Summary
The 2017/18 marketing year saw a dramatic fall in imports from EPA/EBA suppliers of some 58% compare to the 2016/17 season. This extended the trend in declining ACP sugar exports which has been underway since the 2013/14 marketing year. This situation on the EU market is unlikely to improve, with the impact of Brexit potentially making the EU27 market situation more difficult for ACP sugar exporters. However opportunities for ACP exporters on the UK market could emerge under a ‘no-deal’ Brexit scenario, if ACP EPA signatory governments can secure a continuation of current duty free-quota free access to the UK market form 30th March 2019. This situation however will be complicated by the likely lobbying by Tate & Lyle Sugars for an expansion of its access to world market priced sugar for refining. Further complications arise from the growing volume of EU white sugar exports to African markets, which, given population and per capita sugar consumption trends, are themselves increasingly attractive to African sugar producers. ACP sugar producers and exporters will need to develop more sophisticate marketing strategies to deal with an increasingly complex set of changing market parameters.
A Difficult Situation in the EU for ACP Sugar Exporters
According to the EC there is currently a difficult situation on the EU sugar market. The EC maintains this is ‘linked to the situation on the world market and the substantial increase in production after the end of the quota system’ (1). Indeed the abolition of EU sugar production quotas saw a dramatic increase in EU sugar production to 21.1 million tonnes (2). The EC however sees this as a ‘one time high’, with in 2018, the first full year after the October 2017 quota of quotas, seeing EU sugar production falling 2.5 million tonnes to 18.6 million tonnes.
This was in part attributed to the drought conditions in EU member states the summer and autumn of 2018 and in part to lower EU sugar prices (2). According to the EC ‘sugar prices remain low in the EU despite a certain recovery in world prices’, reaching a low of an EU average of € 347/tonne in September (1).
The remarkably high level of domestic EU production and exceptionally low prices, saw a dramatic decline in overall EU sugar imports (-48%) and an even more dramatic fall in imports from EPA/EBA suppliers of some 58% compare to the 2016/17 season. This decline in the share of EPA/EBA suppliers in total EU imports occurred despite the increase in EU imports of sugar from South Africa under new TRQ arrangement established as part of the SADC-EU EPA.
Total EU Imports and Imports from EPA/EBA Suppliers (tonnes) & as % total EU imports
| Year | Total EU Imports | EPA/EBA Imports | EPA/EBA % total |
| 2013/2014 | 3,251,000 | 2,193,000 | 67.5% |
| 2014/2015 | 2,865,000 | 2,126,000 | 74.2% |
| 2015/2016 | 2,969 000 | 1,608,000 | 54.2% |
| 2016/2017 | 2,517,000 | 1,317,000 | 52.3% |
| 2017/2018 | 1,308,000 | 557,000 | 42.6% |
| % change 2013/14-2017/18 | -60% | -75% |
Source: EC, ‘Sugar Market Situation’ Reports (multiple years)
This continued the declining trend in ACP sugar exports to the EU which has been underway since the 2013/14 season, with in the context of a 60% decline in overall EU sugar imports, ACP export volumes to the EU in 2017/18 being only a quarter of what they were in 2013/14.
This trend in EU sugar imports is in distinct contrast to the trend in EU sugar exports which in 2017 rose to 3.3 million tonnes. This rise in EU exports may well have contributed to the difficult global market situation which the EC referred to. Reduced EU imports and increased EU sugar exports together amounted to 3.1 million tonnes, with combined effect on the global sugar market equivalent to 34% of the 9 million tonne global sugar surplus in 2017/18. EU policy changes may thus have contributed significantly to the continued decline in global sugar prices which, according to the EC, have fallen ‘continuously over the last two years, from a peak of € 540/t in October 2016 to €274/t in August 2018’. This has generated global sugar price lows not seen since 2007 (2).
These global sugar price levels can be seen as part of a ‘double whammy’ for ACP sugar exporters.
Medium Term EU Sugar Production and Consumption Trends
With a production decrease in the EU and worldwide (+5 million tonnes) underway the EC anticipates sugar prices should recover somewhat in the course of 2019. This will be aided by the projected contraction in EU sugar production arising from reduced yield growth following the ban on the use of neonicotinoids.
This is ‘expected to affect the yield trend for sugar beet as from 2019 and 2020’, with yields in production regions with maritime climates being worst affected, since these production zones ‘are vulnerable to the main pests concerned’. This is expected to see a 100,000 ha decline in the area under sugar beet (2), with EU sugar production levels for 2019 and 2020 being projected at are 18.8 million tonnes and 18.4 million tonnes respectively.
However subsequent changes in farming practices are expected to see the resumption in yield growth, though be it at rates lower than in the past. Average EU sugar beet yields are expected to reach 78.4 t/ha by 2030 (2). This is projected to see EU sugar production climb back up to 19.3 million tonnes by 2030. This would be ‘13 % more than average production over the last years of the sugar quota regime, but … 12 % below the particularly high 2017/2018 level’ (2).
Globally, the EC projects a 22% increase in global sugar production by 2030, reaching some 215 million tonnes. Brazil is seen as playing a key role in this production growth accounting for 40% of the increase. The impact of this global sugar production trend on global sugar prices however will be strongly influenced by Brazilian policy measures impacting on the ethanol/sugar production mix, with this in turn being impacted by global oil prices (2).
EU sugar production and consumption projections (million tonnes)
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | |
| Prod | 21.1 | 18.6 | 18.8 | 18.4 | 18.5 | 18.5 | 18.6 | 18.7 | 18.8 | 18.9 | 19.0 | 19.1 | 19.2 | 19.3 |
| Consum | 18.6 | 18.5 | 18.3 | 18.3 | 18.3 | 18.3 | 18.2 | 18.1 | 18.0 | 18.0 | 17.9 | 17.8 | 17.8 | 17.7 |
Source: ‘EU Agricultural Outlook for Markets and incomes 2018-2030’, Tables December 2018 (5)
Meanwhile in response to growing sugar related health concerns, public policy interventions to reduce consumption of hidden sugar and food and drink industry reformulation efforts a 7 % decrease in domestic consumption of. According to the EC ‘overall, EU sugar consumption is expected to decrease from 18.5 million tonnes in 2018/2019 to 17.7 million tonnes in 2030’ (2).
Patterns of global sugar consumption are increasingly shifting away from Europe and developed country markets to developing countries, with per capita global sugar consumption projected to increase from 22.8 kg in 2018 to 24.6 kg in 2030. In contrast per capita consumption in the EU is projected to fall from 30 kg in 2018 to 27.8 in 2030 (2).
Medium Term Trends in EU Sugar Imports and Exports
The low level of EU sugar imports is projected to be maintained, although in 2019 a slight recovery is expected as EU sugar production is affected by the ban on the use of neonicotinoids. However overall with EU sugar prices expected to offer a price premium over global sugar prices of only €40/tonne (compared to between €72 and €82/ton in 2017 and 2018) the EU will be a far less appealing destination for sugar exporters than in the past. While total EU imports are expected to remain around 1.5 million tonnes until 2027, in 2028 they are projected to decline to 1.4 m tonnes, reaching a low of 1.2 million tonnes by 2030.
EU sugar exports and imports projections (million tonnes)
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | |
| Exports | 3.3 | 2.1 | 2.0 | 1.8 | 1.7 | 1.7 | 1.8 | 2.0 | 2.2 | 2.4 | 2.6 | 2.6 | 2.7 | 2.8 |
| Imports | 1.3 | 1.3 | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 1.4 | 1.3 | 1.2 |
Source: ‘EU Agricultural Outlook for Markets and incomes 2018-2030’, Tables December 2018 (5)
In contrast at the beginning of the 2017/18 marketing year EU sugar exports soared ‘but were soon slowed by the drop in world sugar prices’. EU sugar exports in 2017/18 nevertheless reached 3.3 million tonnes. For 2018/19 marketing year EU sugar exports are expected to drop back to 2.1 million tonnes in response to lower EU production (4). These export levels will still be around 40% higher than the pre-quota abolition period.
In the medium term EU exports are expected to fall to 1.7 million tonnes in the face of initial production declines in response to lower yields following neonicotinoids ban. However by 2030 export volumes are expected to recover to 2.8 million tonnes, almost 87% higher than pre-quota abolition export levels. This would make the EU a net exporter of sugar to the tune of around 1.6 million tonnes, with the EU exporting more than double what it imports.
Growing EU Sugar Exports to African Markets
ACP markets are increasingly important for EU sugar exporters. Nine African markets are amongst the top 25 destinations for EU sugar exports. In 2017/18 these nine markets accounted for 19% of total extra-EU sugar exports.
At 533,975 tonnes EU sugar exports to these 9 African destination markets were almost as large as total imports from all EPA/EBA suppliers which amounted to 557,000 in 2017/18. Indeed, given the smaller volumes of EU sugar exports destined for other ACP markets in 2017/18 the EU had a surplus on its sugar trade with ACP countries.
The main African destinations for these EU sugar exports are in West and Central Africa (4). However there are also high levels of EU sugar exports to Eastern and Southern Africa a major sugar production zone in its own right, where producers are increasingly looking to national and regional markets given the lower prices available for exports to the EU and the depressed state of global sugar prices.
Projected trends of a resumption of EU sugar export growth involving EU sugar exports being a third larger than in 2030 than in 2018, is potentially a source of considerable concern. The realisation of these projected export increases could hamper efforts to expand African sugar production for African markets.
Main ACP Markets for EU Sugar Exports
| West and Central Africa | Eastern And Southern Africa | ||
| Mauritania | 121,225 | South Africa | 47,191 |
| Ghana | 86,125 | Sudan | 37,204 |
| Senegal | 61,119 | Tanzania | 36,062 |
| Cameroon | 53,389 | ||
| Togo | 46,119 | ||
| Guinea | 45,461 | ||
| – Sub-total | 413,518 | – Sub-total | 120,457 |
Source: EC, ‘Sugar Market situation’ AGRI G 4 Committee for the Common Organisation of Agricultural Markets, 20 December 2018
The Brexit Uncertainties
For ACP sugar exporters the immediate and medium prospects on the EU market are likely to be further overshadowed by the basis of the UK’s scheduled withdrawal from the EU. In the 2017/18 season over half of EPA/EBA sugar exports to the EU were destined for the UK market (4). This needs to be seen in a context where overall the UK accounted for 34% of extra-EU sugar imports in the 2017/18 season (4).
While in the first 4 months of the 2018/19 import year the share of the UK market in EPA/EBA exports fell to 32% of total ACP sugar exports to the EU, suggesting some diversification away from the UK market is underway, the high level of dependence of certain ACP exporters on the UK market is a major source of concern. This includes some of the ACP’s most competitively vulnerable suppliers such as Fiji, Guyana, Belize and Barbados (3).
Given the current political crisis in the UK as a result of the inability of the UK government to secure Parliamentary ratification of the EU/UK Withdrawal Agreement, current ACP EPA based preferential access to the UK sugar market could be lost from 30th March 2019 (see companion epamonitoring.net article ‘Deferment of UK Parliamentary Ratification Heightens Uncertainty and Gives Added Urgency to ACP Engagement with EU and UK Contingency Planning Processes’, 13 December, 2018).
In the face of the importance of the UK market to ACP sugar exports to the EU, developments around Brexit will be critical to the future value of sugar sector preferences for ACP EPA based sugar exporters.
| Comment and Analysis
In regard to the Brexit dimensions of future ACP sugar sector relations the situation is complex. If the UK/EU Withdrawal Agreement is ratified by the UK Parliament then Article 129 of the Withdrawal Agreement will bind the UK to ‘the obligations stemming from the international agreements concluded by the Union’. This means the market access enjoyed to the UK market under the EU EPA’s will continue to apply throughout the transition period, (which is currently scheduled to run until 1st January 2021). Indeed, the provisions of the Irish border ‘back-stop’ could ensure these international obligations continue to apply to the UK beyond 1st January 2021. This ‘back-stop’, which maintains UK membership of the EU customs union, would run until an alternative UK/EU trade arrangement is in place which prevents the emergence of a ‘hard border’ on the island of Ireland. However the ratification of the UK/EU Withdrawal Agreement would also mean EU27 sugar producers continued to enjoy full duty free quota free access to the sugar deficit UK market. This needs to be seen in the context of the expansion of sugar production which has taken place in EU27 member states since the abolition of EU sugar production quotas. This has seen ACP sugar exporters lose market share on the UK market, with in 2017/18 the EU accounting for 550,000 tonnes of the UK’s total white sugar imports of 560,000 tonnes (2). Against this background, for ACP EPA based sugar exporters the best scenario would be: a) a ‘no-deal’ Brexit which saw the UK impose standard MFN tariffs on sugar imports from the EU27; b) the successful launch of a political initiative or successful negotiations which secured for EPA signatory governments the ‘rolling-over’ of existing duty free quota free access to the UK sugar market from 30th March 2019. This scenario could create considerable short term opportunities for ACP sugar exports to the UK market, as suppliers from EU27 member states would face the application by the UK of the high ‘inherited’ standard MFN import duties currently applied by the EU to sugar imports. Exploiting these market opportunities is requiring ACP governments to adopt policy position which ensure continued duty free-quota free access to the UK market from 30th March 2019. A desire to support local sugar producers in exploiting the new market opportunities which would arise under a ‘no deal’ Brexit could account in part for why Mauritius was one of the first ACP countries to sign the UK’s proposed ‘Continuity Agreements’. It could also account for why the UK expects the governments of CARIFORUM, Fiji and the SADC EPA configuration countries to also sign Continuity Agreements before the 29th March 2019, the date of the UK’s scheduled withdrawal from the EU (see companion epamonitoring.net articles ‘UK Signs Continuity Agreement with ESA Governments’, 4 February 2019 and ‘State of Play in the EU/UK Brexit Negotiations: Update 4 February 2019’, 8 February 2019). If this came to pass all ACP exporters of sugar to the UK market would have reconsolidated there duty free quota free access to the UK market under a ‘no-deal’ Brexit scenario; although it remains unclear how the UK will deal with the TRQ for South African sugar exports which exists under the EU EPA. Given the uncertainty on future UK sugar sector tariff policy, South African sugar exporters are likely to be reluctant to give away guaranteed access to the protected EU market in exchange for a quota on the UK market, the value of which could be rapidly eroded under certain scenarios for post-Brexit UK tariff policy. There is however a further complicating factor given the UK sugar refining company Tate & Lyle Sugars is pressuring the UK government to expand its access to world market priced raw sugar for refining. In this context the value of any ‘rolled over’ duty free-quota free access secured under the UK’s proposed ‘Continuity Agreements’ could be undermined by subsequent UK sugar import tariff policy changes. In this context it would appear sensible for ACP governments to seek to insert assurances on the future value of sugar sector tariff preferences into any Continuity Agreements concluded with the UK. This could potentially take the form of an “Annex of Concerns” which would need to be an integral part of any signed ‘Continuity Agreements’. This would seek to commit the UK government to addressing the range of concerns which ACP governments have over the implications of potential post Brexit UK policy changes and market disruptions which could profoundly undermine the value of existing ACP duty free-quota free access if important issues are left unaddressed in these newly concluded UK-only trade agreements. In addition Brexit related concerns also arise over the growing level of extra-EU sugar exports. In 2017/18 the UK market took a higher volume of EU27 white sugar exports than the 9 main African markets which have been targeted by EU sugar exporters in recent years. Any displacement of EU27 sugar exports from the UK market, while creating opportunities for the best placed ACP sugar exporters to expand exports of refined sugar to the UK market, could also increase competition on regional markets in Africa, as EU27 white sugar formerly exported to the UK is redirected to African markets. These complex realities will need to be taken into account as ACP sugar producers and exporters seek to develop more sophisticate marketing strategies to deal with an increasingly complex set of changing market parameters. |
Sources
(1) EC, ‘Meeting Summary’, Sugar Market Observatory, 15 November 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/market-observatory/sugar/reports/2018-11-15-report_en.pdf
(2) EC, ‘EU Agricultural Outlook for Markets and incomes 2018-2030’, December 2018
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/medium-term-outlook-2018-report_en.pdf
(3) EC, ‘Sugar Market situation’ AGRI G 4 Committee for the Common Organisation of Agricultural Markets, 30 January 2019
https://ec.europa.eu/agriculture/sites/agriculture/files/market-observatory/sugar/doc/market-situation_en.pdf
(4) EC, ‘Sugar Market situation’ AGRI G 4 Committee for the Common Organisation of Agricultural Markets, 20 December 2018
(5) EC ‘EU Agricultural Outlook for Markets and incomes 2018-2030’, Tables December 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/medium-term-outlook/2018/medium-term-outlook-2018-tables_en.pdf