Occasional Paper No. 57 I I

Bureau of Agricultural Economics, Canberra

Production and Consumption of Sugar Substitutes: Implications for the Australian Sugar Industry

Chris McDowell and Susan Murphy

FOREWORD

I n r e c e n t y e a r s , t h e r e has been s u b s t a n t i a l p r o g r e s s i n t h e deve lopren t and product ion of non-sugar sweeteners , e s p e c i a l l y i n t h e USA. These products a r e more or l e s s s u b s t i t u t a b l e i n consumption f o r suga r .

I n t h i s r e p o r t , t r e n d s i n demand and supp ly of sugar s u b s t i t u t e s a r e d i scussed and t h e r easons f o r t h e i r expansion a r e i d e n t i f i e d . Although Some i m p l i c a t i c n s are drawn f o r the world sugar market and f o r t h e A u s t r a l i a n s u g a r i n d u s t r y , t h e paper is of an e s s e n t i a l l y i n f o r m a t i o n a l na tu re .

GEOFF MILLER Dizec to r

Bureau o f A g r i c u l t u r a l Economics Canberra A.C.T.

August 1980

Page

Foreword

1 . Introduction

2. Sweetener Character i s t i c s

3 . Trends i n Usage

4 . Production C o s t s of High Fructose Glucose Syrup

5 . Cast-Price Comparisons

6. The Future Sweeteners Market

6 . 1 Domestic market i n Austra l ia 6 . 2 Imports

References

Table

Tab1 e

1 U.S. Consumption of Sweeteners per Person

iii

PRODUCTION AND CONSUMPTION OF SUGAR SUBSTITUTES I M P L I C A T I O N S FOR THE AUSTRALIAN SUGAR INDUSTRY

SUMMARY

. S u b s t i t u t e s f o r sugar h a v e accounted f o r an i n c r e a s i n g s h a r e o f sweetener marke t s f o r some y e a r s , e s p e c i a l l y i n the USA. The r a t e o f i n t r u s i o n o f t h e s e p roduc t s into t r a d i t i o n a l sugar marke t s h a s b e e n a c c e l e r a t e d d u r i n g p e r i d s o f h i g h sugar p r i c e s , such a s occurred d u r i n g t h e mid-1970s ard a g a i n this year . Encouraging a s c u r r e n t world p r i c e s are t o the A u s t r a l i a n sugar i n d u s t r y , t h e y a l s o h a v e the e f f e c t o f s t i m u l a t i n g growth i n t h e p roduc t ion an3 consumpt ion o f s u b s t i t u t e s w e e t e n e r s .

World Sweetener Market

. Sugar der i ved from e i t h e r sugar c a n e o r sugar beet h a s t r a d i t i o n a l l y been t h e dominant sweetener i n housebo ld and i n d u s t r i a l u s e . O t h e r swee t ener s can b e c a t e g o r i s e d b road ly uxder t h e h e a d i n g s s tarch-based swee t ener s and a r t i f i c i a l swee t ener s . T h e s tarch-based swee t ener s a r e sscond t o sugar i n c o m e r c i a l impor tance and are d e r i v e d from a w ide v a r i e t y o f c r o p s , i n c l u d i n g m a i z e , sweet p o t a t o e s , w h i t e p o t a t o e s , whea t , c a s s a v a and rice. They c a n be d i v i d e d f u r t h e r i n t o three main c a t e g o r i e s - g l u c o s e s y r u p s (known a s c o r n s y r u p s i n the USA), d e x t r o s e and h i g h f r u c t o s e g l u c o s e s y r u p s . The l a t t e r , i n p a r t i c u l a r , h a v e emerged i n r e c e n t years a s an impor tan t c o m p e t i t o r f o r i n v e r t sugar f a l i q u i d form o f sugar which i s w i d e l y used i n food p r o c e s s i n g ) . The group o f a r t i f i c i a l swee t ener s i n c l u d e s p roduc t s such as s a c c h a r i n and cyc lama te .

. W h i l e t o t a l world swee t ener consumpt ion i n z r e a s e d marked l y i n the post-war y e a r s , from around 40 M t i n 1950 to n e a r l y 100 M t i n 1979, the p r o p o r t i o n o f t h a t marke t h e l d by sugar was f a i r l y constant a t around 95 per cent u n t i l 1974. S tarch-based and a r t i f i c i a l swee t ener s h e l d around 4 per cent and 1 per c e n t , r e s p e c t i v e l y . S i n c e 1974, the s h a r e of the marke t h e l d b y s tarch-based swee t ener s appears to h a v e i n c r e a s e d s l i g h t l y , a l t hough up- to-date d a t a on the x t u a l e x t e n t o f t h e i ~ r e a s e a re not a v a i l a b l e .

. The major i t r r e a s e s i n consumpt ion o f sugar s u b s t i t u t e s h a v e been i n i n d u s t r i a l l y advanced c o u n t r i e s , where a r e l a t i v e l y h i g h p r o p o r t i o n o f sugar consumpt ion i s d e r i v e d from consumpt ion o f processed f oods . As h i g h f r u c t o s e g l u c o s e s y r u p s , i n p a r t i c u l a r , a r e a v a i l a b l e o n l y i n a l i q u i d form, the e x t e n t t o which t h e y a r e s u b s t i t u t a b l e f o r sugar h a s b e e n l i m i t e d , s o f a r , l a r g e l y to a r e a s of w e t food p r o c e s s i n g , e s p s c i a l l y s o f t d r i n k s and f r u i t p r o d u c t s . O v e r a l l , the growth i n consumpt ion o f sugar s u b s t i t u t e s i n the deve loped c o u n t r i e s h a s l a r g e l y o f f se t some q u i t e marked i n c r e a s e s i n sugar consumpt ion i n d e v e l o p i n g c o u n t r i e s .

. The most d rama t i c i n z r e a s e i n consumpt ion o f sugar s u b s t i t u t e s h a s occurred i n t h e USA, which r a n k s b a i z a 2 o n l y the USSR and the EEC a s a market f o r s w e e t e n e r s . I n 1963, the marke t s h a r e o f a l t e r n a t i v e swee t ener s i n the USA was 17 per c e n t . By 1979 it had doubled to 34 per

cent. High f r l r t o s e g l u c o s e s y r u p s were p a r t i c u l a r l y impor tan t i n t h i s g r o w t h . In t h e f i v e year s t o 1979 , t h e t o t a l U.S . marke t f o r s t a rch -based swee t ener s grew by 12.4 l b per person , o f which h i g h f r u c t o s e s y r u p s accounted f o r 12 1b. The r easons f o r t h i s growth i r r l u d e the p r i c e a t t r a c t i v e n e s s o f h i g h f r u c t o s e s y r u p s r e l a t i v e t o o t h e r a l t e r n a t i v e swee t ener s an3 s u g a r , and t h e e x i s t e n c e o f e s t a b l i s h e d m a i z e p r o d u c t i o n and p r o c e s s i n g f a c i l i t i e s .

. P r o d r t i o n o f h i g h f r u c t o s e g l u c o s e s y r u p s i s a l s o c a r r i e d o u t i n a number o f other c o u n t r i e s , i c c l u d i n g t h e EEC, Japan, Canada and t h e R e p u b l i c o f Korea, b u t t h e USA rema ins the most impor tan t producer .

E f f e c t s o f Expans ion o f P r o d u c t i o n o f Sugar S u b s t i t u t e s

. The a im o f t h e c u r r e n t I n t e r n a t i o n a l Sugar Agreement ( I S A ) i s t o s t a b i l i s e wor ld sugar p r i c e s w i t h i n a p r i c e band o f U S 1 2 c / l b t o USZZc / lb . I n J u l y 1980, world p r i c e s were around US30c / lh , w e l l above the upper l i m i t o f the I S A r a n g e . I f t h e l o n g e r t e r m e f f e c t o f t h e ISA is to m a i n t a i n world p r i c e s a t around t h e mid-poin t o f t h e range , t h e n e s t i m a t e s o f t h e c o s t s o f producing h i g h f r u c t o s e s y r u p s i n t h e USA s u g g e s t t h a t producers w i l l b e a b l e to compete on a p r i c e b a s i s w i t h s u g a r . I f p r i c e s o f sugar r i s e v e r y s h a r p l y , consumers i n i n d u s t r i a l i s e d c o u n t r i e s which produce a l t e r n a t i v e swee t ener s w i l l t e n d t o s w i t c h i s r e a s i n g l y t o sugar s u b s t i t u t e s i n a r e a s where s u b s t i t u t e s a r e a p p l i c a b l e .

. The I S A p r o v i s i o n s o p e r a t e around agreed p r i c e t r i g g e r s , s t o c k h o l d i n g p r o v i s i o n s an3 e x p o r t q u o t a s r e l a t i n g to sugar . T h i s l e a v e s s cope f o r c o u n t r i e s to expand produc t ion o f sugar s u b s t i t u t e s w h i l e , a t t h e same t i m e , e x e r c i s i n g r e s t r a i n t s on sugar p r o d u c t i o n and t r a d e s c o r d i n g t o t h e i r o b l i g a t i o n s under the ISA .

C o c c l u s i o n s

. The e x t e n t t o which p r o d u c t i o n o f a l t e r n a t i v e s t o sugar w i l l expand i s i n f l u e c c e d i m p o r t a n t l y by t h e p r i c e a t which t h e s e swee t ener s may b e m a r k e t e d . T h e area o f t h e s w e e t e n e r marke t most l i k e l y t o be a f f e c t e d is food p r o c e s s i n g , p a r t i c u l a r l y soft d r i n k s , bakery p roduc t s and p roces sed f r u i t s and v e g e t a b l e s - t h a t i s , where l i q u i d forms o f sugar a r e c u r r e n t l y be ing u s e d .

. T o d a t e , geograph ica l d i v i s i o n o f the swee t ener marke t i n A u s t r a l i a a n i problems o f h i g h costs a s s o c i a t e d w i t h t h e t r a n s p o r t a t i o n o f h i g h f r u c tose g l u c o s e s y r u p s h a v e i r h i b i t e d the expans ion o f the p r o d u c t i o n o f sugar a l t e r n a t i v e s i n A u s t r a l i a . A l s o , t h e p r i c e o f sugar i n A u s t r a l i a i s l a r g e l y i n s u l a t e d f rom movements i n wor ld silgar p r i c e s and , a t t h e t i m e of t h e p r i m i p a l deve lopment o f h i g h f r u c t o s e s y r u p s i n t h e USA, it was l a u r e l a t i v e t o the wor ld p r i c e f o r sugar .

. In t h e s h o r t r u n , h i g h f r u c t o s e s y r u p s a m o t h e r sugar s u b s t i t u t e s are mt s e e n t o be a major t h r e a t t o t r a d i t i o n a l marke t s f o r A u s t r a l i a n sugar . However, t h e r e i s e v i d e n c e t h a t t h e y a r e a l r e a d y c o s t c o m p e t i t i v e w i t h sugar i n c e r t a i n end ,uses i n impor tan t impor t i ng c o u n t r i e s , a d this c a n be e x p e c t e d t o l e a d t o i n c r e a s i n g c o m p e t i t i o n i n the l o n g e r t e r m . T h e i m p z t o f this o n wor ld sugar p r i c e s i s l i k e l y t o be n e g a t i v e , b u t t h e magn i tude i s n o t y e t c l e a r .

1. I n t r o d u c t i o n

I n r e c e n t months, world sugar p r i c e s have r i s e n s u b s t a n t i a l l y from t h e i r low l e v e l s of r e c e n t yea r s . Encouraging a s t h e s e p r i c e s a r e to t h e A u s t r a l i a n sugar i n d u s t r y , t h e y have t h e obvious e f f e c t Of encouraging t h e product ion and consumption of s u b s t i t u t e sweeteners .

Overseas developnents i n a l t e r n a t i v e sweeteners have an impor tan t bea r ing on A u s t r a l i a ' s e x p o r t marke t s f o r suga r . I n t h e n e g o t i a t i o n s l e a d i n g up to de te rmina t ion of t h e p r i c e bands and a s s o c i a t e d s tockho ld ing and s t o c k r e l e a s e p r o v i s i o n s of t h e c u r r e n t I n t e r n a t i o n a l Sugar Agreement ( I S A ) , c a r e f u l c o n s i d e r a t i o n was given t o compet i t ion £ ran s u b s t i t u t e sweeteners . I n making f u t u r e adjus tments t o t h e p r i c e bands or t h e g l o b a l expor t quo ta of t h e Agreement, t h e compe t i t ive p o s i t i o n of sugar s u b s t i t u t e s w i l l need t o be c o n t i n u a l l y a s sessed .

AS sweetener use r s move t o sugar s u b s t i t u t e s , f i r m s a r e more l i k e l y to i n v e s t C a p i t a l i n t h e product ion of t h e s e sweeteners . Dec i s ions , by e i t h e r use r s or p roduce r s , t o move t o sugar s u b s t i t u t e s a r e . based n o t on ly on c u r r e n t p r i c e s . The long-term economic v i a b i l i t y of product ion of sugar s u b s t i t u t e s must be a s s e s s e d . Once s u b s t i t u t e sweeteners make sane headway i n t h e market , i t is u n l i k e l y t h a t t h i s headway would be lost , excep t du r ing extended p e r i o d s of depressed r e l a t i v e sugar p r i c e s which would encourage some u s e r s t o s u b s t i t u t e back. When p roduc t ion f a c i l i t i e s a r e e s t a b l i s h e d f o r s u b s t i t u t e s , and c a p i t a l costs a r e sunk, t h e n , i n t h e even t of f a l l i n g p r i c e s , producers w i l l be prepared to fo l low sugar p r i c e s down a s l o n g a s t h e y con t inue to cover t h e i r v a r i a b l e c o s t s .

Though e x p o r t quo tas under t h e ISA have r e c e n t l y been suspended, e x p o r t i n g c o u n t r i e s a r e s t i l l r e s t r i c t e d i n t h e i r immediate p o t e n t i a l f o r e x p a n s i m . Th i s f a c t o r would enhance t h e a t t r a c t i o n to sugar- impor t ing c o u n t r i e s of e i t h e r p roduc t ion o r impor ta t ion of sugar s u b s t i t u t e s .

The Bureau has cont inued to monitor t h e world s i t u a t i o n wi th r e s p e c t t o a l t e r n a t i v e s t o sugar a s p a r t of its sugar commodity a n a l y s i s program. I n t h i s pape r , t r e n d s i n demand and supp ly of sugar s u b s t i t u t e s a r e d i scussed and t h e r e a s o n s f o r t h e i r expansion a r e i d e n t i f i e d . An a p p r a i s a l of f u t u r e sweetener compe t i t ion on o v e r s e a s and A u s t r a l i a n markets is then made on t h i s b a s i s .

2. Sweetener C h a r a c t e r i s t i c s

Sugar , o r s u c r o s e , is by f a r t h e m a s t widely used n a t u r a l sweetener. I t is commercially de r ived from e i t h e r sugar cane o r sugar b e e t . The c rops themselves a r e no t s t o r a b l e and a r e not t r a d e d i n t e r n a t i o n a l l y . Sugar p roduc t ion , a t l e a s t t o t h e raw sugar s t a t e , is a seasona l a c t i v i t y i n m o s t p roducing c o u n t r i e s . Raw s u g a r , however, is q u i t e s t o r a b l e , wi th t h e r e s u l t t h a t f u r t h e r p rocess ing ( r e f i n i n g ) is u s u a l l y conducted on a cont inuous b a s i s throughout t h e y e a r , o f t e n i n p l a n t s near c e n t r e s of f i n a l consumption.

Sugar is consumed i n a wide v a r i e t y of forms throughout t h e wor ld . I t is p a r t i c u l a r l y impor tan t i n household use because , i n a dry

c r y s t a l l i n e form, i t s t o r e s w e l l and is e a s i l y packaged. Sugar is a l s o impor tan t i n food p rocess ing and i n c e r t a i n i n d u s t r i a l and pha rmaceu t i ca l a p p l i c a t i o n s . I n i n d u s t r y and food p rocess ing , sugar is u t i l i s e d i n t h r e e main forms, namely d r y r e f i n e d c r y s t a l s , l i q u i d suga r and i n v e r t suga r . L iqu id sugar is sugar d i s s o l v e d i n water , and is s u p p l i e d i n cases where end u s e r s r e q u i r e i t i n t h a t form. I n v e r t s u g a r , also a l i q u i d , is produced by t h e h y d r o l y s i s of suc rose which b reaks d m , wi th w a t e r , i n t o two monosaccharides, f r u c t o s e and g lucose . I n v e r t sugar is sweeter than s u c r o s e and is not a f f e c t e d by a c i d s p r e s e n t i n many processed f o o d s , e s p e c i a l l y canned f r u i t and s o f t d r i n k s . Some a c i d s , however, w i l l c a u s e t h e g radua l convers ion of sugar to i n v e r t , t h u s i n c r e a s i n g sweetness o v e r time. The advantage of us ing i n v e r t i n c e r t a i n p roduc t s is t h a t t h e f i n a l sweetness i s c o n t r o l l e d .

The sweeteners f o l l o w i n g s u g a r i n commercial importance a r e s t a rch -based sweeteners . S t a r c h f o r sweetener manufacture can be d e r i v e d from a wide v a r i e t y of c r o p s . The most impor tant is maize ( c o r n ) , fo l lowed by sweet p o t a t o e s , w h i t e p o t a t o e s , wheat, cas sava and r i c e . Maize is most widely used f o r a number of reasons . These i n c l u d e i t s atundance i n t h e USA, t h e main producer of s tarch-based swee tene r s , the c m p a t a b i l i t y of t h e maize we t -mi l l ing p rocess wi th sweetener p roduc t i cn and t h e s a l e a b l e by-products which a r e de r ived from t h e p r o d u c t i o n of maize s t a r c h . E s s e n t i a l l y , t h e s e f a c t o r s make maize t h e 1OWeSt cost Source of s t a r c h i n t h e USA though, i n o t h e r c o u n t r i e s , o t h e r c r o p s may be p r e f e r r e d . Maize is a q u i t e e a s i l y s t o r e d and t r a n s p o r t e d commodity and is t r a d e d around t h e world. This means t h a t s tarch-based sweetener p roduc t ion can be cont inuous and need not be c a r r i e d o u t i n the c o u n t r y o f o r i g i n of t h e raw m a t e r i a l . Three major types of s tarch-based sweeteners a r e desc r ibed below. They a r e g lucose s y r u p s , d e x t r o s e and high f r u c t o s e g l u c o s e s y r u p s .

The most widely used s t a rch -based swee tene r s a r e t h o s e f a l l i n g under t h e broad t i t l e of g lucose sy rups o r , a s they a r e c a l l e d i n t h e USA, co rn syrups . These s y r u p s a r e made by t h e p a r t i a l h y d r o l y s i s of s t a r c h , w h i l e d e x t r o s e is produced by complete h y d r o l y s i s (Keim 1979, p. 1 1 0 ) . Depending on t h e e x t e n t to which h y d r o l y s i s is allowed t o o c c u r , t h e p r o p o r t i o n of d e x t r o s e can be v a r i e d . A s t h i s p ropor t ion of d e x t r o s e i s i n c r e a s e d , so is t h e sweetness of t h e syrup. A s w e l l a s swee tness , f a c t o r s such a s f e r m e n t a b i l i t y , v i s c o s i t y , and c r y s t a l p reven t ion can be v a r i e d wi th t h e p ropor t ion of d e x t r o s e .

The wide v a r i e t y o f g l u c o s e s y r u p s which a r e a v a i l a b l e , p l u s t h e f a c t t h a t t h e y a r e r e a d i l y complementary wi th s u g a r , make them s u i t a b l e i n a l a r g e range of p r o d u c t s . The m c s t impor tant user of g lucose s y r u p s is t h e ' confec t ione ry i n d u s t r y , w h i l e t h e baking, brewing, canning and d a i r y i n d u s t r i e s use them to a l e s s e r e x t e n t . When mixed wi th s u g a r , g l u c o s e sy rups have volume, p r e v e n t c r y s t a l l i s a t i o n and h e l p r e t a i n f r u i t f l a v o u r s .

Dex t rose , sometimes c a l l e d D-glucose, i s t h e p u r i f i e d d r y c r y s t a l l i n e form of g l u c o s e , be ing c r y s t a l l i s e d i n much t h e same way a s s u g a r . Dex t rose is Only a b u t two- th i rds a s sweet a s sugar and has some o t h e r chemical d i f f e r e n c e s impor tan t i n usage. Dextrose is more c h e m i c a l l y r e a c t i v e than s u g a r , a b s o r b s h e a t when i t d i s s o l v e s and is i m e d i a t e l y f e rmen tab le by y e a s t . Thus, t h e r e a r e va ry ing degrees to which d e x t r o s e is a compet i tor of s u g a r . Major uses of d e x t r o s e a r e i n

baked yeast-risen gmds. Dextrose is a l s o used in confectionery, i n Soft drinks, canning and pickling. The ready fermentabil i ty Of dextrose makes i t s u i t a b l e i n wine and beer making a s well as i n yeast-risfln goods. I t reacts well with gluten t o give good bram c rus t colour l n bread. Another physical property which makes dextrose more desirable i n Certain appl ica t ions is its bet te r penetration of skins Of f r u i t i n canning and pickl ing. The lower sweetness of dextrose makes i t useful i n thirst-quenching drinks ( K e i m 1979, p. 108).

High f ruc tose glucose syrup, a r e l a t i v e l y new product, has been the subject of much i n t e r e s t , i n recent years , by the s ta rch sweetener industry and sweetener users. High f ruc tose syrup (HFS) i s produced by the treatment of dextrose so lu t ion , pr ior to c r y s t a l l i s a t i o n , with an enzyme. With t h i s treatment, equilibrium is reached when s l i g h t l y less than half of the dextrose is converted t o fructose. A s mentioned e a r l i e r , inver t sugar is , i n f a c t , dextrose and f ruc tose , and inver t and HFS have similar q u a l i t i e s .

HFS then, l i k e inve r t , is s l i g h t l y sweeter than sugar, the key being the f ruc tose content. The advent of HFS has meant t h a t a starch-based sweetener can compete d i r e c t l y with inver t sugar, so l e ly on pr ice . Because HFS is sweeter than sugar , whereas e a r l i e r starch-based sweeteners were l e s s sweet, i t is being subs t i tu ted increasingly fo r ordinary sugar. Further , t he more recent developnent of HFS, with f ruc tose mntent up t o 90 per cent , has resul ted i n an increased range of applicat ions.

HFS is used i n the baking, s o f t drink, canning, wine and da i ry indus t r ies . I t has physical propert ies s imilar t o those of dextrose. The major l imi t a t i cn t o the s u b s t i t u t a b i l i t y of HFS for sugar is tha t i t is wet, and sane appl ica t ions require a dry product. The 90 per cent f ruc tose syrups have the advantage over sugar of providing sweetness w i t h l e s s weight and l e s s ca lor ies , making them useful i n some d i e t f d s and i n c e r t a in pharmaceutical applicat ions. Ninety per cent RFS, with comnensurately l m e r dextrose content , is l e s s l i k e l y t o c r y s t a l l i s e than equilibrium HFS s o i t can be handled a t higher concentrations of dry so l id s i n t he syrup, and a t cooler temperatures.

The other major group of sweeteners is one which is general ly referred t o as a r t i f i c a l sweeteners. Two such sweeteners which a r e widely marketed are saccharin and cyclamate. These two products a r e derived from petrochemicals which are by-products of the petroleum ref in ing process. A number of other a r t i f i c i a l sweeteners, though not yet i n common usage, have been developed f r m various sources. These include Aspartame, a pro te in der iva t ive and 'neo-DHC', a very sweet substance derived from a b i t t e r substance. naringin, which is found i n c i t r u s skins.

Generally, these a r t i f i c i a l sweeteners a r e very much sweeter than natural ly occurring sugars and Starch-based sweeteners. For example, saccharin, the m o s t widely used, i s around 300 times sweeter than sugar. Cyclamate is around 30 times sweeter. Aspartame and neo-DHC are, respect ively. a b u t 180 and 1800 times sweeter than sugar. The extreme sweetness of these substances means t h a t qui te small amounts of them are required r e l a t ive t o sugar. Also, these sweeteners a re of no nu t r i t i ona l value and provide no c a l o r i e s i n food.

Usage o f a r t i f i c i a l sweeteners has g e n e r a l l y been m n f i n e d t o s p e c i a l s egnen t s of t h e market. Because of t h e i r ext reme sweetness and l a c k of c a l o r i e s , t h e y a r e p a r t i c u l a r l y s u i t a b l e i n foods f o r d i a b e t i c s and weight watchers. A s beverage swee tene r s f o r h m e use and a s a d d i t i v e s t o d e s s e r t s f o r d i a b e t i c s and we igh t wa tche r s , s a c c h a r i n and, to a l e s s e r e x t e n t , cyclamate have found a s i z e a b l e market.

The e x t e n t t o which a r t i f i c i a l sweeteners a r e s u b s t i t u t a b l e f o r s u g a r i n a l l uses is l i m i t e d . F a c t o r s i n c l u d e t a s t e and a f t e r t a s t e , lack of bulk and t h i c k e n i n g a b i l i t y , and l a c k o f f e r m e n t a b i l i t y . One impor tan t f a c t o r t o cons ide r i n t h e usage of a r t i f i c i a l swee tene r s is t b a t some resea rch h a s connected them w i t h cance r . A s a r e s u l t , bo th s a c c h a r i n and cyclamate a r e banned i n Canada, and cyclamate is banned i n t h e USA: however, t h e s e bans a r e now under review. I n A u s t r a l i a , t h e use o f bo th s u b s t a n c e s is s t r i c t l y c o n t r o l l e d .

3. Trends i n Usage

~ h o u g h a l t e r n a t i v e s t o sugar have been a v a i l a b l e f o r many y e a r s , i t is t h e post-war p e r i o d , and more i m p o r t a n t l y t h e p a s t decade, which is o f i n t e r e s t here .

While t o t a l world sweetener consumption inc reased markedly i n t h e post-war y e a r s , f r m around 40 M t i n 1950 to n e a r l y 100 M t a year i n 1979, t h e p ropor t ion o f t h a t market h e l d by sugar ( i n sugar e q u i v a l e n t ) was q u i t e c o n s t a n t , a t abou t 95 per c e n t to 1973-74 (Anon. 19741, wi th s t a rch -based and a r t i f i c i a l sweeteners ho ld ing around f o u r pe r c e n t and one per c e n t , r e s p e c t i v e l y . S ince 1974, however, t h e s h a r e of t h e market h e l d by s tarch-based sweeteners appears to have i n c r e a s e d s l i g h t l y . The a c t u a l e s t i m a t e f o r s t a rch -based sweeteners ' s h a r e of t h e market i n 1973 was 3 .7 p e r c e n t (Anon. 1974) . Ey 1976, t h i s s h a r e had i n c r e a s e d s l i g h t l y , to around 5.2 per c e n t (Smith 1978) . Although more r e c e n t d a t a a r e not a v a i l a b l e , i t seems l i k e l y t h a t t h e s h a r e o f s tarch-based sweeteners would have r i s e n , i f o n l y s l i g h t l y . Between t h e y e a r s 1976 and 1979, the t o t a l consumption o f sugar r o s e from about 80 ~t to abou t 90 ~ t .

Very l i t t l e o f t h e i n c r e a s e i n world sugar consumption is accounted f o r by i n c r e a s e d consumption i n i n d u s t r i a l l y advanced c o u n t r i e s . The major i n c r e a s e s i n consumption o f sugar s u b s t i t u t e s , on t h e o t h e r hand, have been i n i n d u s t r i a l l y advanced c o u n t r i e s . On a g l o b a l l e v e l , t h e i n c r e a s e d consumpticm of sugar s u b s t i t u t e s i n a few c o u n t r i e s has been s u f f i c i e n t t o o f f s e t some q u i t e n o t a b l e i n c r e a s e s i n sugar consumption th roughou t t h e developing c o u n t r i e s o f t h e world. This s u g g e s t s t h a t , w i t h i n i n d i v i d u a l c o u n t r i e s , t h e changes i n consumption p a t t e r n s may be q u i t e marked.

The m o s t d ramat i c i n c r e a s e i n use of sugar s u b s t i t u t e s has occur red i n t h e USA. Table 1 shows pe r person consumption of imported and l o c a l l y produced s u g a r , v a r i o u s s t a rch -based swee tene r s , and a r t i f i c i a l Sweeteners.

From t h e s e f i g u r e s i t can be seen t h a t t h e s h a r e of t h e U.S. sweetener market held by sugar s u b s t i t u t e s has i n c r e a s e d c o n s i d e r a b l y

Table 1: U.S. CONSUMPTION OF SWEETENERS PER PERSON

Refined s uqar Corn s w e e t e n e r s i a l O t h e r f a ) Non-caloric(b1

Calendar year Local Imported T o t a l HFS Glucose Dextrose To ta l C a l o r i c Sacchar in Cyclamate

sy rups

( a ) Dry b a s i s . Recent w r n sweetener consumption may be unders t a t ed due to incomplete da ta . (b) Sugar sweetness equ iva len t . ( c ) Cyclamate f w d use was banned by t h e Food and Drug Adminis t ra t ion , e f f e c t i v e i n 1970. (p ) Pre l iminary . ( s ) Est imate .

Source: USDA (1979, p. 351.

since the ea r ly 1960s. In 1963, the share held by sweeteners other than sugar was 16.8 per cent. In 1979, t h i s share is estimated by the USDA t o have increased t o 33.7 per cent .

An important change i n market shares i n the 1970s has been the gain in acceptance of starch-based sweeteners, pa r t i cu l a r ly HFS. In terms of pr ice , W S has been very competitive with sugar, and the consumption of HFS has continued t o expand through periods of qui te low sugar prices. I n the 5 years from 1974 t o 1979, the t o t a l market for starch-based sweeteners i n t h e USA grew by 12.4 l b per person, of which 1 2 l b were accounted for by HFS. While the s a l e s per person of glucose syrups rose s l i g h t l y , those of dextrose f e l l s l i g h t l y .

A number of reasons are apparent for the growth of HFS r e l a t i v e t o Other starch-based sweeteners. F i r s t l y , the pr ice of HFS has usual ly been more a t t r ac t ive : many glucose syrups are much l e s s sweet than HFS, yet a re not necessari ly commensurately cheaper. Dextrose, being c r y s t a l l i n e , is more cos t ly t o produce and has been quoted a t higher pr ices than HFS i n recent years. Apart from p r i ce for a given sweetness, where dextrose and glucose syrups were previously used a s sugar' subs t i t u t e s rather than for t h e i r unique propert ies , HFS is general ly a preferred subs t i t u t e .

The USA market for sugar was pa r t i cu l a r ly su i t ab l e for the growth of HFS for a number of reasons. A very important fac tor i n t he ea r ly acceptance of HFS i n t o the U.S. sweetener market was the r e l a t ive ly high pr ice of sugar f ran 1973 onwards. U.S. sugar pr ices f luctuated almost t o the f u l l extent of rmrld prices i n 1974, encouraging HFS producers t o inves t heavily in increased capacity. Another fac tor has been the r e l a t i v e l y high proportion of t o t a l U.S. sugar consumption going in to processed foods. These involve a high usage of l i qu id and inver t sugars , with which W S is mmt subs t i t u t ab le . An important f ac to r , too, was t h e la rge potent ia l market. This enabled the establishment of large-scale, economically v iable , production uni t s a t a time when only a m a l l market share had been captured.

The highly in tegra ted and technological ly advanced nature of the agribusiness sec tor i n t he USA is a l so an important fac tor i n t he developnent of HFS. The intensive nature of much of American animal husbandry has meant t h a t la rge quan t i t i e s of feed crops, such a s maize, a r e used, r e l a t i v e t o countr ies l i k e Austral ia . For many years , la rge firms have been geared towards t h e production of stock feed from maize, and a la rge wet-milling industry was already in existence.

Wet mil l ing of maize r e s u l t s i n four principal products. They are s t a r ch , gluten feed (21 per cent p ro t e in ) , gluten meal (60 per cent Protein) and maize o i l . Firms involved in production of feed and s ta rch a r e i n an advantageous pos i t ion , through control of the e s sen t i a l raw ma te r i a l , t o move i n t o production of sweeteners. In the ea r ly 1970s, the sharp r i s e s i n the price of sugar made i t worthwhile foe companies to begin or expand sweetener production from starch. Once increasing quan t i t i e s of maize are being processed in to s ta rch for sweetener then, So tw, are e x t r a supplies of maize o i l and gluten feed and meal forthcoming. I t seems tha t a l l the products made from maize f ind ready markets, but t h a t i t is more economical t o produce them jo in t ly .

Once production f a c i l i t i e s and markets are establ ished fo r a l l maize products, then changes i n supplies of any one, s ay sweeteners, are of ten i n response t o influences outside the immediate market. Thus, the Supply, and so the pr ice , of starch-based sweeteners, though influenced by the price of Sugar, is influenced importantly by developnents i n the markets for s ta rch , ed ib le o i l s and stock feeds. The implication of t h i s is tha t a product such a s HFS can possibly be so ld a t r e l a t ive ly lower prices to enhance market penetrat ion. While t he returns fr0m ear ly sa l e s of HFS may have been unprofi table i n themselves, the re turns fran t h e related products allowed U.S. producers t o se l l a t closer to marginal cost than seems t o have been the case i n some other countries.

HFS production i s car r ied out i n a number of other countr ies . although nowhere has there been the same developnent a s i n the USA. I n the EEC, production taxes, u n t i l recent policy changes, inhib i ted the growth of HFS production. Now the production l e v i e s apply only to production above basic quotas. These basic quotas a r e set a t around double the production l e v e l s of 1978-79, or w e l l be lar capacity. In Japan there is not the same ready a v a i l a b i l i t y of maize for s ta rch , and loca l ly produced potatoes are a more expensive source.

Japanese usage of HFS has grown i n recent years. Also, Japan has been a t the forefront of technological developnent i n the production of starch-based sweeteners. Developent of HFS production i n Canada has been s l m e r than i n the above-mentioned areas. By l a t e i n 1980, however, t he re should be t w o major producers of HFS i n Canada.

While the principal developnent of HFS production has occurred, so f a r , i n developed count r ies , there has been some production in many of the developing count r ies . There a re growing indus t r i a l sweetener markets i n the developing regions of Latin America and Asia, and some HFS is being produced. The technological and cap i t a l developnent i n some countr ies has been q u i t e marked i n recent years.

In Argentina, HFS is produced from maize s ta rch and i ts production was apparently around 20 k t i n 1977. Q u i t e s ign i f i can t developnent has occurred i n the Replbl ic of Korea. There a r e cur rent ly three firms operating with a t o t a l capacity of around 75 k t a year (Office of t h e Australian Trade Comissioner , Republic of Korea, personal communication, April 1979). HFS is a l s o produced i n Singapore. The sources of the s ta rch a r e cassava and sago. The production capaci ty of the plant was around 2.4 k t a year ea r ly in 1978, with some poss ib le plans to expand output t o 12 k t a year (IS0 1978). Starch-based sweeteners have reportedly been produced i n China, using potatoes and maize (Reuters, 5 September 1979). Rice a l s o has a very high s ta rch content , and the r i c e s ta rch manufacturing process is similar t o t h a t of maize. There a r e , of course, c a p i t a l cons t ra in ts i n many countr ies . Also, i n a subsistence economy, la rge production of s ta rch crops does not necessari ly imply a v a i l a b i l i t y for sweetener production.

I n the following sec t ions some cos ts of production are examined and compared t o pr ices of sugar.

4 . Production Costs of High Fructose Glucose Syrue

A s mentioned e a r l i e r , HFS can be manufactured using a number of s ta rch sources. The raw material cos t of the s ta rch s o obtained w i l l vary between sources, as well a s with pr ice movements for an individual source. Apart from the raw mater ia l cost of the s ta rch , each type of raw material requires a d i f f e ren t process for s ta rch extract ion. Again, a d i f f e ren t set of msts a r i s e s .

Costs of raw mater ia l s and s ta rch extract ion a re , t o some extent , o f f s e t by the s a l e of by-products. However, by-products vary between crops and, again, the pr ices of these products vary over time and between countr ies .

To analyse the fu ture impact of HFS on sugar markets, i t would be necessary t o have an accurate knowledge of cos ts of production in a number of key countries. Information about production cos ts around the world, however, is not readi ly access ib le , and intercountry comparisons a r e d i f f i c u l t . In a study of a l t e rna t ives t o cane and beet sugar, Smith (1978) has attempted to make some est imate of cos ts of production i n the USA and the EEC. The two important f ac to r s he considered were the net cos t of s ta rch a f t e r s a l e of by-products from maize wet mil l ing and the a c t u a l processing cos ts . Using a range oE estimates of net s ta rch cos ts and cos ts of processing, Smith establ ished a range of t o t a l cos ts of production of HFS. For the USA, he estimated tha t t o t a l cos ts would be between USllc/lb and US16c/lb. This was based on a range of maize p r i c e s from $2/bus t o $3/bus. Increases i n maize pr ices and processing costs i n the period since Smith's est imates would have been o f f se t t o some extent by economies of s ca l e a s plants have been enlarged and capaci ty u t i l i s a t i o n increased.

For the EEC, Smith estimated a t o t a l cost of €233/t, including a production levy of E29/t. W i t h o u t the levy, t h i s was equivalent t o around USl7c/lb a t 1977-78 exchange r a t e s , somewhat higher than the es t imate for the USA. This r e f l e c t s the higher cost of maize in t h e EEC, t h e lower r e l a t ive return for the by-products and a higher margin for processing. The l a t t e r would be due pa r t ly t o smaller HFS-producing p l an t s i n EEC r e l a t ive to t he USA.

For the purposes of mmpacison of HFS cos ts of production with p r i ces and cos ts of production of sugar, an important variable cos t i s t he net cost of the caw mater ia l s ta rch . A s with pr ices of raw sugar, t h e cos t of raw material s ta rch and the prices of by-products can vary considerably over time. The ac tua l processing cos ts a re l e s s l i ke ly t o vary i n an unpredictable way and would probably vary for sugar and HFS i n much the same way. Key var iab les such a s energy and labour cos ts would tend to vary s imi lar ly for sugar ref ining and HFS production.

The range of the previously mentioned cos t estimates i s from USllc/lb t o US17c/lb. I t may w e l l be t h a t the 1980 equivalent is not very much higher, given the increase i n the s i z e of some p lants and tha t maize pr ices have changed l i t t l e . I t ce r t a in ly seems unlikely tha t the appropriate range for the present would be any more than, say, US13c/lh t o USZOc/lb.

5 . Cost -Pr ice Comparisons

I n making comparisons between t h e e s t i m a t e s of costs of product ion and s e l l i n g p r i c e s of HFS and s u g a r , some d i f f i c u l t i e s a r i s e . F i r s t , t h e quoted p r i c e s of HFS and sugar , a s r e p r t e d by t h e USDA, v a r y from a c t u a l s e l l i n g p r i c e s because of d i scoun t ing . F u r t h e r , d i scoun t ing a p p a r e n t l y occurs i n d i f f e r i n g degrees over t ime a s w e l l a s between reg ions , depending on l e v e l s of p roduc t ion and s tocks . I t is a l s o d i f f i c u l t t o compare p r i c e s of products s o l d i n d i f f e r e n t forms, as t h e p r i c e s may r e f l e c t t o some e x t e n t t h e d i f f e r e n t c o s t s and d i f f i c u l t i e s i n hand l ing o f t h e p roduc t s .

The p r i c e of HFS i n t h e USA has v a r i e d widely i n r e c e n t yea r s . For most of 1978, t h e average p r i c e was around US12c/lb (USDA 1979, p . 56). I n some e a r l i e r yea r s though, p r i c e s had r i s e n somewhat h ighe r . I n 1979, t h e p r i c e dec l ined t o a s low a s USlOc/lb i n March and A p r i l , bu t q u i c k l y r o s e t o over USlSc/lb i n t h e l a t e r months a s sugar p r i c e s rose . The lcw p r i c e s a t which HFS was s o l d f o r a couple of y e a r s may c a s t some doubt on S m i t h ' s e s t i m a t e s of t h e c o s t s of p roduc t ion , e s p e c i a l l y c o n s i d e r i n g t h a t , through 1978 f o r example, HFS remained c o n s i d e r a b l y cheaper than r e f i n e d suga r .

P r i c e s o f o t h e r s tarch-based swee tene r s have behaved s l i g h t l y d i f f e r e n t l y from t h o s e o f HFS. Sugar p r i c e s have r i s e n through 1979 and i n t o 1980, b u t t h e p r i c e s of lower swee tness g lucose sy rups and d e x t r o s e have not r i s e n to any th ing l i k e t h e same e x t e n t a s t h e p r i c e s of HFS. This probably r e f l e c t s t h e g r e a t e r degree o f s u b s t i t u t a b i l i t y of HFS f o r suga r .

The aim of t h e c u r r e n t I n t e r n a t i o n a l Sugar Agreement is t o s t a b i l i s e t h e world p r i c e of raw sugar between US12c/lb and US22c/lb. The ISA p r e v a i l i n g p r i c e e a r l y i n June 1980 was j u s t over US30c/lb, o r about $A600/t. These p r i c e s a r e f o r raw s u g a r , on a b a s i s of f .0.b. and stowed Caribbean p o r t i n bulk. To conver t t h i s sugar to a r e f i n e d b a s i s would i n v o l v e t r a n s p o r t to a r e f i n e r y p l u s r e f i n i n g c o s t s , which between them could amount t o a s much a s $A150/t. Th i s would b r i n g t h e r e f i n e d e q u i v a l e n t of t h e ISA p r i c e , a t P r e s e n t , to over $A750/t. Even though i t seems u n l i k e l y t h a t sugar p r i c e s w i l l remain r e l a t i v e l y high i n t h e longer term, it seems t h a t t h e c u r r e n t s e l l i n g p r i c e s of HFS and t h e e s t i m a t e s of c o s t s of product ion compare q u i t e Favourably wi th sugar p r i c e s . The middle of t h e t a r g e t p r i c e range of t h e ISA, Usl7c/lb, is around $A340/t of raw sugar i n bulk. I f t h e e f f e c t of t h e ISA is to s t a b i l i s e p r i c e s a t around t h i s l e v e l , t h e n i t would appear t h a t U.S. HFS producers should be a b l e t o compete r easonab ly w e l l on a p r i c e b a s i s wi th sugar i n t h e longer term.

The long-term cost r e l a t i o n s h i p s between Sugar and s t a rch -based sweeteners a r e in f luenced by r e t u r n s from by-products a s we l l a s by t h e c o s t s of p r o c e s s i n g e i t h e r p roduc t . I t is u n l i k e l y t h a t t h e c o s t s of r e f i n i n g sugar would move i n a s i g n i f i c a n t l y d i f f e r e n t manner from t h e c o s t s of c o n v e r t i n g s t a r c h t o sweetener . Net S t a r c h costs, however, may we l l move d i f f e r e n t l y from raw sugar p r i c e s , due t o t h e i n f l u e n c e of by-product r e t u r n s .

On t h e demand s i d e of t h e market , t h e l a r g e r t h e s h a r e of t h e sweetener market he ld by s tarch-based Sweeteners, p a r t i c u l a r l y HFS, t h e

more p r i c e e l a s t i c t h e demand f o r suga r w i l l be. I n f a c t , r e c e n t world p r i c e t r e n d s sugges t t h a t t h e e x t e n t t o which r e f i n e d sugar p r i c e s can r i s e f u r t h e r i n many c o u n t r i e s is l i m i t e d by t h e e x i s t e n c e of HFS s u p p l i e s and p o t e n t i a l use. T h i s is e s p e c i a l l y s o i n c o u n t r i e s such a s t h e USA and Canada which a r e f r e e of product ion c o n t r o l s and have e s t a b l i s h e d HFS product ion a l r e a d y .

6. The F u t u r e Sweeteners Market

There appea r s to be l i t t l e doubt t h a t s tarch-based sweeteners , and p a r t i c u l a r l y HFS, w i l l assume g r e a t e r importance i n world sweetener markets . The e x t e n t of t h e i n r o a d s which w i l l be made i n t o t r a d i t i o n a l sugar marke t s is f a r £ ran c e r t a i n . A number of v a r i a b l e s a r e impor tan t , t h e m o s t impor tant of which is t h e p r i c e a t which t h e s e products can be marketed. P r i c e s can , of course , be a f f e c t e d by government p o l i c y , a s was seen i n t h e EEC where, u n t i l ve ry r e c e n t l y , a product ion l e v y had s e v e r e l y i n h i b i t e d HFS p roduc t ion .

The mcst l i k e l y a r e a s of t h e sweetener market i n which HFS w i l l compete wi th sugar a r e t h o s e where l i q u i d sugar and i n v e r t sugar a r e c u r r e n t l y being used. These a r e i n beverages such a s s o f t d r i n k s . bakery p roduc t s , d a i r y p roduc t s and processed f r u i t and v e g e t a b l e s . Though l i m i t e d t o t h e s e u s e r s , t h e a c t u a l amount of sweetener used by t h e s e i n d u s t r i e s is q u i t e l a r g e i n many c o u n t r i e s . I n A u s t r a l i a , t h e combined t o t a l of r e f i n e d sugar used by t h e bakery p roduc t s , d a i r y p r o d u c t s , p rese rved f r u i t and s o f t d r i n k s i n d u s t r i e s was over 35 per c e n t o f total domestic d e l i v e r i e s of sugar i n 1978-79. S i m i l a r p r o p o r t i o n s would a p p l y i n many o t h e r i n d u s t r i a l i s e d c o u n t r i e s , and i n deve lop ing c o u n t r i e s t h e p ropor t ion is i n c r e a s i n g c o n t i n u a l l y , from a lar base .

The s i g n i f i c a n c e of t h e i n c r e a s e d u s e of sugar s u b s t i t u t e s f o r A u s t r a l i a is hard to determine. The most l i k e l y immediate impact w i l l b e t h a t the A u s t r a l i a n sugar i n d u s t r y w i l l f i n d i n c r e a s i n g compe t i t ion from HFS on world markets . Of t h e n i n e major markets f o r A u s t r a l i a n s u g a r , seven a r e engaged i n HFS p roduc t ion . The two which do n o t , Malaysia and New Zealand, accounted f o r o n l y abou t 13 pe r c e n t of t o t a l sugar e x p o r t s i n 1978-79.

The ISA p r o v i s i o n s o p e r a t e around agreed p r i c e t r i g g e r s , s tockho ld ing p r o v i s i o n s and e x p o r t q u o t a s . Th i s l e a v e s ample scope f o r l a r g e c o u n t r i e s w i t h domest ic market c o n t r o l t o encourage expansion of s u b s t i t u t e s usage. F u t u r e expansion depends. f i r s t l y , on u s e r s and producers e x p e c t a t i o n s t h a t r e l a t i v e p r i c e d i f f e r e n t i a l s would be s u f f i c i e n t to cover v a r i a b l e and c a p i t a l c o s t s . However, government p o l i c y is also q u i t e impor tan t i n a number of c o u n t r i e s . I n c o u n t r i e s which have f o r e i g n exchange problems or p o l i c i e s of s e l f - s u f f i c i e n c y t h e r e may be an added i n c e n t i v e t o move t o s u b s t i t u t e s . This is, of c o u r s e , e s p e c i a l l y s o i n a number o f c o u n t r i e s no t s u i t e d to p roduc t ion o f s u g a r . Less f o r e i g n exchange may be involved i n t h e purchase of raw m a t e r i a l s f o r s t a r c h t h a n i n t h e purchase of raw sugar f o r r e f i n i n g . One impor tan t l i m i t a t i o n f o r many l e s s developed c o u n t r i e s i n t h i s p o s i t i o n is t h e technology base r e q u i r e d .

Depending on t h e e x t e n t to which HFS and o t h e r a l t e r n a t i v e Sweeteners may be s u b s t i t u t e d f o r s u g a r , i n c r e a s e d use of a l t e r n a t i v e sweeteners may be expected to reduce t h e ampl i tude of f l u c t u a t i o n s i n sugar p r i c e s . I f p r i c e s of suga r r i s e v e r y s h a r p l y , consumers i n i n d u s t r i a l i s e d c o u n t r i e s which produce a l t e r n a t i v e sweeteners w i l l swi tch i n c r e a s i n g l y to sugar s u b s t i t u t e s i n p l a c e of sugar i n a r e a s where s u b s t i t u t e s a r e a p p l i c a b l e . This w i l l o f f s e t , t o some e x t e n t , any tendency f o r sugar p r i c e s to r i s e s h a r p l y i n response to some f a c t o r . such a s reduced s u p p l i e s on t h e world market .

6 .1 Domestic Market i n A u s t r a l i a

With r ega rd t o t h e A u s t r a l i a n domest ic market , i t seems q u i t e l i k e l y t h a t sugar cou ld f a c e some degree of compe t i t ion from HFS i n t h e f u t u r e , a l though t h e i n t e n s i t y and t iming o f such compet i t ion is d i f f i c u l t to determine. To d a t e , geograph ica l d i v i s i o n of t h e sweetener market i n A u s t r a l i a and problems o f high costs a s s o c i a t e d w i t h t h e t r a n s p o r t a t i o n of HFS have i n h i b i t e d expansion of p roduc t ion here . There has been Only a very sma l l exper imenta l product ion o f HFS i n t h i s coun t ry by one glucose s y r u p manufacturer . There a r e a b u t s i x s i g n i f i c a n t manufacturers o f g lucose and g lucose sy rup i n A u s t r a l i a , u s ing wheat s t a r c h .

A s mentioned above, over 35 pe r c e n t of domestic d e l i v e r i e s , o r around 270 k t , of r e f i n e d sugar is d e l i v e r e d annua l ly t o t h o s e i n d u s t r i e s i n A u s t r a l i a most l i k e l y to use HFS. Ten pe r c e n t of t h i s market is comparable to t h e o u t p u t of some HFS p l a n t s around t h e world. The l a r g e s t HFS producer i n Europe h a s an annual c a p a c i t y of around 100 k t , wh i l e o t h e r companies have annua l c a p a c i t i e s a s l o w a s 10-20 k t . I n t h e USA and Canada, t h e r e c e n t tendency h a s been f o r e s t ab l i shment o f q u i t e l a r g e p l a n t s . For example, t h e f i r s t producer i n Canada began i n 1979 w i t h i n i t i a l p l a n s f o r p roduc t ion c a p a c i t y o f over 50 k t . Another p l a n t j u s t under c o n s t r u c t i o n i n Canada is aiming f o r 90 k t annual product ion c a p a c i t y . I n t h e Republ ic of Korea and Singapore , p roduc t ion o f HFS is c a r r i e d out i n q u i t e sma l l f a c i l i t i e s , ranging from 1 2 k t to 45 k t a yea r .

I n 1977-78, t h e sugar c o n t e n t of f r u i t p roduc t s approved by t h e F r u i t I n d u s t r y Sugar Concession Committee (FISCC) f o r payment of t h e domestic sugar r e b a t e was 60 k t . Of t h i s amount, 46 489 t were used i n f r u i t c o r d i a l s , f r u i t j u i c e s and canned f r u i t . These p roduc t s a r e especially s u i t e d f o r i n c l u s i o n o f HFS, a s t h e y a r e wet p roduc t s and are

1 o f t e n sweetened by i n v e r t or l i q u i d s u g a r . To o b t a i n t h e r e b a t e of $ lS / t of suga r , p rocesso r s must pay c e r t a i n minimum p r i c e s f o r f r u i t . The e x i s t e n c e of a compe t i to r w i t h sugar would l e s s e n t h e power of t h e

L( f r u i t i n d u s t r y t o e n f o r c e payment o f FISCC-determined p r i c e s by p rocesso r s a l though t h i s would depend i m p o r t a n t l y on t h e l e v e l of minimum f r u i t p r i c e s and t h e l e v e l of t h e r e b a t e a t a p o i n t i n t ime.

! The l a c k o f developnent of HFS i n A u s t r a l i a to d a t e would appear to

have been in f luenced by two impor tan t i n t e r r e l a t e d f a c t o r s . F i r s t , t h e p r i c e of suga r i n A u s t r a l i a has remained comple te ly i n s u l a t e d from t h e world market f l u c t u a t i o n s . Domestic sugar p r i c e s i n A u s t r a l i a were r e l a t i v e l y lax a t t h e t ime of t h e P r i n c i p a l developnent of HFS

product ion. Also, t h e s i z e o f t h e market i n A u s t r a l i a has meant t h a t i t would have been d i f f i c u l t f o r a producer o f HFS t o ach ieve t h e s c a l e economies necessa ry to compete w i t h suga r . The A u s t r a l i a n sugar i n d u s t r y , however, is p r o t e c t e d on t h e dcanestic market. Impor ts o f sugar a r e banned under an arrangement con ta ined i n t h e commonwealth-Queensland Sugar Agreement which a l s o c o n t a i n s an ag reed procedure fo r annua l ly a d j u s t i n g t h e domest ic p r i c e of sugar . I n r e c e n t y e a r s t h e r e have been c o n s i d e r a b l e i n c r e a s e s i n d m e s t i c p r i c e s . I t would appear t h a t t h e p r i c e is approaching t h e l e v e l where HFS p roduc t ion , on a s c a l e a p p r o p r i a t e to t h e A u s t r a l i a n market , can be contemplated . The n e t cost o f s t a r c h e x t r a c t e d from wheat i n A u s t r a l i a would p robab ly be s l i g h t l y h ighe r t h a n t h a t from maize i n t h e USA. A l s o , t h e p r o c e s s i n g costs may b e s l i g h t l y h ighe r he re , g iven t h a t a n a l l e r p l a n t s i z e may be necessa ry . One impor tant d i f f e r e n c e , however, is apparen t between t h e A u s t r a l i a n and U.S. domest ic sugar markets . The p r i c e of suga r i n t h e USA, though p r e s e n t l y q u i t e h igh by h i s t o r i c a l s t a n d a r d s , is by no means f i x e d . A few yea r s o f high p r i c e s would q u i t e p o s s i b l y encourage enough e x t r a p roduc t ion around t h e world to b r i n g world and U.S. sugar p r i c e s back down t o l e v e l s which would narrow t h e margins f o r producers o f HPS. If t h e t r e n d o f i n c r e a s i n g world p r i c e s c o n t i n u e s , A u s t r a l i a n domest ic market p r i c e s a r e a l s o c e r t a i n to c o n t i n u e an upward t r e n d over t h e medium, term. Once it has been determined t h a t HFS p r o d u c t i o n is economical i n A u s t r a l i a , inves tment i n p l a n t and c a p i t a l cou ld be expected. E s s e n t i a l l y , t h e emergence of a n A u s t r a l i a n HFS-producing i n d u s t r y depends on t h e a c t u a l domest ic costs of p roduc t ion .

I t is d i f f i c u l t to determine t h e e x t e n t to which t h e sugar i n d u s t r y would be t h r e a t e n e d i n t h e e v e n t o f p roduc t ion of HFS i n A u s t r a l i a . A s w i t h t h e e x p o r t market , t h e g r e a t e r l i k e l i h o o d is t h a t o n l y a small p r o p o r t i m of t h e t o t a l market would be c a p t u r e d .

6 . 2 Impor ts

Impor ts of s u b s t a n t i a l q u a n t i t i e s of HFS by A u s t r a l i a a r e , a t t h i s s t a g e , q u i t e un l ike ly . There a r e p h y s i c a l problems wi th t h e t r a n s p o r t Of HFS i n t h a t i t needs to be kept s l i g h t l y warm t o p reven t c r y s t a l l i s a t i o n . A l s o , as w i t h o t h e r l i q u i d s f o r human consumption, t h e c o n t a i n e r s r e q u i r e d to s h i p l a r g e bulk q u a n t i t i e s a r e q u i t e expensive and heavy. The c o s t of impor t ing HFS, however, remains a b a r r i e r o n l y w h i l e its p r i c e is s l i g h t l y l e s s than s u g a r . I f t h e p r i c e gap widened s u f f i c i e n t l y , i t might w e l l be t h a t f i r s t commercial impor ts would be i n bulk form. Qui to s m a l l q u a n t i t i e s of pure c r y s t a l l i n e f r u c t o s e a r e imported now, f o r use i n t h e pha rmaceu t i ca l i n d u s t r i e s . Th i s p roduc t , however. is s t i l l q u i t e expensive and would be used o n l y i n s m a l l amounts f o r q u i t e s p e c i a l i s e d a p p l i c a t i o n s u n t i l c r y s t a l l i s a t i o n can be ach ieved more economical ly .

REFERENCES

Anon. (19741, 'World product ion and use of swee tene r s ' , Sugar Y Azucar Yearkwk 1974, ch. XXII.

IS0 ( I n t e r n a t i o n a l Sugar O r g a n i s a t i o n ) (1978) . P r e s s Summary, February.

Keim, C.R. (1979). 'Competi t ive s w e e t e n e r s ' , Sugar Y Azucar Yearbook 1979, pp. 101-20.

Smith, I. (1978) , 'The developnent of n a t u r a l sweeteners a s a l t e r n a t i v e s to cane and beet s u g a r ' . J o u r n a l o f A g r i c u l t u r a l Economics 2 9 ( 2 ) , 154-62.

USDA (1979) , Sugar and Sweetener Report 4 ( 2 ) , 1-55.

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