Sugar supply

It has been a few months since quotas limiting European Union (EU) sugar production were scrapped on 30 September, and while its longer-term impact has yet to become clear, experts agree that EU output will rise, at least in the short term. The EU executive, the European Commission, is predicting that EU sugar production will increase 20 per cent in the coming year. EU sugar production in the 2016/2017 marketing year was 16.8 million tonnes. With the end of the quota system, EU sugar output is expected by Brussels to rise to roughly 20.1m tonnes in the following marketing year.

But while this would be a clear indication that ending quotas will free producers to meet market demand, some specialists foresee some risk.

“The end of the quotas is presented humbly as a huge liberalisation, but it might lead to big dominant companies that are becoming more and more powerful,” Gerald Mason, senior vice president of Tate & Lyle Sugars, said.

Mason, whose company makes sugar and syrup from sugar cane, warned that customers may be left with fewer cane sugar supply choices in the future due to market concentration. Mason said he has spent time trying to transmit this message to EU policy makers, but it fell on deaf ears as sugar beet is grown in most EU countries and sugar cane is imported, with raw cane being processed in Britain, France, Spain and Portugal. “Because of the politics it can’t happen, the EU will always support the majority of countries,” he said, warning that he expects less than one million tonnes to be imported into the EU compared to 2.5m tonnes a few years ago. Key imports come from Brazil, followed by India, China, Thailand, Pakistan and Mexico.

Increased output 

In the meantime, the roughly 145,000 sugar beet growers in 20 different EU member states and the 28,000 workers employed directly within EU sugar beet processing, have an occasion to celebrate. The European Commission’s short-term outlook for EU agricultural markets in 2017 and 2018, published in July, foresaw that the EU’s sugar beet area may grow by 14 per cent in 2017/2018, reaching 1.7m hectares.

The CIUS, the Committee of European Sugar Users, representing the European sugar-using food and beverage industries, is also happy. It said in a note that sugar quotas have been “hampering the competitiveness of European sugar-using food and drink industries.”

“With the removal of production and export restrictions, we see that European sugar producers are increasing their output to develop their sales globally,” it continued.

Globally, in its report, the Commission foresees not only increased global sugar production, but also that “EU prices will become more exposed to world price volatility.”

In the first half of 2017, white sugar prices have remained stable – at €500 per tonne this June, higher than global prices, which have fallen sharply – down to €347 in July this year.

But this reported stability in EU prices is expected to change with the abolition of the quotas. Marie-Christine Ribera, director general of the European Association of Sugar Producers (CEFS), predicts that “competition will intensify, lower white sugar prices are possible, and isoglucose is expected to take an increased market share.”

Lower prices 

In the meantime, lower white sugar prices are good news for downstream manufacturers. Speaking to Confectionery Production, Muriel Korter, economic affairs director of the association for chocolate, biscuits and confectionery in Europe (Caobisco), said, “Europe benefits from the positive trade balance and growing exports of high European value add sugar containing food and drink products, such as chocolate, fine bakery wares or confectionery.”

Korter added that “to continue to succeed in increasingly competitive local, European and global markets, the confectionery sector depends on the security and competitiveness of supply of sugar.”

Currently, a physical shortage of sugar does not exist, and it is not projected in the short term – but there are no guarantees for the future. The Commission is aware of this and is planning access to intervention powers within the EU’s Common Agricultural Policy (CAP). The executive has promised to react if the sugar industry faces serious market difficulties following the end of the quotas, offering crisis measures in case of very high or low product prices, paying farmers in cash and imposing a EU import tariff. The European Commission has also promised that its Sugar Market Observatory, a group of experts created this July, is “fully operational”, providing “market information and transparency to enable the sector to respond to market developments.”

Ribera noted that as from 1 October, EU beet sugar manufacturers have been obliged to notify both the selling price of their principal product (white sugar) and the purchase price of their primary input (sugar beet). Ribera said that in her opinion “this high degree of market transparency is not matched by transparency further down the supply chain” and recommended that price data also be shared by sugar users “to achieve a better picture of how value added is shared along the supply chain.”

UK perspective 

As for the UK, Brexit complicates the situation. Experts argue quota abolition will have a strong impact on British sugar producers as they will from 2019 be outside the EU envelope and hence may be subjected to sugar import duties on their exports. “As a lot of sugar-using businesses are now global in scale there will be powerful incentives to move manufacturing away from the UK to locations where this duty does not affect them,” warned confectionery consultant Graham Godfrey.

“If the EU supply is expanded, it will mean the EU has to export the surplus somewhere. A potential target will be post-Brexit UK, as exports of sugar products from the UK will face substantial tariffs into the EU but it will be difficult to apply import tariffs [in Britain] as that will stoke inflation.”

UK producer British Sugar is less pessimistic, however, saying a post-Brexit EU will also face problems. In its 2015 annual report it predicted, “The EU will experience significant turbulence through the years of transition, during which we will likely see some further consolidation of the industry.”

And a more recent statement said, “The UK European referendum vote is introducing a further dimension to the 2017 EU sugar reform for sugar producers in the EU. Brexit offers opportunities for great British businesses, such as British Sugar and the wider UK beet sugar industry.”

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