Sugar Crash

The Sugar Crash is a term referring to the period between March 23, 1964, and January 20, 1969, during which the price of sugar declined dramatically, leading to a recession which impacted several economies in the Arucian region of the Asterias, particularly after the sugar price reached a historical low of one cent per pound of sugar (or eight cents in 2020).

The price decline and recession triggered by the Sugar Crash prompted significant changes in the way the sugar industry was managed in numerous countries in the Asterias, and these changes both contributed to the following boom in sugar prices, peaking in November 1974, before declining for the remainder of the decade. The effects of the Sugar Crash were felt for a significant period after the price of sugar recovered, with the structural changes and reforms contributing to the Recession of 1980.

Background

The Sugar Crash has its roots in the market conditions in the decades leading up to the 1960's. Primarily this was influenced by steadily growing demand for sugar as well as substantial improvements in the mechanisation of the sugar production process. These included improved transportation and shipping networks, improvements in harvesting, and improvements in manufacturing and refinement. Much of the sugar consumed is grown in the Asterias, in particular the equatorial regions surrounding the Arucian Sea. Countries like Imagua and the Assimas relied on sugar as it underpinned the local economy, with larger countries also having significant sugar industries.

Market Conditions

The market in the lead up to the Sugar Crash in the 1960's had remained more or less stable since the sugar boom of 1919, in which the price of sugar reached 20 cents per pound ($2.96 in 2020) in May 1919 before crashing in the remainder of 1919 and into 1920, bottoming out in March 1921 at 4.5 cents per pound ($0.72 in 2020). Peaks were experienced again, although none of them were close to the height reached in 1919.

In the months leading up to the crash in prices, the price of sugar began to spike again. Prices had gradually declined to two cents per pound in December 1961, which prompted many governments around the world to prop up the industry with financial support for plantation owners and companies.

Another factor was that prices had been suppressed owing to the differences between sugar produced in countries that provided subsidies and sugar produced in countries without subsidies. The crash is seen by some as a market correction, although the actions of different countries in relation to sugar production is also considered to be a contributing factor.

Regulation

Prior to the the Sugar Crash, the global sugar market was composed of exporters whose product value was determined through market prices, and exporters whose product value was protected with subsidies, thus offering products either cheaper or higher value than the non-subsidised competition.

The decline of the sugar price in the late 1950's, and the bottoming out of the sugar price at 2.6 cents per pound in December 1961 prompted a change in policy among many sugar exporting economies, with many of the non-subsidised countries introducing subsidies to prevent the bankruptcy of many of the plantations and sugar exporters. The introduction of these subsidies improved not only the financial performance of sugar exporters, but also the confidence of banks and investors to provide loans and other finance to sugar exporters.

The introduction of subsidies was predicted to have a depressive effect on sugar prices. However, wet and stormy conditions prevailing throughout the equatorial Asterias throughout 1961 and 1962 pushed sugar prices up, as demand had not declined during that period. Prices increased to ten cents per pound in May 1963, a price not seen in 44 years. Prices dropped to seven cents per pound in July, before rebounding to their peak of 11 cents per pound in October.

Decline

Initial Decline

The crash would be precipitated by a small decline in the price of sugar beginning in November 1963, in which prices began to decline steadily, dropping on average one cent per month by May 1964, in which the price had declined by four cents per pound, but still remained profitable.

The decline was expected to occur given the peak in October 1963, although some forecasts warned that prices could decline further than they had before, and that farmers who had leveraged themselves too much in the previous two years of price increases could be caught out by further declines.

Price Crash

On May 18, 1964, the price of sugar dropped again, this time another two cents to six cents per pound. A month later, the price dropped again to five cents per pound, before declining again in July to four cents per pound. Prices dropped again, and finished the year at three cents per pound, a drop of 70% from the beginning of the year.

This resulted in a massive decline in revenue for sugar exporters, who were now struggling to repay loans and debt incurred during the peak, especially to repair damage from the wet conditions in 1962. A further decline to two cents per pound in January 1965 prompted the return of widespread subsidies for sugar exporters in numerous countries in order to stave off the bankruptcy of the sugar industry. Prices stabilised throughout the remainder of 1965, but dropped again, this time on the speculation of widespread plantation bankruptcies in Imagua and the Assimas that resulted in the creation of the Imaguan Sugar Board in 1966, which further saw a decline in prices to the historical low of one cent per pound in January 1967.

The low was unprecedented, and well below the cost of refinement and production. Many of the plantations that had grown sugar cane had used the high prices of the late 1950's and early 1960's to expand production, and new plantations had come online in a number of different countries, resulting in an over supply of sugar. With a difference in supply and different levels of support afforded to farmers and companies from different governments, the market price collapsed.

Recession

By the end of the 1966/1967 financial year, numerous Asterian economies had either gone into recession, or had seen lowered growth forecasts as their respective sugar industries struggled to survive. Sugar output declined in an attempt to raise prices, as well as overall economic growth. While prices did increase, they failed to advance above three cents per pound until February 1969, before declining again to three cents per pound in 1970.

While the larger Arucian economies suffered some declines, the most serious effects were felt in the numerous small island states, including Imagua and the Assimas, Maracao, and Sanslumiere, all of which had economies that had significant dependence on the growth and export of sugar cane and refined sugar. These countries all saw recessions induced by the crash begin around late 1966 or early 1967, and last for a number of years, with economic growth not returning until 1971 or 1972.

Larger economies generally did not suffer as much in terms of economic recessions but saw moderate to heavy reductions in growth. Countries like Sautcin saw moderate decreases owing to a wider diversification of the economy, whereas countries like Aucuria and Nuvania saw heavier decreases which persisted well into 1972, as their economies were more influenced by performance of agricultural exports. Nuvania in particular saw forecast economic growth stall between 1967 and 1971, which precipitated a general economic malaise that was not effectively addressed until the mid-1980's.

Effects

Economic

Economically, the Sugar Crash became a significant turning point in the development of numerous economies in the central Asterias, and the effects of the crash would dictate economic policy in many governments for at least the next decade.

Persistent low prices and high debt meant that a lot of producers were forced into liquidation as the crash brought upon the industry a combined debt and liquidity crisis. Debt had increased overall in agricultural sectors of many of the affected countries as low interest rates resulted in cheap credit, which was exploited by producers to expand both crop yield as well as overall output of both raw and refined sugar. This meant that when prices declined, those who had high debts could not repay them, and numerous plantations, farms, and refining facilities were foreclosed to banks, who themselves were having to write off significant amounts of loans and acquiring property that was almost worthless. For some of the banks and surviving plantations and factories, this presented a liquidity crisis, in which low prices meant that debt could not be serviced. This had the unintended effect of banks owning more land than the central government in some smaller Arucian countries.

Outside of the sugar industry, there were a number of flow on effects. Finance especially was hit hard in some countries as banks began to write off debt owed to plantations and refineries. In some instances, the resulting debt write-offs meant that virtually no income was coming in, and several banks around the wider Arucian collapsed.

Countries

Nuvania

Nuvania was one of the larger economies to be significantly impacted by the Sugar Crash, with the decline in price between 1964 and 1969 marking the first serious economic crisis since the Solarian War in the 1940's. The crash impacted the government's attitude towards support for agriculture, and ushered in a period of increased state control and influence over agricultural policy in the late 1960's and early 1970's. It influenced the outcome of the 1964 general election in which the more economically liberal Owen Fraser was defeated and replaced with the more conservative and protectionist F.A Vredeling.

Socially, the period between 1964 and 1969 became known as the "Black Years", or Swart Jare in Asteriaans, especially in the northern provinces of Etten and Kaap, where the largest amount of sugar cane is grown. It is referred to as such because of the economic and financial hardship imposed on many rural communities which saw mass job losses and depopulation as manufacturing plants and plantations went bankrupt, contributing not only to an increase in unemployment but also a rise in poverty and migration into the major northern cities.

Aftermath

Sugar High

The Sugar Crash was followed by the Sugar High, a massive boom in sugar prices that lasted between March 1971 and January 1975 in which the price of sugar recovered from the historic low set in 1969 to set a historic high of 53 cents per pound in November 1974. This was followed by another crash in sugar prices between 1975 and 1978 that contributed to the economic problems of the late 1970's, although other factors were the primary contributors to the recession that took place in 1980.

The Sugar High saw the highest monthly price increases since the price of sugar was recorded, with a six cent increase between January and February 1973, the highest since May 1919. This was achieved again between July and August 1974 when prices again increased by six cents. The largest increase was recorded between September and October that year, when prices increased by eight cents. While this was hailed as an economic recovery, the boom was short lived. Prices dropped 69% the following year, and 44% in 1976, reaching a low of seven cents in 1978. Despite this, the price remained high enough to ensure profitability for both sugarcane farmers and refiners, and thus less economic effects of the price decline, which was greater than that of the Sugar Crash in the 1960's.

Recession of 1980

Sugar prices continued to affect many Arucian economies although other factors also contributed to the general economic decline. Sugar prices however, began to recover in 1979, and spiked again in 1980 as economic conditions pushed up the price of commodities around the world. Prices spiked in August 1980 at 43 cents per pound on the back of prevailing economic conditions which caused commodity and agricultural prices to go up during 1980 and 1981.

Because of the economic conditions around the world, the recession that affected other industries and countries as a whole was tempered by high sugar prices, which although declining, remained above ten cents per pound until April 1982. The lessons from the Sugar Crash were heeded, with farmers and refiners better investing their profits and repaying existing debt.

Beyond 1980

Prices steadily declined throughout 1982, dropping to six cents per pound in September 1982 and February 1983. A brief rally in prices saw a high of 12 cents per pound reached in May 1983 before another significant decline in 1984. Prices declined further in 1985 on the back of strong economic performances in developed countries and the implementation of more free market reforms for the agricultural sector within the primary growers of sugar cane. These policies precipitated a market correction in the mid-1980's which bottomed out in June and July 1985 at three cents per pound.

The market correction lasted for two months before prices began to steadily increase again, with prices reaching ten cents per pound in 1988, with prices stabilising until the late 1990's.