Summary
The difficult global sugar market situation and rapid transition from a large projected deficit to a significant surplus is likely to put pressure on EU sugar prices, which have to date held up well. There are concerns the UK duty free sugar quota of 260,000 tonnes could see EU/UK sugar trade restricted, with this driving EU27 sugar exports off the UK market and intensifying competition on the EU market. This could also complicate the onward trade in ACP sugar and products containing ACP sugar between the UK and the EU. Disturbances on European sugar markets look likely in 2021, including for ACP Fairtrade sugar, where exporters may need to review their routes to market and refining partners. Alternatively, special onward trade arrangements may need to be negotiated as part of wider efforts to avert disruption of ACP triangular supply chains. This can be seen as an urgent policy priority. Meanwhile ACP sugar exporting companies will need to explore their sugar marketing options for 2021, in the light of a variety of scenarios for the UK’s departure from the EU customs union and single market.
EC analysis suggests global weather conditions will generate good yields in the sugar sector for 2020/21. The diversion of Brazilian cane to sugar production in the face of the collapse of oil prices and a depression of global sugar demand as a result of the consequences of the Covid-19 pandemic has meanwhile seen projections of a 9 million tonne deficit being transformed into a 2 million tonne surplus (1).
This does not bode well for global sugar prices. Between September 2019 and February 2020, world market sugar prices fell fully 30% reversing earlier gains which had seen prices increase almost 27% from September 2019 to February 2020. Future price prospects look even less appealing with the 17th July sugar future settlement price for October standing at only was 11.73 cents/lb (2).
| Month | Sugar Price US cents/lb | %Change |
| Jun 2019 | 28 | – |
| Jul 2019 | 28 | 0.00 % |
| Aug 2019 | 27 | -3.57 % |
| Sep 2019 | 26 | -3.70 % |
| Oct 2019 | 28 | 7.69 % |
| Nov 2019 | 28 | 0.00 % |
| Dec 2019 | 30 | 7.14% |
| Jan 2020 | 31 | 3.33 % |
| Feb 2020 | 33 | 6.45 % |
| Mar 2020 | 26 | -21.21 % |
| Apr 2020 | 23 | -11.54 % |
| May 2020 | 24 | 4.35 % |
| Jun 2020 | 27 | 12.50 % |
Indexmundi: Sugar Monthly Price – US Dollars per Kilogram https://www.indexmundi.com/commodities/?commodity=sugar&months=12
Of particular relevance to the EU and ACP trade in sugar, while ‘raw sugar prices have recovered a certain extent from the lowest levels of April’, prices remain depressed, with the white sugar price premium no longer trading above €100/tonne (1). More broadly in terms of EU trade in sugar, while imports remain low, during the second quarter despite the falling global prices EU exports ‘have been stable at around 30,000 to 50,000 tonnes a month since the beginning of 2020’ (1).
While the decline in EU consumption has been variously projected at between 200,000 tonnes to 500,000 tonnes, a decline of around 250,000 tonnes is generally accepted as the scale of the decline. While prior to the pandemic EU sugar stocks had declined to their lowest level in five years, EU stocks of sugar are once again accumulating. Despite this situation the ‘official EU average price further increased to €379 per tonne in April 2020’, with this increase being particularly pronounced in Region 2 countries, where the main EU sugar producers are located (1).
Against the background of annual exports of EU27 sugar to the UK of over 500,000 tonnes per annum in the past three seasons (though be it in a declining trend) (3), EU sugar companies have expressed concern at the UK’s announcement of a 260,000 tonne zero duty quota for raw sugar imports (1). The establishment of this UK zero duty quota will increase competition for EU27 sugar suppliers on the UK market, since its will serve to reduce the costs of raw cane sugar refining in the UK by around €98 per tonne for the quantities involved; generating a saving of some €25.5 million, mainly to the benefit of Tate and Lyle Sugar, whose Thames refinery has been operating at substantially reduced capacity in recent years.
This new quota would be particularly problematical if the UK departs the EU customs union without an alternative trade arrangement being in place. This would result in UK imports of refined sugar products from the EU27 (the basis of the current trade) facing the standard MFN import duties the UK announced in May 2020. This would amount to an import tariff of £280 per tonne.
New EU and UK MFN Tariffs on Sugar to Be Applied to All Non-Preferred Trade Partners
| Commodity | Description/Value 2019 | EU CET | UK Global Tariff | Change |
| 17011390
|
Raw cane sugar, in solid form, not containing added flavouring or colouring matter, obtained without centrifugation, with sucrose content 69° to 93°, | €41.90/100 kg | £35/100 kg | Currency conversion |
| 17011210
|
Raw beet sugar, for refining (excl. added flavouring or colouring) | €33.90/100 kg / std qual | €28.00/100kg/std/qual | Currency conversion |
| 07011290 | Raw beet sugar (excl. for refining and added flavouring or colouring) | €41.90/100 kg / std qual | €35.00/100kg/std/qual | Currency conversion |
UK Global Tariff: Search Engine
https://www.check-future-uk-trade-tariffs.service.gov.uk/tariff?q=070410&n=25&p=1
The establishment of this quota, which has no parallel arrangement in the EU, will in addition not only complicate the negotiations around future UK/EU arrangements for trade in sugar and sugar based products, but also the onward conduct of trade in ACP sugar, refined or simply bagged in the UK for onwards sale into the EU27 market (e.g. Fairtrade certified sugar sold to manufacturers across the EU27 for use in Fairtrade certified products). Clear origin certification would be required for this onward trade and agreement would need to be reached on what form such origin certification should take.
This needs to be seen in a context where the EU has committed to implementing standard third country import controls and levies on imports from the UK in the event of a no-deal UK departure from the EU customs union and single market on the 1st January 2021 (4).
| Comment and Analysis The EC analysis suggests ACP raw cane sugar exporters will continue to enjoy significant price premiums on the EU market relative to depressed world market prices during 2020. However, as the concerns raised in relation to the UK’s new zero duty quota of 260,000 tonnes suggest, this situation may not continue into 2021.In the event of a no-deal UK departure from the EU customs union and the mutual application of standard MFN tariffs on sugar imports between the EU and UK, this could see the return of between 400,000 and 500,000 tonnes of EU27 sugar back on to the EU market. This would be likely to create a considerable market disturbance. This market disturbance is around twice the market effect of the depressed EU sugar market demand arising from the Covid-19 pandemic. This needs to be seen in the context of the depressed level of global demand and the reversal of the global supply and demand balance because of the Covid-19 pandemic. These developments could well see an erosion of the price premiums currently being enjoyed on the EU market relative to world market prices for sugar. Beyond this general market effect, a no-deal UK departure from the EU customs union alongside the UK’s new zero duty quota for raw cane sugar imports is likely to complicate the onward trade in ACP sugar products to the EU27 market through the UK. This may require a rethink of the routes to market used by ACP Fairtrade sugar exporters, whose principal refining partner in the EU28 had traditionally been Tate & Lyles UK refinery. However, unless special administrative arrangements are set in place which enable ACP duty free sugar refined in the UK to continue to enjoy duty free access to the EU27 market, this traditional trade could be disrupted. This could result either because of the application of standard MFN tariffs to this trade or confusion over the tariff treatment to be accorded such products. If discussions are not urgently launched with both the EC and UK authorities on the establishment of such special administrative arrangements, ACP exporters of Fairtrade Sugar serving EU27 markets via refining operations in the UK, will need to find new refining partners in the EU27 to undertake their refining operations, if trade complications are not to arise. This may proof easier for exporters such as Belize Sugar Industries (BSI), which can find EU27 based refiners within the same corporate family, as a consequence of American Sugar Refiners, ownership stakes in BSI and Tate & Lyle Sugars operation in the UK, Portugal and Italy. For other ACP sugar exporters such as Mauritius, existing partnership relationships with French sugar processing companies could facilitate the bagging and distribution of Mauritian Fairtrade sugar which has to date been undertaken through Napier Brown. ACP Fairtrade sugar exporters such as Fiji could face more serious complications and may need to more actively seek out new partners in the EU27 for the refining of Fairtrade certified sugar (for example, the Dutch sugar company Suiker Unie, which may have an interest in adding Fairtrade Sugar to its product ranges). This being noted according to the Fiji Sugar Corporation ‘Fiji has not sold Fairtrade Sugar to the United Kingdom in the last five years’, although it does sell ‘Fairtrade sugar to some European markets.’ What is clear is there is now added urgency for ACP sugar exporters to explore their sugar marketing options for 2021 in the light of a variety of scenarios for the UKs’ departure from the EU customs union and single market. |
Sources:
(1) EC, ‘Sugar Market Observatory Meeting Summary’, 30 June 2020
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/sugar-mo-2020-06-30-report_en.pdf
(2) Indexmundi: Sugar Monthly Price – US Dollars per Kilogram, 17 July 2020
https://www.indexmundi.com/commodities/?commodity=sugar&months=12
(3) julianprice.com, ‘European Union and United Kingdom sugar markets and update and outlook’, 2 March 2020
https://www.julianprice.com/eu_market_20200302.pdf
(4) Guardian, ‘Liz Truss is suddenly worried about a Brexit deal – but for the wrong reasons’, 10 July 2020
https://www.theguardian.com/commentisfree/2020/jul/10/liz-truss-is-suddenly-worried-about-a-brexit-deal-but-for-the-wrong-reason
(5) Fijivillage.com, ‘Report on Nestle UK and Fairtrade inaccurate – FSC CEO’, 3 July 2020
https://www.fijivillage.com/news/Report-on-Nestle-UK-and-Fairtrade-inaccurate–FSC-CEO-r5x8f4/
Annex
Evolution Main Destination Markets for Total Sugar Exports to the EU28: Belize, Fiji, Malawi, and Mauritius (T)
| Belize | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | ||
| EU28 | 105,664 | 96,042 | 98,892 | 121,376 | 137,959 | 142,075 | 176,911 | ||
| UK | 92,343 | 61,022 | 98,892 | 77,861 | 28,731 | 136,626 | 161,091 | ||
| Italy | – | 35,020 | – | 31,017 | 60,464 | – | 13,769 | ||
| Portugal | 13,321 | – | – | – | 27,996 | 120 | 1,763 | ||
| Spain | – | – | – | 6,248 | 11,300 | 4,988 | 68 | ||
| Poland | – | – | – | – | – | 240 | 120 | ||
| Others | – | – | – | 6,250 | 0 | 101 | 100 | ||
| Fiji | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | ||
| EU28 | 141,362 | 192,664 | 199,982 | 131,694 | 184,205 | 35,110 | 125,429 | ||
| UK | 110,275 | 161,076 | 100,236 | 65,434 | 67,200 | 15,000 | 57,000 | ||
| Spain | – | 31,588 | – | – | 36,148 | 19,910 | 34,072 | ||
| Bulgaria | 33,878 | ||||||||
| Germany | 239 | ||||||||
| Czech Rep | 240 | ||||||||
| Malawi | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | ||
| EU28 | 85,616 | 75,811 | 77,234 | 54,370 | 38,391 | 20,905 | 15,383 | ||
| Spain | 3,937 | 10,703 | 10,143 | 7,476 | 8,022 | 5,124 | 6,069 | ||
| Sweden | 1,856 | 1,674 | 2,016 | 1,995 | 1,575 | 1,344 | 1,905 | ||
| Italy | 17,685 | 38,247 | 45,683 | 25,570 | 11,155 | 5,466 | 1,682 | ||
| Lithuania | – | – | – | 903 | 840 | 630 | 1,323 | ||
| Cyprus | – | – | – | – | – | 147 | 1,260 | ||
| Finland | 884 | 867 | 1,050 | 798 | 756 | 609 | 1,071 | ||
| UK | 19,518 | 17,501 | 12,239 | 9,126 | 5,427 | 3,078 | 921 | ||
| Portugal | 28,588 | 178 | – | – | 7,460 | – | – | ||
| Others | 13,148 | 6,641 | 6,103 | 8,502 | 3,156 | 4,508 | 1,152 | ||
| Mauritius | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | ||
| EU28 | 397,138 | 415,380 | 385,822 | 368,087 | 324,660 | 153,973 | 254,170 | ||
| Greece | 17,587 | 24,898 | 31,389 | 44,679 | 45,332 | 24,232 | 55,160 | ||
| Spain | 57,155 | 85,673 | 77,707 | 56,292 | 60,392 | 49,084 | 54,800 | ||
| Italy | 203,607 | 186,746 | 163,436 | 154,917 | 132,599 | 15,099 | 52,027 | ||
| UK | 65,572 | 59,474 | 71,373 | 53,810 | 38,098 | 18,843 | 29,224 | ||
| France | 5,210 | 3,215 | 6,331 | 16,408 | 23,373 | 19,742 | 24,654 | ||
| Others | 48,007 | 55,374 | 35,586 | 41,981 | 24,866 | 26,973 | 38,305 | ||