Summary
While EU sugar production is well down on the five-year average, the position of traditional ACP sugar exporters on the EU27 market is worsening. The reduction of traditional ACP sugar supplies has been larger than the reduction in total EU27 imports, with the share of EU27 import declining. This is linked to the emergence of new non-traditional suppliers who take advantage of recently granted duty-free access arrangements. Given the high dependence of traditional ACP sugar exporters on the UK market, the UK’s withdrawal from the EU sugar market equation will compound this trend. New EU/UK rules of origin are also likely to see EU manufacturers of high sugar content products turning their ack on imported sugar in favour of domestic EU27 beet production where both EU27 and UK markets are being served. At the ACP level this may in part be partially offset by reduced UK sugar exports to the EU market. Overall, the long-term prospects for all but the most competitively priced traditional ACP sugar suppliers look grim, unless the focus is on specialty sugar markets. This could lead to smaller but more sustainable levels of sugar exports, by those ACP sugar producers who adopt such strategic market repositioning strategies.
Global Situation
In February 2021, the EC projected the global sugar export trade to be driven by ‘the strong rise in demand in Asia, especially China’, the Indian government’s approval of ‘export subsidies for 6 million tonnes’ (although the container crisis is constraining actual exports), and lower ethanol to sugar usage in Brazil (1) (although in June the ethanol usage was reported to be on the rise (2)). On the supply downside, Thai sugar exports are expected to be low ‘due to its smallest crop in 10 years’ (1).
By June 2021, the EC was reporting world market sugar prices at elevated levels due to high Asian demand as vaccination campaigns progress and the 7% reduction in Brazilian production in the face of earlier drought conditions (2). Indian production continues to rise, with container availability and container shipping prices being a critical factor impacting on Indian participation in the global sugar export trade.
The EU Sugar Production
In February 2021 EU sugar production for 2020/21 was projected at 14.8 million tonnes a decline of 9% compared to the 5-year average (1). By June 2021, this estimate had been revised down to 14.4 million tonnes, in a context where consumption was projected to be up 1% compared to 2020. In terms of prices, while the EU average sugar price for December 2020 was €379 per tonne, (with a price variation across EU regions of €65/tonne or some 17%) (1), by March the average price had risen to €394/tonne (2).
EU Sugar Imports
In terms of overall EU imports by mid-May 2021 EU sugar imports had reached 0.86 million tonnes (down -39% year-on-year) (2). In terms of the ACP participation in the EU import trade by May 2021 the EC reported imports of sugar from EPA/EBA countries were ‘very low compared to the 2019/2020 season’, with imports reaching only 324,000 tonnes compared to 534,000 tonnes in the corresponding period in 2019/2020 (-38.8%). This situation continued into mid-June 2021, with imports reported at 333,000 tonnes (compared to 576,000 tonnes for the same period in 2019/20, a decline of 42.2%) (3).
These declines are not entirely attributable to the UK’s departure from the EU sugar market equation, since over the 2015-2019 period (excluding South Africa) the UK accounted on average for 27.8% of ACP sugar exports to the EU28. Thus, the departure of the UK from the EU alone would not account for the level of decline in ACP exports to EU market. Rather it needs to be seen in the context of broader trends in ACP sugar exports to the EU market.
From 2015 to 2019, ACP export volumes to the EU were down 41.9%, if South Africa is excluded from the ACP Group (31.5%, if South Africa, a non-traditional sugar supplier, is included within the ACP group).
More recently, under the impact of Covid-19 trade disruptions, ACP exports to the EU collapsed, with, if South Africa is excluded from the ACP Group, exports to the EU falling to 482,107 tonnes in 2020 from 827,402 tonnes in 2019 (a decline of some 41.7%). These developments have seen Spain emerge as the main EU27 market for EBA/EPA sugar exports, followed by Italy and Poland, which together take around the same volume as Spain,
However, in recent years the non-ACP LDC suppliers, Laos and Cambodia have been expanding their sugar exports to the EU27 market, with between 2015 and 2019 Laotian exports increasing 200% and Cambodian exports increasing 556%. This took their collective total sugar exports to the EU27 from 34,729 tonnes to 116,130 tonnes. In 2020, while Laotian exports to the EU were sustained, Cambodia exports collapsed. This was in part linked to the EC’s February 2020 decision to withdraw duty free access from Cambodian sugar exports in the face of human rights abuses (4) (with the decision taking effect in August 2020) (5).
Overall, up to May 2021 EPA/EBA sugar represented 37% of total EU imports (40% by mid-June 2021) (3), with this marking a recovery in the share of EPA/EBA imports compared to calendar year 2020.
More broadly EU sugar imports under tariff rate quota (TRQ) arrangements in the 2020-21 season saw TRQs being grossly under-utilised up to mid-June 2021 relative to the same period during the 2019-2020 season (2).
Overall, up to mid-June 2021 total EU sugar imports for the 2020/21 season were down 38.4% compared to the 2019/2020 season (although the partial nature of figures for the UK needs to be considered in viewing these figures).
These trends are seeing the EC revising sugar import projections.
Table 1: EU28 Extra-EU Cane Sugar Imports 2015-2019
| Country | 2015 | 2016 | 2017 | 2018 | 2019 | Change 2015-19 |
| Total EU28 | 3,122,722 | 3,331,985 | 2,799,320 | 1,611,989 | 2,551,335 | -18.3% |
| Total ACP° to EU28 | 1,982,821 | 1,473,647 | 1,119,165 | 588,528 | 1,151,773 | -41.9% |
| % Share ACP | 63.5% | 44.2% | 40.0% | 36.5% | 45.1% | |
| South Africa | 5,161 | 2,131 | 146,721 | 181,541 | 209,941 | +3,967% |
| ACP+RSA to EU28 | 1,987,982 | 1,473,651 | 1,185,235 | 770,069 | 1,361,714 | -31.5% |
| % Share ACP+RSA | 63.7% | 44.2% | 42.3% | 47.8% | 53.4% |
° Excluding South Africa
Table 2: UK Extra-EU Cane Sugar Imports 2015 -2019
| Country | 2015 | 2016 | 2017 | 2018 | 2019 | Change 2015-19 |
| Total UK | 625,906 | 569,794 | 493,681 | 457,387 | 466,403 | -25.5% |
| Total ACP° to UK | 516,960 | 348,193 | 260,996 | 303,586 | 324,371 | -37.3% |
| % Share ACP | 82.6% | 61.1% | 52.9% | 66.3% | 69.5% | |
| South Africa | 4 | 4 | 66,070 | 55,280 | 71,037 | +1,676% |
| ACP+RSA to UK | 516964 | 348,193 | 327,066 | 358,866 | 395,408 | -23.5% |
| % Share ACP+RSA | 82.6% | 61.1% | 66.3% | 78.5% | 84.8% |
° Excluding South Africa
EU Sugar Exports
The EC’s February 2021 analysis projected EU sugar exports of 0.7 million for the 2020/21 season. By mid-May EU sugar exports had reached 0.46 million tonnes (down -14% year-on-year), with France dominating this export trade (37%), followed by Poland (15%), Belgium (15%) Germany (12%), and Denmark (8%) (2).
Since 1 January 2021, the EU27 sugar trade to the UK has been counted as extra-EU sugar exports.
At the beginning of 2021, the European Commission expected Brexit to have ‘an impact on the trade flows with the UK, mainly due to the application of the rules of origin.’ However, this needs to be seen in a context where Brexit related uncertainties saw a decline in the mutual EU/UK sugar trade in 2019 as supply chains prepared for the uncertainties around the Brexit process (-16.7%). The onset of the Covid-19 linked lockdowns and cross border trade disruptions, saw a further collapse in mutual EU/UK trade in sugar in 2020 (-49.5%) (5). As a consequence, by the end of 2020 this EU/UK mutual trade was only 42.1% of the volume of trade in 2018. This trend is potentially creating space on the UK market for third country sugar supplies (equal to 294,186 tonnes) and on the EU27 market (equal to 328,292 tonnes).
Initial figures suggest the expected decline in EU sugar exports to the UK is being realised. In the first six months of the 2020-21 season EU27 sugar exports to the UK totalled 110,000 tonnes (123,000 tonnes by mid-June 2021) (3), with France dominating this export trade (74%) followed by the Netherlands (12%).
Table 3: EU27 Sugar trade with the UK
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Change 2015-20 | |
| EU27 Exports to the UK | 597,838 | 508,372 | 535,960 | 589,776 | 440,149 | 295,590 | -50.6% |
| EU27 Imports from the UK | 396,342 | 404,975 | 362,755 | 484,961 | 454,753 | 156,669 | -60.5% |
| Total Mutual trade | 994,180 | 913,347 | 898,715 | 1,074,737 | 894,902 | 452,259 | -49.5% |
The EU Market Future Prospects
Given the range of changes underway there is currently no consensus on the implications of these developments for the EU sugar market. According to the EC, ‘sugar users see a very low flexibility in supplies and expect a further tightening of the market when more lockdown restrictions are lifted’, while sugar producers are unaware of any supply shortages (2).
Regarding longer-term perspectives, representatives from the EU sugar beet growers organisation CIBE have expressed concern about the decline in both the number of beet growers and beet area since 2006. In terms of EU sugar production these declines are being compounded by a decline in yields per hectare, after a steady long-term growth in average yields. CIBE has highlighted how ‘on average, a decrease of 15% of yield results in a loss of EUR 1000 per ha.’ CIBE attributes this yield decline on the one hand to ‘climate change and extreme weather events’, which are seen as ‘threatening productivity’, and on the other hand, the reduction in the ‘available tools for farmers to respond to these changes’ as a result of the reduction in the range of authorised pesticides, lack of green chemicals and bio-controls. Against this background, CIBE called for more support for research and innovation to assist the EU sugar sector in meeting the challenges faced (2).
| Comment and Analysis The traditional privileged position of ACP sugar exporters on the EU market was not only undermined by the process of EU sugar sector reform, which reduced EU market prices, but also by trade policy changes and shifting geographical patterns of investment in export orientated sugar production. Chronologically the first of these was the impact of the granting of full duty-free access to non-ACP least developed country exporters. This saw new investments in export orientated sugar production in Laos and Cambodia. Exports from Laos commenced in 2009 (22,940 tonnes), initially focused exclusively on the UK, with a relationship being built up with Tate & Lyle Sugar. Cambodia commenced exports in 2012 (starting at 10,000 tonnes), again exclusively focussed on the UK market. By 2013 Cambodia had stopped exporting to the UK and focussed exclusively on EU27 markets, with Laos following this trend from 2016. By 2019 these two non-ACP LDCs countries accounted for 5.6% of EU27 sugar imports (6). The second trade development impacting on the position of traditional ACP suppliers on the EU market was the granting of a duty-free sugar quota to South Africa. From marginal exports of 315 tonnes in 2010 and fluctuating exports which only once exceeded 12,000 tonnes (2014), South African exports took off in 2017 (146,721 tonnes), following the conclusion of the EU-SADC EPA which included the duty-free quota for South Africa. These South African exports were split fairly evenly between the UK (45%) and EU27 market (55%), with consistent growth up to 2019, when total South African exports to the EU28 market reached 209,941 tonnes (split 33.8% for the UK market 66.2% the EU27 market). By 2019 South Africa accounted for 10.1% of EU27 imports. While between 2015 and 2019, total UK extra-EU sugar imports fell 25.5% (from 625,906 tonnes to 466,403 tonnes), exports from traditional ACP sugar supplies to the UK fell 37.3% (from 516,960 tonnes to 324,371 tonnes). Over the 2015-2019 period, total EU27 sugar imports fell 16.5% from (2,496,816 tonnes to 2,084,932 tonnes), with traditional ACP exports falling 43.6% from to 1,465,861 tonnes to 827,402 tonnes). This saw the share of traditional ACP exporters (excluding South Africa) of EU27 imports falling from 58.7% to 39.7%. This trend has continued under the impact of the Covid 19 pandemic with, in 2020, traditional ACP sugar exporters accounting for only 28.7% of total EU27 imports (excluding imports from the UK), supplying 482,107 tonnes out of total imports of 1,682,312 (excluding imports form the UK). This represented a 41.7% decline in ACP sugar exports to the EU compared to 2019, in a context where overall extra-EU imports fell 19.3%. Given traditional ACP sugar exporters to the EU27 market have been progressively squeezed out of the EU27 market over the 2015-2019 period, the situation facing ACP sugar exporters was already unfavourable prior to the withdrawal of the UK from the EU sugar market equation and pursuit of its own autonomous UK sugar trade policy (see companion epamonitoring.net article, ‘Brexit set to extend marginalisation of traditional ACP suppliers on the UK sugar market’ 15 July 2021). This needs to be seen in a context where the traditionally the UK has taken a disproportionately large % of ACP sugar exports to the EU28 market. In years when overall export volumes to the EU28 were depressed, the UK market has proved particularly significant, taking as much as 51.6% of total EU28 imports of sugar from traditional ACP suppliers. Table 4: UK as % EU28 Sugar Imports (Total and from traditional ACP Suppliers (Excluding South Africa)
Source: EC Market Access Data Base, https://trade.ec.europa.eu/access-to-markets/en/statistics?includeUK=true ACP exporters are thus likely to be more severely impacted by the withdrawal of the UK from the EU sugar regime than other third country suppliers. However, in terms of ACP sugar cane exports to the EU27, the situation has been further compounded by the rules of origin complications arising as a result of the absence of diagonal cumulation provisions in the EU/UK Trade and Cooperation Agreement. This not only means ACP raw cane sugar imported into the EU27 can no longer be refined and then exported to the UK (given the prohibitively high MFN tariffs which would apply due to the absence of an ‘originating status’ under which duty-free access could be claimed) but also means EU27 high sugar content food and drink manufacturers are likely to turn their back on cane sugar for use in products destined for both EU27 and UK markets. Put simply EU27 food and drink manufacturers of high sugar content products for both the EU and UK markets are now more likely to favour the use of beet sugar in such products, where alternative sweeteners are not used (for more details see companion epamonitoring.net article, ‘What Does the New EU UK Trade Agreement Mean for ACP Sugar Exporters?’, 21 January 2021). This is likely to shrink the overall size of EU27 import demand for raw cane sugar, with lower priced sugar cane producers, with duty free access, being favoured over higher priced traditional ACP suppliers. This will compound the general trends towards removing ‘hidden’ sugars from food and drink products on public health grounds. A trend which, in December 2019, the EC projected would lead to a 5.4% decline in EU sugar consumption by 2030 (7). Against, this background, with the exception of Mauritius which has made the shift over to exports of refined sugar and has been positioning itself on the EU market as a speciality sugar provider (accounting for 45.2% of ACP sugar exports to the EU27 by volume in 2020), the long-term prospects for all but the most competitively priced traditional ACP sugar suppliers look grim. The only option appears to be to follow the Mauritian example and focus on specialty sugar markets, which are more insulated from overall EU sugar market trends. This is likely to result in smaller but more sustainable levels of exports for ACP sugar producers who adopt such strategies. |
Sources
(1) EC, Sugar Market Observatory, Meeting Summary’, 9 February 2021
https://ec.europa.eu/info/sites/default/files/food-farming-fisheries/farming/documents/sugar-mo-2021-02-09-report_en.pdf
(2) EC, Sugar Market Observatory, Meeting Summary’, 2 June 2021
https://ec.europa.eu/info/sites/default/files/food-farming-fisheries/farming/documents/sugar-mo-2021-06-02-report_en.pdf
(3) EC, ‘Sugar Market Situation’ AGRI G4 – Committee for the Common Organisation of Agricultural Markets, 24 June 2021
https://ec.europa.eu/info/sites/default/files/food-farming-fisheries/farming/documents/sugar-market-situation_en.pdf
(4) EC, ‘Commission decides to partially withdraw Cambodia’s preferential access to the EU market’, 12 February 2020
https://trade.ec.europa.eu/doclib/press/index.cfm?id=2113
(5) EC, ‘Cambodia loses duty-free access to the EU market over human rights concerns’, 12 August 2020
https://ec.europa.eu/commission/presscorner/detail/en/ip_20_1469
(6) EC, Market Access Data Base
https://trade.ec.europa.eu/access-to-markets/en/statistics
(7) EC, ‘EU Agricultural Outlook: For Markets and income 2019 – 2030’, December 2019
https://ec.europa.eu/info/sites/default/files/food-farming-fisheries/farming/documents/agricultural-outlook-2019-report_en.pdf