If sugar costs $1.70/kg, but takes 100kgs of sugarcane and over 2000L of water to produce that 1 kg, how is the end product profitable?

Question

If sugar costs $1.70/kg, but takes 100kgs of sugarcane and over 2000L of water to produce that 1 kg, how is the end product profitable?

In: 300

Answer 1

The basic ELI5 here is that 100kgs of sugarcane and 2000L of water cost less than $1.70, which seems shocking but is actually true.

The water will be largely free in the form of rain, and the costs of the sugarcane are low due to cheap labor and economies of scale (if you make a lot of something the cost per unit goes down). Basically one worker can make 100kgs of cain for the same costs as they can make 10000kgs, more or less.

All that adds up to the notion that sugarcane is shockingly cheap, and thus refines sugar can be sold for low prices and still turn a profit.