Global Market Context Far From Favourable in the Context of the End of EU Sugar Production Quotas


Projected global sugar price trends are unlikely to support EU sugar prices in the post quota abolition period. Caribbean and pacific ACP sugar exporters will be potentially the most vulnerable to EU price declines over the 2017/18 season. This situation could then be compounded by the sugar market effects of the UK’s withdrawal from the EU, currently scheduled for 30th March 2019.  These effects however may be deferred following Prime Minister May’s acceptance that during the implementation period (transitional period) UK/EU27 trade would need to take place within ‘the existing structure of EU rules and regulations’.

Nevertheless there remain profound policy uncertainties around UK sugar market developments which make any projections of likely developments hazardous. Against this background over the coming years ACP sugar exporters will need to closely monitor developments in the Brexit negotiations and the evolution of UK’s autonomous trade policies as they impact on the sugar sector, in order to identify and exploit any market opportunities which might emerge.

On the eve of the abolition of EU sugar production quotas, which is projected to see EU sugar output reach a 12 year high of 20 million tonnes (some 800,000 tonnes higher than earlier forecast), the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) is projecting global sugar prices to fall to a 10 year low of 13 cents/lb ($286/tonne) for sugar futures from October 2017 to September 2018.  This is some 9% below the mid-September New York futures price and 23.5% down on the average for 2016/17 (1).

This downgrading of prospects for global sugar prices is based on ‘world sugar production increasing at a faster rate than previously expected’. Expanded production in India and the EU are seen as major contributors to this trend (1).  Brazilian sugar production is also seen as heading for ‘a larger surplus than previously estimated’, while sugar production in Thailand is also seen as heading for some 700,000 tonnes more than initially predicted, reaching 11.9 million tonnes (2).

Overall, in August 2017 the ISO was predicting a sugar output surplus in 2017/18 of 11.53 million tonnes on the back of record production of 179.3 million tonnes (3).

This situation is exacerbated by the apparent early success of public health campaigns in many western countries which target a reduction of sugar usage in food and drink products.  This is further compounded in the US and EU by ‘long-term declines in population growth rates’ (1). However, public health related efforts to curb ‘hidden sugars’ in food and drink products is not confined to the EU and US with the governments of countries such as Singapore, South Africa and Thailand also taking up the issue (2).

However, it should be noted these projections put global sugar prices at below ‘ethanol parity’.  This is the price level ‘at which mills in Brazil, the top producing country, have equal incentive to turn cane into either ethanol or sugar’ (2). According to ISO ‘any further weakening of world market prices will most likely affect the relative attractiveness of sugar to millers in Brazil’. Any shift back to traditional mix of sugar and ethanol production in Brazil which in recent years has seen 44% of cane processed into sugar ‘would practically halve the currently projected surplus for 2017-18’. (3)

The shift back to ethanol by Brazilian mills could well be aided by plans for ‘a 20% tax on Brazil’s ethanol imports’.  This is seen as part of wider Brazilian government efforts to support and promote the sugar cane industry, by a series of tax reforms aimed at stimulating the use of renewable fuels (4).

Recent press reports suggest the shift towards increased ethanol production and reduced sugar production in Brazil is already underway.  Developments in Brazil alongside hurricane damage to the Cuban sugar crop could reduce ISO’s projected surplus by 900,000 tonnes (6).

Comment and Analysis

The global sugar market price situation provides an unfavourable context for the final implementation of EU sugar sector reforms.  This is projected to see: a 20% increase in production in 2017/18, taking EU sugar production to a level 35% higher than in 2015/16; a reduction in EU imports demand by almost half; and doubling EU sugar exports.  These developments, alongside much lower stock levels (down almost 75% from the 2014/15 season), are projected to see a continued decline in EU sugar prices, with average prices in the coming years being around 6% below  current price levels. Given current global sugar market conditions ACP sugar exporters can have little expectation that high global sugar prices will help support EU sugar prices in the post-EU sugar production quota period.

EU White sugar production, imports, exports and ending stocks (million tonnes)

2013/14 2014/15 2015/16 2016/17 2017/18 % change p.a.
Production 16.7 19.5 14.9 16.8 20.1 +20%
Imports 3.7 2.8 2.9 2.9 1.5 -49%
Exports 1.5 1.4 1.4 1.4 2.8 +100%
Ending Stock 2.6 3.9 1.9 1.3 1.0 -20%

Source: EC, ‘Short-term outlook for EU agricultural markets in 2017 and 2018’, Summer 2017

The reduced EU import demand will place severe pressure on the less competitive ACP sugar suppliers in the Caribbean and Pacific. Many of these suppliers lack the close corporate links to EU sugar companies which characterises the relationship of low cost sugar producers in Southern Africa (see companion article ‘Tereos Expanding its Presence the East African Sugar Sector’, 22 September 2017). Many Caribbean and Pacific ACP sugar exporters are thus less well placed than more competitive Southern African ACP exporters to take advantage of any market opportunities which could emerge in EU28 markets.

Main ACP suppliers to the UK Market 2013-2016 (tonnes)

2013 % 2014 % 2015 % 2016 % 2016
Total UK Extra-EU Imports 787,301   729,634   625,906   569,794  
Caribbean 268,248 34.1% 273,476 37.5% 312,746 50.0% 153,904 27.0%
– Belize 92,343 11.7% 61,022 8.4% 98,892 15.8% 77,861 13.7%
– Guyana 113,712 14.4% 127,464 17.5% 167,539 26.8% 51,428 9.0%
– Jamaica 45,119 5.7% 55,311 7.6% 45,940 7.3% 24,139 4.2%
– Dom Rep 2,010 0.3% 29,380 4.0% 0 0% 0 0%
– Barbados 15,064 1.9% 299 0.04% 375 0.06% 476 0.08%
Pacific 110,275 14.0% 161,076 22.1% 100,236 16.0% 65,434 11.5%
 – Fiji 110,275 14.0% 161,076 22.1% 100,236 16.0% 65,434 11.5%
Indian Ocean 65,572 8.3% 68,750 9.4% 71,373 11.4% 53,810 9.4%
-Mauritius 65,572 8.3% 59,474 8.2% 71,373 11.4% 53,810 9.4%
-Madagascar* 0 0 9,276 1.3% 0 0% 0 0%
Southern Africa 46,319 5.9% 94,481 12.9% 32,609 5.2% 75,049 13.2%
– Swaziland 2,078 0.3% 33,034 4.5% 366 0.06% 58,679 10.3%
– Malawi* 19,518 2.5% 17,501 2.4% 12,239 2.0% 9,126 1.6%
– Mozambique* 0 0 25,022 3.4% 20,000 3.2% 7,240 1.3%
– Zambia* 24,722 3.1% 18,921 2.6% 0 0% 0 0
– South Africa 1 0.00% 3 0.00% 4 0.00% 4 0.00%
Total ACP 490,414 62.3% 597,783 81.9% 516,964 82.6% 348,197 61.1%
*Total LDCs 44,240 5.6% 70,720 9.7% 32,239 5.2% 9,366 1.6%

Source: EC Market Access Data Base,

The situation of Caribbean and Pacific ACP sugar exporters is particularly vulnerable given the uncertainties on the UK market linked to the Brexit process and the higher level of exposure these countries have to the UK market in their trade with the EU. These uncertainties relate to:

· the scale of expansion of UK sugar beet production, given British Sugar has contracted farmers to place 33% more land under sugar beet and a major new investment in beet processing in Yorkshire is under consideration (see companion article, ‘UK Area Under Sugar Beet Set to Surge’, 14 August 2017);

· the absence of a clear legal framework for continued duty free-quota free  access for non-least developed ACP sugar exports to the UK market;

· the future basis of UK/EU27 trade in sugar and sugar containing products, which could be disrupted if the Brexit process is mishandled and standard MFN duties are applied on EU27/UK trade in sugar and sugar containing products (this needs to be seen in a context where EU27 producers currently account for 20% of total UK sugar supplies);

· the UK’s future tariff policy once the UK has left the EU specifically with reference to the application of €98/tonne CXL duty the removal of which is seen by Tate & Lyle Sugars as essential to the future financial viability of its Thames sugar refinery;

· the impact of the UK’s actual departure from the EU on the value of the £ which has stabilised, after having fallen sharply against the Euro following the referendum result.

Depending on how these uncertainties are resolved and how the different dimensions interact there could be further declines in UK $ denominated prices obtained in the UK by ACP sugar exporters or the emergence of a price premium on UK sugar markets over EU sugar markets.

The September 22nd speech by Prime Minister May in Florence offers some reassurances for the continuity of trade relations in the sugar sector during the transitional period, although it remains unclear how long this transition period will be (see companion article ‘EC Proposals on Customs Cooperation during the Transition Period Raise Longer Term Concerns’, 6 October 2017),

ACP sugar exporters will need to closely monitor developments in the Brexit negotiations and the evolution of UK’s autonomous trade policies as they impact on the sugar sector over the next year, in order to identify and exploit any market opportunities which might emerge.

(1), ‘Sugar prices to hit 10 year low, says Abares, raising output estimates’, 19 September 2017–to-hit-10-year-low-says-abares-raising-output-estimates–11028.html
(2), ‘Steeper sugar price fall needed to curb upbeat Brazil output ideas’, 23 August 2017–10966.html
(3), ‘Commerzbank flags doubts over sugar price recovery’, 21 August 2017–10960.html
(4), ‘Sugar prices gain as Brazil tax move spurs talk of political favour’, 24 August 2017–10969.html
(5) EC, ‘Short-term outlook for EU agricultural markets in 2017 and 2018’, Summer 2017
(6), ‘Brazil sugar output to hit three-year low, as ethanol hits back’, 20 September 2017–11033.html

Key words:            Sugar, Caribbean, Pacific, Southern Africa, British Sugar
Area for Posting:  Sugar, Caribbean, Pacific, Southern Africa, Brexit, CAP Reform