Summary
Global sugar price trends in the coming decade are likely to offer little support to ACP sugar exporters in the face of both lower EU prices and import volumes. Sugar consumption growth is increasingly in the global south, including in sub-Saharan Africa, where production growth although strong is lagging behind consumption growth. This is in part being driven by urbanisation and increased consumption of high sugar content processed food and drinks. This is recognised by the EU sugar companies which are increasingly focused on regaining export markets and developing new ones in sugar deficit regions such as sub-Saharan Africa. Rising EU export volumes beyond earlier projected levels is exacerbating the low price situation on global sugar market.
The Current Market Situation
The OECD/FAO Outlook Agricultural Outlook report which covers projections for the period form 2018 until 2027 provides a review of likely trends on global sugar and sweetener market. It highlights how in marketing year 2017 (October 2017-September 2018) ‘global sugar production rebounded’, after ‘two consecutive seasons of supply shortage’, with production growth in China and the ending of EU sugar production quotas providing ‘the main reasons for this increase’. This growth outpaced the decline in Brazilian sugar output which arose from the better returns offered by ethanol production in Brazil. In 2017 there was no growth in developed country demand for sugar; given rising health concerns over hidden sugars (see companion epamonitioring.net articles ‘Sugar Reduction Target Missed But Pipeline of Pending Initiatives Encouraging’, 31 May 2018 and ‘Health Based Sugar Taxes Gaining Ground Globally’, 29 January 2018). This saw global sugar prices in 2017 lower than in 2016 ‘but still slightly above the average of the last 25 years’ (1).
Projected Price Developments
However for the 2018 marketing year the OECD/FAO analysis see’s raw sugar prices increasing in both nominal and real terms, with a subsequent moderate upward trend in nominal terms but a downward trend in real terms up to 2027. White sugar prices are foreseen as following a similar pattern, although the price differential will widen slightly from the current low levels of US$62/tonne to US$81/tonne (compared to an average over the last decade of US$93/tonne).
Overall global sugar prices are foreseen to be ‘higher than the average of the last 25 years in nominal terms, but lower when expressed in real terms’. By 2027 the OECD/FAO analysis foresees nominal world prices of ‘USD 392/t (USD 17.8cts/lb) for raw sugar and USD 472/t (USD 21.4cts/lb) for white sugar’ (1).
According to the OECD/FAO analysis over the projection period ‘year-to-year sugar price variations are expected to be dampened by the phasing out of trade-distorting sugar support policies in several key sugar markets’ (including EU sugar production quota abolition).
Projected Consumption Growth
With health concerns taking hold in developed country markets and even advanced developing country markets (with sugar consumption projected to decline in the EU by 5.4% between 2017 and 2030) (2). However rapid population growth and urbanization in low consumption developing countries in Asia and Africa is projected to drive an overall increase in global sugar consumption. Up to 2027 sugar consumption is projected to grow at 1.48% per annum, a rate slightly lower than in the previous decade, with annual consumption reaching 198 million tonnes in 2027. Developing countries are expected to account for 94% of this additional demand, with fully 60% projected to come from Asia and 25% from Africa, the two largest sugar deficit regions.
Per capita annual global sugar consumption is expected to increase from 22.4kg to 23.8 kg/capita, but with considerable regional variation in consumption levels and divergent trends in the growth in per capita sugar consumption.
In sub-Saharan Africa while per capita consumption is projected to remain low in some countries (below 10 kg/per annum) population growth will drive increased demand. However in some other sub-Saharan African countries higher per capita sugar consumption growth is projected, based on increased consumption of processed food and drink products amongst a rapidly urbanising population. According to the OECD/FAO analysis ‘with higher demand for processed products, sugar-rich confectionery and soft drinks, growth prospects are high in urban areas in Asian and African countries where the levels of consumption are low compared to other regions’.
Production Developments
According to the OECD/FAO projections ‘over the next ten years, 83% of the increase in sugar output is projected to originate in developing countries’, with a 5% increase in EU production compared to the average of the 2015-17 period. This expansion is based on the more favourable returns which sugar beet production provides compared to other arable crops. However the OECD/FAO analysis takes the view the EU is reaching the limits of its overall production. Indeed it is suggested that up to 2027 EU sugar production will fall 0.85% per annum from the levels attained in the 2015-17 base period.
In Africa according to the OECD/FAO analysis sugar output is projected to increase 36% by the end of 2027 driven by strong domestic demand as well as trade opportunities. Despite this strong growth Africa will still represent only 7% of global production.
By 2027 the global stock-to-use ratio will have fallen to 43% compared to an average of 47% in the 2015-17 base period.
| The Leading Global Sugar Producers Beyond the EU: Projected Trends to 2027
The world’s top sugar producer and exporter is Brazil which is projected to retain its top spot, reaching 42 million tonnes in 2027 up 4 million tonnes compared to the 2015-17 base period. In India production is expected to increase 7 million tonnes to reach 31 million tonnes by 2027, but with this largely serving an expanding domestic market. Thailand will maintain its position as the 4th largest sugar producer (after the 3rd placed EU), but with production growth slowing down following the elimination of price support in January 2018. By 2027 Thailand is expected to produce 13.5 million tonnes. By 2027 China is projected to produce 13.4 million tonnes, just behind Thailand. |
Trade Developments
In terms of the role of the EU in global trade, according to the OECD/FAO analysis EU exports of white sugar will increase in the short term following the abolition of national EU sugar production quotas in October 2017. Exports of white sugar will also increase from Middle East and North African countries where refineries have been built. Overall the OECD/FAO analysis projects a 38% increase in EU sugar exports compared to the 2015-17 base period, with EU exports mainly going to Middle East and North African markets. However the suggestion was advanced at the 3rd July meeting of the EU Sugar Market Observatory that the projected level of 3.2 million tonnes of EU sugar exports for the 2017/18 season was probably too low
More broadly while Brazilian exports are projected to increase by 2.5 million tonnes, Brazil’s dominant position is expected to be challenged by increased Thai sugar exports.
Significantly the OECD/FAO analysis highlights how ‘changes in international sugar prices are not fully transferred to domestic sugar producers and consumers’. It notes how ‘to protect their domestic markets, many countries use trade policy instruments’, such as the EU’s use of high out of quota tariffs and a strictly managed tariff rate quota system.
| Comment and Analysis
Global sugar price trends in the coming decade are likely to offer little support to ACP producers in the face of both lower EU prices and import demand. The most recent analysis from the EU Sugar market Observatory suggests total EU sugar import demand could be even lower than the currently projected level of 1.2 million tonnes. By week 39 of the 2017/18 season ACP/LDC suppliers had exported only 421,000 tonnes compared to 946,000 tonnes in the corresponding period in the 2016/17 (4). This, alongside lower prices will severely impact ACP sugar export earnings to the EU. This however is not the only effect EU policy changes will have on ACP sugar sector export earnings, with the price situation on global sugar markets likely to be exacerbated by the rise in EU sugar exports, which is far beyond earlier expectations or OECD/FAO projections. According to Eurostat data on average over the 2015-17 period the EU exported 1,631,151 tonnes of sugar per annum. The projected 38% expansion referred to in the OECD/FAO analysis would take export levels to 2,250,988 tonnes. This compares to the 2,180,407 million tonnes the EU exported in 2017 and export levels of 2,584,000 tonnes by June 2018 for the 2017/18 season (4). According to the EU’s Sugar Market Observatory total EU exports of some 3.2 million tonnes for the 2017/18 season are projected, with some EU sugar industry players considering this projection ‘rather low’. This strongly suggests the OECD/FAO analysis is profoundly under-estimating the expansion of EU sugar exports which is underway. While the OECD/FAO talk of the EU targeting Middle East and North African markets as the main destination for EU sugar exports data from the EU Sugar Monitoring Observatory on exports to the top 24 EU export destination in the first seven months of the 2017/18 season showed 9 African markets collectively accounted for 21% of EU exports (455,733 tonnes out of a total of 2,180,000 tonnes), significantly more than the top export destination Egypt (14%) and other North African export markets such as Libya (3%) (4). EU Total exports (Destinations Top 24 – 2017/18 MY (7 m. 2.18 mio t – 7 m 2016/17 0.626 mio t)
Significantly these exports are not only destined for sugar deficit markets in West Africa but also markets in Southern and Eastern Africa a region which has a structural sugar surplus (4). Against this background the observation that many governments use trade policy instruments to protect national producers appears relevant. This will be particularly relevant when it comes to the future interpretation and application of EPA provisions dealing with the ‘prohibition of quantitative restrictions’ in trade with the EU. It is noteworthy how in the EU the protective sugar trade regime applied not only relates to imports of raw sugar and refined sugar but also imports of sugar containing value added food products, which attract special sugar levies in addition to the standard MFN duties applied. This tariff regime not only protects EU sugar producers but also EU sugar users from competition from producers in low cost sugar producing countries. This protection of the whole value chain of which sugar forms a part is notably absent in ACP countries. This can see exports of high sugar content food and drink products increasing markedly within processes of trade liberalisation (e.g. the value of EU exports to South Africa in category ‘chocolate, confectionary and ice increased 189% between 2010 and 2017 – from €28 million to €81 million – compared to an overall increase of 57.7% for all EU agri-food product exports – from €1,130 million to €1,782 million). |
Sources
(1) FAO ‘Agricultural outlook 2018-2027 Sugar’, 2018
https://www.oecd-ilibrary.org/docserver/agr_outlook-2018-8-en.pdf
(2) EC, ‘EU Agricultural outlook for the agricultural markets and income 2017-30’, statistical annexes, December 2017
https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/medium-term-outlook/2017/2017-tables.pdf
(3) EC, Sugar Market Observatory, ‘Meeting Summary’ 3 July 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/market-observatory/sugar/reports/2018-07-03-report_en.pdf
(4) EC, Sugar Market Observatory, Presentation on ‘Sugar Trade statistics’, AGRI G 4 Economic Board of the Sugar Market Observatory, 3 July 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/market-observatory/sugar/reports/smo_03-07-2018_market_situation_and_sto.pdf