Abolishing quotas Europe gets sweeter
Sugar prices set to fall as firms can produce and export as much as they want
7 October, 2017
After a decade of quotas, sugar firms in the EU can now produce and export as much as they want. The EU is abolishing its system of quotas and minimum pricing for sugar from 1 October. Companies such as France’s Tereos and Germany’s Suedzucker AG have been ramping up operations to get ready for the change, which will help fuel a global sugar glut.
The end of almost 50 years of Brussels protectionism on sugar production is set to shake up the industry on a global scale. As the EU abolishes its minimum price and production quota for beet, the bloc may become a net exporter for sugar for the first time in over ten years. The scrapping of quotas - the last of the EU’s agriculture curbs - is seen as boom-or-bust moment for producers and a sweetener for consumers as prices are expected to fall. With increased EU production, there will be less need to import supplies from places like Africa and the Caribbean.
The quotas that ended this weekend were set in 2006 in preparation to phase out limits that were first imposed in the 1960s to ensure food security were rejected by the World Trade Organization. That curbed the amount of sugar EU producers could sell in the domestic market and boosted imports. In anticipation of the change, the European beet sector has already been restructured, with an EU compensation scheme facilitating the closure of factories and reducing the number of growers relying on state support. And thanks to improved seeding, beet yields have been rising, particularly of growers in the European "beet belt" that runs through parts of Britain, France and Germany.
Scrapping the restrictions will help the EU boost exports by almost 50% to 2.2m metric tons this season, according to the US Department of Agriculture (USDA), cited by Bloomberg. Other analysts forecast even higher shipments. Top grower France’s exports alone may triple to more than one million tons, crops office FranceAgriMer estimates.
"Our objective is increasing yield and reducing costs," Alain Jeanroy, head of the French Sugar Beet Growers' Association (CGB) told an industry conference earlier this year.
The EU accounted for about 10% of global sugar production last season, according to the USDA. The region makes sugar grown from local beets, which need a temperate climate. The bloc also refines sugar cane imported from countries with tropical climates. Refiners will still remain limited to duty-free shipments from some least developed countries and imports at reduced levies from certain nations.
EU sugar prices, which for years have traded at a premium to the world price, are set to move more in line with global rates, according to Rabobank. Average EU prices are at about €500 ($590) a ton, according to the European Commission. That compares with about $363 a ton for white-sugar futures traded in London.
EU producers are expected to export primarily to markets within the EU, but also potentially to Africa and the Middle East. As a result, the least efficient EU beet growing producers, such as Italy, Greece, Spain, Portugal and Nordic countries, will struggle to compete in the years to come.
The abolition of quotas could be good news for consumers, according to Investec Bank Plc.