Summary
USDA confirms a projected 2.1 million tonnes expansion in EU sugar production, which will transform the EU’s sugar trade position. While this is likely to create far from promising prospects for ACP sugar exporters, capacity utilisation maximisation considerations of individual beet processors could create new opportunities for ACP raw cane sugar exporters. USDA also see’s potential opportunities for raw cane sugar exports to the Southern and eastern periphery of the EU. This will require ACP sugar exporters to get much closer to individual dedicated EU raw cane sugar refiners in the Southern and Eastern periphery of the EU and individual sugar beet co-refiners in core EU sugar beet producing regions.
According to the USDA following production quota abolition ‘EU sugar production is expected to jump by 2.1m tonnes in 2017-18, to a record 18.6m tonnes’ (1), as EU sugar beet processing companies are allowed to produce as much sugar from their beet as they wish to produce (2). This is projected to see total EU sugar imports decrease to around 2 million tonnes from over 3 million tonnes, while EU exports are projected to increase from 1.5 million tonnes to 2.2 million tonnes, as the 2005 WTO constraint on EU sugar exports falls away. This will see the EU once again becoming a net sugar exporter (2).
EU sugar production, imports and exports (raw sugar equivalent – million tonnes) (2)
| 2015/16 | 2016/17 (revised) | 2017/18 (projected | |
| Production | 14.3 | 16.5 | 18.6 |
| Imports | 3.185 | 3.1 | 2.0 |
| Exports | 1.545 | 1.5 | 2.2 |
USDA reports ‘the EU sugar beet processing industry has publicly communicated its ambition to grab this new opportunity to grow its business aggressively again and has contracted 12 percent more sugar beet for MY 2017/18 than it did for MY 2016/17, especially in the most competitive Member States (MS) Germany, the Benelux and France’. Indeed, ‘last year many processors vowed to increase production by up to 50 percent, which would be possible with the existing processing capacity’ (2).
However it is unclear whether farmers in core sugar producing areas of the EU have aligned themselves with processor aspirations. The USDA analysis highlights how ‘while the EU sugar reference price of €404/MT for white sugar remains after the abolition of the quota regime, beet farmers have lost the guaranteed sugar beet price that was linked to this reference price’. Processors meanwhile are ‘engaged in a competition for sourcing beet that will yield the lowest cost of production for the resulting sugar’ (2).
According to the USDA’s assessment EU sugar beet processors are ‘aiming at lowering their cost of production for beet sugar by optimizing beet and sugar processing capacity without significant additional investments’. The USDA analysis sees producing cheaper sugar as vital in the pending battle with alternative sweeteners in the EU. In addition EU beet sugar based companies will increasingly be looking to compete for export markets, as WTO export ceilings disappear following EU production quota abolition (1).
Beyond the competitive core group of EU sugar producing countries (which includes the UK) ‘sugar production will remain more stable’, with a ‘further consolidation of the EU sugar processing industry’ taking place. The USDA see’s potential market opportunities in ‘the southern and eastern EU periphery’ (2). Indeed the USDA goes further noting ‘the eventual consolidation of the EU sugar processing industry could lead to a widening of sugar prices between MS in the core sugar processing area and in MS in EU periphery because of increasing logistical costs. This in turn would offer new opportunities for sugar refiners who tend to be located in those peripheral MS’ (2).
| Opportunities on the EU Periphery: What the USDA Highlights
‘In some MS, sugar production has already been declining, which seems the case in Finland, Sweden, where sugar production stayed below their production quota in MY 2015/2016, while Greece and Italy have been producing below quota for many years. Post sources in Greece reported that processors in Greece are virtually bankrupt and it can be doubted if these processors can be viable in the post-quota era. For other MS, like Croatia, Hungary, Italy, Romania, Slovak Republic and Spain, the viability of sugar production is being called into question if the coupled support expires at the end of the current CAP in 2019/2020’. |
However, this needs to be seen in a context where competition from raw cane sugar refiners will be constrained ‘by high EU sugar import tariff walls, fixed import quotas’, and what USDA characterises as ‘decreasing preferential sugar import supplies’. This later development can be linked to USDA projections for EU sugar prices, which see’s EU prices falling ‘to a level in line with world sugar prices’. However it is held there will be ‘likely increased market volatility for the next few years until the different EU industries find new market equilibrium’.
Significantly, according to the USDA analysis, ‘if EU sugar prices decrease, this will mostly impact the higher cost producers, to which exporters in EBA/ACP countries in the past belonged and to some extent still do’. Indeed, the USDA goes further maintaining ‘if the EU domestic sugar price were to decrease to world market price levels … EU sugar imports from CXL origin and the least competitive EBA/ACP countries could grind to a halt’ (2).
The volatility on the EU sugar market is likely to be exacerbated by the UK’s departure from the EU on 30th March 2019, since not only is the UK a major importer of cane sugar, but the UK is also a major export market for EU27 produced sugar. According to USDA, the UK produces around 1 million tonnes of sugar, half its annual consumption, with the rest being imported, 40% in the form of white sugar from other EU member states, mainly France (2).
Meanwhile USDA also projects Brazilian sugar exports reaching record levels in 2017/18, despite a decline in cane production. This is the result of a projected increase in the amount of cane being used in sugar production (48%), in response to the decline in the value of the Brazilian Real, which is making sugar exports more commercially attractive than ethanol production for the domestic market. USDA see’s this resulting in a 4.68% increase in Brazilian sugar exports (+1.3 million tonnes) to a record level of 29.07 million tonnes (3&4).
If this projection is realised this could put increased pressure on global sugar prices. However the Brazilian crop supply agency Conab, forecasts only a 46% utilisation of the cane crop for sugar production, which would put Brazilian sugar production 960,000 tonnes below the USDA estimate (3&4).
| Comments and Analysis
The USDA analysis confirms the far from promising prospects for less competitive ACP sugar exporters in the coming years. One small glimmer of hope however is provided by the emphasis being placed by EU beet processing companies on optimising the utilisation of existing installed sugar processing capacity. If, as EU sugar prices fall, beet farmers in particular regions of the EU are unwilling to meet processor demands for beet supplies, this could leave opportunities to ACP raw cane sugar exporters to provide supplies which extend the processing season, maximising the utilisation of existing installed capacity and thereby reducing unit costs for EU beet processors. This would be particularly attractive if this could provide sugar products (such as fair trade certified sugars) which EU beet processing companies simply cannot produce and which enhance their presence in different sugar sector market components. This however will require ACP sugar exporters to get much closer to individual EU sugar beet co-refiners and will require the development of new types of partnerships and joint ventures. Some ACP sugar exporters have already taken steps in this regard, notably the Mauritian Sugar Syndicate, through its joint venture arrangement with Südzucker (5) and its investment in the Real Good Food Company, which until recently was the owner of the UK’s largest independent bagger of sugar, Napier Brown. According to Agritrade analysis ‘the link to Südzucker not only provides access for Mauritian refined sugar products to the German market but also via Südzucker’s extensive network of subsidiaries, associate companies and marketing infrastructure, to markets across Europe… This enabled Mauritius to get its sugar marketed in no fewer than 18 EU member states, with 83% of Mauritian exports being marketed in countries where there are Südzucker subsidiaries or associated companies’. Other ACP suppliers have sought to reposition themselves on the EU28 market in the light of the evolving competitive challenges from EU sugar beet refiners. For example, Swaziland which in 2006 was still exporting 56% of its sugar to the UK market, now exports to 10 other EU member states, with in 2015 as little as 0.13% of its sugar to the UK market USDA observations on developments on the EU periphery also suggest that there could be opportunities for ACP exporters to develop new relationships with dedicated cane sugar refiners in these non-core sugar beet producing regions. Once again however, this will require ACP exporters to get closer to these individual refiners, which may require a rethinking of their marketing strategies and operations. Opportunities in this regard however, will be critically constrained by the nature of current EU sugar sector corporate engagement in individual ACP sugar producing countries. In some instances national aspirations for sugar sector development in individual ACP countries may be constrained by the corporate strategies of individual EU based sugar companies who are already engaged in their sugar sectors (e.g. ASRs’ corporate control of both Belize Sugar Refiners and Tate & Lyle Sugars (6) and Associated British Foods corporate investments in major southern African sugar producing countries linked to its ownership of British Sugar and Azucarera Ebro in Spain (7). |
Sources
(1) Agrimoney.com, ‘EU to become net-exporter of sugar after beet industry shake-up’, 25 April 2017
http://www.agrimoney.com/news/eu-to-become-net-exporter-of-sugar-after-beet-industry-shake-up–10660.html
(2) USDA GAIN Report No. E17030, ‘EU 28 Sugar Annual Report’, 19 April 2017
https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Annual_Brussels%20USEU_EU-28_4-19-2017.pdf
(3) Agrimoney.com, ‘Brazilian sugar exports to rise to record levels’, 25 April 2017
http://www.agrimoney.com/news/brazilian-sugar-exports-to-rise-to-record-levels–10658.html
(4) USDA GAIN Report No. BR 17001, ‘Brazil Sugar Annual Report’, 19 April 2017
https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Annual_Sao%20Paulo%20ATO_Brazil_4-19-2017.pdf
(5) Agritrade, ‘Südzucker – corporate profile’, 27 September 2014
http://agritrade.cta.int/Agriculture/Commodities/Sugar/Suedzucker-corporate-profile
(6) Agritrade, ‘Tate & Lyle/American Sugar Refining – corporate profile’, 24 July 2014
http://agritrade.cta.int/Agriculture/Commodities/Sugar/Tate-Lyle-American-Sugar-Refining-corporate-profile
(7) Agritrade, ‘British Sugar/Associated British Foods – corporate profile’, 23 July 2014
http://agritrade.cta.int/Agriculture/Commodities/Sugar/British-Sugar-Associated-British-Foods-corporate-profile
| Key words: Sugar, Corporate, Associated British Foods, British Sugar, Azucarera Ebro, American Sugar Refiners, Belize Sugar Refiners, Tate & Lyle Sugars, Südzucker, Mauritian Sugar Syndicate, Real Good Food Company, Napier Brown. Tags: Sugar, Brexit |