Summary
Environmental and sustainability concerns over sugar production alongside growing health concerns over levels of sugar consumption are likely to reduce overall demand for ACP cane sugar in both the UK and EU in the coming years. This will come on top of the new rules of origin/MFN tariff complications facing ACP cane sugar exporters, as a result of the Brexit process and the radical changes in EU sugar market conditions which have been underway since 2005. ACP sugar producers will need to factor these trends into their global sugar marketing strategies if existing patterns of production are to be sustained.
Recent reports on the environmental effects of cane sugar production, suggest sugar could become the next major commodity targeted by environmental campaigners. According to data from Spoonshot, ‘the global average water footprint of producing 1kg of refined sugar from sugarcane is about 1,782 litres of water, the equivalent of two years’ worth of drinking water for one person.’ In contrast ‘1kg of sugar from sugar beet takes about 920 litres’ (1). However according to analysis from the nutrition company Kerry, ‘a kilogram of refined cane sugar leads to emissions of 0.42kg of CO2e, while sugar from beets emits twice as much at 0.85kg of CO2e.’ In terms of cane sugar, environmental concerns also arise from the clearing of large tracts of land for dedicated sugar cane production. As the environmental effects of sugar production come under the spotlight, this also needs to be factored into the sustainability and climate change equation (2).
This needs to be seen against the background of growing consumer concerns over sustainability issues. A 2019 survey found ‘89% of consumers now expect companies to invest in sustainability, up more than one-third (from 65%) since 2018.’
A further factor overhanging the sugar market in Europe is the ongoing public health concerns related to sugar consumption. These concerns have only been heightened by the patterns of serious health effects of Covid-19 infections. This has seen renewed calls for from public health campaigners for mandatory restrictions on the sugar, salt and fat content of processed food and drinks since voluntary reformulation measures are seen as ineffective.
The impact of the Soft Drinks Industry Levy (SDIL) on the sugar content of products falling under the scheme, compared to the impact of voluntary sugar reduction programmes is cited as evidence of the need for mandatory measures. According to Dr Anthony Laverty of Imperial Collage London’s School of Public Health ‘research clearly shows that a robust independent regulatory system is required, with targets set by government and progress publicly monitored’ (3).
One immediate impact of these changing consumer preferences is that perceptions of the sustainability of production processes is becoming a more important factor in commercial decisions on sugar sourcing decisions. Messaging related to the ‘double win of sugar reduction, which delivers against population health and planetary health’, is increasingly gaining traction (2). It is now being argued reducing per capita sugar consumption in Europe by 30% could yield both significant health and climate related gains (2).
However, research suggests in the soft drinks sector ‘sustainability is not the number one purchase driver.’ This is in part linked to the ‘off notes’ which alternative sweeteners are seen as generating. This being noted the technologies and taste attributes of alternative sweeteners continues to evolve (2), with a growing range of alternative sweetener options available which do not impact on taste and consumer acceptability (3).
The UK food and drink industry continues to argue against mandatory targets and in favour of a voluntary reduction approach which is ‘realistic and achievable.’ The UK Food and Drink Federation, Chief Operating Officer Tim Rycroft argues the UK industries’ ‘commitment to the cause cannot be doubted’, with the UK’s ‘world leading’ efforts needing to be ‘recognised and celebrated’ (3).
Unfortunately, this image of the UK’s ‘world leading’ approach to sugar reduction sits uneasily with the reality of the obesity epidemic in the UK, where according to NHS data, ‘67% of men and 60% of women’ fall into the category of obese, while in 2020 ‘20% of year six children were classified as obese, with prevalence more than twice as high in the most deprived areas, compared to the least deprived’ (3).
| Comment and Analysis In terms of the ACP sugar trade with the EU and UK these pressures to reduce cane sugar usage are being compounded by the rules of origin/MFN tariff complications arising as a result of the absence of ‘diagonal cumulation’ provisions in the EU/UK Trade and Cooperation Agreement (TCA). The absence of ‘diagonal cumulation’ provisions mean ACP sugar used in value added food and drink products is counted as non-originating content.This means the use of non-originating sugar and other non-originating materials has to stay within specific ceilings for the use of non-originating inputs in value added food and drink products if duty free access under the EU/UK TCA is to be secured for high sugar content food and drink products. While specific provisions are made for the use of non-originating sugar in food and drink products which are higher than the general value tolerance for the use of non-originating inputs (which are generally set at 15% of the weight of the final product and 10% of the value of the final product), these non-originating content tolerance limits still pose problems (see box). Given the high MFN tariffs charged (which within the EU also includes supplementary levies charged on the sugar content in the product), serious complications can arise for onward trade in high sugar content food and drink products traded across EU/UK borders.
What is more, for food and drink manufactures the issue is not only one of staying within these value tolerance thresholds, but also, documenting the rules of origin requirements have been met, in order to claim the duty-free access available under the EU/UK trade agreement. Failure to verifiably document compliance with non-originating content requirements, will result in the loss of duty-free access when such goods are traded across EU/UK borders. The rules of origin compliance verification dimension could add a level of complication which simply makes it easier to source EU/UK sugar for use in food and drink manufacturing processes, where the documentation and other administrative costs involved in using imported cane sugar on a segregated basis, exceed the benefits of cheaper sourcing at world market prices. This Brexit related complications, alongside heightened environmental consciousness amongst consumers, is beginning to influence the sugar sourcing decisions of some food and drink companies. This needs to be seen in a context where over 70% of European sugar consumption takes place in the form of processed food and drink products. Nestle UK & Ireland in announcing its decision to use only EU and UK produced beet sugar in their high sugar content product range, cited the importance of local sourcing to addressing environmental concerns as one of the factors behind this decision. This decision of course also has the added advantage of side-stepping any potential rules of origin/MFN tariff complications arising for Nestle products, produced for both the British and Irish markets (see companion epamonitoring.net article, ‘Nestlé Move Away from Cane Sugar Compounds Wider Sugar Sector Demand Trends’, 11 August 2020). This would appear to be generating increasingly difficult market conditions for ACP sugar exports in the EU and UK markets. Market conditions for sugar in the EU28 have already undergone radical changes in the past 15 years. The pending developments may well prove to be the final nail in the coffin of ACP sugar exports to Europe from all but the most cost-efficient ACP sugar producers. Against this background, ACP sugar produces will need to pay close attention to developing global sugar marketing strategies which take these new realities into account, if existing patterns of production are to be sustained. |
Sources
(1) Foodnavigator.com, ‘Sugar the next ingredient set to come under re for its climate impact?’, 23 April 2021
https://www.foodnavigator.com/Article/2021/04/23/Sugar-the-next-ingredient-set-to-come-under-fire-for-its-climate-impact/
(2) Foodnavigator.com, ‘Kerry flags ‘impressive’ health and environmental benefits of sugar reduction: ‘Sugar exacts a large environmental toll’, 1 March 2021
https://www.foodnavigator.com/Article/2021/03/01/Kerry-flags-impressive-health-and-environmental-benefits-of-sugar-reduction-Sugar-exacts-a-large-environmental-toll
(3) Foodnavigator.com, ‘The failed experiment of self-regulation UK urged to adopt robust approach to HFSS foods’, 7 January 2021
https://www.foodnavigator.com/Article/2021/01/07/UK-urged-to-adopt-robust-HFSS-food-law