Summary
A major expansion of the area under sugar beet in the UK (+ 1/3) is planned in 2017/18, with potentially a further major expansion by 2020 if current investment plans of Al Khaleej International to re-establish sugar beet processing in Yorkshire are approved. While a failure to conclude a UK-EU27 trade agreement could open up new export opportunities for ACP sugar suppliers to the UK, this would be strongly influenced by future UK sugar sector tariff policy. If tariffs remain unchanged the source of ACP sugar imported into the UK could shift from the Caribbean and Pacific suppliers to lower cost Southern African suppliers. UK government policy statements suggest Southern African LDC sugar exporters would enjoy the most secure commitment to continued duty free-quota free access for sugar exports to the UK market post Brexit, providing them with an inside track in pending negotiations over supply agreements for 2019.
At the beginning of July 2017 the sole UK sugar beet processor Associated British Foods said it had already contracted with beet farmers for a third more acreage to be placed under sugar beet for the 2017/18 season. This is a far larger increase than earlier projections suggested and is more than double the average increase for the EU as a whole (1).
According to press analysis the UK’s impending departure from the EU has provided an additional impetus for an expansion of the area under beet (1). This needs to be seen in a context where the UK imports roughly half its supply needs of 2 million tonnes (60% in the form of raw sugar and 40% in the form of white sugar purchased from fellow EU member states, most notably France) (1).
According to the USDA ‘Brexit threatens a major export destination for continental sugar exports’, with the UK being the ‘largest importer of EU sugar’ (1). Failure to conclude a UK-EU27 trade deal by 30 March 2019 (or establish transitional arrangements) could then increase the costs of importing 20% of the UK’s current sugar supplies.
This has seen the UAE based firm of Al Khaleej International ‘submitted plans for what would be the first sugar beet factory built in the UK for 90 years’ (1). The new plant would reportedly ‘process 24,000 to 36,000 tonnes of sugar beet per day during the harvest season (September to March), with a 24 hour a day warehouse and packaging operations’, producing ‘ 5,000 to 6,000 tonnes of refined sugar every day off the back of 24/7 deliveries’ (3). Construction of the plant could commence in early 2018 and be in production by 2020 (3). The announcement was welcomed by farmers in Yorkshire, where sugar beet production is seen as an important rotational crop by local farmers (4).
The projected expansion of UK sugar beet production needs to be seen in a context where in 2015/16 the UK took 34% of sugar imports from EPA/LDC suppliers, with this increasing to 39%, in the first 8 months of the 2016/17 season.
EU EPA/EBA sugar import licenses total volume and % share UK
| Marketing Year | Licenses Requested | UK Share | UK Volume imports |
| 2014/15 | 2,126,000 tonnes | 27% | 574,000 |
| 2015/16 | 1,608,000 tonnes | 34% | 546,720 |
| 2016/17 (up to 4 July 2017) (5) | 1,032,000 tonnes | 39% | 402,480 |
Within the ACP Caribbean suppliers have played a major role, providing as much as 50% of the UK’s imports in 2015, although this fell to 27% in 2016, as UK imports plummeted to 72% of their 2013 levels. Pacific and Indian Ocean suppliers provided almost 21% of UK imports in 2016, down from a peak of 31.5% of supplies in 2014, with the key variable being the level of Fijian exports.
Surprisingly Southern Africa which includes some of the lowest cost sugar producers after Brazil, provides only between 6% and 13.2% of UK supplies, with the key variable being the marketing strategy adopted by the Swaziland Sugar Association, which in turn is strongly influenced by weather conditions and the prices offered on the UK market compared to price obtainable on other EU27 markets, regional market and international markets.
Given the Swaziland Sugar Association (SSA) handles the marketing of all Swazi sugar sales, this keeps the corporate interests of individual EU companies with production interests in Southern Africa (notably Associated British Foods) at arms-length, enabling the SSA to secure one of the best available prices for raw sugar exports amongst ACP countries.
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, http://madb.europa.eu/madb/statistical_form.htm
Looking beyond the UK, the latest EC projection for EU sugar production post quota abolition, foresees a 19.6% increase in EU white sugar production in 2017/18 (some 18.4% above the average of the previous four years).
EU sugar beet production, sugar import and exports (million tonnes white sugar equivalent)
| 2013/14 | 2014/15 | 2015/16 | 2016/17 € | 2017/18 (f) | |
| White sugar production | 16.7 | 19.5 | 14.9 | 16.8 | 20.1 |
| Imports w.s.e. | 3.7 | 2.8 | 2.9 | 2.9 | 1.5 |
| Exports w.s.e. | 1.5 | 1.4 | 1.4 | 1.4 | 2.8 |
Source: EC, ‘Short-term outlook for EU agricultural markets – Summer 2017’
https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/short-term-outlook/current_en.pdf
According to the EC analysis this will give rise to ‘a substantial over-supply on the EU market’ even in the context of the 49% decline in EU raw sugar imports which is projected to follow on from ‘the expected drop in EU white sugar prices and the alignment of the EU and world prices’. This will also see a doubling of EU sugar exports to 2.8 million tonnes, as WTO constraints on EU sugar exports are removed. This will then lead to a situation where ‘very low end stocks’ of only 1 million tonnes are being held in the EU (6).
| Comment and Analysis
The projected expansion of ABF’s sugar production should come as no surprise given claims that British Sugar is “Europe’s most efficient processor” (7). This production expansion in the UK is likely to reduce import demand. Whether this falls on extra-EU sources of supply or imports from EU27 member states will depend on the trade arrangements negotiated between the UK and EU27. If no UK-EU27 trade deal is in place by 30 March 2019 and no transitional extension of existing arrangements has been agreed, then the UK’s commitment to rolling over existing EU MFN tariffs under UK schedules would see high import duties charged on imports from EU27 member states (see companion articles ‘UK government commits to extending EBA access for LDCs post Brexit’, 30 June 2017 and ‘UK WTO representative seeks to clarify future UK trade treatment of developing countries’, 3 July 2017). This would primarily affect France, where a major expansion of the area under sugar beet is underway ( see companion article, ‘French producers lead way in expanding EU sugar beet production despite low global sugar prices’, 4 August 2017). This could create short term market opportunities for ACP suppliers to the UK market, if existing duty free-quota free arrangement can be extended. Which ACP countries benefit from these new potential market opportunities will depend on which UK based sugar processing companies are importing ACP sugar. This in turn will be critically influenced by the UK governments’ sugar sector tariff policy post-Brexit, which will itself be influenced by the effectiveness of Tate & Lyle Sugars ‘Save Our Sugar campaign. This aims to secure post-Brexit the removal of all import tariffs on raw sugar or at least the current €98 / tonne on the CXL quota (see companion article, ‘What are the implications for ACP sugar producers of Tate & Lyle Sugars expectations on UK sugar sector policy post-Brexit?’, 10 April 2017). If the UK retains current sugar sector tariffs after March 2019 with little prospect of its imminent removal this could see Tate & Lyle Sugar close its Thames refinery. This would have a major impact on Caribbean and Pacific ACP sugar exporters which supply this facility. This could see a switch of UK raw sugar sourcing to low cost sugar producers in Southern Africa, particular least developed country suppliers. The UK government towards the end of June 2017, committed to rolling over the EU’s existing EBA initiative, which would grant bilaterally full duty free-quota free access to the UK market for all least developed countries from the date of the UK’s departure from the EU. The position of competitive sugar producers in Swazi and South African sugar would then be strongly influenced by how rapidly the existing reciprocal EU agreement which governs UK access to the SACU market can be refitted into a bilateral agreement between the UK and SACU. This is currently being accorded high priority by the South African government, with multiple Ministerial level discussions having taken place since late 2016. Such a switch of sources of supply of ACP sugar would be reinforced by the corporate relationship between Illovo and Associated British Foods, which has some 230,000 tonnes of raw cane sugar co-refining capacity in place at its Newark and Cantley facilities in the UK. This would constitute a major change in the source of ACP sugar supplied to the UK market. In the longer term if the plans of Al Khaleej International go ahead, this would constitute a major expansion of UK sugar beet refining capacity, contributing to a virtual self-sufficiency in UK sugar consumption. This is particularly the case given the projected decline in the use of sugar in processed food and drink products, which could take 200,000 tonnes of industrial demand out of the UK sugar market.
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Sources:
(1) Agrimoney.com, ‘UK sugar beet sowings soar as double shake-up looms’, 6 July 2017
http://www.agrimoney.com/news/uk-sugar-beet-sowings-soar—as-double-shake-up-looms–10857.html
(2) Yorkpress.co, ‘British Sugar closure shock’, 5 July 2006
http://www.yorkpress.co.uk/news/818829.British_Sugar_closure_shock/
(3) Swindon Advertiser, ‘Sugar factory plans spell industry return’, 31 May 2017
http://www.swindonadvertiser.co.uk/news/15317486.Sugar_factory_plans_spell_industry_return/
(4) NFU, ‘Yorkshire farmers welcome sugar plant plans’, 19 May 2017
https://www.nfuonline.com/about-us/our-offices/north-east/north-east-news/yorkshire-farmers-welcome-sugar-plant-plans/
(5) EC, ‘Sugar Trade statistics’, Sugar Market Observatory, 11 July 2017
https://ec.europa.eu/agriculture/sites/agriculture/files/sugar/presentations/trade-statistics_en.pdf
(6) EC, ‘Short-term outlook for EU agricultural markets – Summer 2017’
https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/short-term-outlook/current_en.pdf
(7) Agritrade, ‘British Sugar/Associated British Foods – Corporate Profile’, July 2014
http://agritrade.cta.int/Agriculture/Commodities/Sugar/British-Sugar-Associated-British-Foods-corporate-profile
| Key words: Sugar Area for Posting: Sugar, CAP Reform, BREXIT, Corporate, Southern Africa, Caribbean, Pacific |