Since the implementation of EU sugar sector reforms, major changes have been taking place in the EU sugar sector. A number of EU sugar beet refiners have invested in “co-refining” raw cane sugar,1 and have established an estimated additional refining capacity of 1.85 million tonnes since 2005, significantly increasing the number of potential EU buyers of ACP raw sugar.2
Co-refiners, because they are able to cover their capital costs from their beet refining operations, can afford to refine raw cane sugar at marginal cost.3 This has placed the co-refiners in a highly competitive position in procuring preferential (i.e. duty-free) ACP raw sugar supplies, compared to traditional full-time cane sugar refiners. Despite EU sugar sector reforms, this increased competition for ACP sugar supplies has periodically delivered very high returns on sugar sales on the EU market. Some ACP exporters (mainly in Southern Africa) have consequently shifted away from supplying traditional raw cane sugar refiners and have established new supply relationships with co-refiners.
Because of the way that the EU’s sugar trade regime operates, competition from co-refiners for preferential sugar supplies has led to a dramatic fall in the capacity utilisation of traditional raw cane sugar refiners.2 Although the traditional cane refining companies concerned have restructured in order to maintain competitiveness in the context of this capacity underutilisation, it is apparent that, in the longer term, securing access to sugar at world market prices is essential to the continuation of the operation of traditional cane sugar refiners. The vigorous campaign “Save our Sugar: Support a Fair Deal for Cane Refiners”,4 led by Tate & Lyle Sugars, is symptomatic of the pressures facing traditional cane sugar refiners.
In the longer term, the abolition of EU sugar production quotas in 2017 will allow domestic EU sugar beet processors to increase the use of their own sugar beet in the supply of sugar to the EU market. In addition, the abolition of production quotas on isoglucose is projected to lead to a more than threefold growth in consumption: the European Commission (EC) projects that isoglucose’s share of the sweetener market will increase from 3.6% in 2011 to 11.5% by 2023. The increased consumption of sweeteners is in turn expected to contribute to a contraction of 11% in the consumption of sugar in the EU between 2010 and 2023 (from 19.1 to 17.1 million tonnes).5
Overall, according to the EC’s ‘Prospects for agricultural markets and income in the EU 2012–2023’ published in December 2013, planned policy changes will reduce both the domestic EU sugar price (from an average of €627/tonne in 2013 to an average of between €405 and €420/tonne over the period 2017 to 2023) and EU demand for imported sugar (from an average of 3.63 million tonnes per annum from 2009 to 2011, to an average of 2.0 million tonnes per annum by 2021–23).
Projected EU sugar imports (million tonnes)
Source: EC, DG Agriculture and Rural Development, ‘Prospects for agricultural markets and income in the EU 2013–2023’, December 2013
In addition, the demand for sugar on the EU market is likely to be affected by the emergence of a range of alternative sweeteners that are likely to target particular components of the food processing industry. It is estimated that stevia, for example, could eventually substitute for up to half of the sugar used in the soft drinks industry globally.6 Demand may also be affected by concerns over the health effects of “hidden” sugars in processed food products, with one recent health campaign group calling for a 30% reduction in the sugar content of major processed food product groups.7
If there is a contraction in the market for sugar in the EU, as producers of isoglucose and other alternative sweeteners gain market share, and if competitive EU beet producers that have installed co-refining capacity can expand the processing of their own beet production, the question arises: what impact will this have on the demand of these co-refiners for imported raw cane sugar?
Given the annual nature of beet plantings in the EU, this is a question that needs to be assessed in the light of patterns of mixed farming in competitive beet production zones and the relative prices of arable crops in any given season. It also needs to be assessed in the light of the routes to market used by different beet co-refiners and the relative importance of direct-consumption sugar sales and industrial sugar buyers in the co-refiners’ marketing strategy.
EU post-reform sugar import volumes are projected to be only 55% of their levels over the period 2009 to 2011; and non-ACP-sourced sugar imports (based on total imports in 2011/12) are more than sufficient to meet total EU sugar import needs. Current and future developments therefore pose real challenges for ACP sugar exporters.
This raises a number of key questions:
a) Which current raw cane sugar co-refiners are likely to remain co-refiners of raw cane sugar after 2017?
b) What routes to market should ACP sugar exporters seek to develop in order to maximise net revenues on sugar sales to the EU market?
c) How can ACP sugar exporters position themselves on EU sugar markets between 2014 and 2017, so that they have secure commercial relationships that will sustain profitable sugar exports to the EU in the period after the abolition of production quotas?
d) What will be the position of traditional EU raw cane sugar refiners after October 2017, and how will the current plight of traditional ACP cane sugar refiners affect the evolution of the EU sugar trade regime?
1. Co-refining is the term used for sugar production by sugar beet refiners from both sugar beet and raw cane sugar.
2. CTA Agritrade, ‘The future of EU sugar production quotas’, 23 September 2012
3. CTA Agritrade, ‘EU co-refiners enjoy cost advantages’, 28 May 2012
4. See the ‘Save Our Sugar’ campaign website at http://saveoursugar.eu/#.
5. For more details see EC, ‘Prospects for agricultural markets and income in the EU 2013–2023’, statistical tables, December 2013, Table 6.14
6. CTA Agritrade, ‘Both EU sugar supply and demand developments likely to pose challenges for ACP exporters’, 13 January 2014
7. Foodnavigator.com, ‘Action on Sugar: New global campaign tales aim at high level of sugar in foods and drinks’, 9 January 2014