Recent reforms to the EU Common Agricultural Policy (CAP) included changes to the region’s sugar regulations, with a new sugar regime entering into force in 2017. With the abolition of sugar quotas and minimum beet prices, but with import barriers remaining in place, Rabobank believes the future looks sweet for the EU’s more competitive beet sugar producers and their beet growers.
Other EU beet sugar producers and cane refiners may be facing challenging times, with the latter possibly facing a sunnier outlook in the long term.
Rabobank analyst Ruud Schers commented: “In the new quota-free environment, beet sugar producers may decide for themselves how much sugar they want to produce and where they concentrate their activities. As a result, EU sugar production is expected to increase as growers maximise their crop and competitive sugar producers fully utillise their capacity. This is likely to result in higher competition among suppliers, creating further incentives to produce more efficiently. At the same time, EU sugar price will continue to be a key factor and will determine profitability for producers, eventually defining the winners and losers of this regime overhaul.”
There are two ways that sugar producers in the EU can keep their competitive edge: Processors can minimise unit costs by maximising factory throughput and capacity utilisation; and growers can increase sugar beet production, for instance by increasing the growing area or extending the growing period.
The medium-term outlook for those beet growers and beet sugar producers that can remain competitive is good. Rabobank expects that EU sugar prices and beet prices will become more volatile post-2017. Furthermore, Rabobank believes that the EU will maintain a degree of import protection beyond 2017 through tariffs on non-preferential imports and this, combined with increased production but similar levels of demand could even open the way for higher levels of sugar exports to extra-EU countries.
However, for the less competitive producers and growers, it will be challenging to cope with the new realities of the EU sugar market and some may be forced out of production or may need to shift to other crops.
“Cane refiners in the EU may also face a challenging time, mainly due to a lower requirement for imported sugar which could be caused by a growing consumption of the alternative sweetener, high fructose syrup (HFS or isoglucose), for which production quotas will also be abolished,” added Schers. “However, further preferential access for sugar through new trade agreements could help cane sugar refiners to keep up with their competitors in the long term.”
