Summary
The virtual cancellation of the Northern Sugar Project in Yorkshire, alongside processing difficulties at British Sugar, means the initially projected large scale expansion of UK beet based sugar production post-Brexit is now unlikely to occur. This could provide relief to the financial difficulties of Tate & Lyle Sugar, but only if it is accompanied by a firm commitment by the UK government to the abolition of the CXL duty once the UK is freed from EU rules and regulations. ASR is likely to intensify pressure for a firm UK government commitment in this regard. However this will carry different implications for different ACP sugar suppliers, depending on how the situation develops. However it should be noted Caribbean and Pacific suppliers will remain the most vulnerable to future policy developments.
Press reports at the end of January 2018 indicated negotiations between Al Khaleej International Ltd and North Yorkshire County Council (NYCC) over the development of an entirely new sugar processing facility in Yorkshire have broken down (for details of the initial plans for the project see companion article ‘UK Area Under Sugar Beet Set to Surge’, 14 August 2018).
The Project Director for Al Khaleej International Mark Beardwood indicated plans for the £350 million sugar beet processing facility have been put on hold as a result of ‘commercial and permitting’ issues which arose in negotiations with North Yorkshire County Council. Beardwood indicated NYCC had wanted to revise ‘previously agreed terms’, a move which the company fond unacceptable. He indicated that unless NYCC admitted it had made a mistake the project was likely to ‘die a death’ (1).
A spokesman for NYCC confirmed the Council ‘is no longer in commercial discussions with any party about the proposed sale of land at Allerton Park’.
Al Khaleej International Ltd is now reportedly exploring another site in Spain for the development of a sugar beet processing facility within the EU (1). The NFU Sugar Chair appears to have accepted the Al Khaleej International investment will probably go to Spain given the ‘generous planning conditions and tax breaks’ which are being offered (2).
Meanwhile, having contracted an increased volume of sugar deliveries from beet growers, British Sugar is experiencing difficulties in processing the ‘bumper sugar beet harvest’ which has emerged as a result of ‘record yields being achieved by its contracted growers. According to NFU Sugar Chair Michael Sly ‘poor factory performance and supply chain difficulties meant harvested crops were being left on farms for longer than was acceptable’. Issues have been faced in ensuring smooth planning and execution of field to factory deliveries with some factories having ‘too much beet while others had to little’ (2). He noted how beet was in danger of deteriorating because it was taking too long to process the harvested crop. With much of this beet remaining on farm, it is beet producers who carry the commercial consequences of the supply management problems British Sugar have encountered (2).
British Sugar MD Paul Kenward expressed disappointment at the difficult start some factories had had to the season. This was attributed to the commissioning of new equipment.
| Comment and Analysis
The establishment of a new beet processing facility in Yorkshire alongside the expansion of contracted beet production by ABF had suggested that a major expansion of UK sugar production was imminent. Earlier projections had suggested the UK could become virtually self-sufficient in sugar by 2021, compare to the current situation where half of UK sugar consumption is imported. However the suspension of the Al Khaleej’s Northern Sugar Project, alongside the shortcomings in supply chain management experienced under expanded ABF sugar supply contracts suggests a continued dependence on imports of sugar is likely to remain until well after the proposed transition period in EU27/UK trade relations. This is good news for Tate & Lyle Sugar, since it would appear to relief longer term competitive pressures. Against this background America Sugar Refiners (ASR) may well seek to press the UK government for an early decision on the future of the CXL duty as part of the Brexit planning process. As a 2015 DEFRA study pointed out ‘if the trade regime remains unchanged … lower EU white sugar prices as a result of quota abolition will translate into reduced profitability for European refiners as their margins are reduced’ (3). This was projected to lead to consistent losses of between €30 and €53 per tonne between 2017 and 2024; while removing the duty would result in profits of between €45 and €63 per tonne. If ASR is to carry these losses for over 5 years after the UK referendum result, it is likely to insist on early clarity from the UK government on the future of the CXL duty once the UK is no longer bound by EU rules and regulations. This could lead to an early abandonment of the CXL duty by the UK government. Developments in this area are likely to carry different implications for different ACP suppliers. Caribbean and Pacific sugar exporters to the UK are in a difficult position. While the future of their sugar exports is clearly tied to the continued future operation of the Tate & Lyle Sugar Thames refinery, the future of the Thames refinery itself appears to be tied to shifting over to lower cost world market priced sugar suppliers, sourced without having to pay the CXL import duty. Competitively priced African producers would appear to be in a better position to serve the UK market in a context of a smaller rate of expansion of UK beet production, given the collapse of Al Khaleej’s Northern Sugar Project. Some competitive African sugar producers have relatively easy access to the Tereos’ UK sugar bagging facilities formerly owned by Napier Brown. This could take the form of either with supplies of raw or refined sugars exported directly to the UK. Still other African suppliers which are closely integrated into the Illovo/ABF supply chains would be well placed to expand raw sugar exports for co-refining at ABF’s sugar beet processing facilities in the UK, where some 230,000 tonnes of co-refining capacity is already in place. |
Sources
(1) Farming Online, ‘Talks break down over ‘state of the art’ sugar beet factory over commercial and permitting issues’, 29 January 2018
https://farming.co.uk/news/talks-break-down-over-state-of-the-art-sugar-beet-factory-over-commercial-and-permitting-issues
(2) Farmers Weekly, ‘Factories ‘struggle to process bumper sugar beet crop’, 8 February 2018
http://www.fwi.co.uk/arable/factories-struggle-process-bumper-sugar-beet-crop.htm
(3) DEFRA, ‘Modelling the EU cane refining sector after 2017’, November 2015
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/479840/pb14351-sugar-cane-modelling-2015.pdf