Summary
In the face of sustained low prices EU sugar production is declining as part of the now post-quota abolition market adjustment, with lower areas under sugar beet being contracted by beet processing companies. There is a growing variation in prices across EU markets with ACP exporters needing to enhance their marketing operations in the EU to maximum total revenues gained on sales to the EU. ACP export volumes to the EU nearly doubled in 2018/19 compared to the depressed levels of 2017/18, while EU export volume fell back dramatically (-53%), but nevertheless remained above pre-quota abolition export levels (+23%). ACP sugar exporters have a disproportionate dependence on the UK market with Belize Guyana and Fiji being particularly exposed. ACP sugar exporters will thus need to keep a close eye on developments around Brexit in the coming year, given the impact a ‘Hard’ Brexit could have on price levels on both the UK and EU27 markets.
The EC autumn 2019 agricultural outlook report suggests EU sugar production is adjusting to the new post sugar quota abolition market realities (1). Over the 2018/19 season EU sugar production will be down 17% with a further 1% decline in 2019/20 (5). This takes production for the 2018/2019 marketing year down to 17.6 million tonnes, a level close to the 5-year average (1).
This can be seen as reflecting the exceptionally low EU sugar prices, ‘with EU prices at EUR 320/t’. It is in response to these low prices that EU sugar beet companies have continued to reduce their beet sowing contracts (1). In 2019/2020 the ‘sugar beet area decreased to 1.65 million ha, i.e. 4.7% lower than the previous year’, although this was ‘still 2% above average’ (1).
There are however regional variations in prices within the EU, with between July 2018 and July 2019 prices in region 3 (Bulgaria, Spain, Spain Greece, Croatia, Italy, Portugal and Romania) being on average from 8.8% to 25.3% higher than prices in the lowest priced region of the EU. In the 10 months to July 2019 the lowest prices were to be found in region 2 (Belgium, Germany, the Netherlands, France and the UK), the heart of European sugar beet production.
Prices in region 2 by August 2019 were 3.2% below the EU average (€310 compared to €320 per tonne) while prices in region 3 were 19% above the EU average (€381 compared to €320 per tonne). This being noted sugar prices across all regions have fallen steeply since August 2017 when average EU prices were around €500 per tonne (2).
Nevertheless these EU prices still compare favourably with world white sugar prices which were reported at €283/tonne in July 2019 (1).
Despite erratic weather patterns EU sugar beet yields look set to increase for the 2019/2020 crop reaching 72.2 t/ha, a 4.3% increase over the previous season (69 t/ha). These yield however remain below the recent average (-4.6%) (1).
At the global level a sugar deficit for 2019/2020 is forecast at 4.8 million tonnes (ISO), compared to a surplus of 1.8 million t in 2018/2019, with this being attributable to ‘adverse weather conditions in India’ and switch by many Thai farmers to cassava production. However price prospects are overhung by the ‘possible release of Indian stocks on the world market’ (1)
In 2018/2019 EU exports are estimated at 1.6 million tonnes, down 53% compared to 2017/18 (3.4 million tonnes), but still 23.1% above the immediate pre-quota abolition export level of 1.3 million tonnes. In 2018/19 France and Poland were the leading EU sugar exporter were the leading EU sugar exporters at over 400,000 tonnes, followed closely by Belgium at around 375,000 tonnes. Germany with over 150,000 tonnes and the Netherlands with around 110,000 tonnes were the other main EU sugar exporters (2). EU forecasts suggest EU sugar export volumes are set to return to pre-quota abolition levels of between 1.3 and 1.4 million tonnes (1).
Meanwhile imports have gradually increased and were projected to reach an estimated 1.9 million tonnes overall in 2018/2019, (an increase of over 46% compared to the previous year) (1). This would return the EU to the position of being a net sugar importer again, with the ‘net exporter position of the EU in 2017/2018’ remaining ‘an exception so far’ (1). By the 22nd October 2019 with only 9 days to run in the season imports reached fully 1.886 million tonnes, with 54% of these imports being attributed to EBA/EPA suppliers and a further 10% to South Africa (2).
Looking forward EU sugar imports are projected to continue to recover in volumes from the low levels in the 2017/18, being in 2019/20 54% above the depressed level of imports in the 2017/18 season, but being only 69% of the level attained in the 2015/16 season (1).
This reflects heightened level of EU domestic production compared to the pre-quota abolition levels and a decline in consumption levels compared to recent highs.
Trends EU Sugar Production, Consumption, Exports and Imports (million tonnes)
| 2015/16 | 2016/17 | 2017/18 | 2018/19 | 2019/20 (f) | + % 17/18-18/19 | |
| Production | 14.9 | 16.8 | 21.3 | 17.6 | 17.5 | -17.4% |
| Consumption | 18.6 | 17.7 | 19.0 | 18.6 | 18.6 | -2.1% |
| – human | 16.6 | 16.2 | 17.3 | 16.8 | 16.8 | -2.9% |
| – industrial | 1.9 | 1.5 | 1.8 | 1.8 | 1.8 | 0 |
| – ethanol | 1.1 | 0.8 | 0.9 | 1.0 | 1.0 | +11.1% |
| Exports | 1.4 | 1.3 | 3.4 | 1.6 | 1.4 | -52.9% |
| Imports | 2.9 | 2.5 | 1.3 | 1.9. | 2.0 | +46.2% |
Source: EC, ‘Short-term outlook for EU agricultural markets in 2019 and 2020’, Autumn 2019 – Statistical Annex
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/short-term-outlook-statistical-annex_en.pdf
By July 2019 the average ACP import price for raw sugar was €360 per tonne and for white sugar €385, with only occasional peaks of much higher prices being obtained by individual suppliers. Indeed the diversity of prices obtained by individual ACP suppliers would appear to make the ACP average price largely irrelevant.
Despite the lower prices by the end of the 2018/19 season total imports from EPA/EBA suppliers had reached 1,111 tonnes, almost double the level of the 2017/18 season. Some 41% of EPA/EBA sugar exports to the EU went to countries in region 3 (Italy – 17%, Portugal – 13% and Spain – 11%) where on average sugar prices were the highest in the EU. Fully 32% in contrast went to the UK market a region 2 country where average prices are amongst the lowest in the EU (the comparable figures for total EU sugar imports are 57% going to region 3 countries and 21% going to the UK).
The leading ACP suppliers to the UK market were Belize (around 168,000 tonnes), Guyana and Fiji (each around 50,000 tonnes), Eswatini (around 40,000 tonnes), Mauritius and Mozambique (each just over 20,000 tonnes).
In terms of exports to the EU28 market the leading EBA/EPA suppliers in volume terms were Eswatini (27%), followed by Mauritius (20%), Belize (16%), Mozambique (11%), Fiji (9%), Guyana (4%) and Zimbabwe (2%) (with Laos a non-ACP country providing 7% of total EBA/EPA exports to the EU).
South Africa meanwhile by 24th October 2019 had exported 131,000 tonnes to the EU out of a total TRQ of 150,000 tonnes (an 87% TRQ utilisation rate with 1 week of the season to run).
Non ACP exporters who enjoyed bilaterally negotiated TRQ restricted access to the EU sugar market meanwhile exported a total of 259,000 tonnes out of a TRQ allocation of 350,000, a 75% TRQ utilisation rate with 1 week of the season to run. Those exporting under WTO negotiated TRQs meanwhile exported only 67,000 tonnes out of a total quota of 790,000 tonnes, a quota utilisation rate of only 8.5%. The sugar quotas allocated to Balkan countries meanwhile remained largely unutilised, at under 5% of uptake.
| Comment and Analysis Given the ongoing uncertainties around the Brexit process the high % of ACP sugar destined for the EU going to the UK market is noteworthy. The implications of this current ACP marker orientation are somewhat unclear. As part of its October 2019 post-Brexit autonomous MFN tariff schedule, which will enter into effect once the UK is no longer part of the EU customs union includes the maintenance of the current EU MFN tariff on sugar. Should the Conservative Party commitment to leaving the EU customs union and single market on 1st January 2021 regardless of whether an FTA agreement with the EU is in place, become UK government policy after the 12th December general election, then this would see standard MFN duties imposed on UK imports of sugar from EU27 member states at a rate of €41.900/100 kg (3). This would effectively kill this trade, in context where EU27 member states (mainly France) account for 25% of total EU sugar consumption. This would leave a substantial hole in the UK market for white sugar. Currently the UK imports largely raw cane sugar for refining from ACP countries, with the dedicated UK raw cane sugar refiner (Tate and Lyle Sugar) working at around 50% of installed capacity, with a further 350,000 tonnes of capacity to co-refine raw cane sugar being available at British Sugars’ beet processing facilities. In the course of 2021 under this scenario this could see increased demand for raw cane sugar for refining in the UK to replace imports of white sugar from EU27 suppliers. In the first months of 2021 it could also see an immediate expansion of export opportunities for exports of refined sugar from ACP countries, with Mauritius and South Africa being best placed to meet these immediate needs. In terms of wider EU27 markets, the most important feature of current patterns of ACP exports is the marked divergence of sugar prices in different EU member states. ACP sugar exporters will need to increasingly shop around across the whole of the EU for the best priced markets for their raw cane sugar exports. However it needs to be borne in mind that in the event of the UK leaving the EU without an FTA agreement being in place, these EU27 market opportunities will be constrained by the return of around 500,000 tonnes of EU27 sugar previously destined for the UK market to the EU27 market. ACP sugar exporters will thus need to keep a close eye on developments around Brexit in the coming year. |
Sources:
(1) EC, ‘Short –term outlook for EU Agricultural Markets in 2019 and 2020’, Autumn 2019
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/short-term-outlook-autumn-2019_en.pdf
(2) EC, ‘Sugar Market situation’, AGRI G 4, Committee for the Common Organisation of Agricultural Markets, 31 October 2019
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/sugar-market-situation_en.pdf
(3) gov.uk, ‘THE TARIFFOFTHE UNITED KINGDOM’ Version 1.0, page 922, dated 8th October 2019
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/837199/Tariff_Reference_Document_8th_October.pdf
(4) CTA, ‘British Sugar/Associated British Foods’ Corporate Profile, July 2014
https://agritrade.cta.int/Agriculture/Commodities/Sugar/British-Sugar-Associated-British-Foods-corporate-profile.html