Illovo to expand sugar exports to EU
25 December 2010
In November, Illovo (a subsidiary of Associated British Foods, which also owns British Sugar and a variety of other European sugar sector interests) announced plans to increase the group’s sugar exports to the EU to some 300,000 tonnes, up 11% from 270,000 tonnes in 2009. Illovo Managing Director Graham Clark told Reuters that Zambia was providing a major boost to the group’s exports, while additional tonnages were also available from Mozambique, Malawi and Swaziland. Overall, however, Illovo’s global sugar exports were deemed ‘unlikely to exceed 355,000 tonnes, compared with 742,281 tonnes last year’. This is in part a result of the dry weather conditions in South Africa, the company’s original production base.
Illovo’s expansion of sugar exports to the EU market contrasts with the situation prevailing in a number of other ACP suppliers, who have found the EU market less and less commercially attractive under the impact of CAP-reform-induced price reductions. Addressing the press in November 2010, John Prasad, CEO of the Fiji Sugar Corporation, said Fiji that was ‘looking for markets outside of the European Union’, since ‘other global markets currently offered better prices than [the] European Union market.’ He noted that with world market prices of between 26 and 28 US cents/lb and an EU price of 19 US cents/lb, ‘the world market is for the first time doing a lot better than the EU market.’ While he expressed the hope that the EU market price would recover somewhat, he highlighted the importance of selling Fijian sugar ‘at the best price to help revive the industry’.
In recent years these types of consideration have impacted on the volume of ACP sugar exports to the EU, giving rise to a situation where Bloomberg reports that Portuguese refiners are ‘having trouble finding raw sweetener at competitive prices’. According to analysis by the US Department of Agriculture, ‘traditional suppliers are taking advantage of current high prices and diverting sugar to the world market’.
Editorial comment
Illovo appears to be increasingly focusing its sugar exports on the EU market, despite a world market price level which is leading certain traditional ACP suppliers to re-evaluate their marketing strategies. With EU food and drink manufacturers complaining of a lack of availability of raw sugar from traditional suppliers, and the new CEO of the Fiji Sugar Corporation arguing that non-EU markets are increasingly important, this suggests that intra-corporate trade relationships may be coming to play an increasingly important role in ACP-EU sugar trade flows (see Agritrade Special Report, ‘ Corporate restructuring in the EU sugar sector: Implications for the ACP’).
In the context of recent internal EU policy discussions on strengthening the functioning of agricultural supply chains, which have highlighted the importance of inequalities in the distribution of power along certain supply chains, this potentially raises questions about the transparency of the functioning of ACP-EU sugar supply chains. This is an issue which ACP policy makers could usefully take up and address before the completion of the transition to an entirely ‘market-based’ process of price formation in the ACP-EU sugar trade.
