International competitiveness of value chains for sugar beet and sugarcane: a combined approach to estimate production and processing costs in Brazil and Germany

Abstract

With the liberalization of the European sugar sector, the industry is free to export sugar to the world market, competing with other sugarcane producing countries. To understand competitiveness, it is imperative to compare total production costs, including both raw material (farm) and processing costs (mill). Therefore, farmlevel production costs from agri benchmark combined with an engineering approach to calculate processing costs were merged to calculate sugar production costs in Germany and Brazil. The necessary data related to investment costs and technical coefficients was obtained in collaboration with BMA. Results show that processing one ton of white sugar (excluding raw material costs) from sugarcane in Brazil is more than USD30/t cheaper than processing sugar beet in Germany. Including raw material costs and the sales of byproducts, white sugar production in Brazil has a total cost advantage of USD112/t over German factories. Key differences in production costs are associated with labor (20%), depreciation (20%) and energy costs (40%). The findings indicate that even with equivalent raw material costs, the lower net processing costs are a major competitive advantage for Brazilian sugar producers. The combination of the typical farm approach and the dynamic engineering model can be applied to other regions, allowing for the estimation of regional production and shifts in global sugar supply.