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The Canadian Cane and Beet Sugar Industry

The Canadian Cane and Beet Sugar Industry comprises establishments that are primarily engaged in refining raw cane sugar and/or sugar beets to produce edible refined sugar, brown sugar, icing sugar, liquid sugar and/or liquid invert sugar.

Introduction

From the beginning of the sugar trade in Canada, an entrepreneur willing to further refine raw cane sugar ("raws"), could successfully undersell importers of refined sugar. The economic basis of this is that imported raw cane sugar can be shipped in bulk, whereas refined sugar must be packaged and handled as a food product, and is therefore more expensive to transport. The first known Canadian sugar refinery was established in Halifax in 1817. By mid-century, government, through its tariff policy, applied preferential rates to raws, thereby further enabling the development of cane refining in Canada.

In 1998, the Canadian sugar refining industry comprised four cane refineries and one sugar beet plant. Refined white sugar, produced from either sugar beets or sugar cane, is technically referred to as sucrose. The sucrose molecule is identical whether the sugar is made from cane or beets. In Canada, sugar produced from Canadian-grown beets has proven to be economically viable only in locations that are distant from port cities where cane refineries are located. While beet plants have existed in Ontario, Quebec and Manitoba at various times in history, today the only remaining processor is in Alberta.

In total, domestic white sugar production (and co-products) comprises about 92% of the product derived from imported raw cane sugar, with the remaining 8 % based on Canadian-grown sugar beets. In 1997, total production of refined sugar was 1,146,351 tonnes. The total amount of sugar refined from beets was 95,000 tonnes in 1997, down from 144,000 tonnes in 1996, reflecting the loss of production after the 1996 closure of a plant in Winnipeg.

Significance

Canada does not operate any price support or subsidy regimes for sugar. Tariffs are minimal and no Tariff Rate Quotas (TRQs) apply. Canadian refiners have the advantage of purchasing raw sugar on the world market, trading at prices that are significantly lower than those prevailing in the domestic markets of the European Union (EU) or the U.S., for example. A constant supply of high- quality, low-priced refined sugar has always characterized the Canadian market and has translated into a significant cost advantage for both consumers and food processors.

Canadian sugar refiners have the option of referring cases involving suspected unfair trading practices to the Canadian International Trade Tribunal (CITT). If dumped or subsidized product can be shown to be injurious to the domestic industry, the CITT recommends the imposition of protective tariffs. In fact, anti-dumping and countervailing duties have been imposed since 1995 on a number of suppliers, including the USA and the EU.

In 1997, the industry shipped product valued at $670.3 million, a decrease of 6.3% from the 1996 value of shipments. Since Canadian refiners normally price their products relative to the cost of world raws, which can vary substantially from year to year, the value of shipments is not necessarily a true indicator of industry growth. It is more appropriate to consider movements in the volume of product sold, or changes in value added. For example, although manufacturers shipped 1,169,761 tonnes of refined sugar in 1997, which represented a 4% increase in volume over 1996, the value of shipments actually dropped from $712.9 million to $670.3 million in 1997.

About 18% of total production sold on the domestic market was destined for the retail market, while 82% was sold to industrial users. Confectioners and soft drink manufacturers continued to be among the largest buyers of industrial sugar in 1997.

Structure

The sugar processing industry includes both cane refineries and sugar beet processors. Raw cane sugar, imported in a semi-processed form, requires, by law, further purification and refining to be sold in Canada. (In some Asian, Latin and African countries sugar is, on the other hand, consumed in its "raw" (un-refined) form, without purification.) Canadian cane refineries are located both close to deep water port facilities where sugar can be unloaded from the holds of ships, stored and refined, and close to final markets. Canada imports the bulk of its raws from Australia and South or Central America. In 1997, Canada imported 1,051,217 tonnes of raw sugar.

Total sugar beet acreage dropped from 56,733 in 1996 to 33,124 in 1997, and tonnage dropped accordingly from 1,035,000 to 650,000 tonnes. The raw beets are harvested and stored in fields, then are trucked to the factory where they are stockpiled outdoors, evaluated for Brix content, cleaned, sliced and pulped. Thereafter, they are processed in a fashion similar to cane refining. In both cane refining and beet processing, impurities are removed through the use of centrifugal separators, before the sugar is either re-crystallized in vacuum pans, or sold as liquid sugar. Refined white crystalline sugar is also screened to make available various granulations to suit industry uses. The industry also includes firms that refine raw molasses for table use, and firms that blend or otherwise chemically alter (invert) the sucrose molecule for specialty applications. The refining process is capital intensive.

The Canadian cane sugar refining and sugar beet processing industry has experienced significant corporate consolidation and plant rationalization in the past 20 years. In 1981, there were five companies operating seven plants across Canada, including two beet processors. Today, the industry has evolved into two corporate entities that operate five plants. Of these five plants, only one processes beets. Cane plants are located in Vancouver, Toronto, Saint John (NB) and Montreal, and a single beet plant remains, located in Taber, Alberta. Rationalization included the closure of the Winnipeg sugar beet processing plant in 1996, and in late 1999, the Saint John cane refinery is expected to shut down.

These changes are partially a response to increased import competition, a flat domestic market, and the loss of export markets. They also reflect in-roads made in traditional sugar markets by High Fructose Corn Syrup (HFCS) and, to a lesser extent, competition from artificial high-intensity, low-caloric sweeteners. Canada's sugar industry has, however, made a strong commitment to remain competitive. One of the two firms in the sector recently completed an expansion that increased capacity by 75%, while the other firm announced that it is proceeding with a $40-million upgrading of its beet facility and a $65-million expansion at its Montreal cane facility. These upgrades will enable the plants to achieve greater economies of scale and to compete with an increasingly global trade in white refined sugar. Plant closures demonstrate the need for sugar refineries to operate at close to capacity in order to be efficient. There has, however, been a negative impact on employment as rationalization and plant mechanization diminished the workforce. Employment dropped from 2,803 in 1976 to 1540 in 1996 (the most recent statistics available), and the closure at Saint John in 1999 will result in the loss of over 200 jobs.

Annual production of refined sugar in Canada has been stable in the range of one million tonnes for the past 20 years, despite a rising Canadian population. Total production was 1,154,310 tonnes in 1977 and 1,146,351 tonnes 20 years later, for example. This is the result of the influences that have compromised the industry's ability to maintain or increase domestic market share and which have also limited export opportunities. First, during the late 1980s, one of industry's principal customers, soft drink manufacturers, and other industrial liquid sugar users, gradually began switching from sugar to HFCS. HFCS-55 is considered a substitute for liquid sugar, particularly in the bottling sector. HFCS has been priced slightly below sugar for a number of years, and has taken market share from sugar. In addition, low-priced imports of U.S. sugar rose dramatically in the mid-1980s, capturing some of the growth in the domestic market. Finally, a portion of the demand for sweeteners is captured by the rise in popularity of high-intensity non-caloric sweeteners such as aspartame and sucralose.

In 1995, the Canadian market became somewhat more restricted from external competition with a ruling by the CITT noted earlier. Imports of refined sugar, primarily from the EU and the U.S., were found to have been either subsidized or dumped. A CITT inquiry concluded that if these practices were to continue, the Canadian industry would likely suffer material injury. The CITT recommendation led to the imposition in 1995 of tariffs to cover the margins of dumping and subsidization on these imports.

Exports of refined sugar are generally limited because of lack of market access, a residually priced refined sugar market and un-economic transportation costs to distant overseas markets. Exports to markets other than the U.S. are normally limited to "spot sales," where a shortage exists. In the past, such sales have been made to the Caribbean, Mexico and to Russia, for example. Canadian exports to the U.S. market have been more regular and are more practical because of shorter transportation distances. But sales to the U.S. are also more limited as a result of ever-increasing restricted access to the U.S. market. The Canada-United States Free Trade Agreement (FTA) eliminated tariffs on refined beet sugar but refined cane sugar was not treated as product of Canada for customs purposes. A small concession on sugar was negotiated in the FTA. A clause states that the U.S. will not subject Canada to any potential trade restrictions on food products that contained 10% or less sugar, by dry weight. Otherwise, the U.S. retained its country-by-country import quota restrictions on sugar and on certain sugar-containing-products (SCPs). These were essentially translated into a TRQ system in the last multilateral trade negotiations, which led to the formation of the World Trade Organization (WTO).

During the first few years of the FTA, Canada enjoyed increased access to the U.S. for refined sugar-of-origin. However, the U.S. created a small global TRQ (22,000 tonnes) in the recent WTO round to distinguish refined sugar from raw sugar, thereby substantially reducing Canada's exports. Then, in 1997, Canada and the U.S. reached an understanding yielding a country-specific portion of the U.S. TRQ for refined sugar as well as a country-specific allocation of the U.S. TRQ for SCPs. According to the understanding, the U.S. provided Canada with guaranteed access for 10,300 tonnes of refined sugar and 59,250 tonnes of sugar-containing products. Canada could also compete for a share of the remaining portion of the global TRQ (about 7,500 tonnes of refined sugar). Otherwise, Canadian sugar refiners have no access to the U.S. market. In exchange for the Canada-specific allocations, Canada agreed not to pursue a NAFTA challenge of the U.S. Re-export program for SCPs.

Performance

Industry shipments increased by about 8% between 1990 and 1997. Productivity, as measured by value added per paid hour, increased by about 20% between 1990 and 1997, in part due to rationalization that occurred in the industry.

Investments

We do not actually have a subject on "Investments", our apologies.

Exports of refined sugar to the U.S. rose from 9,719 tonnes in 1988 to a high of 56,270 tonnes in 1994. Thereafter, exports to the U.S. have fallen dramatically as a result of measures taken by the U.S. to restrict access of Canadian refined sugar. In 1995, exports were 28,816 tonnes, but fell to a level of 17,118 tonnes in 1996, and in 1997 exports dropped even lower, to 16,850 tonnes.

A limited number of Canadian exports of SCPs, particularly those products with a significantly high sugar content, such as iced tea, crystal drink mixes, sweetened cocoa, cake mixes and doughs, are subject to U.S. TRQs. The reduction in opportunities to export coupled with rising imports and strong domestic market competition from other sweeteners has meant that Canadian sugar production has remained relatively stable.

Imports of refined sugar have historically been chiefly from the U.S. and EU. Imports as a percentage of the Canadian market began to rise in the mid-1980s. In 1984, imports represented 4.2% of the market, but rose sharply in 1988 to capture a 13% share, peaking at 15% in 1993. In 1995, U.S.-sourced imports were at a level of 92,778 tonnes, but declined to 25,521 tonnes in 1996 and to 13,171 in 1997. This drop reflects the anti-dumping or countervailing duties that have been applied to imports of refined sugars from the EU and the U.S. as a result of the CITT ruling.

Employment

We do not actually have a subject on "Employment", our apologies.

On average, Canadian refined sugar prices tend to follow the trend of world raw sugar prices, with the application of a mark-up for transportation, refining and other costs, as well as an amount for profit. However, transactional prices for refined sugar can represent a mixture of "spot" sales (usually to smaller customers) and sales that are based on refining contracts that apply raw prices prevailing in the world futures market. Raw prices vary daily, and even small shifts in the price of sugar can have a significant cost effect on large futures contracts. For these same reasons, value added in the Canadian refining industry is relatively low, yet stable. Value-added moved from a level of $183.2 million (35% of shipments) in 1988 to $247.1 million, (34.7 % of shipments), in 1996.

Gross margins (value-added less wages) as a percentage of industry sales (shipments) were volatile between 1988 and 1995. Average industry margins, which were at a level of 22% in 1988, peaked at 33% in 1993, but dropped again in 1995 to a level of 29% (this is the most recent data available for this series). Such volatility is common in food industries that mill or refine commodities.

Issues, Challenges and Opportunities - Toward the Next Century

Because Canadian sugar refining has been exposed to global trade throughout its history, the industry has had to adapt by rationalizing and restructuring in response to international competitive pressures. At the same time, there has been little progress toward the liberalization of global sugar trade, presenting the Canadian industry with a number of domestic and international issues into the next millennium.

Trade Performance

We do not actually have a subject on "Trade Performance", our apologies.

Functioning within a globalized environment

Globalization is an economic phenomenon driven by a range of influences. These include: the development of more efficient means of transporting goods; the internationalization of food-product brands; the establishment of sophisticated information networks that facilitate trade in goods, services and capital; and a more international perspective in marketing and investment activities by the sector. To a great extent, globalization has not significantly altered the landscape of the sugar trade because of its commodity nature and due to the protection afforded sugar in many large producing and consuming countries. However, the evolution of freer trade in sugar has already had an influence on restructuring in the Canadian industry. Refiners must achieve levels of scale that enable them to compete with an ever-increasing trade in white refined sugars.

Challenges

Canada's sugar refining industry plays an important role in providing food manufacturers with a supply of relatively low-priced sugar as an ingredient in many formulated foods. The industry's primary challenge is to continually address the need to remain competitive and profitable in the face of growing competition from imports, HFCS and high-intensity sweeteners.

The industry will also need to examine all export possibilities and continue to work with government in attempting to gain greater access to global markets.

Association

The Canadian Cane and Beet Sugar Industry

Agriculture and Agri-Food Canada Contact

The Following Analysis Reports are Available from the Food Bureau:

Food & Beverage Processing Sector Analysis

• The Canadian Food and Beverage processing Sector - An Overview of Opportunities and Challenges at the Turn of the Century
• Historical Perspective of the Canadian Food and Beverage Processing Sector
• Analysis of the structure of the Canadian Agri-food Industry

  Sub-Sector Profiles

• The Canadian Bread and Bakery Industry
• The Canadian Confectionery Industry
• The Canadian Wine Industry
• The Canadian Distillery Industry
• The Canadian Dairy Processing Industry
• The Canadian Red Meat Processing Industry
• The Canadian Feed Industry
• The Canadian Poultry Processing Industry
• The Canadian Snack Food Industry
• The Canadian Fruit and Vegetable Processing Industry
• The Canadian Cane and Beet Sugar Industry
• The Canadian Flour and Related Products Industry
• The Canadian Soft Drink Industry
• The Canadian Bottled Water Industry
• The Canadian Tea and Coffee Industry *
• The Canadian Pasta Industry *
• The Canadian Brewing Industry *
• The Canadian Miscellaneous Foods Industry *

* Titles marked with an asterisk are not complete at time of publication. Published profiles are available on the internet at http://www.agr.gc.ca

Regional Profiles

• Atlantic Provinces 
• Ontario 
• Saskatchewan 
• British Columbia
• Quebec 
• Manitoba 
• Alberta

Readers can obtain data updates by accessing the electronic version of these reports on ACEIS at http://www.agr.gc.ca

We would be pleased to receive your views, and any comments or suggestions that would improve the substance of these reports. For additional information and/or to provide your comments, please contact:

Food Bureau
Room 501
Sir John Carling Building
Ottawa, Ontario
K1A 0C5
(613) 759-7556.

Les documents sont disponibles en français.

Date Modified: 2004-06-02		Important Notices
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