According to a press release from the ACP, the ACP Sub-Committee on Sugar has written to the EU Council to highlight the findings of the December 2012 report, ‘EC prospects for agricultural markets and incomes’, on likely developments in the EU sugar market following production quota abolition. The EC report projects EU sugar market price reductions and a substantial decrease in EU sugar imports up to 2022 (from 3.5 million tonnes in 2012 to 1.5 million tonnes in 2022) (see Agritrade article ‘ EU sugar sector developments and projections’, 7 April 2013). Given increased imports under EU FTAs and competition from CXL imports, it is maintained that this will see ACP sugar exports “drop to a negligible fraction of what they are today, or be wiped out altogether” from the EU market. CXL import quotas, which account for 30% of EU imports, are the term given to certain tariff-rate quotas established as a result of various WTO market access commitments to traditional suppliers, including those introduced for traditional suppliers as part of the EU enlargement process.
The letter maintained that “the conclusions of the Commission’s own report represented a serious disregard… [for] the commitments made in the Cotonou Partnership Agreement and EPAs in terms of maintenance of preferential market access for the ACP.” Shortcomings were also highlighted in the EU consultation process with the ACP over sugar reform issues. With these issues in mind, the ACP reiterated its support, alongside EU sugar processors and beet growers, for an extension of sugar production quotas until 2022.
By contrast, analysis reported by Bloomberg in April 2013 suggested that the end of EU sugar production quotas “could encourage further intra-African trade in sugar”.
In May 2013, the Southern African sugar companies Tongaat Hulett and Illovo both reported a strong increase in sugar production and headline earnings. Tongaat Hulett’s sugar production increased by 9% in the last year compared to a 14% increase in the preceding year, while diluted headline earnings – a specific basis for calculating earnings per share receivable in the worst possible situation when all other debt obligations are taken into account – rose by 15% per share, and the dividend by 17.02%. Illovo’s sugar production, meanwhile, increased by 14%, while its operating profit increased by 41% and the dividend by 44%. These increases have resulted in Illovo shares gaining 28% in value in the past year, despite rising input costs and the falling sales price of sugar (down to its lowest level in the past 3 years).
Concerns were expressed by Tongaat Hulett over the market effects of the release of EU out-of-quota sugar at reduced levies and arrangements for reduced-duty access for world market sugar to the EU market. The measures were seen by the company as eroding the benefits of selling ACP/LDC sugar on the EU market. Illovo, meanwhile, commented that operating margins are “likely [to] come under pressure during the coming year as global sugar prices ease further”. Tongaat Hulett feared that “if the world price remained low and pricing into Europe stayed under pressure”, then pressure on regional markets and regional sugar prices could increase.
For Tongaat Hulett, against this background, “the diversion of world market export sugar to a regional ethanol regime remains a key focus area”, as they also noted the growing interest in ethanol blending across the region.
As statements from Tongaat Hulett highlight, the prospects of EU production quota abolition are not the only source of concern to otherwise profitable sugar companies. Current EU policy measures adopted to manage EU market sugar shortages are also a matter of concern, with these policy measures seen as exacerbating pressures arising from escalating input costs and declining global sugar prices.
The major Southern African sugar companies are increasingly focusing on regional markets not only for sugar but also for other products of the sugar cane industry, notably ethanol and co-generated electricity. Government policy measures to facilitate the commercial marketing of co-generated electricity and uptake of ethanol for blending with petroleum potentially offer important areas for ACP government initiatives, which could ease the problems arising from the changes taking place within the EU sugar regime. In addition, strengthening the focus on cost control within the sugar production chain is an important area for intervention.
These potentially constitute important areas for ‘aid for trade’ support as the EU Sugar Protocol Accompanying Measures Programme enters its final stage. Indeed, establishing a pan-ACP programme to target support to these areas – using “rolled over”, undisbursed funding from the programme prior to the date of its termination – could constitute an important area for ongoing EU assistance.