Sugar high

CALI, Colombia — In a lush valley flanked by the Andes Mountains, sugar is sweet again for cane grower Andrés Martinez. Global prices of sugar have doubled in the past year, hitting 15-year highs and creating a windfall.

The reason: ethanol, an alcohol made from sugar that is in demand worldwide as an additive to gasoline to produce biofuel.

"This has been a nice surprise, although the full impact is only beginning to reach us," said Martinez, an agronomist who works a 50-acre farm in the Cauca Valley, which is carpeted with sugar cane.

Sugar is one of many commodities whose prices have skyrocketed in recent months. Crude oil, copper, soybeans and timber are up dramatically thanks largely to increased demand from China and India.

Latin America's economies, whose fortunes rest on natural resources, have especially benefited from the boom. Lifted by exports of coal, coffee and crude, in addition to sugar, Colombia's economy grew 5.3 percent last year, among the strongest rates in the hemisphere.

Increasing percentages of the cane harvests in countries such as Brazil, the world's largest sugar exporter, and Colombia, which ranks No. 7, are being diverted to making ethanol, which is constraining supplies and driving up prices.

Ricardo Villaveces, president of Colombia's largest association of cane farmers and sugar-refinery owners, said demand for biofuel is causing a change in the sugar market. He noted that even President Bush has jumped on the bandwagon, saying in his State of the Union message in January that Americans should use more biofuel.

In Colombia, ethanol's future is now. Since November, motorists in three large cities — Cali, Bogotá and Popayán — have been required by law to fill their tanks with at least 10 percent ethanol.

Over time, the list of cities and the share of ethanol will increase as the country reduces its dependence on oil, officials said. In Brazil, motorists are required to buy fuel that contains at least 40 percent ethanol.

Drivers don't get much of a break with ethanol. In Bogotá, they pay about the same as for a gallon of regular gasoline, but get 20 percent fewer miles per gallon, according to several taxi drivers.

The biofuel law is spawning investment in ethanol infrastructure in the Cauca Valley, Colombia's sugar-growing capital.

Two ethanol-processing plants have been completed, two are under construction and as many as six more are on the drawing board. Total investment in ethanol-processing facilities here could easily reach $100 million, said Cali Chamber of Commerce President Julian Dominguez.

So it's no accident that Cali, where half of all jobs are connected to the sugar industry, exudes prosperity these days. The unemployment rate in this city of 2.5 million, 11.4 percent, is the lowest of any large Colombian city. Eleven shopping centers have opened or begun construction in the past year, Dominguez said, and crime is down significantly.

Cali's environs are far from secure, however. Leftist guerrillas still operate in the mountains that surround the city, and farmers say they have to pay protection money called "vaccinations" to avoid being kidnapped.

Although the outlook for sustained high prices seems good in the short term, even Villaveces of the sugar trade association is concerned that the current market may be a bubble.

"These high prices are transitory," he said. "That's how commodities are."

Prices have been pushed up by a disappointing harvest in Brazil, which accounts for 40 percent of total world exports and is expected to expand acreage dedicated to sugar farming in coming years, he said.

Moreover, the feasibility of ethanol and the value of sugar could fall in tandem if oil prices decline substantially. High prices for crude are considered essential for ethanol to remain an affordable alternative to pure hydrocarbons.

The jury is out on the effect on sugar from the free-trade agreement Colombia recently signed with the United States; the pact must still be approved by both countries' legislatures.

Economist Mauricio Cárdenas of Fedesarrollo, a think tank in Bogotá, says the effect on Colombia's economy will be positive, as will its effect on the sugar industry, at least in the short term. The deal allows Colombia to increase sugar exports to the U.S. to 75,000 tons a year from 25,000.

Over the longer haul, farmer Martinez and others worry that free trade will break down protective barriers that have kept low-cost U.S. corn sweeteners from dominating Colombia's market.

For now, this valley is booming, its 10 sugar refineries working overtime to produce the white crystals. At the Centro Castilla refinery, production has risen to 7,300 tons of cane processed a day, a 20 percent increase from two years ago, said Juvenal González, an operations manager.

Martinez also is skeptical that prices will stay high. Typical of farmers just about everywhere, he downplays suggestions of sudden riches.

"I'm just emerging from debt and paying off the farm after many years of depressed prices," he said. "This has made paying the loan much easier."