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
Rain is free, and sugarcane is *grass*. One acre of land can produce 25 metric tons of cane, at moderate yields. One acre is 4046.86 square meters, so you’re looking at over 6 kilograms of cane per square meter.
This is why you have to take all these “water use” calculations for “ecology” with a grain of salt. Unless you live somewhere drought-striken, and need to ship in water with pumps and viaducts, it’s just not that big a deal. And even if you do, you have to consider the alternative use for the land and resources which might require less water.
A good example of this is almonds, California’s water-intensive agriculture whipping-boy. One almond takes 1.1 gallons of water to produce. Sure. But California grows **75%** of the world’s supply of almonds. And they’re *really* expensive. If you’re a farmer and you’re going to convert water into money, then you might as well do it producing a scarce crop for which there is huge demand.
Read about the Fanjul Brothers who control the sugar industry in South Central Florida around Lake Okeechobee. They own 155,000 acres in that area alone, in addition to holdings in Louisiana and the Domican Republic among other places. The Fanjul Brothers are among a handful of sugar industry oligarchs who control the price of sugar in the US. These oligarchs receive a generous subsidy from the US Government which results in the price of sugar being 3 times higher in the US compared to most other places in the world. The high price of sugar in the US resulted in many food companies to turn to high-fructose corn syrup as an inexpensive substitute.
Economies of scale.
Making 1 of something completely by your self is incredibly costly (see How To Make Everything BLT sandwich [https://youtu.be/URvWSsAgtJE](https://youtu.be/URvWSsAgtJE)). In that case $1500 for a sandwich. But for in the same amount of time and with only a slight increase of initial cost and effort to make that 1 sandwich they could make 100.
With crops like sugar cane the actual cost per cane to grow and process into that single canes worth of sugar would be astronomically small, because it’s being spread across hundreds of millions of plants.
> 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?
Water falls from the sky for free. Another important ingredient is solar energy, which also falls from the sky for free. Both tend to fall in large quantities in the places where we grow sugar, albeit at different times.
https://www.sucrose.com/lcane.html
Sugar is cancer food. It is a highly addictive drug and it sickens the populace. Even with subsidies and even if it is grown and processed at a loss, sugar is an investment in sick people. Sick people need pharmaceutical drugs and medical care.
The end product is financial gain reaped from the sick. That is why sugar is an ingredient in nearly all processed food. That is why it is cheaper to get a large value meal with a sugary beverage than it is to buy all the parts of the meal a la carte.
There’s also the molasses that is sold as a byproduct. I also wouldn’t be surprised if the sugar companies got gov. subsidies or kickbacks from the pharmaceutical industries that make diabetes drugs…
Sugar is only one of the byproducts of the sugar factory. Steam and Molasses are major earners.
A lot of folks gave some awesome answers, but I want to answer in a more general sense because this applies to just about everything:
* `Operating Expense = Cost of Labor + Cost of Input Materials + Cost of Manufacturing`
* `Gross Profit = Income – Operating Expense`
* `Net Profit = Gross Profit – Company Compensation`
In other words any time you make something, make sure you charge more than your operating expenses to have any amount of profit (gross). After that, divy up the profit to paying yourself and staff, then whatever is left is how profitable the business truly is.
You can use this the other way around: If you know it costs $1.70/kg, then the total cost of the 100kg of sugarcane, the 2000L of water, and the price you’re paying for the labor must be less than that. Others have noted that water is essentially free in the areas where it grows. Land to grow the sugarcane was a (legacy) capital expenditure done many years if not generations ago so its cost is equally negligible. It’s getting nutrients from the ground and air, and is self-replicating, so there’s also no cost to growing it. Therefore the cost boils down to the labor and manufacturing expenses. Lets assume manufacturing expenses are free for the sake of argument, then that means farmers are being paid less than $1.70 per 100kg of sugarcane they cut, pack, and ship. How long does it take to do that? Let’s say an hour. *Therefore*, the laborers are making vastly less than what the U.S. considers minimum wage.
Now, there are some challenging assumptions mixed into that analysis, but all key variables are identified. So play with the math, assume that it it somehow profitable, and see what it takes to maximize profit while minimizing operational costs.
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.
Because big corporations steal from whatever land they want, everything is profitable when you arent the one paying for it to be produced 🤣
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