Summary
The EU sugar market is likely to face increased volatility in the coming years. ACP sugar exporters need strategies to manage this volatility. This situation will be compounded by BREXIT, with 3 ACP exporters (Guyana, Belize and Fiji) facing particularly severe adjustment challenges. Strengthening the functioning of ACP-EU sugar supply chains to prevent abuse of dominant commercial positions within individual supply chains will be essential if ACP sugar farmers are to be protected.
According to a report from Rabobank, EU ‘food and drink companies expecting the sugar price to fall once quotas disappear might have a nasty shock’. Currently some 80% to 85% of sugar used in the food industry is derived from EU sugar beet production. This % share is expected to increase with quota abolition, as a higher percentage of EU beet production is turned into sugar. However this will not necessarily lead to lower sugar prices for EU food processors. (1)
EU sugar production quota abolition will also make it easier for EU sugar to be exported. This could then tighten supplies on the EU market, supporting EU sugar prices. This will all depend on the attractiveness of world sugar market prices. It is argued that even a small price premium on world sugar markets compared to the EU market could ‘see exports rise and imports fall’. This, it is argued, could then ‘trigger regional sugar shortages or tighter national supply within the EU’. (1)
In this context EU sugar users are being warned not to ‘surrender to the whims of the market’. Rather it is argued they should develop strategies ‘to minimize any price shocks’. (1)
In this context the EC reports the 2016/17 season will be the second in a row with a global sugar production deficit, following bad weather, which reduced production in regions such as Southern Africa. This saw global sugar prices strengthening, with by July 2016 the London No. 5 sugar price being 42% above the corresponding period in 2015. At an average white sugar price level of €514/tonne, this was above the EU white sugar price, reducing the attractiveness of the EU market to ACP/LDC sugar suppliers. This situation has not arisen since the 2010/11 price spike. (2)
While the EU white sugar price is expected to rise on the back of lower EU sugar stocks in 2016/17, this highlights the potential for heightened volatility on EU sugar markets following EU quota abolition. (2)
For the ACP, developments on the EU28 sugar market will be further complicated from the 2018/19 season onwards, by the departure of the UK from the EU. The UK accounts for 7.8% of the total EU sugar production quota (1,056,474 tonnes out of 13,515,672) and in 2015/16 accounted for 6.5% of EU sugar production (977,882 tonnes of 14, 932,324). However, while the ACP accounted for 64% of EU28 sugar imports in 2015, the ACP supplied almost 83% of UK sugar imports, with the UK market accounting for 26% of total EU sugar imports. (5)
Sugar imports by UK and EU28 from ACP countries and total 2015 (tonnes)
| Africa | UK | EU | Caribbean & Pacific | UK | EU |
| Mauritius | 71,373 | 385,823 | Guyana | 167,539 | 168,053 |
| Swaziland | 366 | 273,514 | Belize | 98,892 | 98,892 |
| Mozambique | 20,000 | 239,522 | Jamaica | 45,940 | 64,485 |
| Sudan | 224,304 | Barbados | 375 | 375 | |
| Zimbabwe | 184,289, | Suriname | 11 | ||
| Malawi | 12,239 | 77,234 | |||
| Zambia | 66,184 | Fiji | 100,236 | 199,982 | |
| South Africa | 4 | 5,161 | PNG | 22 | |
| Madagascar | 413 | ||||
| Senegal | 1 |
Source: EC, Market access data base (selected member state, UK, EU28; partner country, All; product code 1701)
http://madb.europa.eu/madb/statistical_form.htm
While 17 ACP countries export sugar to the EU, only ten ACP countries export sugar to the UK. Of these 10 ACP sugar suppliers, 5 have an exceptionally high dependence on the UK market in their exports to the EU28 (50% or above of sugar exports to the EU).
Total Sugar Imports into the UK and EU28 from the ACP and all sources (tonnes) – 2015
| UK | EU | |
| Total ACP | 516,964 | 1,988,265 |
| Total imports | 625,906 | 3,122,708 |
| % ACP in total | 82.6% | 63.7% |
Sources
(1) Foodnavigator.com, ‘Sugar market reforms could leave bitter taste and now is the time to prepare’, 11 October 2016
http://www.foodnavigator.com/Market-Trends/Sugar-market-reforms-could-leave-bitter-taste-and-now-is-the-time-to-prepare
(2) EC, ‘Short term outlook for EU arable crops, dairy and meat markets in 2016 and 2017’, Autumn 2016
https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/short-term-outlook/pdf/2016-10_en.pdf
(3) UK Department for Environment, Food and Agriculture ‘Modelling the EU cane refining sector after 2017’ 2015
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/479840/pb14351-sugar-cane-modelling-2015.pdf
(4) ‘Tate & Lyle and Sir James Dyson call for Brexit’, 22 June 2016
https://www.politicshome.com/news/europe/eu-policy-agenda/brexit/news/76436/tate-lyle-and-sir-james-dyson-call-brexit
(5) EC, Market access data base (selected member state, UK, EU28; partner country, All; product code 1701)
http://madb.europa.eu/madb/statistical_form.htm
(6) Agritrade, British Sugar/Associated British Food, Special Report, 23 July 2014
http://agritrade.cta.int/Agriculture/Commodities/Sugar/British-Sugar-Associated-British-Foods-corporate-profile
| Comment and Analysis The advice to EU food processors to develop strategies to minimize price shocks, would appear equally applicable to ACP sugar exporters. What is clear, is that ACP sugar exporters will need to be far more sophisticated in the marketing of their sugar into the EU. This will be particularly challenging for those ACP countries where sugar marketing is undertaken by a state run parastatal or through a single marketing channel, which has not yet initiated market repositioning strategies.ACP sugar exporting countries which are closely integrated into specific EU corporate supply chains are likely to face less problems in placing sugar for sale on the EU market. However, the price at which these sugar sales take place and the revenues this provides for division with sugar cane growers will need to be closely monitored. The concentration of ownership along the whole supply chain, potentially generates an inequality in power relationships, which could lead to an abuse of the dominant market position by these corporate players. This suggests a need for an ACP initiative to strengthen the functioning of ACP-EU sugar supply chains, with some of the EU initiatives and codes of practice dealing with strengthening relations between primary producers and secondary processors, being extended to ACP-EU sugar supply relationships. It also suggests a need to extend existing EC sugar sector market monitoring initiatives to cover the commercial practices along different types of ACP-EU sugar supply chains. Looking beyond EU quota abolition, the EU sugar market is also likely to see volatility as a result of the UK’s departure from the EU. The UK’s dedicated sugar cane refiner, Tate & Lyle Sugars, supported BREXIT on the basis that it would allow the removal of the €98/tonne duty on sugar sourced from the world market. (4) Analysis suggests this is essential for the future profitability of Tate & Lyles Sugar UK refinery. (3) Upon the UK’s departure from the EU there is likely to be pressure on the UK government to abolish the €98/tonne duty. If this were to occur, Tate & Lyle Sugars would be likely either to source its raw sugar from the lowest cost world producer (Brazil), or offer prices to ACP suppliers bench-marked against what they would pay on the world market. Alternatively if the UK government post-BREXIT does not abolish the €98/tonne duty, then analysis shows Tate & Lyles’s refinery would be non-profitable, with this potentially leading to the closure of the UK’s traditional raw cane sugar refinery. (3) This would consolidate the market dominance of the UK’s only other sugar producer, British Sugar, which has some 350,000 tonnes of raw cane sugar co-refining capacity at its UK beet processing plants. (6) Developments on the UK sugar market post-BREXIT are a particular matter of concern to four of the five ACP sugar suppliers with an exceptionally high dependence on the UK market – Belize, Guyana, Fiji and to a more limited extend Jamaica. These countries sugar industries are likely to face considerable market adjustment challenges under the twin effects of EU sugar production quota abolition and BREXIT. |
| Key words: Sugar, BREXIT, Functioning of supply chains Area for Posting: Sugar, BREXIT |