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EU-27 Sugar Semi-Annual Report 2008
Consumption of sugar in the EU 27 should remain at current levels, with industrial and bioethanol use stable at significantly higher levels than those reached in 2006/07 according to the USDA Foreign Agricultural Service.
Reform of the EU Sugar Regime
The European Commission is of the view that some 6 million MT of white sugar production quotas will have to be renounced by the end of MY 2009/10 in order to balance supply and demand. In MY 2007/08, the second year of the four year implementation period associated with the Sugar Reform, only 709,000 MT were given up, representing less than 50 percent of the 1.47 million MT that were sold back in the previous MY. The impact was exacerbated by good climatic conditions that increased agronomic yields in several Member States that year. As such, production did not decrease in the second year of the reform. Within this framework, the European Commission introduced technical changes to the legislation governing the reform, the effects of which were 3.33 million MT of quota (or 20.5 percent of the total quota allocation for that year) being rescinded for MY 2008/09. The closing down of Spain’s Ebro Puleva sugar factory in Penafiel resulted in a further 130,000 MT already having been renounced for MY 2009/10. As such, the EU’s white sugar production quotas have been reduced by some 5.7 million MT since the reform came into effect in 2006, which is approaching the 6 million MT cut target.
Market situation
Good weather conditions in MY 2007/08 lead to increased agronomic yields in several Member States, yielding a broadly similar production figure as for the previous year.
EU in-quota sugar production will decline to 14.2 million MT (raw value) in MY 2008/09 as a function of the decline in area sown to beet in producing Member States coupled with average weather conditions so far. Out-of-quota production should reach 2.7 million MT (raw value), with isoglucose production at 870,000 MT (raw value).
More specifically, sugar beet sowings in Benelux for the 2008 harvest reduced by 18 percent with sugar beet test results indicating lower beet and sugar yields. Sugar output may reach around 1.5 million MT as compared to almost 1.8 million MT last year.
Farmers in France sowed some 12 percent less sugar beet than last year. The impact on sugar production was more significant as an increasing share of the total beet crop is destined for ethanol production. Beet tests suggest results in line with last year when yields were high. It is anticipated that total sugar output may decline to some 3.4 million MT compared to 4 million MT in MY 2007/08.
The German sugar beet area decreased by 5.2 percent to 371,000 ha.. It is estimated that some 40,000 ha to 50,000 ha of beet will be used for ethanol production. Reduced root weight is compensated to some extent by higher sugar content, and due to optimal conditions in the Fall, later harvested beets are both larger and higher in sugar content. Total sugar production may reach 4.1 million MT compared to 4.3 million MT in MY 2007/08.
Italy has given up approaching 70 percent of its production quota. Average yields should increase as beet areas are expected to be reduced even further and the less efficient producers leave the sector. Production could decline in MY 2008/07 to 500,000 MT from MY 2007/08’s 730,000 MT. This compares with around 2 million MT in MY 2005/06.
Drought and recent heavy rainfall in Poland have not compromised beet production but rather increased sugar content and yield prospects. MY 2008 witnessed a decline of area sown to beet to 170,000 ha as compared to 220,000 ha the previous year. Production in MY 2008/09 could reach 1.4 million MT, representing a decrease of 700,000 MT in MY 2007/08.
Poor weather conditions in the United Kingdom during March this year resulted in drilling delays despite the fact that drilling began early. Total sugar production is therefore expected to reach no more than 1.2 million MT, which is approaching the U.K.’s national quota.
Bulgaria, Ireland, Latvia, Portugal and Slovenia have ceased to produce sugar from domestic crops.
Bioethanol
The estimation of sugar or molasses as feedstock for bioethanol is complicated by the following:
- some companies have switched feedstock due to high grain prices (eg Crop Energy, Verbio);
- some ethanol plants dedicated to sugar beet use as feedstock have come on stream (eg Danisco and Nordzucker in Germany).
Prices
In July 2008, although the imp act on commodities of the significantly higher crude oil prices led to higher production costs it also resulted in increased demand for biofuels. Continued depreciation of the $US similarly contributed to upward pressure on commodity prices expressed in €.
The Harmonized Indices of Consumer Prices1 (HICPs) food index for EU 27 demonstrates an increase of 5.1 percent over the period September 2008 – October 2007. By way of comparison, the HICP all items index increased by 3.7 percent over the same period.
Demand for sugar (for human consumption) tends to be inelastic as the sweetener is an inexpensive dietary component. Given the reduced supply, it is anticipated that the market will be bullish. Available historical price data for sugar are set out below:
Average price for white sugar within the Community Ex-work prices for homogeneous granulated crystal, standard quality, in bulk or bags
1 Harmonized Indices of Consumer Prices (HICPs) are used in the assessment of inflation convergence as required under Article 121 of the Treaty of Amsterdam. They are compiled on the basis of a legislated methodology, binding for all EU Member States.
Further Reading
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November 2008
