Oil,Sugarcane Ethanol And China’s Sugar Market

Bio-energy policy has been adopted by many countries to solve the energy and environmental problems, which in return promotes the rapid development of bio-energy industry. The development of sugarcane fuel ethanol industry not only emphasizes the energy properties of sugar cane, but also enhances the economic relationship of sugar market and energy market. In the context of the close relationship between international energy market and sugar market as well as the increase of the degree of internationalization and market of China’s sugar industry, how will the development of international sugarcane fuel ethanol industry affect China’s sugar market? What sugar policies should Chinese government adopt to ensure the safety of China’s sugar industry under the new circumstances? Based on the above considerations, this paper aims to analyze the supply and demand system of China’s sugar industry as an integral part of sugarcane fuel ethanol industry. A partial equilibrium framework of China’s sugar market is constructed under the background of energy-oriented sugarcane, in order to analyze comprehensively the impact the development of sugarcane fuel ethanol industry on China’s sugar market. Finally, some policy recommendations will be put forward for the regulation of sugar market under the new situation.Firstly, we describe the development theory and reality of sugarcane fuel ethanol industry systematically. Secondly, the economic links among the international oil, sugarcane fuel ethanol and sugar markets are examined. Thirdly, we study the price and trade relationships between the international and China’s sugar market under the background of energy-oriented sugarcane. Fourthly, the partial equilibrium model of China’s sugar market is constructed to predict and analyze the specific impact of the development of sugarcane fuel ethanol industry on China’s sugar production, consumption, imports, exports and price. Finally, we draw conclusions and put forward policy recommendations.The results show that:Firstly, the main way of the impact of energy (oil) on agriculture has transformed from the channel of input factors to the demand channel of final products, with the sustainable development of bioenergy and the continuous strengthening of agricultural energy properties. The original structure of agricultural market has changed significantly with the development of bioenergy.Secondly, bioenergy industry will continue to develop with the price of international oil keeping in high level and the growing support of governments for bio-energy industry. Therefore, although the development of sugarcane fuel ethanol industry is being constrained by oil price, sugar price, sugar cane production and other factors, the industry still has an optimistic prospect.Thirdly, the rise of sugarcane fuel ethanol industry has enhanced the relationship between energy and sugar markets. There is a long-term dynamic equilibrium relationship among the prices of international oil, sugarcane fuel ethanol and sugar. The prices of oil and sugarcane fuel ethanol affect sugar price significantly, but oil price influences sugar price mainly through sugarcane fuel ethanol market.Fourthly, the relationship between sugarcane fuel ethanol market and sugar market is becoming more complex than ever with the development of sugarcane fuel ethanol industry. In the long run, there is a nonlinear equilibrium relationship between the two prices. In the short run, there is a significant asymmetry feature of prices adjustment only when the prices system deviates from the equilibrium.Fifthly, the impact of international market fluctuation on China’s sugar price becomes increasingly prominent. The rise of sugarcane fuel ethanol price will eventually lead to the rising of international sugar price, which will result in a sharp rise of China’s sugar price. And ethanol price has a sustaining impact on the international and China’s sugar price.Sixthly, in the context of increasing sugar imports in China, sugar imports from Brazil will continue to be expanded, which increases the dependence on the Brazilian sugar market. Therefore, the development of sugarcane fuel ethanol industry in Brazilian will inevitably have an impact on China’s sugar market.Lastly, the sustainable development of sugarcane fuel ethanol industry will lead to domestic sugar price rises rapidly, thus disturbing the entire China’s sugar market. In the long run, China’s domestic sugar consumption still maintains the momentum of rapid growth, while the sugar production continues to show a slight downward trend. Therefore, the gap between supply and demand grows, resulting in a grim situation of sugar market. In order to protect domestic sugar market, Chinese government has to increase imports as well as reduce exports. However, the increase of imports will have a shock on domestic sugar production in return, leading to the decline of domestic sugar production and exacerbating the conflicts of domestic supply and demand, which will cause a further rise in sugar trade deficit. In this case, China’s sugar market will face greater risk.