EU Sugar Projections to 2030 Suggest Less Room on EU27 Market for ACP Sugar Exports

What is more, with EU sugar production expanding and demand contracting, increased competition will also be faced on the EU sugar market from EU beet producers.  This will be further compounded by a projected 60% reduction in EU27 sugar exports to the UK market compared to average exports over the 2014/15 to 12018/19 sugar seasons (impacting roughly 300,000 tonnes of white sugar) (3).

The situation faced by ACP sugar exporters on the EU market will be further complicated by the absence of ‘diagonal cumulation’ arrangements in the EU/UK trade agreement for LDCs and ACP EPA signatories (all of which enjoy duty free/quota free access to both the EU and UK markets).  This is likely to create a situation where, in order to avoid complications under the rules of origin provisions of the EU/UK trade agreement, manufacturers of high sugar content food and drink products begin to systematically turn away from the use of cane sugar in their production processes.

By switching over to the use of sugar produced in the EU or UK from beet, manufacturers of high sugar content food and drink products would side-step any rules of origin complications under the EU/UK trade agreement and hence would be able to ensure they benefit from the basic EU/UK duty free access trade agreement now in place.

The only partial exception to this would be for raw cane sugar co-refined by EU beet refiners.  Here provisions under the EU/UK trade agreement for ‘accounting segregation’ could be applied to products like sugar which have the same basic characteristics without any need for physically segregation of domestically produced and imported raw materials. Providing pre-approval has been granted, ‘accounting segregation’ techniques could be applied to demonstrate the final products falls within the overall value and volume tolerance allowed under the EU/UK trade agreement rules of origin applicable to sugar.

Depending on how the ‘accounting segregation’ requirement is applied in practice, a distinct advantage for EU sugar co-refiners over full time dedicated raw cane sugar refiners could emerge.  It would appear to be far easier for co-refiners to provide documentary proof to manufacturers of high sugar content food and drink products that the sugar they provide will fall within the overall value and volume tolerance thresholds applicable under the UK/EU trade agreement rules of origin for sugar containing products.

This advantage arises from the fact that sugar beet co-refiners process raw cane sugar as an ‘add on’ to their core beet processing operations, with sugar beet accounting for by far the largest percentage of overall source materials used in the production of sugar by co-refiners.

This situation could enable sugar beet co-refiners to consolidate their position as ‘preferred’ suppliers to manufacturers of high sugar content food and drink products, by arguing verification of compliance with EU/UK trade agreement rules of origin requirements is far easier for sugar sourced from EU beet refiners, even where raw cane sugar is used.

In this context, ACP raw cane sugar exporters may need to seek out new co-refining partners in Europe for the processing of their raw sugar exporters, where the final users of their product are manufacturers of high sugar content food and drink products.

This suggests a need for ACP sugar exporters to carefully identify the final users of their product in the EU and understand the evolving trends influencing the sourcing decisions of these final end users.

This needs to be seen against the background of the existing trends towards reduced use of sugar in food and drink products driven by public health campaigns. Given the close link between obesity and the severity of Covid-19 infections this trend towards reduced use of sugar in food and drink products is only likely to accelerated in the coming 10 years.

At a policy level, in order to assist ACP sugar exporters in minimising the loss of customers linked to Brexit related rules of origin concerns, the governments of the concerned ACP exporting countries should consider lobbying the UK and EU separately for a modification of the ‘Direct Transport’ provisions of the annex on rules of origin under their various trade agreements with the UK. This should aim at securing acceptance by the UK government of automatic cumulation for sugar imported from countries which enjoy duty-free/quota-free access to both the EU and UK markets when this is used in products to be exported between from the EU and UK.

A parallel bilateral approach to the UK and EU respectively (starting with the UK), is likely to be necessary, given the different position of the UK and EU governments on diagonal cumulation issues. This issue would need to be taken up both at the political and technical levels in the respective consultative committees established under the various trade agreements concluded to date.

Such a move would preserve more market space for ACP sugar exporters in what is likely to be an increasingly difficult EU market situation for ACP sugar exporters in the coming 10 years.