Summary
Under a ‘no-deal’ Brexit while concluding a ‘Continuity Agreement’ with the UK will be essential to preserving duty free-quota free access for non-least developed ACP sugar exporters, the sourcing decisions of Associated British Foods will have an important bearing on which ACP exporters will benefit from the likely increase in UK sugar prices arising from the imposition of standard MFN duties on sugar imports from EU27 countries. Competitive Southern African sugar producers closely associated with the ABF owned Illovo Group will be best placed to take advantage of UK sugar shortages and higher UK sugar prices. For Caribbean and Pacific sugar exporters the sourcing decisions of Tate & Lyle Sugars will be critical, with an important issue being the nature of the contractual arrangements to be set in place to supply sugar to the UK in the new marketing year starting 31st October 2019.
In April 2019 ABF reported ‘a slump in sales and profits at its AB Sugar business’, with this being a result of ‘significantly lower prices which affected the EU sugar industry’. However ABF continues with its cost reduction programme with ‘some recovery in EU sugar prices’ expected. Analysts have noted how while EU sugar prices remain at historic lows, ‘ABF remains the most profitable and efficient EU sugar producer and is well positioned to emerge stronger from expected further consolidation in EU sugar production over the medium-term’ (1).
Indeed while ABFs sugar revenues are down, sugar sales volumes have been growing. It is highlighted how ‘EU stock levels have been tightening during 2018/19 as a consequence of the lower production in the current campaign’. With a ‘reduction in the European crop area for the 2019/20 season’ it is anticipated EU sugar stocks will remain low, with this supporting a recovery in EU sugar prices (2).
This being noted ABF is expecting lower sugar production within its sugar division in the coming year, having reduced the contracted area under beet for the current production season. This applies to its operations in both the UK and Spain.
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ABF’s Corporate Linkages in Europe and the ACP ABF through its sugar division AB Sugar is a leading sugar producer, with 24 plants across the UK, Spain, southern Africa, and north China. AB Sugar has the capacity to produce in excess of ‘some 4.5 million tonnes of sugar and around 600 million litres of ethanol annually’ (3). In the EU ABF has sugar production operations in the UK (British Sugar) and Spain (Azucarera). In the UK ABF’s sugar divisions (British Sugar) is the sole processor of sugar beet, while Azucarera is the largest producer of sugar on the Iberian peninsula. ABF’s UK plants have the capacity to produce around about 1.5 million tonnes annually (4). Azucarera meanwhile has the capacity to produce 650,000 tonnes of sugar (5). In Africa since June 2016 ABF has been the 100% owner of Illovo Sugar which is the biggest sugar processor in Africa. Through Illovo ABF has a 76% share in the sole sugar producer in Malawi, a 75% stake in Zambian Sugar, a 90% stake in Magara Sugar Mozambique, a 60% share in Umbombo Sugar in Eswatini and a 55% share in Kilimbero Sugar in Tanzania. Illovo has the capacity to produce ‘1.7 million tonnes of sugar annually at the group’s 11 cane sugar plants’ (6). |
Sugar production in the UK is expected to be around 1.15 million tonnes this season compared to 1.37 million tonnes last season, which arose from record yields being obtained from beet harvested.
However as a 2011 EC-commissioned evaluation of the impact of sugar reforms highlighted, AB Sugars Newark plant was developing a capacity to co-refine 120,000 tonnes of raw cane sugar per annum while its Cantley factory was in the process of developing a capacity to co-refine 230,000 tonnes of raw cane sugar, with this facility being located only 18 km from the port of Lowestoft (7).
In Spain reduced beet sugar production will be ‘compensated by increased production from the refining of cane raws at Guadalete, which is expected to yield 170,000 tonnes’ (2). However the Guadalete factory has an existing capacity to co-refine raw cane sugar of 400,000 tonnes (8).
Main ACP Sugar Exporters to Spain 2013-2018 (tonnes)
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |
| Total Extra-EU | 549,250 | 557,060 | 334,140 | 369,571 | 502,359 | 217,902 |
| Mauritius | 57,155 | 85,673 | 77,707 | 56,292 | 60,392 | 49,084 |
| Fiji | 0 | 31,588 | 0 | 0 | 36,148 | 19,910 |
| Belize | 0 | 0 | 0 | 6,248 | 11,300 | 4,988 |
| Mozambique | 39,691 | 44,671 | 24,916 | 24,935 | 24,775 | 20 |
| Eswatini | 61,292 | 57,797 | 41,534 | 40,224 | 51,290 | 0 |
| Sub-Total ACP | 158,138 | 219,729 | 144,157 | 127,699 | 183,905 | 74,002 |
| ACP % total | 28.8% | 39.4% | 43.1% | 34.6% | 36.6% | 34.0% |
Source: EC Market Access Data Base
ABF generates almost 38% of its total sugar production through its subsidiaries in Southern Africa and since the liberalisation of the EU sugar import regime has developed a capacity to co-refine up to 350,000 tonnes of raw cane sugar in the UK and 400,000 tonnes in Spain.
| Comment and Analysis The profitability of ABF’s sugar sector operations in the UK is likely to be boosted by a ‘no-deal’ Brexit since this would impose high MFN tariffs on competing sugar suppliers from EU27 member states (who currently account for around 25% of UK sugar supplies). This would increase the price of imports from EU27 countries and limit sugar supplies on the UK market. This would then boost domestic UK sugar prices. However, it is unclear to what extent ABF is factoring a possible ‘no-deal’ Brexit into its sugar sector planning. The scaling back of domestic production for the 2019/20 marketing year suggests a no-deal Brexit by the 31st October is not part of ABFs current production planning scenario.This is perhaps understandable given ABFs extensive sugar production interests in highly competitive raw cane sugar production zones in Southern Africa. These production interests leave ABF well placed to meet any increased demand for UK sugar imports from non-EU sources, with raw cane sugar imports being co-refined at ABFs existing beet sugar refining facilities in the UK.The specific country of origin of these sugar imports will depend critically on which Continuity Agreements the UK has concluded by the end of October 2019, since imports of sugar will be unprofitable if the UK’s temporary MFN duties are applied to sugar imports (see companion epamonitoring.net article ‘The UK’s Proposed New MFN Tariff Regime: Protects ACP Interests in the Short Term, But…’, 14th March 2019. If the SADC EPA Group concludes a ‘rolled over’ EPA with the UK then South Africa and Eswatini are likely to be the principal sources of supply for refined sugar imports into the UK marketed through ABF. In 2018 South Africa was already exporting 55,280 tonnes of sugar to the UK, while Eswatini had once again returned to the UK market (20,000 tonnes). If no UK-SADC EPA Group Continuity Agreement is concluded then competitive LDC sugar exporters in Southern Africa (Mozambique, Malawi and Zambia) could well become the principal sources of supply to ABF of both raw cane sugar for co-refining at its beet plants in the UK, or in the case of Zambia even refined sugar, given the recent expansion of Illovo owned Zambia Sugars local refining capacity to 100,000 tonnes. In 2018 Mozambique had already emerged as a significant exporter of raw cane sugar to the UK market (31,600 tonnes) (for more details of recent trends in ACP exports to the UK market see the companion epamonitoring.net article ‘Low EU sugar prices lead to calls for greater market transparency’, 24 June 2019). Other sugar exporters which have already signed Continuity Agreements with the UK (notably Mauritius and Zimbabwe) would also then be well placed to expand exports to the UK market. However in the case of Mauritian refined sugar exports this is unlikely to take place through ABF, given pre-existing links to the UK’s largest independent sugar bagger Napier Brown and the Mauritian focus solely on refined sugar exports. Given their close alignment with Tate and Lyle Sugars other ACP sugar exporters such as Belize, Guyana, Jamaica and Fiji are unlikely to become sources of supply to ABF’s sugar division. These ACP sugar exporters will have to depend on the sourcing decisions of Tate & Lyle Sugars in the market context created by a ‘no-deal’ Brexit at the end of October 2019. This raises important questions as to the basis on which these ACP exporters should be seeking to supply Tate & Lyle Sugars. Will it be best to secure long term supply contracts for the 2019/20 marketing year or will it be best to play the spot-market? |
Sources:
(1) sharesmagazine.co.uk, ‘Primark shines for Associated British Foods again as sugar profits sour’, 24 April 2019
https://www.sharesmagazine.co.uk/news/shares/primark-shines-for-associated-british-foods-again-as-sugar-profits-sour
(2) foodmanufacture.co.uk, ‘Sugar to halt ABF half-year progress’, 25 February 2019
https://www.foodmanufacture.co.uk/Article/2019/02/25/Sugar-setback-for-ABF
(3) ABF, Annual Report’ 2016
https://www.abf.co.uk/documents/pdfs/ar_cr_2016/2016_annual_report.pdf
(4) AB Sugar, ‘Sugar demand and supply in the UK’
https://www.absugar.com/sugar-markets/uk-sugar-sector
(5) International Sugar Journal, ‘Spain – Azucarera to increase beet sugar production to 650,000 t by 2020’
Spain – Azucarera to increase beet sugar production to 650,000 t by 2020
(6) Illovo, ‘Group Structure’
https://www.illovosugarafrica.com/About-us/Group-Overview/Structure
(7) Agrosynergie (for the EC), ‘Evaluation of [Common Agricultural Policy] measures applied to the sugar sector’, December 2011
http://ec.europa.eu/agriculture/eval/reports/sugar-2011/fulltext_en.pdf
(8) Associated British Foods plc, Group at a Glance: Sugar’,
https://www.abf.co.uk/investorrelations/annual_report_2018