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What scope for increased isoglucose use in the EU after production quota abolition?

08 December 2013

The European sugar quota system at present “limits isoglucose production to 5% [670,000 tonnes] of the total EU sugar quota”. However, from October 2017 these production quota restrictions will be lifted. This raises the question of whether major European sugar users will switch away from sugar to isoglucose. According to Jamie Fortescue, Managing Director of the European Starch Industry Association, the production of isoglucose (or high-fructose corn syrup – HFCS – as it is known in the US) “could increase fourfold in the longer term”, taking some 20% of the EU market for sweeteners. This projected level of isoglucose use in the EU is equivalent to that prevailing in Japan, but only 40% of the level of market penetration achieved by HFCS in the US.

Mr Fortescue acknowledged that projecting future demand for isoglucose was “difficult… as consumer acceptance of the ingredient and manufacturers’ willingness to switch from sugar was still unknown”. In addition, starch producers “were not in a position to increase production quickly”, as investments needed to be made in existing and new plants to meet any increased demand.

Such investments will be dependent on the development of demand. Currently, there is seen to be some interest in the soft drinks and ice cream sectors in switching to isoglucose, and potentially a wide range of other food products, such as bakery products, jams and ketchups, that could use it. Mr Fortescue points out that “because isoglucose is a liquid, it is much better suited to a liquid product,” where it has some technical advantages. He also acknowledges that any switch by industrial users will depend heavily on the relative prices of sugar and cereals.

ISO senior economist Sergey Gudoshnikov has commented that “if isoglucose replaces sugar in the domestic (EU) market, surplus sugars could be offered to the international market”. 

Editorial comment

After the abolition of both sugar and isoglucose production quotas, the extent to which isoglucose production will increase its share of the EU sweetener market is an important issue for ACP raw sugar exporters. Since the introduction of sugar sector reforms, many ACP exporters have shifted away from supplying traditional cane sugar refiners and towards supplying the new “co-refiners”.

However, questions have been raised as to the long-term commitment of the new co-refiners to the refining of ACP raw sugars. In a context of production quotas, it makes sense to import ACP raw sugar to co-refine alongside beet processing activities, since it enables the companies concerned to expand their sugar production, despite the existence of beet-related sugar production quotas. However, once sugar beet production quotas are removed, these same companies may have a greater interest in processing an increased volume of their own beet production, particularly if they are located in areas of low-cost beet production.

This could then squeeze out raw cane sugar refining – which could be further squeezed if the overall demand for sugar in the EU declines as more isoglucose is used by industrial users of sugar. A fourfold increase in isoglucose use in the EU in the long term would remove demand for almost 2 million tonnes of sugar from the EU market. This is equivalent to more the total volume of ACP sugar exports to the EU in 2011/12.

Such a development, however, will be crucially determined by the relative prices of cereals and sugar on the world market. In addition, high levels of price volatility in the coming years may well reduce the incentive for investment in expanded isoglucose production, given the greater flexibility available to beet producers and refiners in responding to price volatility.

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