The planned growth in beet production by Tereos growers in France and the expansion of sugar production in the Czech Republic, alongside concerns over a possible Brexit related disruption of exports to the UK is seeing a major international export drive being launched. While South Asia the main target market, a sales office has also been opened in Nairobi. Tereos also has an expanding sugar cane production presence in East Africa. These developments could greatly increase competition for less competitive African sugar producers.
Expanded EU sugar exports could also contribute to stalling ant recovery in global sugar prices, which would be bad news for all African sugar exporters, given EU price developments will increasingly shadow world market price trends post sugar production quota abolition.
In 2016 Tereos opened a commodities sales office in Nairobi with the aim of positioning itself to meet growing African sugar demand. The Nairobi office is one of 6 international hubs (France, Switzerland, Brazil, Singapore, India, and Kenya) tasked with ‘exporting sugar, ethanol and starch products, particularly to countries in which the Group does not have any industrial facilities’ (1).
Tereos sees emerging markets as the key to future growth in the period after the abolition of EU sugar production quotas. Tereos CEO Alexis Duval has highlighted how the company already does a third of its sales in emerging countries’, with emerging markets likely to grow in importance over time since ‘this is where the market is expanding’ (3).
While the major corporate focus is on South Asia, particularly India, East Africa is also seen as having considerable market growth potential for the Tereos Group. According to Tereos ‘given Kenya’s demographic and economic growth, sugar consumption is experiencing a strong increase there and far outstrips domestic production capacity’. This is giving rise to strong local sugar price. Against this background the Nairobi sales office aims to ‘increase distribution both in the Kenyan market and in neighbouring countries such as Rwanda and Uganda, which are structural importers of sugar’ (1).
As part of its global expansion Tereos has a growing sugar production presence in East Africa, with:
- a joint venture with the Mauritian company Altea in Kenya (the Transmara Sugar Company Limited – TSCL) with a current production of 90,000 tonnes of sugar from cane produced by 8,000 independent growers and on the company’s own 12,000 ha estate (with a further 18,000 ha being under cane by 2019/20);
- a joint venture with Altea in Tanzania (TPC) which in the 2016/17 season crushed 1 million tonnes of cane to produce 100,000 tonnes of sugar;
- a sugar estate in Mozambique at Marromeu, on the banks of the Zambezi River, with a cane crushing capacity of 350,000 tons per annum but with 2,000 ha of new land being brought under cane production (1).
Currently sales of sugar from Tereos EU operations to Kenya are limited, with sales volume from Europe overall down 67% in 2016 compared to 2013 (but up 110% on 2015). However in 2016 exports from the Czech Republic, where Tereos has sugar beet production accounted for 91% if EU sugar exports to Kenya in 2016. Tereos has ‘five modern high-performance industrial facilities and one packaging plant’ in the Czech Republic with ‘a large portfolio of national, European, and international clients’ having been developed through the company’s operations in the Czech Republic. In 2016-2017, Tereos posted a 20% increase in sugar production in the Czech Republic compared to the previous year. Tereos is also the third largest sugar producer in Brazil and the third largest sugar group in the world (1).
More broadly in Africa Tereos CEO Duval has identified East Africa, West Africa and Nigeria in particular ‘as key growth markets for global sugar producers’ (3).
EU Sugar Exports to Kenya 2012-2016 (tonnes)
|– Czech Republic||–||–||–||–||1,872|
In the 2017/18 season Tereos has firm beet supply contracts in place which will see the volume of sugar beet it processes increase by 25% (2) (for more details see companion article, ‘French producers lead way in expanding EU sugar beet production despite low global sugar prices’, 7 August 2017). Markets beyond the EU’s borders will be particularly important in disposing of the increased sugar production which the expansion of beet supplies to Tereos factories will give rise to (3).
Press reports from February 2017 suggested French sugar producers could be looking for export markets for 1.5 million of their projected 4.5 million tonnes of sugar production in the 2017/18 export season. It was reported Tereos is looking to double its sugar sales beyond the EU’s borders to 1 million tonnes by 2020 (4).
|Comment and Analysis
The projected 1.5 million tonnes in French sugar exports is equivalent to the previous WTO ceiling on total EU sugar exports. The aspirations of Tereos to double its sugar export sales beyond the EU’s borders by 2020 will take on added significance if no trade arrangement can be agreed between the UK and the EU27 in the immediate post-Brexit period. Currently France is the main supplier of the 400,000 tonnes of sugar the UK imports from EU27 member states. An imposition of standard MFN duties on mutual UK-EU27 trade in sugar would halt this current trade.
This provides the background to the opening of the Nairobi sales office of Tereos and suggests a major marketing offensive for imported sugar will shortly get underway across East Africa. This would be occurring at a time when sugar producers across Africa are looking for alternative markets to the EU, which will half its sugar import demand and offer lower price premiums over world market prices post sugar production quota abolition. This could greatly intensify competition for less competitive sugar producers across East, Central and West Africa, with profound implications for less competitive African sugar producers.
In addition it should be noted the expansion of European sugar production in the coming period could play an important role in keeping a lid on any recovery in global sugar prices.
Between October 2016 and 24 August 2017 world sugar market prices lost 39% of their value on a relatively consistent downward trend (down from 22.92 c/lb to 14.00 c/lb). While prices in August 2017 were higher than the lows of August 2015 (10.67 c/lb), with future EU sugar prices projected to track world market prices. This is not good news for any ACP sugar exporters
In future price premiums on the EU sugar market over world market prices are projected to fluctuate around an average of €34 per tonne (compared to an EU price premium of €245 per tonne in 2013). This will severely impact on the value of ACP sugar sales in what has traditionally been a preferred market.
Projected EU and world market sugar prices €/tonne (2018-2026)
Source: EC, ‘EU Agricultural Outlook: Prospects for EU Agricultural Markets and Incomes 2016-2026’, table 9.16, December 2016
(1) Tereos, ‘One Step Ahead: Annual Report 2016/17’, June 2017
(2)Irishexaminer.com, ‘EU beet boom as sugar quotas to go’, 13 July 2017
(3) Reuters ‘Tereos sees emerging markets key to growth post-EU sugar quotas’, 22 June 2017
(4)Bloomberg.com, ‘Sweet Times Ahead for France’s Sugar Industry as Quotas Expire’, 1 February 2017
|Key words: Sugar, Tereos, Altea Kenya, Rwanda, Uganda, Nigeria,
Area for Posting: Sugar, Corporate, CAP Reform, EAC EPA, West Africa EPA