, that there is no oligopoly position in the market or anything similar. The offer is atomized between the sugar mills and the sugarcane producers, with one particularity: VAT is clearly excluded from the contracting system between the two.
The sugarcane grower in all his production scales decides to pay the taxes, which makes the collection vulnerable to the passive view of the State that only looks at the first point presented in this note: the strategic importance of table sugar. Argentines.
The reason for this “continuity…” is partly laid out on the Centro Azucarero website: the sector is the largest job generator in the Argentine Northwest, “with a strong socioeconomic impact in the region,” he emphasizes , because it creates “61,000 direct jobs and 140,000 indirect jobs,” it says on its website. More than half of those jobs are in rural areas.
That is the profile of the sector. But what about the rest of the year?
Milling started late as a result first of the drought, which reduced the sucrose yield, and was delayed by a series of rains that complicated the access of machinery to the fields. It is currently five months into production.
In the industry they believe that, despite this problem, there is sugar that will serve the local market without problems and even contribute for export. The final consumer price will also depend on the evolution of costs driven by general inflation.
But incredible things happened in that chain. A mill delivers the product per kilo at a price of $610 pesos plus VAT. Increasing by 21%, the price of the package reaches the retail sector of less than $ 740. Anyone who marks $ 890 will get a 20% margin.
But there are cases, with prices above $ 1,000, where the difference between buying and selling is 37%, a lot for a product in the basic basket.