8 November 2007 - Urging producers to renounce quotas, an increased use of sugar for bioethanol and falling exports will characterise the EU sugar market as community chiefs seek to curb production to sustainable levels.
Outlook
The EU sugar markets will be in transition until 2009, at which time the reform of the sugar Common Market Organization (CMO) will be completed.
The withdrawal of sugar quota of 2 mmt for 2007 will reduce some short-term market risks, most notably the high level of stocks. But this will come at a certain expense of competitive restructuring.
From 2010 onwards, the sugar markets are expected to reach balance between domestic production, exports and imports from the least developed countries (LDC).
In addition to the declining production quota, the main influencing factor for the size of EU domestic production over the medium to long term will be the quantity of imports from Everything But Arms countries. EBA is an initiative of the European Union under which all imports to the EU from LDCs are duty free and quota free, with the exception of armaments.
Production is forecast to remain strong in France, Germany, and the UK as well as in Poland, where cost competitiveness should be the major driver of restructuring.
The main medium-term downwards risks for the European sugar industry are the slow take-up of restructuring as well as the high level of market stocks which could weigh heavily on the prospects after 2009.
The use of sugar for the production of bioethanol is expected to increase.
Production
Most EU states report sugar current yields per hectare are high or very high. However, producers in the south eastern part of the EU and those in the UK, who have suffered drought and heavy rains respectively, are reporting lower yields.
Sugar production in the EU is on the decline. In 2005/06 it was 21,373 million metric tonnes (mmt), which fell the following year to 17,757 mmt.
The total for 2007/08 is expected to drop again to 16,260 mmt, due to the changes triggered but the EU restructuring scheme. The EC has confirmed the EU sugar production quota for this period will be restricted to 16.6 mmt, some 2 mmt below nominal levels.
Germany
In 2007, the sugar beet area here increased by 50,404 ha, from 355,806 ha in 2006 to 406,210 ha. The yield per hectare rose from 59.2 tons in 2006 to 64.6 tons in 2007. The total harvest is 26.34 mmt this year compared to 21 mmt last year.
The German sugar milling industry estimates 920 mmt of the 965 mmt used for industrial, non-food and feed purpose, will be go for ethanol production.
France
Beet production will reach 32.3 mmt in 2007/08, up by 8.2 percent on the year according to the French Ministry of Agriculture. This is 4.6 percent higher than the previous 5-year average., with initial sugar yields forecasted to hit an all-time high of 13 mt per hectare and beet yields 85 mt per hectare.
UK
Just one company, British Sugar holds the quota. The number of growers is in decline from the 2006 figure of 7,200, producing 9 mmt of beet on 150,000 hectares of land. Additionally, 2007 saw extreme weather conditions during the summer with localized flooding and reduced sunlight hours. This has led to variable and mostly lower yields.
The other main player in the UK sugar market is Tate & Lyle whose refinery, the only one in the country and largest in the world, processes 1 mmt of raw sugar cane annually, up to 160 mt per hour.
On joining the EU, the UK secured an agreement allowing the continued importation of raw cane sugar from traditional suppliers in developing African, Caribbean and Pacific Group of States (ACP) Commonwealth countries.
This accord allows 1.3 mt of sugar (of which 90 pct goes to Tate & Lyle for refining) to be imported into the EU each year at guaranteed minimum prices and free of any EU levy. Tate & Lyle supply roughly 40 percent of the UK domestic market and are major exporters of white sugar.
Trade
Declining internal sugar production and a growth in the use of the commodity for bio-ethanol are predicted to fuel an increase in imports into the EU. In 2005/06 imports totalled 2,630 mmt which rose to 4,338 mmt the following year and are expected to be 3,650 in 2007/08.
Most of these are expected to come from the ACP, EBA and Balkan countries as well as the import quota granted to Bulgaria and Romania after they joined the EU.
Exports are likely to continue their fall from 8,345 mmt in 2005/06 to 2,162 mmt in 2006/07. This trend is forecast to carry on through 2007/08.
Sugar Reform
The EU reform plan of the Common Market Organization (CMO) in 2006 has not achieved its goal and, according to a US government report, “much less quota was renounced during the first two years of the scheme than was anticipated”.
A meeting of EU agriculture chiefs at the end of September agreed to change the restructuring scheme with the aim of reducing EU sugar production to sustainable levels. The Commission believes that these changes should allow the renunciation of about 3.8 mmt of sugar quota by 2010 in addition to the 2.2 mmt given up so far.
The main amendment passed by the Ministers was to fix the aid given to growers and machinery contractors to 10 pct, with the additional stipulation that growers who renounce quota will be handed extra payments. Retroactive payments to those who have already given up their quotas will also be made.
A new element is that beet growers may apply directly for aid from the restructuring fund, up to a certain limit. Also, companies that renounce part of their 2008/09 quota will be exempted from paying the restructuring levy on the part of their quota which was subject to preventive withdrawal in the 2007/08 marketing year.
If insufficient quota has been renounced by 2010, the Commission will make compulsory quota cuts. The level of these cuts will vary depending on how much quota each Member State had renounced under the restructuring scheme.
Bioethanol
The use of sugar for the production of bioethanol is expected to increase. The increase is triggered by the high cereal prices and by the Sugar Reform that limits the sugar production under quota.
The production of bioethanol from sugar production has until now mainly taken place in France. However, in October 2007, an ethanol plant using sugar beet as feedstock went on line in the U.K. Run by British Sugar, it is expected to use 550 mt of sugar beet annually and produce 55 mt (70 million litres) of bioethanol.
There are two companies converting sugar or beet juice into ethanol in Germany, namely CropEnergies and Nordzucker.
Nordzucker is going to be operational in November 2007. CropEnergies, which is a subsidiary of Südzucker, is replacing the expensive grains with beet juice at their facility in Zeitz. The German sugar milling industry estimates that 920,000 mt of sugar will be used for ethanol production.
The expected strong expansion of bioethanol production from sugar beet is anticipated to contribute to a stabilization of the total sugar beet area, particularly in the most competitive sugar production regions. With a growing out of quota production, fuel-ethanol will be the main outlet to balance the market now that the sugar exports are massively reduced.
EU-ACP Sugar Protocol
In September 2007, the Council adopted decisions terminating the sugar protocol to the ACP Cotonou agreement together with a similar agreement concerning sugar imports from India, with effect from October 1, 2009.
The ACP Committee of Ambassadors condemned this since many members are negotiating in Economic Partnership Agreements (EPA). The ACP said the Sugar Protocol was a trade agreement with a strong development dimension.
The EC contends the current negotiations for an economic partnership agreement with ACP states are intended to create conditions for ACPs to aid development through trade.
In the context of the EPAs, the EU has offered full duty and quota free access to the EU for all ACP countries. If agreed, this would be applied in stages, the first of which to take place in October 2009.
Whereas the sugar protocol provided preferential access for 1.3 mmt annually, the EPA market access would offer a larger volume in an initial phase, leading to unlimited quantities at a later state.
(Source: US Government)