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Thanks to the industry experts, CEO and CFO of Group Sopex Quentin and Hugues Kronackers, CEO of Alvean Ivo Sarjanovic, CEO of Tiense Suiker Thomas Hubbuch, director R&D and Channels of Puratos, Pierre Tossut and Bart Bruyneel, Managing Director Lipids at Vandemoortele, for the inspiring edition, insights and exchange of views.
All change in the EU sugar market
October 2017 will see major reforms in the EU sugar market, with the European Commission lifting production quotas and removing the minimum beet price processors must pay farmers for quota production. Producers will no longer be restricted by the World Trade Organisation export limit of 1.37m tonnes each season, while all current import programmes will stay in place.
What does this mean for EU production?
Currently the EU sugar production quota is around 13.5m tonnes, although production generally exceeds this quota. This sugar comes out of the quota sugar and may not be sold into the domestic market for consumption. Instead it can be used in the industrial sector, carried forward to the next marketing year, or exported to the world market although, under WTO rules, these extra quota exports are limited to 1.37m tonnes.
Following the lifting of quotas the more efficient producers in Northern Europe are expected to expand production. As a result less efficient producers in Southern Europe will probably come under pressure. Overall, production in the region is expected to increase from current levels (2016/17 production estimated at 16.7m tonnes), with production capacity estimated in the region of 20-21m tonnes. Initially producers will try to expand production by increasing campaign length, although this does raise the risk of potential frost damage to sugar beet. Investment in factory capacity could be possible at a later stage.
As a result of the reform the EU sugar refining sector is expected to face challenges. Import programs will remain, which gives a number of countries duty-free access to the EU market, or access at a reduced duty. Nevertheless, with increased production in the EU, many countries currently exporting to the EU are likely to start looking elsewhere to sell their sugar. While import duty rates on sugar outside of these import programs remain prohibitively high. This could create an issue for the EU refining sector in securing raw sugar at a competitive price.
What about EU sugar exports?
As mentioned previously, EU ‘out of quota’ sugar exports are currently limited to 1.37m tonnes under WTO rules. However, following the lifting of production quotas and the removal of the minimum beet price, producers will be free to export as much as they like.
Before the previous EU sugar reform in 2006, the EU exported between 4-6m tonnes a year, with the bulk of this sugar being shipped to North Africa and the Middle East. Now, with the higher production expected, EU exports could again return to 4m tonnes, which would make the EU a net exporter. However, the global sugar market has changed significantly since 2006. Considerable sugar refining capacity has been created in the MENA region, therefore competition between EU producers and MENA refiners will increase. This suggests that the removal of EU production quotas will not only challenge EU refiners, but also MENA refiners.