According to the USDA semi-annual review of the EU sugar sector, EU production for food use in 2013/14 is “forecast at 16.0 million tonnes, a decrease of almost 600,000 tonnes compared to [marketing year] 2012/13”, which itself was “10% below the record production of MY 2011/12”. The decrease in beet sowings to which this decline is attributed occurred largely in response to the carry-over of production from the previous season, which required a reduction of sugar production to stay within the national quota ceilings.
At the end of MY 2012/13, EU sugar stocks reached 4 million tonnes “after several years of tight EU sugar supplies for food use”. High EU sugar prices in 2011/12 and 2012/13 served to put pressure on sugar consumption. However, “EU domestic food sugar prices in MY 2013/14 are expected to decrease as prices for renewing long-term sugar supply contracts with EU food industries adapt to much lower world sugar market prices compared to previous years.”
USDA noted that “[EU] sugar imports for MY 2013/14 are forecast at 3.6 million MT, compared to 3.9 million MT in MY 2012/13 and 3.5 million MT in MY 2011/12.” This includes “additional preferential imports totalling 244,000 tonnes of raw sugar” from Colombia, Peru and the six central American countries with which the EU has concluded free-trade area agreements.
EU exports in 2013/14 meanwhile are projected “to remain at 1.5 million MT in line with the EU’s WTO sugar export ceiling”. This is substantially below export levels in 2011/12, which totalled 2.3 million tonnes after the use of export licences was rolled over from the previous year.
The forecast reduction in EU production prompted the EC to issue export licences for 650,000 tonnes in October 2013, substantially below the 1.47 million tonnes in requests for export licences received for the 2013/14 season. Further export licences will be issued when the EU production situation is more certain.
Press reports recalled that in the 2012/13 season, the emergence of sugar shortages on the EU market prompted the EC to release 600,000 tonnes of out-of-quota sugar onto the EU market and to issue additional import licences for 371,882 tonnes of raw sugar and 264,209 tonnes of refined sugar.
The reports noted that as a result of the new transitional regime for “temporary measures” agreed for the period up till EU sugar production quotas lapse, any future additional exceptional sugar import licences would be restricted to raw sugar imports, with no refined sugar imports being allowed under these temporary exceptional measures.
Meanwhile, Rabobank is projecting a gradual increase in global sugar prices of 8% in 2014 (increasing from 16.8 US cents/lb in the third quarter of 2013 to 18.2 c/lb in the third quarter of 2014), as global production contracts, generating a deficit in the 2014/5 season. Analysts at Rabobank suggest that this will be a consequence of sugar having been traded “below the costs of production for over 14 months”.
The EU’s system for sugar quota management is complex. It involves:
- some level of carry-over of overproduction of sugar to the next season;
- permitted non-food uses;
- special exemptions for use of out-of-quota sugar on the EU market;
- unsubsidised exports, as well as straight sugar sales.
However, the main point about sugar production in the EU is that considerable capacity for expanded sugar production exists, once sugar production quotas are removed from October 2017. This has been highlighted by the fact that the reforms were expected to encourage a reduction in EU sugar production of 6 million tonnes, while the actual reduction has been nearer 2 million tonnes.
Expansion will allow EU sugar companies to engage more fully in supplying the domestic EU sugar market and even to enter the export trade.
Significantly, in terms of imports, EU sugar prices are likely to be lower in 2013/14, with considerable variation likely in the individual contract prices paid for ACP sugar, depending on the specific supply arrangements set in place.
The 2013/14 marketing year will also see the commencement of supplies under the new Central American and Andean Pact trade agreements – these countries are forecast to supply 7.5% of EU imports.
In the short term this appears to be at the expense of the so-called CXL suppliers (Brazil, Cuba, Australia and India) rather than ACP suppliers, whose exports to the EU are projected to increase. In the longer term, however, as EU import demand contracts in response to the abolition of both EU sugar and isoglucose production quotas, ACP sugar suppliers may well find themselves under increased competitive pressure on the EU market (see Agritrade articles ‘ What scope for increased isoglucose use in the EU after production quota...’, 9 December 2013, and ‘ Both EU sugar supply and demand developments likely to pose challenges f...’, 13 January 2014).
Identifying market components where long-term supply relationships can be developed, which will be less vulnerable to the expansion of beet sugar production and to loss of market share to isoglucose and other alternative sweeteners, can be seen as a major priority for ACP sugar exporters seeking to retain a presence in the EU market.
An additional priority may be identified in terms of developing innovative branding and marketing strategies for sugar products similar to those developed for Barbados’ Plantation Reserve cane sugar brand.