Ricardo Escalona has farmed sugar beets in Chile for 35 years, starting with a plot the size of a soccer field. Last year, his beets covered the equivalent of 50 soccer fields but now, with sugar prices plunging, he’s being told he should switch to tomatoes.
In June, Empresas Iansa SA, Chile’s top sugar refiner and a unit of London-based ED&F Man, closed the processing plant that served the beet-growing region of Linares, citing higher costs and sugar prices that have fallen by half since 2016. Now, many of the 4,000 families whose incomes depend on beets are struggling financially, and increasingly unsure about their future.
Linares in central Chile has been a sugar town for as long as its residents can remember. They literally live and breathe it, with winter winds that often bring a sweet smell from the farms to the north. Two years ago, sugar sold for about 23 cents a pound. Now it’s around 11 cents, undercut by a global supply glut fueled by booming crops and the war on obesity. Some countries have responded with price supports, but not Chile, where farmers can boast of the world’s highest sugar beet yields.
“The government is promoting converting to other crops, but this year is lost,” said Manuel Alarcon, editor of the news service Linaresenlinea.cl.
Raw sugar can be extracted from either sugar cane or sugar beets, whose roots carry a high concentration of the chemical sucrose. The difference: While cane—the producer of 80 percent of the world’s sugar—requires the heat of the tropics to grow, beets can prosper in more temperate zones.
The Linares region, with its mild Mediterranean climate and good natural irrigation, offers ideal conditions for beets. The 2015/2016 harvest generated 113 metric tons per hectare, or about 19 tons more than second-place Spain, according to data from the International Sugar Organization. The global average for yield is 53 tons.
The problem isn’t production, it’s competition. Sugar prices hit a 10-year low recently amid the global glut and concern that India, the world’s second-largest producer behind Brazil, may boost exports as its harvest approaches and inventories pile up.
To offset this, Chile could, under existing law, apply so-called price bands, which can result in special import tariffs when prices of commodities such as sugar fall below a certain level. But in practice, Chile’s free trade agreements with Brazil, Guatemala, Argentina and Colombia means that refined sugar from those countries can be imported without a tariff, pressuring local profits.
At the same time, the country’s largest refiner, Empresas Iansa, has cited Chile’s new emissions tax as yet another argument against keeping its plant open. The company will support those farmers that plan to continue planting beets, with the aim of increasing yields even further as a way to counter the lower prices, Iansa’s interim Chief Executive Officer, Raimundo Diaz, said by email.
Some farmers, assisted by Iansa, are already reaching yields of almost 200 tons per hectare, Diaz wrote. And beyond the beets’ use for sugar, Chile has the option of exporting beet sub-products, such as molasses or the dried up sugar beet husks that can be processed as animal feed.
Still, the Linares plant will stay closed, forcing farmers in that region to deliver their beets to refining plants in other cities, with the closest sitting more than 105 kilometers (65 miles) further south.
“With these yields, it seems absurd having to close the plant,” said Jorge Guzman, head of the country’s beet- farmer association. “But Chile is a totally open economy with no subsidies, and no support from the government.”
Chile joining the global war on obesity is also hurting beet farmers. In 2016, the government implemented a system of obligatory labels that warn of high sugar, fats, salt or calories. Food producers say the limits are too strict, pushing people away from a crop grown in the country to sweeteners imported from elsewhere.
The result has been a pullback in the industry. The amount of land dedicated to sugar beet cultivation has fallen to about 14,000 hectares from more than 50,000 years ago, Guzman said.
Some in the agro-industrial sector in Chile have little faith in the sugar beet industry’s survival. Ricardo Ariztia, head of the country’s National Agriculture Society told local radio Pauta that “we shouldn’t think of continuing to produce sugar beets” and that the government should help farmers change to other crops.
Guzman of the sugar beet association doesn’t share that view. He’s planting fewer hectares this year at his own farm, about 250 hectares from 380 the previous season, but he says he sees prices nearing a bottom.
“Even with these low prices the best farmers are still obtaining significant returns, so I’m sort of optimistic for the future,” he said. “If we’re able to hold on for one or two years at these prices, then the situation will become sustainable.”