A Conversation with Martin Todd
Martin was previously managing director/CEO of LMC International, an economic consultancy of 50+ staff covering the global agriculture sector. In addition to his managerial role, he contributed to projects in his primary area of expertise: sugar, starch & starch-based sweeteners, as well as a range of cross-commodity issues. He now works as an independent consultant.
AI Summary
Good afternoon, Martin, and welcome to Commodity Conversations. Last week, I interviewed Christoph Berg about the corn versus sugarcane title fight. He argued that it is cheaper in Brazil to produce ethanol from corn than from sugarcane. What’s your take on it?
I agree with him that corn ethanol in Brazil is currently cheaper to produce than cane ethanol, commonly quoted as about 30 per cent lower.
How did this happen? How do you explain it?
The story is tied to the development of corn production in Brazil’s Centre‑West (Goiás, Mato Grosso, etc.). These frontiers were opened by soybeans, not corn. Soybeans are the world’s key protein crop, with a much higher value per tonne than corn. A rule of thumb is that soybean prices are roughly 2.4 times corn prices. Because soybeans are higher‑value, they can bear long‑distance transport costs (1,000–2000 km to ports) better than corn.
Brazilian farmers then started to double‑crop corn, growing soybeans in the main rainy season (Safra) and corn in the second crop (safrinha) immediately after early soy harvests, taking advantage of residual soil moisture.
Safrinha corn is typically a low‑input, low‑output crop. Yields are lower than those of corn grown as the main crop. Inputs such as fertiliser are also lower, improving the cost profile per hectare.
But when corn prices are low, much of its value can be lost in logistics if you try to ship it directly to the coast.
Brazil has responded by “intensifying” value in the interior, building large poultry and livestock complexes, turning corn and soy into higher‑value meat products, and building corn–ethanol plants, which use roughly 2.4 tonnes of corn per cubic metre of ethanol, thereby creating a more valuable and more transportable product (ethanol).
On the environmental side, the comparison is more complex. In the US Midwest, corn ethanol plants typically burn natural gas; in Brazil, many corn ethanol plants have used biomass (wood chips, etc.) as fuel because of limited gas pipeline infrastructure, which may improve their carbon footprint.
At the same time, cane is an extremely productive crop in terms of fermentables per hectare. Cane can yield 70–80 mt/ha with around 14 per cent fermentable sugars (including molasses), giving perhaps 10-11 tonnes of fermentables per hectare. Safrinha corn might yield 5-7 mt/ha, of which roughly 60 per cent is starch, giving 3–4 tonnes of fermentables per hectare.
So, in rough terms, cane can provide about three times as much fermentable material per hectare as Safrinha corn, implying strong CO₂ sequestration per hectare. The overall carbon balance depends on many factors (land‑use change, fertiliser, mechanisation, energy source at the plant), so I would be cautious about general claims that corn ethanol is more environmentally friendly than cane ethanol.
So, who wins: cane or corn?
Cane and corn each have distinct strengths. Corn has lower input requirements in the Safrinha system, can piggyback on soybean driven frontier expansion, and is a good fit for interior value added processing. Cane has very high yields, large fermentable output per hectare, and bagasse Basse’s energy during processing.
Even so, as I said, cane ethanol in Brazil costs about 30 per cent less to produce than sugarcane ethanol.
What does this mean for the sugar market going forward?
Corn ethanol production in Brazil is growing faster than the domestic ethanol market. This means corn ethanol is steadily gaining market share over cane ethanol because it is cheaper, unless corn prices rise.
In this scenario, corn ethanol producers may push ethanol prices lower to gain market share, prompting cane mills to shift to sugar rather than follow ethanol prices down. This adds downward pressure on world sugar prices because more Brazilian sugar must be exported, potentially squeezing out higher‑cost exporters.
For most of my career, we thought of ethanol as providing a floor for sugar prices. Going forward, with corn ethanol undercutting cane, that relationship may change: mills may need to build more crystallisation capacity to avoid being trapped into selling ethanol in a market where their competitor has a big cost advantage.
In your projected scenario, Brazilian mills will no longer be able to compete in ethanol production and will switch to sugar. Brazil will export the surplus sugar, pushing down the world price and driving out less-efficient producers. Which producers will be driven out?
The impact will be strongest in countries where the world sugar price passes through to the farm‑gate cane or beet price, and farmers have viable alternative crops.
Examples could include Thailand, where farmers can grow cassava, rice, corn, and other crops. Lower sugar prices would may make it harder for millers to secure cane and trigger a gradual switch away from cane crops. The same may apply to other regions in Asia where labour constraints and limited mechanisation already undermine cane competitiveness.
Another example is the EU beet sector. Beet is grown in rotation with other crops, and EU protection has already been reduced, leaving the sector more vulnerable. In such regions, sustained lower prices will likely lead to a reduction in beet area rather than simply lower incomes.
Countries such as Australia, where there are fewer obvious alternatives in cane regions, may instead experience lower land values and grower incomes, but not necessarily large‑scale area abandonment.
Will the EU become a major importer?
In markets with large industrial sugar consumption – such as the EU – the supply chain for users is sophisticated and tightly managed. Factories need specific qualities of sugar. Deliveries are often just‑in‑time, in bulk or liquid form, sometimes multiple times per day, into silos managed with telemetry.
You can’t simply replace domestic production with bagged imports from the global market. To become a major importer, the EU would need a much larger refining and logistics industry to bridge the gap between raw sugar imports and industrial users’ requirements.
There is already a small refining sector, which serves as the conduit between world raw sugar and highly demanding customers. If domestic beet production falls further, the EU could import more, but this would require a structural transformation of the industry and logistics system rather than a simple switch from domestic beet to imported white raw sugar.
In general, sectors where farmers have alternative crops and where labour or mechanisation constraints are acute – notably in much of Asia – are likely to struggle most to maintain sugar production if Brazilian exports grow and prices weaken.
If I were an EU sugar producer and came to you to say I wanted to diversify by building a plant in another country, what would you tell me?
First, I would ask why you want to diversify within the sugar sector. Just because you produce beet sugar in Europe does not necessarily imply strong synergy with producing cane sugar in Brazil or elsewhere. Sugar markets tend to operate within their own regional orbits, with the main link being the world market for the traded share (30–35 per cent of global production).
If you look at history, several sugar companies that have done well have used surplus cash flow from sugar to diversify into other food or consumer businesses rather than into sugar in other geographies.
Danisco and CSM are examples of European companies that successfully evolved beyond sugar businesses. British Sugar’s parent group invested in Primark, originally a small Irish retailer, using sugar profits to build it into one of the largest fast fashion retailers. It is now separating the agricultural business from the retail business to unlock value.
In contrast, companies like Tate & Lyle, which once had sugar factories around the world, divested of its sugar operations and no longer produce sugar as a quoted company. The Tate & Lyle sugar brand is now owned by ASR.
My advice would be to question whether geographical diversification within sugar truly adds value, and to consider diversifying into other food or consumer sectors where your capital and competencies may yield better long‑term returns.
Thank you, Martin, for your time and input.
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