RECENT CTA-AGRITRADE ARTICLES ON EU...
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Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 1
September 2013
RECENT CTA-AGRITRADE ARTICLES ON EU SUGAR SECTOR
DEVELOPMENTS AND IMPLICATIONS FOR THE ACP
TABLE OF CONTENTS
THE FUTURE EU REGIME AND DEMAND FOR ACP SUGAR .................................. 4
REFORM DEBATES AND IMPACT ................................................................................................... 4
EU sugar sector developments and projections - 07 April 2013 ..................................................... 4
Impact of CAP reform agreement on the sugar sector - 06 August 2013 ....................................... 7
EU Council political agreement on extension of sugar production quotas until 2016/17 - 07 April
2013 ................................................................................................................................................. 9
Debate shifts towards extension of sugar production quotas - 21 January 2013 ......................... 12
The UK House of Lords recommendations on ACP/LDC countries and the EU sugar regime- 28
October 2012 ................................................................................................................................. 15
The future of EU sugar production quotas - 23 September 2012 ................................................. 17
Industrial users set out their views on sugar reform against backdrop of global price volatility -
09 September 2012 ....................................................................................................................... 20
EU co-refiners enjoy cost advantages - 28 May 2012 ................................................................... 22
EC evaluation of sugar sector measures - 18 March 2012 ............................................................ 25
MANAGING THE EU MARKET ....................................................................................................... 27
Continued controversy over EC management of EU sugar regime and its future - 07 April 2013 27
EC announces temporary measures to boost sugar supplies- 16 December 2012 ....................... 30
EU sugar market management measures cause controversy - 22 January 2012 ......................... 32
Regulatory framework generates difficulties on EU sugar market - 28 November 2011 ............. 35
EU continues to manage opening to third-country sugar imports - 05 July 2011 ........................ 37
FUNCTIONING OF THE SUGAR SUPPLY CHAIN .......................................................... 39
THE EU EXPERIENCE ....................................................................................................................... 39
EC review of the impact of 2006 reforms on price transmission in the sugar sector - 07 July 2013
....................................................................................................................................................... 39
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 2
Report on improving functioning of food supply chain released - 11 March 2013 ...................... 41
Importance of inter-professional agreements in managing unequal power relationships
highlighted - 28 October 2012 ....................................................................................................... 43
Elaboration of measures to strengthen the functioning of EU dairy supply chains continue - 18
March 2012 ................................................................................................................................... 45
Debate on functioning of supply chain continues - 07 June 2010 ................................................ 48
EC proposes action to improve functioning of food supply chain - 09 December 2009 ............... 50
Emerging consensus on new EU rules to regulate dairy sector relations - 16 January 2012 ........ 53
EC policy developments on addressing unfair trading practices- 04 March 2013 ........................ 55
ACP EXPERIENCES ........................................................................................................................... 57
Short-term earnings windfall projected in Jamaican sugar sector - 06 September 2011 ............. 57
Tongaat Hulett CEO highlights income gains from electricity co-generation - 16 July 2012 ........ 59
Functioning of supply chain issues gaining in prominence in the sugar sector in Eastern and
Southern Africa - 06 September 2011 ........................................................................................... 61
CORPORATE PERSPECTIVES .................................................................................................. 64
EU ...................................................................................................................................................... 64
Further EU corporate mergers under way in preparation for ongoing EU sugar sector reforms -
25 October 2011 ............................................................................................................................ 64
TATE & LYLE/ASR ............................................................................................................................ 66
Tate & Lyle Sugars argues for improved access to low-cost non-ACP cane sugar supplies - 03
June 2013 ...................................................................................................................................... 66
Tate and Lyle Sugars initiate a further legal case management of EU sugar regime - 09 December
2012 ............................................................................................................................................... 68
Fair-trade component a key factor in BSI acquisition by ASR - 02 December 2012...................... 70
ASR to take shares in Belize Sugar Industries - 09 July 2012 ......................................................... 72
COMPLANT/PCSC ........................................................................................................................... 73
New marketing agency agreement signed with PCSC in Jamaica - 18 June 2012 ......................... 73
Pan Caribbean Sugar Company sets out its vision - 07 May 2012 ................................................ 75
Debate on marketing arrangements for Jamaican sugar - 08 April 2012 ..................................... 77
Jamaican privatisation brings in Chinese company - 30 August 2010........................................... 79
ABF/ILLOVO ..................................................................................................................................... 80
ABF is set to buy Illovo - 30 June 2006 .......................................................................................... 80
Zambian Sugar’s exports grow by a third, while Mozambique sugar sector deemed a success - 06
October 2011 ................................................................................................................................. 83
Illovo to expand sugar exports to EU - 25 December 2010 ........................................................... 85
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 3
Some setbacks but overall good times for Illovo Sugar - 09 December 2009 ............................... 87
TONGATT HULETT .......................................................................................................................... 88
Tongaat Hulett expansion plans on track - 29 October 2010........................................................ 88
MAURITIUS ...................................................................................................................................... 90
Getting ahead of policy change: Lessons from the Mauritian sugar experience - 28 January 2013
....................................................................................................................................................... 90
Second Mauritian sugar company looking to expand in Eastern Africa - 18 February 2013 ........ 92
Mauritius continues to expand value-added sugar exports -27 December 2011 ........................ 94
Mauritius completes move to refined sugar exports, other countries face variable prospects - 09
August 2011 ................................................................................................................................... 95
Local refining of imported raw sugar raises longer-term regional issues - 05 July 2011 .............. 97
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 4
THE FUTURE EU REGIME AND DEMAND FOR ACP SUGAR
REFORM DEBATES AND IMPACT
EU sugar sector developments and projections - 07 April 2013
According to the EC’s report, ‘Prospects for agricultural markets and income in the EU 2012–2020’
published in December 2012, high EU sugar beet yields and high sugar content in 2011 “resulted in a
large out-of-quota production of about 5 million tonnes of white sugar equivalent”, and the EC
expects sugar production for 2012 to be substantially lower (-9%) than in 2011. From 2015 to 2022,
an increase of some 5.7% above the production average for 2010–15 has been projected.
The report notes that since 2005, the EU has turned from a net exporter to a net importer of sugar,
but that this position is likely to change from 2018 onwards, with the EU projected to “move even
closer to self-sufficiency and indeed from time to time be a net exporter”. It is also noted that
developments in isoglucose production following quota abolition “will curb the potential to expand
domestic sugar use in the EU”.
According to the EC analysis, “the expiry of the sugar quota will lead to a reduction of the domestic
sugar price in the EU, and make imports less attractive”.
Sugar imports are projected in the report to decline markedly from the levels experienced in recent
years, from an average of 3.63 million tonnes per annum from 2009 to 2011, to 1.55 million tonnes
p.a. by 2020-22.
The EC analysis considers that if the abolition of production quotas in 2015 goes ahead and the EC
proposal of October 2012 to modify the sustainability criteria for biofuels used in meeting renewable
energy directive reduction targets is approved, then the use of sugar beet to produce ethanol is
projected to increase from 14.3 million tonnes white sugar equivalent in 2011 to 17.2 million tonnes
(from 12.5% of the total sugar beet crop to 14.5%).
However, there is considerable uncertainty as to whether the scheduled lapsing of EU sugar
production quotas will go ahead, given recent votes in the European Parliament Agriculture
Committee (for more details see Agritrade article ‘ Continued controversy over EC management of
EU sugar regime and its future’, 7 April 2013).
EU sugar production, consumption exports and imports (tonnes white sugar equivalent)
EU sugar beet
harvest
EU sugar
production
Total EU
consumption
Total EU sugar
exports
Total EU sugar
imports
2009 114,400,000 16,600,000 16,800,000 3,200,000 3,000,000
2010 106,800,000 15,900,000 17,800,000 1,900,000 4,100,000
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 5
2011 114,000,000 18,000,000 17,600,000 3,200,000 3,800,000
2012 114,000,000 16,400,000 17,800,000 2,400,000 3,500,000
2013 112,300,000 16,200,000 17,200,000 1,800,000 2,700,000
2014 113,100,000 16,300,000 17,200,000 1,800,000 2,700,000
2015 115,500,000 16,700,000 17,200,000 1,900,000 2,200,000
2016 116,500,000 16,800,000 17,200,000 1,900,000 2,200,000
2017 117,500,000 16,900,000 17,100,000 1,700,000 2,000,000
2018 118,100,000 16,900,000 17,100,000 1,800,000 1,800,000
2019 118,400,000 16,900,000 16,900,000 1,700,000 1,700,000
2020 118,600000 16,800,000 16,900,000 1,700,000 1,600,000
2021 118,600,000 16,800,000 16,800,000 1,600,000 1,600,000
2022 118,800,000 16,800,000 16,800,000 1,600,000 1,500,000
Source: EC, ‘Prospects for agricultural markets…’, December 2012, Table 7.16, ‘Total sugar balance sheet in the EU, 2009–2022’
Sources
EC/DG Agriculture and Rural Development, ‘Prospects for agricultural markets and income in the EU 2012-2020’, full report,
December 2012
http://ec.europa.eu/agriculture/publi/caprep/prospects2012/fullrep_en.pdf
CIUS, ‘Agri Committee vote undermines prospects for new jobs and growth in the sugar supply chain’, 23 January 2013
http://pr.euractiv.com/press-release/agri-committee-vote-undermines-pros...
Editorial comment
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 6
In terms of market projections set out in the EC’s report, the major areas of uncertainty in the EU
sugar sector relate to the future of sugar production quotas and the sustainability criteria to be
applied to domestic EU biofuel production using different feedstocks.
However, it is clear is that the long-term trend is towards greater EU self-sufficiency in sugar
production once sugar production quotas have been abolished, as the report projects a significant
reduction in total EU sugar imports (-59% by 2020, compared to average imports over the period
2009–11).
This will carry profound implications for ACP sugar exporters, given the expansion of EU sugar tariff-
rate quotas under way with competitive sugar exporters, as a result of the EU’s growing network of
FTA agreements. This reinforces the long-term trend in the declining significance of the EU sugar
sector preferences for ACP sugar exporters.
Increasingly, the specific nature of contractual relationships established between raw sugar milling
companies and refined sugar exporters in ACP countries and importers in the EU will be the critical
determinant of the wider development benefits of the ACP–EU sugar sector trade (particularly for
smallholder producers and sugar estate workers). Arrangements established for the distribution of
revenues from non-sugar revenue streams, based on the full commercial utilisation of the sugar cane
produced, are likely to be particularly important for independent sugar cane farmers. This is a
complex issue, given the different revenue sharing formulas in place across ACP countries and the
varied importance of smallholder production within total sugar production in different ACP
countries.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/EU-sugar-sector-developments-and-
projections
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 7
Impact of CAP reform agreement on the sugar sector - 06 August 2013
As part of the 26 June 2013 political agreement between the European Commission, European
Parliament and EU Council, the abolition of EU sugar production quotas from 30 September 2017
was confirmed. According to an EC memorandum, sugar quota abolition “will ensure improved
competitiveness for EU producers on the domestic and world market alike (as EU exports are limited
by WTO rules under quotas)”.
The memorandum maintained that “ample supply on EU domestic markets at reasonable prices will
also benefit the intermediate and final users of sugar.” This needs to be seen in a context where
average EU raw sugar prices in June 2013 were more than 50% above world market prices, and the
gap between EU and world market white sugar prices even more pronounced.
Alongside the abolition of sugar production quotas, the EC announced that “the organisation of the
sugar sector will be strengthened on the basis of contracts and mandatory inter-professional
agreements,” which will include “standard provisions for agreements between sugar factories and
growers”. In addition, “for the period after quotas, white sugar will remain eligible for private storage
aid.” These measures are intended to “provide added security” to the functioning of the EU sugar
market.
Isoglucose production quotas will also be abolished. According to representatives of the European
Starch Industry Association (AAF), this “will unleash production, investments and growth in the
European starch industry”. The European sugar users’ group CIUS, for their part, maintained that the
end of sugar production quotas “will allow the EU sugar sector to play an increasingly important role
on the world market”.
The president of the European farmers’ organization Copa, meanwhile, issued a press release
welcoming the slight extension of production quotas, but maintained that this was not long enough
to allow time for full adjustment in the sugar sector. This view was endorsed by the ACP Sugar Group
which, according to their press statement, was “appalled by the decision”, arguing that “the concerns
and expectations of the ACP have not been taken into account.”
Sources
EC, ‘CAP reform – an explanation of the main elements’, MEMO/13/621, 26 June 2013
http://europa.eu/rapid/press-release_MEMO-13-621_en.htm
Indexmundi.com, ‘Sugar, European import price monthly price - US cents per pound’, July 2013
http://www.indexmundi.com/commodities/?commodity=sugar-european-import-p...
Indexmundi.com, ‘Sugar monthly price - US cents per pound’, July 2013
http://www.indexmundi.com/commodities/?commodity=sugar&months=12
EC, ‘Sugar price reporting’, Management Committee for the Common Organisation of Agricultural
Markets AGRI/C/5, 13 June 2013
http://ec.europa.eu/agriculture/sugar/presentations/price-reporting_en.pdf
EC, ‘Political agreement on new direction for common agricultural policy’, IP/13/613, 26 June 2013
http://europa.eu/rapid/press-release_IP-13-613_en.htm
http://europa.eu/rapid/press-release_IP-13-613_fr.htm
Euractiv.com, ‘“Damn tough” deal on CAP leaves little room for celebration’, 28 June 2013
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 8
http://www.euractiv.com/cap/damn-tough-deal-cap-leaves-celeb-news-528909
http://www.euractiv.com/fr/pac/pac-un-accord-difficile-qui-ne-s-news-528915
Copa-Cogeca, ‘Copa-Cogeca says uncertainty facing farmers and agri-cooperatives ends after EU
negotiators struck CAP reform deal but warns devil in the detail’, 27 June 2013
http://www.copa-cogeca.be/Main.aspx?page=Archive
ACP, ‘ACP states dismayed at EU decision to end sugar quotas in 2017’, 27 June 2013
http://www.acp.int/content/press-release-acp-states-dismayed-eu-decision...
Editorial comment
The EU’s final decision to abolish sugar production quotas from October 2017 can be seen as
completing a 12-year process of EU sugar sector reforms, an extended process similar to that
undertaken in the cereals sector from 1992 to 2005. However, this will not create a free market, with
the EC introducing mandatory measures to regulate relationships along sugar supply chains (for
details on these arrangements see Agritrade article ‘ Importance of inter-professional agreements in
managing unequal power re..., 28 October 2012). This is seen as essential, given the inequality in
power relationships along sugar supply chains. This is potentially an area to which ACP governments
will need to pay increasing attention.
Abolishing production quotas will see the EU market increasingly supplied from existing domestic EU
production and should exert a downward pressure on sugar prices, making the EU market less
attractive to sugar exporters. This is projected to result in a major reduction in EU sugar imports
(from an average of 3.63 million tonnes per annum from 2009 to 2011, to 1.55 million tonnes per
annum 5 to 7 years after quota abolition – see Agritrade article ‘ EU sugar sector developments and
projections’, 7 April 2013).
In June 2013, the EC implied that the lapsing of WTO constraints on sugar exports would serve to
boost exports by improving price competitiveness. This is in contrast to the EC’s ‘Prospects for
agricultural markets and income’ report in December 2012, which projected a decline in EU sugar
exports, with these falling dramatically in 2013 and steadily thereafter (to one-third below 2012
export levels and to half of 2011 levels 5 to 7 years after quota abolition).
The EU sugar industry, however, is more optimistic, seeing an important role for the EU sugar sector
on world markets. This may of course come about through the strong network of EU corporate
linkages being developed in areas of expanding sugar production (e.g. Southern Africa) and in major
expanding sugar markets (e.g. China), with EU refiners and value-added processors playing the
critical intermediate role.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Impact-of-CAP-reform-agreement-on-
the-sugar-sector
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 9
EU Council political agreement on extension of sugar production quotas until
2016/17 - 07 April 2013
At the meeting of the EU Agriculture and Fisheries Council meeting on 18–19 March 2013, a political
agreement was reached on proposed regulations for the four main pillars of the CAP:
the direct aid payments regulation;
the single common market organisation regulation;
the rural development regulation; and
the horizontal regulation.
Among the issues covered, and of greatest concern to the ACP, was the political agreement on the
extension of the sugar production quota regime “until the 2016/17 marketing year”.
In addition, the Council agreed to the establishment of standard provisions to govern agreements
between sugar beet growers and beet processors, with such provisions at least containing
“conditions governing the purchase delivery, taking over and payment of sugar”, with the EC
empowered to establish these provisions by delegated powers.
In the sugar sector (along with several other sectors), the EC retains the right to:
use import and export licences to regulate trade;
impose additional import duties on products of sugar “in order to prevent or counteract adverse
effects on the Union market which could result from certain agricultural imports”;
set the conditions under which aid for private storage is extended;
suspend inward processing arrangements, if a threat of market disturbance arises;
extend export refunds “to the extent necessary to enable exports on the basis of world market
quotations or prices”.
The political agreement also included provisions designed to ensure the EC has flexible tools available
for addressing “market disturbance”, “where the deployment of more traditional market support
instruments appears inadequate”.
On direct aid payments, political agreement was reached on “increased flexibility on convergence of
the level of direct payments” across and within member states. In addition, the Single Area Payment
Scheme (SAPS) was extended until 2020 on a voluntary basis, and agreement was reached on the
scope for “voluntary coupled support” (allowing member states to use “up to 7% of their annual
national ceiling” or 12% of the national SAPS ceiling).
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 10
However, on a range of issues related to ‘greening’ measures, further clarification and elaboration
was sought.
While the EU farmers’ organisation Copa-Cogeca welcomed the political agreement on the mandate
in the Council, it expressed disappointment “that EU sugar quotas were not extended to 2020”, and
called for this ‘to be included in the final agreement in June to give producers time to adjust”. The
European Association of Sugar Producers (CEFS), the International Confederation of European Beet
Growers (CIBE), the European Federation of Food, Agriculture and Tourism Trade Unions (EFFAT) and
the ACP Group have all individually and collectively joined the called for an extension of the sugar
production quota system until 2020, on the grounds that further time is required to complete
ongoing adjustment processes.
Sources
Council of the EU, “3232nd Council meeting, Agriculture and Fisheries, Brussels, 18-19 March”,
7358/13, 20 March 2013
http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/agricul...
Council of the EU, “Proposal for a regulation of the European Parliament and of the Council
establishing a common organisation of the markets in agricultural products”, 7329/13, 12 March
2013
http://register.consilium.europa.eu/pdf/en/13/st07/st07329.en13.pdf
COPA-COGECA, ‘Copa-Cogeca welcomes EU farm ministers’ decision on negotiating mandate on
future CAP but called for higher level of ambition in final deal’, press release, 20 March 2013
http://www.copa-cogeca.be/Main.aspx?page=Archive
European Association of Sugar Producers (CEFS), ‘Why should the current EU Sugar CMO be
extended until 2020?’, March 2012
http://www.comitesucre.org/userfiles/file/Position%20of%20the%20European...
International Confederation of European Beet Growers (CIBE), ‘European beet growers concerned
and disappointed by Agri council mandate on future European sugar policy’, press release, 20 March
2013
http://www.cibe-europe.eu/img/user/file/20mars13_3eme_compromis_pdce_ie.pdf
CIBE, ‘Towards a sustainable and competitive sugar sector: Prolong the Single CMO for Sugar until
the end of the 2019/2020 marketing year’, joint statement, 6 March 2013
http://www.cibe-europe.eu/img/user/026a-13%20Joint%20Statement%20Parliam...
Editorial comment
While efforts continue to defer production quota abolition until 2020, the political agreement to
extend quotas until the 2016/17 marketing year potentially sets the date at which the market
consequences of quota abolition will begin to have an impact on ACP sugar exporters.
On the assumption of production quota abolition in 2015, an EC staff working paper estimated that
this would lead to:
sugar beet and white sugar prices falling “below the current support prices”;
• an increase of 6.9% in EU sugar exports; and
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 11
a reduction of 4.7% in EU sugar imports.
The alternative would be an accumulation of sugar stocks in the EU.
However, according to the December 2012 edition of the EC report “Prospects for agricultural
markets and income in the EU 2012–2022”, the decline in sugar imports is projected to be far more
dramatic then this earlier assessment suggested. Indeed, the EU sugar sector is projected to “move
even closer to self-sufficiency and indeed from time to time be a net exporter”.
Assuming the abolition of EU sugar production quotas in 2015, the EC’s December 2012 analysis
projected a steady decline in EU sugar imports, from 3.8 million tonnes in 2011 to 2.0 million tonnes
in 2017, 1.6 million tonnes by 2020 and 1.5 million tonnes from 2022.
The current political decision of the EU Council may defer this outcome by a season, but nevertheless
the December 2012 EC projections strongly suggest that marketing opportunities for ACP sugar will
lie increasingly beyond the EU (for more details see Agritrade article ‘ EU sugar sector developments
and projections’, 7 April 2013).
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/EU-Council-political-agreement-on-
extension-of-sugar-production-quotas-until-2016-17
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 12
Debate shifts towards extension of sugar production quotas - 21 January 2013
According to a December 2012 press release from the International Confederation of European Beet
Growers (CIBE), 14 EU member states at the 28 November EU Agricultural Council meeting –
representing almost two-thirds of the weighted voting – ‘reiterated deep concerns at the European
Commission’s proposal to abolish sugar production quotas and requested an extension of the
production quota system until 2020.
European beet growers are now confident that the EU Council will defer the abolition of sugar quotas
until at least 2020. They reject calls by ‘raw cane sugar refiners for a privilege of access to duty-free
sugar from the world market’ as ‘unjustified and unacceptable’, maintaining that this ‘would upset
the EU market balance, circumvent the preferential ACP/LDC partners and completely undermine the
efforts…, investments and competitiveness of both the European beet sector and the ACP/LDC sugar
sector’.
This position of the European beet growers has been endorsed by the ACP/LDC sugar group, the CEFS
group of European beet processors and trade unions in the sugar sector. The reforms to date are
seen as having made the EU market ‘more vulnerable to the dynamics of the world market’, with a
strong sugar market organisation framework seen as providing ‘a buffer against world market
volatility’. In this context, calls have been made for better management of sugar tariff-rate quotas
(TRQs), in order to ensure that new TRQs do not disrupt the EU sugar market.
The European Parliament (EP) has also recently published a report on sugar sector reforms, setting
out policy scenarios for EU sugar market reform. The report outlines the impact of reforms to date,
the future policy objectives and current constraints on policy formulation. It notes in particular:
the decline in EU sugar self-sufficiency to 90% and reduction of stock levels from 16% of annual
consumption in 2007 to 7% in 2010;
a 72% increase in raw cane sugar refining capacity (from 1.89 to 3.26 million tonnes);
the rise of world market prices and emergence of shortages of raw sugar on the EU market;
shortfalls in ACP sugar supplies to the EU market following abrogation of the sugar protocol;
the emergence of serious supply problems for traditional raw cane sugar refiners, with competitive
tendering under TRQs pushing up the price paid by traditional refiners;
the introduction of temporary measures to address sugar shortages in 2010/11 and 2011/12;
a continuation of high internal EU sugar prices, despite the use of temporary supply measures.
The options for reform identified in the EP report include:
Option 1: ‘Continue production quotas and extend the current policy until 2020’;
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 13
Option 2: ‘Keep production quotas until 2020 with modification to help increase efficiency ensure
supplies and prevent price distortion;
Option 3: ‘Phase out production quotas between 2015 and 2020 by increasing quotas annually’;
Option 4: ‘Abandon production quotas but keep market management and protectionist tariff’;
Option 5: ‘Abandon production quotas and all protection (import duties)’.
The EP report argues that ‘the production quota system is very uncompetitive’, while any system for
managed imports needs to be ‘automatic and transparent’. It maintains that the EU is unlikely to
dismantle high sugar tariffs outside a comprehensive WTO agreement, but the eventual reduction of
high tariffs is seen as inevitable. The report concludes that further reform:
‘must address the issue of ensuring adequate supplies for domestic consumption while continuing
measures to prevent over supply’;
• ‘should include a system of price monitoring to make sure that the pricing structure is fair for
all stakeholders’;
‘should address [the] lack of competition on the internal market if quotas are to be continued after
2015’;
should ensure budget neutrality in any transfer of quotas between countries;
should be determined only after making ‘the extent of the EU’s commitments with its trading
partners… central in the consideration of future reform’;
should be sufficiently flexible to react to rapidly evolving market conditions;
should provide a level playing field for all sugar sector stakeholders.
Sources
International Confederation of European Beet Growers, ‘European Beet Growers welcome progress
of the discussions at EU Institutions’ level’, press release following the Agriculture Council debate
held on 28 November 2012, 3 December 2012
http://www.cibe-europe.eu/img/user/file/CIBE%20Press%20Release%203%20Dec...
CIBE/CEFS/EFFAT, ACP, ‘CAP towards 2020: Extension of the Single CMO for sugar necessary to
ensure a smart, sustainable and inclusive future for the sugar sector’, joint statement following a
European Parliament event on 6 November 2012, 6 November 2012
http://www.cefs.org/
Directorate General for Internal Policies, European Parliament, ‘Policy scenarios for EU sugar market
reform’, IP/B/AGRI/IC/2012-60, 10 September 2012
http://www.europarl.europa.eu/committees/fr/studiesdownload.html?languag...
Editorial comment
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 14
Average prices paid for sugar imported into the EU mask considerable variation in actual prices paid,
with the shortages facing traditional refiners often leading them to pay exceptionally high prices. This
has benefited some ACP suppliers under some contracts. Given that beet processing companies
control any out-of-quota sugar released onto the EU market, moves to improve the management of
TRQs in order to address the supply concerns of traditional cane sugar refiners are likely to have the
effect of evening out prices paid for imported sugar. This will mean the disappearance of the high
returns obtained on some ACP sugar contracts.
Given the lack of competition on the EU sugar market and increased control over ACP sugar supplies
by EU-based sugar companies, increasing attention will need to be paid to the functioning of ACP–EU
sugar supply chains, if ACP net earnings from sugar exports to the EU are not to fall considerably. This
is likely to prove particularly challenging, given the emerging global sugar prices and resultant
downward price pressures.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Debate-shifts-towards-extension-of-
sugar-production-quotas
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 15
The UK House of Lords recommendations on ACP/LDC countries and the EU
sugar regime- 28 October 2012
The European Committee of the UK House of Lords published the report of its hearings on the EU
Sugar Regime in September 2012. During the hearings, submissions were received from a wide range
of industry, governmental and research organisations (see Agritrade articles ‘ The future of EU sugar
production quotas’, 23 September 2012 and ‘ Industrial users set out their views on sugar reform
against backdrop of...’, 9 September 2012). Following study of the evidence, the committee made a
number of specific recommendations for the EU’s future dealings with ACP/LDC sugar exporting
countries. These included:
•the establishment of close collaboration between the EC and governments of affected ACP/LDC
countries on the identification of ‘mitigation measures…needed beyond 2015’;
•the drawing up of a best practices guide on sugar sector restructuring, based on the most successful
experiences in ACP countries to date;
•a strengthening of EC delegations in countries undergoing sugar sector adjustments to facilitate
disbursement of sugar sector restructuring support;
•a revisiting of ACP/LDC action plans for sugar sector restructuring before 2015, with EU assistance
being ‘targeted at issues identified by the countries themselves’;
•the conduct of a full impact assessment of the likely effect on ACP/LDC sugar producers of ‘any
further commitments relating to the trade of sugar’, notably agreements on additional sugar import
quotas under pending FTA agreements.
The recommendations need to be seen against the background of the belief that ACP/LDC countries
will face exposure to increasingly volatile sugar prices and that ‘plans for further reform of the EU
sugar regime have not sufficiently accounted for the likely impact on ACP and LDC countries and
appear have been taken in isolation from discussions on future development policy’, which is the
main vehicle for addressing the external effects of further EU sugar sector reforms.
The recommendations also need to be seen against the background of the call by the House of Lords
Committee for the abolition of sugar production quotas by 2015 and an appropriate easing of import
tariffs on both raw and refined sugar ‘in response to the world market’.
Sources
European Union Committee of the UK House of Lords, ‘Leaving a bitter taste? The EU Sugar Regime’,
4th report of session 2012–13, 4 September 2012
http://www.publications.parliament.uk/pa/ld201213/ldselect/ldeucom/44/44...
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 16
Editorial comment
The House of Lords recommendations on how the EU should deal with the effects of further EU sugar
sector reforms on ACP/LDC sugar exporters needs to be seen in the context of the recommendations
to abolish EU sugar production quotas in 2015 (or at the earliest possible date thereafter) and
liberalise sugar import tariffs. This position rules out accommodating ACP concerns within the
process of CAP reform by deferring quota abolition.
Significantly, however, the position acknowledges both the need for further EU sugar sector
restructuring support beyond 2015 and the need to improve the delivery and effectiveness of EU
sugar sector-related assistance. It also implicitly calls for a broadening out of the beneficiaries of such
support beyond traditional Sugar Protocol beneficiaries and for the level of support to be extended,
based on an objective assessment of the likely impact of EU policy changes and policy developments
on ACP/LDC sugar producers.
The recommendations of the House of Lords report thus add to ACP calls for a continuation of EU
sugar sector-related assistance programmes beyond 2014, a development (in terms of the
establishment of a dedicated financial instrument) that the EC had ruled out earlier.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/The-UK-House-of-Lords-
recommendations-on-ACP-LDC-countries-and-the-EU-sugar-regime
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 17
The future of EU sugar production quotas - 23 September 2012
According to press reports, the UK National Farmers Union (NFU) now expects EU sugar beet
production quotas to be extended through 2018. According to the vice-chairman of the NFU Sugar
Board, ‘our best guess is that there will be a euro-fudge [unsatisfactory political compromise] and
quotas will be with us until about 2017/18’. Before the House of Lords Committee hearing on the EU
sugar regime, the NFU, British Sugar and the ACP/LDC London Sugar Group had all stressed the
importance of extending quotas until at least 2020, to allow time for competitiveness enhancing
measures to take effect.
The chairman of NFU highlighted the progress being made in improving sugar beet yields (+2% per
annum in recent years, with aspirations to increase this to 4%), while representatives of British Sugar,
the UK’s sole beet sugar processor, highlighted the extensive investments under way in improving
processing efficiency and diversifying the product range produced from sugar beet.
It was stressed that UK beet farmers were more than equalling sugar cane producers in terms of
‘sugar output per hectare’. However, the process of enhancing competitiveness will not be
completed by 2015, and will require until 2020. The NFU maintained that this was the situation
across north-eastern European beet-producing regions, although it was acknowledged that in some
beet production regions of Europe, producers ‘will struggle to catch up’ in terms of global
competitiveness.
A similar perspective was held out for ACP/LDC sugar producers. It was argued that quota abolition in
2015 would increase price instability on the EU market and undermine investment in restructuring,
with uncertainty over EU market prospects making it more difficult in some ACP countries to raise
bank financing for investment. The administrative constraints faced in deploying EU sugar protocol
accompanying measures funding to support ACP sugar sector restructuring were also highlighted
during the parliamentary hearings, as was the widely held belief that under a liberalised market with
a structural sugar surplus, the ACP ‘will lose more than anybody’.
The UK government, industrial users of sugar (UKISUG) and the UK’s traditional cane sugar refiner,
Tate & Lyle Sugar, all supported the EC proposals not to extend the current production quota system
beyond 2015. Tate & Lyle representatives were critical of EC management of the sugar market over
the reform period, arguing that traditional cane sugar refiners were now being systematically
discriminated against, and calling for fair-treatment.
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 18
It was pointed out that since 2005 the EU sugar beet industry had put in place ‘1.85 million tonnes of
new cane refining capacity’. This will see Tate & Lyle refining only 600,000 tonnes in 2012, compared
to 1.1 million tonnes before the reforms. It was pointed out that if production quotas were
abolished, most of the 4 to 5 million tonnes of out-of-quota beet production could be marketed as
sugar, which could mean the end of the traditional cane sugar refining industry. The UK agriculture
minister, Jim Paice, expressed concern over the implications for ACP/LDC sugar suppliers who, he
maintained, would ‘suffer very considerably were Tate & Lyle to close’.
Tate & Lyle called, if the EU sugar production quota system were to be extended, for the
reintroduction of dedicated import quotas for traditional sugar cane refiners, or the establishment of
an automatic correction system to allow sugar imports at zero duty, up to the envisaged import total
of 3.5 million tonnes.
UKISUG representatives highlighted how the difficulties faced by sugar-using manufacturers were not
a product of any absolute sugar scarcity, but simply the way the EU market was managed. Since
2005, this had driven up procurement costs for sugar to ‘much higher than the €404 a tonne
reference price’, with this posing particular problems for smaller producers (see Agritrade article ‘
Industrial users set out their views on sugar reform against backdrop of...’, 9 September 2012).
In oral evidence to the House of Lords Committee, the agriculture minister acknowledged that the UK
was in a minority in favouring the abolition of EU sugar production quotas in 2015 and further
liberalisation of tariffs for EU sugar imports. He did not expect the EU Council to endorse the UK
position. However, he told the Committee that the UK government would seek a firm commitment to
the discontinuation of sugar production quotas by 2020 at the latest.
Sources
Sugaronline.com, ‘NFU expects sugar quotas to extend through 2018’, 27 June 2012
http://sugarinfo.co.uk/news/website_contents/view/1190699
UK House of Lords EU Agriculture, Fisheries, Environment and Energy Sub-Committee, ‘EU Sugar
Regime: Oral evidence’, 23 July 2012
http://www.parliament.uk/documents/lords-committees/eu-sub-com-d/sugar/s...
Editorial comment
The emerging consensus on the extension of the sugar production quota system beyond 2015 would
offer some relief to ACP sugar exporters. However, the longer-term challenges remain:
* investing in effective enhancement of competitiveness, to yield substantial benefits before 2020;
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 19
* diversifying the product range to maximise income flows;
* reforming marketing arrangements to maximise sugar sales revenues in a volatile market.
These are substantial challenges in many ACP countries. Primary responsibility lies with producers,
processors and governments in ACP states to address these challenges, but EU policies can either
assist or hinder the process.
Primary importance needs to be attached to establishing a stable market during the transition. This is
a question of clarity not only on the future of the regime, but also on the nature and predictability of
the market management arrangements applied during the transition.
In terms of the nature of transitional arrangements, the calls by Tate & Lyle, for an automatic
correction system to permit zero-duty access for up to 3.5 million tonnes of raw sugar, are
potentially a source of concern, particularly if third-country suppliers and ACP/LDC suppliers were to
be placed on the same footing in terms of providing supplies within this 3.5 million tonne ‘quota’.
The development of discussions on how to manage markets to address sugar users’ and traditional
refiners’ concerns during the transition will need to be closely monitored by the ACP.
Furthermore, a more efficient deployment of sugar protocol assistance measures programme
support – for sugar sector competitiveness enhancement measures and better access to EIB loan
financing facilities for ACP sugar sector companies and producers’ organisations – could potentially
assist the effective implementation of competitiveness enhancement in the period prior to quota
abolition. However, this will need to include a clarification of the basis on which EU assistance can be
deployed in support of private-sector-led restructuring efforts.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/The-future-of-EU-sugar-production-
quotas
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 20
Industrial users set out their views on sugar reform against backdrop of global
price volatility - 09 September 2012
The House of Lords of the UK Parliament has held a Select Committee inquiry on the EU sugar
regime, looking at sugar reform in the EU ‘through the lens of the CAP package’. Tim Innocent, Chair
of UK Industrial Sugar User’s Group (UKISUG) and head of Nestlé’s procurement department, gave
evidence at the hearing, expressing confectionery industry concerns over the future of the EU sugar
regime. UKISUG is calling for ‘complete deregulation of the EU sugar market’, for beet production
quotas to be abolished as soon as possible and for ‘a guarantee of adequate imports of duty free
cane sugar after 2015’. Mr Innocent noted that ‘the beet quota in the UK did not allow the principal
sugar refiner Tate & Lyle to have enough supplies to support the market needs’. Referring to
proposals to defer quota abolition, he said ‘2015 feels like a long time away – 2020 seems a hell of a
long way away.’
At the Select Committee inquiry, it was noted that previously UK sugar users had been able to rely on
a constant sugar supply, but now supplies were more constrained and volatile. While industrial users
can procure as much sugar as they require on the world market (i.e. from non-preferred supplies),
high import duties are levied, raising the costs to industrial users with no access to preferential
supplies.
The concerns of industrial sugar users need to be seen against the background of global sugar market
price variability in 2011 and uncertainties over sugar market fundamentals. According to the OECD-
FAO Agricultural Outlook 2012–2021, world sugar prices in 2012 have begun to edge lower, with the
re-emergence of a global sugar surplus (after a balanced market in 2010/11 and two years of global
production deficits). However, despite increased production encouraged by higher average prices
(208 million tonnes by 2021/22, 26% above the average for 2009–11), the global stocks-to-use ratio
is likely to remain relatively low through to 2021, given the 2.1% projected annual increase in
consumption projected.
It is anticipated that in the next 10 years sugar prices will on average be above levels prevailing over
the past decade, but below recent peaks, with raw sugar prices projected at US$483/tonne
(US$0.22/lb) in 2021/22. White sugar prices are projected at US$566/tonne (US$0.26/lb) by 2021/22,
with the white sugar premium narrowing over the period as new sugar refineries come on stream. It
is argued that ‘bouts of price surges and volatility remain a clear possibility’ in the coming period in
response to unforeseen production shocks.
Sources
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 21
Confectionerynews.com, ‘“Enough is enough” says Nestle procurement head on EU sugar regime’, 2
July 2012
http://www.confectionerynews.com/Regulation-Safety/Enough-is-enough-says...
FAO, ‘Sugar - OECD-FAO Agricultural Outlook 2012-2021’, July 2012
http://ec.europa.eu/agriculture/analysis/markets/sto-crop-meat-dairy/201...
UK Parliament, Lords Select Committee, ‘EU sugar regime’, July 2012
http://www.parliament.uk/business/committees/committees-a-z/lords-select...
Editorial comment
For industrial sugar users, the issue is not just about supplies but also price. Before the
implementation of sugar sector reforms, sugar prices, while high relative to world market prices,
were stable, with long-term annual supply contracts being agreed at the beginning of the season.
With tariff protection on products containing sugar and non-Annex I export refunds available, EU
industrial users of sugar faced a stable market, with a uniform situation across the EU.
Following partial reform and higher, more volatile, world market prices, the context for securing
sugar supplies has been transformed. The continuation of annual contracts initially insulated
industrial users from higher prices, but subsequent contract negotiations led to suppliers either
moving away from annual contracts or trying to secure prices that reflected higher average world
market prices. There is now considerable variation in prices within any 12-month period, and this has
greatly complicated the procurement challenges facing industrial sugar users. It has also begun to
raise awkward competition issues, as some refiners and processors have been able to secure better
access to preferential sugar imports than other refiners and industrial users.
It is the partial nature of the reform process that industrial users of sugar would like to see resolved
as soon as possible. Since the focus of EC agri-food sector policy is increasingly on the employment
and income growth that can be generated in the food processing sector (rather than the traditional
focus on agricultural input supplies), the balance of influence within EU decision-making processes
may be shifting. This potentially carries important implications for the ACP.
The projected narrowing of the gap between raw sugar and white sugar prices could also carry
implications for ACP efforts to promote investment in movement up the sugar value chain, with the
shift to refined sugar potentially becoming one of the more risky options.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Industrial-users-set-out-their-views-on-
sugar-reform-against-backdrop-of-global-price-volatility
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 22
EU co-refiners enjoy cost advantages - 28 May 2012
According to USDA’s review of the Spanish sugar sector, Spanish ‘imports of raw sugar have been
increasing for the last four marketing years’, reaching 716,000 tonnes in 2010/11. This level of
imports is expected to stabilise or grow further in the coming years. According to USDA, this is the
result of an increase in co-refining of raw cane sugar by sugar beet processors.
Two of Spain’s five sugar beet processing plants ‘are now off-season cane sugar refiners and three
are on-season sugar cane co-refiners’. USDA maintains that ‘these companies are thought to enjoy a
competitive advantage over full-time refiners in other countries as ‘their fixed costs are mostly
covered by their main activity of sugarbeet processing, allowing them to bid higher for the purchase
of raw sugar on the world market to supply their second activity’.
This has seen a corresponding decline in imports of refined sugar imports (down 550,000 tonnes in
raw value) and a small increase in refined sugar exports, in the context of decline in Spanish sugar
consumption of 1.7% in both 2010 and 2011. Consumption is now expected to stabilise.
Spanish sugar production and trade 2010/11 to 2012/13 (tonnes)
2010/11
(USDA estimate)
2011/12
(USDA estimate)
2012/13
(USDA projection)
Total sugar production 606,000 642,000 638,000
Raw imports 716,000 720,000 725,000
Refined imports (raw value) 553,000 550,000 550,000
Total imports 1,269,000 1,270,000 1,275,000
Raw exports 3,000 4,000 4,000
Refined exports (raw value) 153,000 155,000 160,000
Source: Extracted from USDA, Report no. SP1207, Table 1, p. 3.
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 23
At the policy level the Spanish minister of agriculture has pledged to maintain sugar production
quotas until 2020. As a number of governments are supporting the Spanish position, the minister
believes that sugar production quotas can be maintained until that year.
In contrast, problems have been faced in Portugal in accessing raw sugar imports ‘at competitive
prices’. This has seen raw sugar imports decline in the last 2 years (down from 523,000 tonnes in
2008/09 to 463,000 tonnes in 2010/11), creating problems for Portugal’s three sugar refiners.
According to the USDA, ‘if refiners cannot get political support at national and EU level to guarantee
access to raw sugar at more competitive prices, they may be forced to continue decreasing their
refining activity and resorting to using their packaging lines to package imported white sugar’. For
these reasons, Portuguese refiners are calling on the EC to make it easier for full-time refiners to
access raw sugar imports.
EU Commissioner Dacian Cioloş has indicated that there may be scope for once again authorising ‘the
introduction in the EU market of extra-quota sugar’ (i.e. out-of quota sugar) and/or ‘allowing
supplementary imports with reduced duties.
This needs to be seen against the background of criticisms in the UK that the operation of the current
EU sugar regime is threatening jobs at Tate & Lyle’s Thames refinery.
Sources
USDA, ‘Spain sugar standing report’, GAIN Report no. SP1207, 23 March 2012
http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Spain%20Sugar%20St...
USDA, ‘Portugal sugar standing report’, GAIN Report no. PT1202, 23 March 2012
http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Portugal%20Sugar%2...
Farminguk.com, ‘EU sugar quota threatens jobs – MEP’, 28 March 2012
http://www.farminguk.com/news/EU-sugar-quota-threatens-jobs-MEP_23219.html?
Editorial comment
The contrasting prospects for full-time cane sugar refiners in Portugal and co-refiners in Spain
highlights the conflicting pressures on the EC in terms of the future of the EU sugar regime. The
maintenance of production quotas and higher EU domestic sugar prices helps co-refiners cover their
fixed costs from beet refining and places them in a better position to compete for globally sourced
raw sugar (by offering higher prices). This can be seen to undermine the position of traditional cane
sugar refiners, who have to pay high import duties outside TRQs. The maintenance of import
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 24
restrictions on non-traditional sugar suppliers in the context of high global sugar prices similarly
undermines the position of full-time raw cane sugar refiners.
These domestic EU pressures would appear to carry implications for the twin ACP objectives of
ensuring the maintenance of production quotas until 2020 and a continuation of restrictions on
access to the EU market for non-traditional suppliers.
The observation that co-refiners are able to bid higher for the purchase of raw sugar raises the
question as to whether ACP suppliers linked to the supply chains feeding into Spanish co-refiners
have been able to gain additional price advantages as a result of this dimension of the operation of
the reformed EU sugar regime.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/EU-co-refiners-enjoy-cost-advantages
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 25
EC evaluation of sugar sector measures - 18 March 2012
In December 2011, the EC published the evaluation it had commissioned of policy measures applied
to the sugar sector. The evaluation reviews the history and evolution of the EU sugar regime, as a
background to the impact of reforms. In trade terms, it notes that EU sugar exports have plummeted
(from 6 million tonnes in 2002/03 to 1 million tonnes in 2009/10), with the implementation of
reforms having coincided with ‘a time of significant price fluctuations and an unprecedented high
level of world sugar prices’.
The evaluation highlights the diverse strategies adopted by EU sugar sector operators in dealing with
reform, and the different effects on ‘production, structure, market balance and competitiveness’, as
well as their overall level of engagement with the sugar sector.
During 2008–10 EU sugar beet production was 19% lower than in 2003–05. Yet average yield
improvements accelerated from 2.6% to 7.4%, as production was concentrated in the hands of more
efficient producers. Production costs at the farm/mill level however have not been significantly
reduced. ‘Pricing policy, better yields and/or the development of out-of-quota production’ have all
served to reduce the impact of the beet price reduction. However, this process has been uneven
across member states. The analysis points out that since ‘delivery rights and the minimum price were
maintained, the CAP measures still have a distortive effect’.
The evaluation notes that decoupled payments account for a very high percentage of farm net
income (FNI) of sugar beet farmers, accounting for 80% of FNI in Germany, the UK and Finland, and
110% in France.
In terms of the price effects, the reform process ‘contributed to a decrease in in-quota prices as a
result of the fall in the reference price’, while high world market prices sustained market prices ‘well
above the reference price’. There has been an increase in the variability of In-quota sugar prices since
the reforms.
As regards traditional cane sugar refiners, the reforms have increased competition for raw sugar
imports. There has been an increase in full-time refiners from 7 to 11, ‘of which six are new full-time
refiners’ (including at four beet sugar producing plants). In EU25 countries, full-time refining capacity
has increased by 58%. Ironically, while raw cane sugar refining capacity has increased, the report
highlights the oligopolistic nature of the EU sugar sector.
In 2010 high world market prices in the context of the abrogation of the sugar protocol, as well as a
shift to refined sugar exports in Mauritius, saw imported raw cane sugar supplies reach an all-time
low of 1.4 million tonnes, with the rate of coverage of ‘traditional supply needs’ falling from 82% in
2000–2009 to 67% in the 2009/10 season. Limited supplies of raw cane sugar meant that traditional
refiners that had invested in restructuring were not able to reap the benefits. This has undermined
the competitive position of traditional cane refiners, leading in some cases to financial problems and
retrenchments. This contrasts with the strong financial performance of many of their beet-based
competitors.
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 26
This also saw very low stock levels in the EU (at 7%, down from 16% pre-reform), although stock
levels recovered in 2010/11 (to 11% of annual consumption).
Criticisms have emerged as to the effectiveness of current market management arrangements, with
administrative changes introduced in response to supply shortages being seen as too slow in
responding to evolving market realities.
Sources
Agrosynergie (for the EC), ‘Evaluation of Common Agricultural policy measures applied to the sugar
sector’, executive summary, December 2011
http://ec.europa.eu/agriculture/eval/reports/sugar-2011/exec_sum_en.pdf
Agrosynergie (for the EC), ‘Evaluation of Common Agricultural policy measures applied to the sugar
sector’, full report, December 2011
http://ec.europa.eu/agriculture/eval/reports/sugar-2011/fulltext_en.pdf
Editorial comment
When decoupled payments account for such a high proportion of farm net income of sugar beet
producers, the burden of price volatility would appear to fall hardest on traditionally preferred ACP
sugar suppliers. This will increasingly be the case from October 2012, when the remaining EU
minimum price guarantees for ACP sugar fall away.
At this point, contractual negotiations within specific supply chains will be the critical determinant of
the price received by ACP sugar exporters. This issue of pricing arrangements under supply contracts
is also likely to be the critical determinant of the availability of preferred ACP raw sugar to EU sugar
refiners. In the context of high world market prices, if the purchase price offered by individual EU
importing companies is not attractive relative to regional and world market prices, the orderly
marketing arrangements for ACP sugar which have been set in place to date will begin to break
down.
This is already occurring in the case of Jamaica, where the Chinese-owned Pan Caribbean Sugar
Company is seeking to withdraw from the pooling system intended to fulfil the contractual
commitments of Jamaican Cane Product Sales to Tate & Lyle. This could serve to intensify pressure
for further reforms of the EU sugar import regime, with additional tariff-rate quotas (TRQs) being
agreed for non ACP/LDC suppliers.
Moves towards a further concentration of ownership and market share in what is already an
oligopolistic sector potentially raise major concerns for ACP suppliers, suggesting a need for the
extension of the EC’s emerging new market management tools to the ACP–EU level.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/EC-evaluation-of-sugar-sector-measures
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 27
MANAGING THE EU MARKET
Continued controversy over EC management of EU sugar regime and its
future - 07 April 2013
In February 2013, the Committee of European Sugar Users (CIUS) criticised the EC’s management on
the release of out-of-quota sugar onto the EU market, arguing that current management
arrangements were making it difficult for sugar users to plan ahead to the end of the marketing year.
In November 2012, the EC announced the release of 1.2 million tonnes of out-of-quota sugar,
however, the first tranche released only 200,000 tonnes onto the market.
According to industry reports, CIUS called on the EC “to release the total volume of out-of-quota
sugar in the next tranche due at the end of February to ease supply tensions” without the normal
out-of-quota levies being charged. Currently, stocks are being released under a tender arrangement
at reduced levies.
Representatives of major sugar users such as Nestlé and Mondelez International have argued that
the maintenance of current production quotas and market management arrangements is “causing
significant supply constraints leading to sky-high prices”.
The website EurActiv.com reports that, according to EC data, “the average reported price for white
sugar in the EU is around €728 per tonne…, well above the world price of €372” reported on 6 March
2013. Reports carried on Bloomberg.com argued that sugar prices, which “reached €728 ($952) a
metric ton in November”, are likely to “remain elevated in the ‘short term’”, even after the
scheduled release of out-of-quota sugar.
According to representatives of Tate & Lyle Sugars (TLS), traditional suppliers to the EU “are aware
that they can charge an extremely high price for the sugar they have, on the back of the fact that
they see how much we are prepared to pay the commission for import licenses”.
Analysis from the French Institut Choiseul maintains that EU sugar quotas create instability and “have
dealt a harsh blow to SME confectioners, who struggle to compete in the face of escalating sugar
prices”. In contrast, sugar processors are seen as making excessive profits, consolidating their market
position and financing overseas investments. The report argued that the value-added food industry
was more important to the French economy than the sugar sector per se, and supported the
abolition of sugar production quotas at the earliest opportunity.
The debate on the future of EU sugar production quotas is intensifying: an open letter from sugar
users has been published, in which they call for quotas to be allowed to expire in 2015, and farmers’
organisations have intensified calls for the extension of quotas until 2020
According to the International Sugar Organization, “even if the EU extends sugar quotas to 2020 it
will have little negative impact on the world sugar market, as stocks are at a surplus and a bumper
crop is due from Brazil”. It was pointed out there is now a large surplus on the world market, and
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 28
consequently sugar prices are set to fall. The impact of an extension of EU sugar production quotas
on the global market is therefore seen as “minimal”.
Sources
The Food Navigator, ‘CIUS ‘disappointed’ by EC out-of-quota sugar measures’, 13 February 2013
http://www.foodnavigator.com/Legislation/CIUS-disappointed-by-EC-out-of-...
The Food Navigator, ‘Sugar outlook positive despite impending EU quota extension – ISO’, 7 February
2012
http://www.confectionerynews.com/Commodities/Sugar-outlook-positive-desp...
Bloomberg, ‘EU sugar prices seen by Tate remaining high for now on duty’, 27 February 2013
http://www.bloomberg.com/news/2013-02-27/eu-sugar-prices-seen-by-tate-re...
CIUS and others, ‘Open letter to European leaders: Put an end to distorting sugar production quotas
and support jobs and growth across the EU food chain’, (point of access to web link contained in
External links section of article), undated
http://www.euractiv.com/cap/sugar-quota-speaks-bitter-debate-news-518179
Copa-Cogeca, ‘Ahead of agricultural attaché discussions and MEPs’ vote next week, Copa-Cogeca
sends letter calling for EU sugar production quotas to be kept until at least 2020’, press release, 8
March 2013
http://www.copa-cogeca.be/Main.aspx?page=Archive
Euractiv.com, ‘Sugar lobbying intensified ahead of EU vote’, updated 7 March 2013
http://www.euractiv.com/cap/sugar-lobbying-intensifies-ahead-news-517970
Confectionerynews.com, ‘Think tank slams EU sugar regime’, 19 February 2013
http://www.confectionerynews.com/Commodities/Think-tank-slams-EU-sugar-r...
Institut Choiseul, ‘L’ avenir de la filière sucrière en Europe’, by P. Lorot, Notes stratégiques, February
2013
http://www.choiseul-editions.com/documents/Note%20Strat%C3%A9gique%20-%2...
Editorial comment
The supply situation on the EU market is not a problem of absolute supply. The problems on the EU
market arise from the way out-of-quota sugar production and tariff-rate quotas are managed. The
operation of the current system creates an artificial shortage on the EU market: this is generating EU
prices that are much higher than world market prices, and is supporting ACP countries in contract
price negotiations with traditional sugar importers, such as TLS.
Current arrangements, however, have led to repeated protests from sugar users (over the
management of out-of-quota sugar stocks) and traditional refiners (over arrangements for reduced
duty imports or raw sugar).
The current ad hoc arrangements are unlikely to be seen as viable for the next 7 years up to 2020,
particularly if duty-free access were to be granted to the EU market for sugar-containing food
products in the context of FTA negotiations (e.g. with Canada and the USA). This would intensify
competitive pressures on EU sugar-based food manufacturers. Yet excluding such products from FTA
negotiations would complicate already difficult negotiation processes.
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 29
However, any measures which provide EU sugar end users and traditional refiners with greater
certainty of supply would be likely to weaken the negotiating position of ACP exporters of sugar,
both in annual supply contract negotiations and spot market sales to EU users.
Any extension of EU production quotas to 2020 would therefore be likely to present new challenges
for ACP suppliers, linked to the management of the EU sugar market during the extended transitional
period.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Continued-controversy-over-EC-
management-of-EU-sugar-regime-and-its-future
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 30
EC announces temporary measures to boost sugar supplies- 16 December
2012
On 8 November 2012, according to the summary record published by the Commission, the EC
agricultural management committee discussed the EU sugar market. It noted the growing gap
between EU and world market sugar prices and the likely 25% reduction in EU sugar stocks by the
end of marketing year (MY) 2012/13 (down from 2 million to 1.5 million tonnes). Against this
background, the EC announced its intention ‘to allow 1.2 million tonnes of additional sugar on the
internal market’, drawn from out-of-quota production and imports. These measures are expected to
enter into force on 1 January 2013. The announcement paralleled moves in 2011 ‘when high world
prices restricted EU imports and led to sugar shortages in several member states’.
An EU news and policy website, EurActiv.com, adds that the EC is to approve additional exports of
700,000 tonnes of out-of-quota sugar in MY 2012/13, taking total exports to 1.35 million tonnes, an
amount within the WTO ceiling of 1.37 million tonnes.
The EU farmers’ organisation Copa-Cogeca has called on MEPs to ‘reject any new concessions which
increase access for imports of raw cane sugar on the EU market’. In a press release, Copa-Cogeca
called for the establishment of an automatic mechanism to ‘put out-of-quota sugar on the market
when it needs it to maintain market balance’, and reiterated its call for the extension of production
quotas until 2020.
According to the EC’s ‘commodity price data dashboard’ published in October, in August 2012 EU
white sugar prices (monthly average) rose declined to €713/tonne, up 0.7% on July. In contrast,
world white sugar prices for August 2012 fell by 2% from July to US$564/tonne (approx. €448/tonne
at the time), taking world prices to 20.4% below the level prevailing in August 2011. In September,
EU white sugar prices fell back 0.7%, while world market prices rose 0.4%, suggesting a continuation
of these contrasting prices trends, although with a narrowing gap. This left EU white sugar prices
23.8% above the level of September 2011, while world market prices were 17.9% lower than in
September 2011.
Sources
EC, ‘Summary record: 377th meeting of the management committee for the common organisation of
agricultural markets, 8 November 2012’, 13 November 2012
http://ec.europa.eu/agriculture/committees/cmo-management/2012/377.pdf
Euractiv.com, ‘Commission plans to boost sugar supplies’, 9/12 November 2012
http://www.euractiv.com/cap/commission-plans-boost-sugar-sup-news-515945
http://www.euractiv.com/fr/pac/la-commission-compte-augmenter-l-news-515946
Copa-Cogeca, ‘Copa-Cogeca urges MEPs to reject any new concessions which increase access for
imports of raw sugar cane on EU market and to maintain sugar quotas until at least 2020’, 12
November 2012
http://www.copa-cogeca.be/Main.aspx?page=Archive
EC, ‘Commodity price data dashboard: September 2012 edition’, 29 October 2012
http://ec.europa.eu/agriculture/analysis/markets/foodprices/food09_2012_...
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 31
EC, ‘Commodity price data dashboard: October 2012 edition’, 27 November 2012
http://ec.europa.eu/agriculture/analysis/markets/foodprices/food10_2012_...
Editorial comment
The broadening out beyond traditional refiners of the right to import raw sugar, coupled with
investments by beet refiners in new refining capacity of 1.85 million tonnes, has seen an
intensification of competition for raw cane sugar supplies within the EU. This has led to allegations
that traditional refiners are being systematically discriminated against in the management of the EU
sugar regime (see Agritrade article ‘ Industrial users set out their views on sugar reform against
backdrop of...’, 9 September 2012).
Meanwhile, while industrial users can procure as much sugar as required on the world market (i.e.
from non-preferred supplies), high import duties are levied, raising the costs for industrial users that
have no access to preferential supplies.
This has thrown up awkward competition issues, as some refiners and value-added processors have
been able to secure better access to preferential sugar imports than other refiners and industrial
users. The new measures proposed by the EC to increase sugar supplies to the EU market are
designed to address this problem, while more fundamental reforms are under consideration.
Whether these problems will be addressed will depend on how the new import arrangements are
managed. An analysis published by USDA in October 2012 pointed out that the tendering
arrangements used for new tariff-rate quota imports in MY 2011/12 led to full-time refiners paying
duties of between €290 and €312.6 per tonne, a discount of only 7.8–14.5% on the ‘full EU import
duty of €339/tonne’. The high prices paid by full-time refiners for these imports meant that the cost
of the white sugar produced was significantly higher than the average EU price of domestically
produced sugar.
While this was bad news for traditional EU sugar refiners, it did serve to support prices paid for ACP
sugar, with the average price paid for ACP raw sugar between January and June 2012 nearly 17%
higher than the 6-month average to the end of December 2011. How the new arrangements are
managed is thus likely to have an important bearing on the raw sugar prices that ACP exporters can
negotiate, particularly given the current wide discrepancy in EU and world market prices for white
sugar.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/EC-announces-temporary-measures-to-
boost-sugar-supplies
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 32
EU sugar market management measures cause controversy - 22 January 2012
In November 2011, the EC approved exports of ‘700,000 tonnes of “out-of-quota” sugar from
December 1’ 2011. Australia and Brazil’s sugar producers maintain that the EU will now exceed ‘its
WTO limit for 2011-12’, exporting 2.05 million tonnes of sugar, some 65% more that the permitted
WTO ceiling of 1.35 million tonnes. The EC denies this, maintaining that exports approved in April
had ‘come out of the bloc's unused WTO export quota for 2010-11’. This needs to be seen in the
context of a projected EU sugar beet harvest of 19 million tonnes of raw sugar equivalent (rse).
Two additional measures announced on 24 November 2011 were approval of ‘the sale of 400,000
tonnes of out-of-quota sugar for food use at a reduced levy of 85 euros per tonne, instead of the
usual 500 euros per tonne’, and ‘the opening of a tendering system for sugar imports from all non-EU
countries at reduced duties’. The first three import tenders in December 2011 were to be limited to
full-time EU refiners, with all operators being able to bid under subsequent tenders. This system
involves importers bidding to be allowed to import sugar. Under similar arrangements earlier in 2011
some 300,000 tonnes of sugar were imported.
According to the EC, ‘these proposals are designed as the most efficient measures to secure
additional quantities for the domestic market, by both facilitating imports and taking advantage of
the abundance of the out-of-quota harvest within the EU.’ Significantly, the EC took these decisions
after ‘government officials in the management committee failed to reach a majority either for or
against the proposal’. Commenting on the new measures, EU Agriculture Commissioner Dacian Cioloş
maintained that the situation on the EU sugar market ‘shows the limits of the quota mechanism and
its structural shortcomings’.
The EU continues to face sugar shortages: despite a bumper harvest, some 5 million tonnes of the
sugar is out-of-quota production which cannot be sold for food uses inside the EU. This anomaly
would appear to account for why the agriculture commissioner ‘wants the quota system scrapped by
2015’. This would then free EU sugar producers to fully benefit from ‘the competitivity achieved in
recent years’. Significantly, Commissioner Cioloş argues that quota abolition will involve not the
abandonment of market management, but the introduction of ‘a framework of modernised market
management instruments with true safety nets, a clearer, strengthened role for producer
organisations and obligatory contracts, before sowing, between growers and processors.’
At the beginning of December 2011, EU sugar refiners held that the reduced-duty tender system was
forcing refiners ‘to pay almost three times as much as the rest of the bloc’s sweetener industry’. The
EC, for its part, pointed out that imports of 100,000 tonnes of raw sugar had taken place at duties of
between €252.5 and €255 per tonne, substantially below the usual duty of €339/tonne. However,
according to João Pereira, President of the European Sugar Refiners’ Association, ‘the cane refining
industry simply cannot continue to bear these costs without an impact on our viability and jobs in the
long term.’ This follows ‘a second year of shortages after imports from a group of least-developed
nations that have preferential access to the market fell short of the commission’s expectations.’
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 33
The Committee of European Sugar Users (CIUS) welcomed the release of out-of-quota sugar to the
domestic market, but described it as ‘not enough’, with the announcement of 700,000 tonnes of out-
of-quota sugar exports being described as ‘too early’, given the ‘extreme volatility, instability and
disruption’ faced by the European food and drink industry, which has faced severe supply shortages
throughout 2010/11.
At the global level, analysts are projecting a 12% decline in Brazil’s 2011/12 sugar production, with
‘more substantial growth only in 2013/14’. Some analysts suggest that increases in Brazilian
production costs in recent years of ‘around 18-20 cents a pound’ and lower production have ‘opened
the door for otherwise marginal sugar producers to be competitive on a global level’.
Sources
Business Recorder (Pakistan), ‘EU sugar exports producers anger’, 24 November 2011
http://www.brecorder.com/component/content/article/18-markets-commoditie...
Just-drinks.com, ‘Sugar imports move angers EU farm chief Ciolos’, 25 November 2011
http://www.just-drinks.com/news/sugar-import-move-angers-eu-farm-chief-c...?
Foodnavigator.com, ‘EC bids to offset sugar supply shortfall in EU next year’, 25 November 2011
http://org-www.meatprocess.com/Legislation/EC-bids-to-offset-sugar-suppl...
Bloomberg Businessweek, ‘Refiners say EU sugar tender plan threatens their future’, 8 December
2011
http://www.businessweek.com/news/2011-12-08/refiners-say-eu-sugar-tender...
Blackseagrain.net, ‘EU sugar crop to set record in 2011-12 on Germany, France, UK’, undated
http://www.blackseagrain.net/photo/eu-sugar-crop-to-set-record-in-2011-1...
USDA, ‘EU approves extra-ordinary market measures for sugar for MY 2011-12’, GAIN Report No.
E60071, 1 December 2011
http://static.globaltrade.net/files/pdf/20111230221339306.pdf
Reuters, ‘Brazil sugarcane crop on way to another letdown’, 21 November 2011
http://af.reuters.com/article/energyOilNews/idAFN1E7AK14O20111121
Editorial comment
The new measures announced in November 2011 are indicative of the difficulties the EC faces in
managing the EU sugar market, as sugar companies adjust to and prepare for the ongoing process of
EU sugar sector reform. Earlier announcements of the increased licensing of EU out-of-quota sugar
exports in January 2010, preceded a sharp fall in world market sugar prices, which lost 40% of their
value by the end of May 2010 (see Agritrade Executive Brief ‘ Sugar sector update 2011’). However,
with Brazilian production likely to be 12% down in 2011/12 and with a recovery in production only
likely to occur in 2013/14, it is unclear whether similar price effects can be expected.
The opening of an EU tender for reduced duty imports is likely to intensify competition on the EU
sugar market, as well as being indicative of the future trend as the EU sugar market is progressively
opened up to reduced-duty and duty-free sugar imports from non-ACP/LDC countries.
Perhaps of more fundamental concern, however, is the ongoing erosion of the distinction between
in-quota sugar and out-of-quota sugar. This is likely to strengthen the hand of those arguing for the
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 34
early abolition of sugar production quotas. This being noted, these measures were implemented
through a Commission decision, in the absence of consensus among EU member states in the
management committee overseeing the implementation of measures linked to the common
organisation of the market. This would appear to indicate that the debate on the future of the EU
sugar regime is very much alive in EU Council structures
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/EU-sugar-market-management-
measures-cause-controversy
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 35
Regulatory framework generates difficulties on EU sugar market - 28
November 2011
According to press reports, ‘at a time when the world is facing its biggest sugar glut in at least four
years, trade barriers mean the European Union is contending with a second consecutive annual
shortage’. According to the Committee of European Sugar Users, sugar supplies to the EU market will
be ‘1.1 million tons short of demand in the 12 months ending in September’. Yet ‘global output will
exceed usage by 5.32 million metric tons’. This has given rise to a situation where, despite a 24% fall
in world market prices in the 8 months to October 2011, sugar prices in the EU have ‘reached a two
year high’. According to the Committee of European Sugar Users, shortfalls in sugar supplies on the
EU market can severely impact on medium and small-sized enterprises and ‘can lead to the
temporary closure of export businesses’. Muriel Korter, Secretary General of the Committee said, ‘if
there are no changes in the market and the commission does not consider taking measures to
guarantee sustainable supply, every year is going to be the same battle.’
The analysis notes that despite the reforms under way since 2006, the EU has ‘failed to scrap import
duties, leaving users with the choice of either paying about 60 percent more than in the international
market’ or not paying up, and closing down production. This is increasing the costs of the EU food
and drinks industry.
EC estimates indicate that ‘refined sugar averaged 548 euros a ton in the EU in July, the most since
September 2009’. Indeed, according to Rabobank International, ‘some second-quarter contracts cost
as much as 850 euros’. According to the EC, ‘while EU output will climb 16 percent to 17.8 million
tons in the 12 months through September, production will still be 11 percent lower than where it
was seven years ago’. Current EU policies mean that ‘increased output won’t translate into increased
supplies to consumers’. However with a recession-induced contraction of EU sugar consumption,
sugar shortages in the EU may not be as acute as feared in some quarters. According to press
reports, sugar production in the EU in 2011 is forecast to reach 18 million tons, ‘up from 15.4 million
tons in 2010 and 17.5 million tons in 2009’.
According to press analysis, in the face of the current market situation the EC may once again allow
the sale of out-of-quota sugar for human consumption on the EU market, and may also increase
tariff-free access within expanded quotas (current duties are €339/tonne on raw sugar and €419/t on
refined sugar). According to Brussels-based European Sugar Refiners, supply from traditional ACP and
LDC suppliers is expected to deliver only some 1.7 million tonnes to the EU market in the 2011/12
compared to an earlier anticipated level of 3.3 million tonnes.
Similar supply difficulties are faced on the US market, with stockpiles reaching ‘the lowest since
records began in 1960’. US prices have now reached ‘39 cents a pound, compared with 27.53 cents
for international contracts’.
Sources
Businessweek.com, ‘Sugar shortages pummel Europe as world glut grows’, 19 October 2011
http://www.businessweek.com/news/2011-10-19/sugar-shortages-pummel-europ...
Worldbakers.com, ‘EU wants to stop domestic sugar production limits’, 18 October 2011
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 36
http://www.worldbakers.com/index.php/component/content/article/1-latest-...
Editorial comment
The current situation on EU sugar markets highlights the contradictions arising from the partial
nature of the sugar sector reforms implemented to date. The current system of production quotas
directs domestic sugar beet production to non-food industrial uses, while on occasion leaving value-
added food product manufacturers struggling to secure supplies at competitive prices.
Meanwhile, in an era of heightened price volatility the current trade regime can at times leave EU
importers struggling to compete for international supplies, while at other times leaving potential
exporters unable to trade freely into high-priced world markets.
With the process of consolidation and internationalisation of the European sugar sector well under
way, pressure for an early abolition of sugar production quotas is mounting. This would address two
of the three main challenges faced: freeing up domestic production to meet domestic demand from
value-added food processors, and removing restrictions on exports of sugar. In such a context,
further market liberalisation, possibly via an expansion of TRQ market access arrangements, would
be likely to follow.
This would transform the basis on which ACP raw sugar producers trade into the EU market.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Regulatory-framework-generates-
difficulties-on-EU-sugar-market
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 37
EU continues to manage opening to third-country sugar imports - 05 July 2011
On 26 May 2011, the EU member states agreed to an EC proposal ‘to open a further 200,000 tonne
import quota for raw or refined sugar at zero import duty’ and to introduce ‘the possibility for
further imports at reduced import duty via a tendering system’. Under the proposed tendering
system for imports, ‘EU operators may submit offers for importing sugar at a reduced import duty’,
with the Commission deciding on bids based on ‘the evolution of the EU and world sugar market
situation’. The proposed tender system would start in July and run until the end of September.
Import licences issued under this system would be valid for three months.
The EC has also proposed to limit out-of-quota sugar and isoglucose exports to 650,000 tonnes and
50,000 tonnes respectively for the marketing year 2011/12. The EC will only review these ceilings in
the early months of 2012, once ‘more precise estimates of production and available supply would be
known’. According to press reports, ‘an import quota of 400,000 tonnes of industrial sugar’ is also to
be opened.
These new measures have been proposed in the context of lower levels of raw sugar cane delivery to
the EU from traditional suppliers in the face of higher world market sugar prices. This supply
situation saw the EU:
suspend the €98/t import duty on certain import quotas in November 2010;
release ‘500,000 tonnes of out-of-quota sugar and 26,000 tonnes of out-of-quota isoglucose onto the
EU market’ in March 2011; and
open a 300,000-tonne zero-duty import quota in April 2011.
Despite these measures, EU ending stocks are now less than 10% of utilisation.
These EC proposals need to be seen in the context of volatile global sugar prices. According to sugar
traders Kingsman, with global sugar production exceeding demand for the second year running, a
global surplus of over 10.5m tonnes now exists. While it is thought that this could continue to drive
down prices, ED & F Man Holdings, a leading provider of sugar, biofuels and other commodities,
argues that rebuilding of stocks by major importers such as China could help to support global sugar
prices. Since 2 February 2011, sugar prices have fallen from 36.08 US cents/lb to 21.33 c/lb. Some
analysts maintain that prices could fall as low as 20 cents, but that restocking purchases could then
prompt a recovery to up to 30 c/lb.
Press reports are suggesting that EU companies such as Nordzucker are likely to ‘seek more sugar
supplies outside the EU’. This is seen as essential ‘to raise the capacity utilisation of the group’s
refineries’ and hence secure the group’s continued growth. The company’s review of its activities in
2010 suggests the further development of the company as an ‘international company’ is ‘an
important’ part of its agenda.
Sources
EC, ‘Commission tables measure to ensure fluidity of the EU sugar market’, 27 May 2011
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 38
http://ec.europa.eu/agriculture/newsroom/39_en.htm
TheCropSite.com, ‘Commission tables [measures] ensuring fluidity of EU sugar’, 31 May 2011
http://www.thecropsite.com/news/8363/commission-tables-ensuring-fluidity...
Agra-net.com, ‘Nordzucker to seek sugar outside the EU’, 26 May 2011
http://www.agra-net.com/portal2/home.jsp?template=newsarticle&artid=...
Nordzucker.de, ‘Review 2010/11: Nordzucker regains its former strength’, 26 May 2011
http://www.nordzucker.de/en/company/press/press-releases/press-releases/...
Bloomberg.com, ‘“Dangerous to presume” sugar will drop as nations restock, ED & F Man says’, 13
May 2011
http://www.bloomberg.com/news/2011-05-13/-dangerous-to-presume-sugar-to-...
Editorial comment
By opening up the possibility of EU operators importing increased volumes of sugar from third
country suppliers at reduced duties from July, the new proposals would appear to weaken the
position of ACP suppliers in commercial contract negotiations with EU sugar operators, since if the
prices offered by ACP suppliers are not competitive, these EU operators could always import at
reduced duties. However, this being stated since there is less certainty of supply under this
alternative system of imports, it is likely to be less attractive to traditional raw cane sugar refiners.
The expanded use of zero duty import quotas however may well create a commercial dynamic to
retain in place existing concessions, if certain EU sugar companies are not to be placed at a
disadvantage because of the absence of close corporate links to preferred suppliers. This could then
carry implications for the types of sugar sector trade concessions granted under new FTA
arrangements.
A close monitoring of the evolving patterns of investment and trade of major EU sugar companies
would appear to be necessary to understand the likely evolution of European commercial interests in
new sugar market access arrangements.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/EU-continues-to-manage-opening-to-
third-country-sugar-imports
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 39
FUNCTIONING OF THE SUGAR SUPPLY CHAIN
THE EU EXPERIENCE
EC review of the impact of 2006 reforms on price transmission in the sugar
sector - 07 July 2013
A study on the impact of EU sugar sector reforms on price transmission in the sugar sector,
commissioned by the EC, was posted on the Commission website in June 2013.
The analysis looked at the extent to which:
•changes in the institutional price of sugar resulted in changes in the retail price of sugar;
•reforms had “influenced the degree of competition and concentration in the sugar industry”;
•reforms had “reduced the distance between domestic and international prices”.
The review set out both the expected and actual price transmission effects of the 2006 sugar sector
reforms.
It was expected that sugar sector reforms would promote “more favourable conditions for the
functioning of price transmission”, with improved market access for sugar imports (progressive
introduction of duty-free, quota-free access for ACP/LDC sugar) permitting “stronger integration
between the EU domestic markets and the international market”, fostering a process of price
convergence. However, it was also anticipated that reforms would result in a greater concentration
of ownership in the sugar sector and less competition, with this promoting “a worsened functioning
of price transmission” along the sugar supply chain.
The empirical assessment of the impact of reforms showed that:
•“the three-step reduction of sugar intervention price… did not fully translate [into] a decrease of ex-
works sugar prices in the EU”, with the ex-works prices staying “well above the intervention price
until the end of the 2009/10 marketing year” and maintaining “an ample margin over the reference
price from October 2009 onwards”;
•“the reduction of sugar beet minimum prices introduced by the 2006 reform did not fully translate
in an equal decrease of sugar beet prices paid to farmers”;
•retail prices “[appeared] not to be influenced by policy events”, with the “market power of retailers
vis-à-vis sugar producers” meaning that “retailers’ pricing behaviour [tended] to be independent…
from the dynamics of ex-works sugar price”;
•reforms have not yet achieved efficient price transmission, in that changes in the institutional price
of sugar are not reflected in changes in the retail price of sugar;
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 40
•reforms contributed to an “acceleration of the ongoing process of concentration of the sugar
industry”, with it being suggested that “EU sugar producers might again be exerting remarkable
market power”;
•the process of “convergence to price transmission proper between EU domestic sugar markets and
the international sugar market has not occurred yet”; indeed, it was considered that the early 2012
price dynamic suggests “a (possibly temporary) setback in the process of convergence between EU
domestic prices and international sugar price”.
Overall it was concluded that reforms had “contributed to improve the conditions for the functioning
of price transmission… by removing some remarkable constraints to free variation of domestic sugar
prices”, and that a process had been started “which might lead… to improved price transmission in
the EU sugar sector”. However, it was maintained that “changes in the EU sugar regime are probably
not sufficient to promote full price transmission along the entire sugar supply chain… without the
contribution of changes in other policies and of favourable non-policy developments.”
Sources
Areté (commissioned by EC), ‘Study on price transmission in the sugar sector: Draft final report’,
AGRI-2011-EVAL-03, undated
http://ec.europa.eu/agriculture/external-studies/2012/sugar-price-transm...
AFP, ‘EU raids sugar companies in collusion probe‘, 16 May 2013
http://www.brecorder.com/world/europe/119853-eu-raids-sugar-companies-in...
Editorial comment
The analysis in the study suggests that sugar prices in the EU have not evolved as the EC has
expected. This is in part linked to the “remarkable market power” of EU sugar producers and in part
due to the pricing behaviour of retailers. Implicit in the analysis is recognition of the need for other
policy measures to strengthen the functioning of sugar supply chains to improve price transmission.
This needs to be seen against the background of the “surprise inspections” launched by the EC in
May 2013 of several sugar companies, amid “concerns [that] they may have breached anti-trust
rules”, and efforts in member states to promote retailer codes of conduct.
From an ACP perspective, the “remarkable market power” of the EU sugar producers heightens
concerns over the functioning of ACP–EU supply chains. Currently only Mauritius has pursued a
strategy of converting to refined sugar exports to the EU, in anticipation of the price transmission
‘stickiness’ that the report describes. Other ACP suppliers have not embarked on such a strategy. In
the case of a number of expanding Southern African sugar exporters (notably Zambia and Malawi)
this may be linked to the close corporate links between local sugar millers and European sugar
refiners, with there being little interest in investing in competing refining capacity. This potentially
carries implications for the structural development of ACP sugar sectors.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/EC-review-of-the-impact-of-2006-
reforms-on-price-transmission-in-the-sugar-sector
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 41
Report on improving functioning of food supply chain released - 11 March
2013
On 5 December 2012, the High Level Forum for a Better Functioning Food Supply Chain delivered its
report, after 2 years of deliberations. The EC press release accompanying the release of the report
maintained that “around 80% of the initiatives contained in the Forum's Roadmap have been
satisfactorily implemented.” However, no consensus has yet emerged on “the best way to implement
the principles of good practice” put forward in 2011 “to improve business-to-business relationships”.
The EC committed itself to assessing “all possible options for tackling unfair trading practices in the
food chain, including legislation”. To this end, the EC is committed to launching an impact
assessment on this issue.
The three European Commissioners responsible for the High Level Forum expressed regret that “no
agreement has yet been reached on business-to-business unfair trading practices”, but believed that
an agreement would eventually be reached. The three Commissioners maintained that the work of
the High Level Forum shows “how bringing together all sectors working around the food chain can
produce results show the direct for future policy in this area”.
The High Level Forum involved all private sector stakeholders and national authorities, and called for
its own mandate to be extended beyond 2012, in view of the value of “continuous consultations and
exchanges of views”. It was argued that the mandate should include:
•providing advice to the EC on follow-up actions, including legislative proposals;
•developing “a common vision of more a sustainable, innovative, inclusive and resource-efficient
food supply chain”;
•improving the functioning of the European Food Prices Monitoring Tool.
The European farmers’ organisation Copa-Cogeca, responding to the release of the report, called on
the EC “to take clear steps towards introducing legislation at EU level to help tackle unfair and
abusive practices in the EU food chain”. Copa-Cogeca believes “a voluntary approach should be
accompanied by a legal framework”, with “voluntary codes backed by legislation that defines unfair
and abusive practices”.
These developments need to be seen against the background of calls from a UK coalition of dairy
producers and farmers for milk buyers to “implement the Dairy Industry Code of Best Practice on
Contractual Relationships in milk supply contracts without delay, or face the consequences”. David
Handley, Chair of Farmers for Action, said, “despite all of our efforts, farm gate milk prices for
deliveries in January are typically only 1ppl [pence per litre] to 2ppl higher than in April 2012, …
however, costs of production have risen by 3ppl to 4ppl.” He maintained that “farmers need to see
improving dairy market conditions translated into farm gate milk price rises.”
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 42
Mansel Raymond, Chair of the NFU dairy board, argued that no buyers were exempt from the
provisions of the Code of Best Practice and that it was “the responsibility of every milk buyer to
ensure the voluntary approach to improving milk contracts succeeds”.
Sources
EC, ‘Improving the functioning of the food supply chain’, IP/12/1314, 5 December 2012
http://europa.eu/rapid/press-release_IP-12-1314_en.htm
EC, ‘High Level Forum for a Better Functioning Food Supply Chain: Report 2012’, 5 December 2012
http://ec.europa.eu/enterprise/sectors/food/files/hlf-third-meeting-fina...
Copa-Cogeca, ‘Copa-Cogeca urges EU Commission to introduce legislation at EU level to tackle unfair
and abusive practices in the food chain’, listed as 5 December 2012
http://www.copa-cogeca.be/Main.aspx?page=Archive
Thedairysite.com, ‘Milk buyers must abide by dairy code of practice’, 22 January 2013
http://www.thedairysite.com/news/41278/milk-buyers-must-abide-by-dairy-c...
Editorial comment
In a context of rising input costs and rising but volatile agricultural commodity prices, ending “unfair
and abusive practices” in food supply chains is seen by EU farmers’ organisations as a critical part of
the CAP reform process. The current lack of compliance by some UK milk buyers with the UK dairy
industry voluntary Code of Best Practice is illustrative of why farmers are insisting on a strong EU-
wide legislative framework that defines and penalises what they see as unacceptable business
practices.
The relevance to ACP farmers of EU farmers’ efforts in this area lies in the scope for extending the
proposed legislative framework to address unfair and abusive practices in international food supply
chains.
The adoption of such an approach would appear to be relevant to major areas of ACP–EU agricultural
trade, from traditional exports such as bananas and sugar, to non-traditional exports such as fruit
and vegetables. This is particularly relevant where increasingly strict product standards are being
applied, with little attention being paid to the distribution of the costs and benefits associated with
such standards along the supply chain (see Agritrade article ‘ Opportunities and challenges arising
from increased eco-labelling’, forthcoming). In trade with the ACP, it has become the standard
business practice that these costs are covered by ACP producers. This has in some cases led
smallholder producers to stop producing traditional export products and focus instead on emerging
national and regional market opportunities.
Source:
http://agritrade.cta.int/en/Agriculture/Topics/CAP-reform/Report-on-improving-functioning-of-food-
supply-chain-released
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 43
Importance of inter-professional agreements in managing unequal power
relationships highlighted - 28 October 2012
In its oral submission to the UK House of Lords committee hearing on EU sugar reform, published in July 2012, the UK
National Farmers’ Union highlighted the importance attached to the inter-professional agreement (IPA), which governs
relations in the sugar sector. The IPA allows the UK’s 3,500 sugar beet producers to negotiate collectively with the
monopoly beet processor (British Sugar). Establishing ‘a single selling voice’ to balance the ‘single buying voice in the supply
chain’, the IPA allows ‘an obvious imbalance of power in the supply chain’ to be managed.
According to the NFU, the IPA ‘does not affect the price of sugar’, which is driven by developments in the European sugar
marketplace. The IPA allows the negotiation of a fair price for sugar beet rather than the imposition of an unfair price. It
further allows collaboration between farmers and the processor on matters which ‘propel the industry forward more
rapidly than might otherwise be the case’, e.g. on the development of weather-related insurance schemes.
In the most recent IPA announced on 13 June 2012, the contract prices and payments negotiated were seen as ‘working
well and reacting to market conditions’, by addressing grower concerns over the extended length of the beet processing
season via an ‘enhanced Late Delivery Allowance’ and the introduction of a ‘frost insurance package’, the costs of which in
future will be incorporated ‘within the beet pricing mechanism’. The basic contract tonnage beet price for 2013/14 was
seen as reflecting increased growing costs, forward cereals prices for 2013 and exchange rate changes. A specific contract
price was also agreed for specific contracted tonnages for use of out-of-quota sugar beet in biofuel production.
At the House of Lords Committee, British Sugar expressed its support for the IPA, given the highly integrated nature of the
sugar beet industry in the UK. British Sugar accepted the need for ‘some form of negotiating and contractual framework
between British Sugar as the sole processor and its supplying farmers’ now and in the future, and maintained that the IPA
structure ‘ensures a fair balance of interest’. The company expressed a preference for seeing the relationship along the
sugar supply chain structured in an organised way, ‘defined in some way in the legislation, providing it does not inhibit our
local freedom and flexibility to negotiate terms that are sensible for UK conditions’.
Against this background, the NFU expressed concerns over EC proposals that would change the legislative basis for the IPA.
It is feared that these could lay the basis for the abolition of such arrangements. The NFU, in line with the position of British
Sugar, would like to see the IPA system ‘reinforced in the long term’.
Sources
UK House of Lords EU Agriculture, Fisheries, Environment and Energy Sub-Committee, ‘EU Sugar Regime: Oral evidence’, 23
July 2012
http://www.parliament.uk/documents/lords-committees/eu-sub-com-d/sugar/s...
UK National Farmers’ Union, ‘Sugar contract price announced’, 13 June 2012
http://www.nfuonline.com/News/Cereals-2012/Cereals-2012--Sugar-contract-...
Editorial comment
The concern to address what the NFU chairman called ‘an obvious imbalance of power in the supply chain’ is likely to
increase in many ACP sugar exporting countries, given the dismantling of traditional price guarantees on the EU market and
the changing patterns of corporate ownership within the sugar sector. These concerns need to be seen against the
background of the high concentration of ownership in the EU sugar sector (where six companies control 80% of the EU beet
quota and have growing interests in co-refining raw cane sugar, accounting for around half of all raw cane sugar refined),
and the increased frequency of EU refiners with shareholdings or corporate linkages to local millers in ACP countries.
Considerable scope potentially exists for sharing NFU’s experience of contract negotiations with a monopoly processor,
with ACP sugar producers’ organisations. This is particularly relevant where small-scale farmers have to deal with the same
corporate family as NFU negotiators (e.g. Zambia and Malawi). Such an exchange of experience would also appear to be
appropriate in countries where the principal EU refiner has shareholdings in the local miller (e.g. Belize), in order to ensure
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 44
that ‘obvious imbalances in power relationships along the supply chain’ do not result in primary producers alone carrying
the burden of price volatility.
Source:
http://agritrade.cta.int/Agriculture/Commodities/Sugar/Importance-of-inter-professional-agreements-in-managing-
unequal-power-relationships-highlighted
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 45
Elaboration of measures to strengthen the functioning of EU dairy supply
chains continue - 18 March 2012
In December 2011 the European Parliament and EU Council reached agreement on new rules which
will ‘allow producers’ organisations to negotiate raw milk prices for the farmers they represent. This
is consistent with calls from the European Milk Board (EMB) for ‘clear rules …that guarantee the
operation of a healthy market’ and allow milk producers to join producer organisations which then
negotiate on their behalf. This needs to be seen in the context of fears that leaving the sector to the
operation of a free market, in view of the scale of the economic downturn in the EU, could lead to
‘rock-bottom prices that fluctuate dramatically’.
The agreement was concluded following a lengthy period of inter-institutional consultations to
resolve disagreements over the extent of regulation required.
The new rules however leave it to member states ‘to decide whether or not to impose contracts
covering milk delivery from farmers to collectors or processors for their territory’. Where such
contracts are compulsory, they must state the price to be paid for raw milk, payment periods and
arrangements for collecting and delivering milk. They may also include a minimum duration
stipulation (6 months). According to press reports, if farmers reject the duration of the contract, ‘the
parties to a contract will be free to negotiate all parts of it’. The new regulation will apply until the
end of June 2020.
In February, the EU Council formally adopted the regulation. UK dairy farmers have however
criticised the voluntary nature of the contract regulation provisions, which leave farmers vulnerable
to ongoing exploitative practices (for example, while currently farmers may have to give 12 months’
notice to exit a contract, dairy processors can change the price paid for milk without any notice).
The proposals to improve the functioning of the dairy supply chain need to be seen in the context of
reported losses to EU dairy farmers of €10 billion as a result of the 2009 dairy crisis. However,
according to a January 2012 benchmarking analysis carried out by the UK company DairyCo, it is
production costs and not milk prices that are the critical determinant of profitability. This analysis
calls for farmers to establish ‘the right balance between input use and milk output and to balance
yield increases against the extra costs involved. It maintains that ‘efficient milk production is possible
at almost any scale of production’, provided that the input costs and output balance are right.
At member state level, French Minister of Agriculture Bruno Le Maire has stated that smaller milk
producers may be able to exceed their milk production quotas by 2% in order to take advantage of
strong dairy markets.
In the UK press, analysis suggests that record milk prices (following double-digit growth) have put UK
milk producers in contention as the most profitable sector in UK agriculture. This reflects ‘elevated
values on international markets, where dairy products are 22% more expensive than their average of
the last eight years’. Given the economic downturn in the EU and pressure from supermarkets to
keep prices down, this has placed a significant profitability squeeze on UK dairy processors, according
to analysis carried on commodities website Agrimoney.com.
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 46
In February 2012, global dairy prices began to fall, reaching a 6-month low, with further falls
expected. While strong growth prospects are expected in the coming 5 years, this is going to be an
uneven process, with high inputs costs and price volatility posing challenges for producers. In the EU,
meanwhile, the highest milk deliveries in 5 years could create additional price pressures.
Sources
Thedairysite.com, ‘Fairer deal for dairy farmers: new rules agreed’, 6 December 2011
http://www.thedairysite.com/news/36715/fairer-deal-for-dairy-farmers-new...
USDA, ‘EU-27: European Council and Parliament adopt milk package in first reading’, GAIN Report
No. E60077, 21 December 2011,
http://gain.fas.usda.gov/Recent%20GAIN%20Publications/European%20Council...
Thedairysite.com, ‘Changes to milk management quotas’, 4 January 2012
http://www.thedairysite.com/news/36945/changes-to-milk-management-quotas
Thedairysite.com, ‘Clear rules a must for EU dairy’, 20 January 2012
http://www.thedairysite.com/news/37129/clear-rules-a-must-for-eu-dairy
Thedairysite.com, ‘Cost of production, not milk price affects profit’, 17 January 2012
http://www.thedairysite.com/news/37086/cost-of-production-not-milk-price...
Dairyco.org.uk, ‘DairyCo Milkbench+ Report 2012’, 16 January 2012
http://www.dairyco.org.uk/library/farming-info-centre/milkbenchplus/milk...
Agrimoney.com, ‘Dairy profits soar, lifted by record milk price’, 26 January 2012
http://www.agrimoney.com/news/dairy-profits-soar-lifted-by-record-milk-p...
Agrimoney.com, ‘Rich milk flows erode dairy prices’, 1 February 2012
http://www.agrimoney.com/news/rich-milk-flows-erode-dairy-prices--4111.html
Thedairysite.com, ‘Rabobank dairy outlook: attractive but unbalanced’, 2 February 2012
http://www.thedairysite.com/news/37286/rabobank-dairy-outlook-attractive...
Thedairysite.com, ‘Council votes to improve milk market’, 29 February 2012
http://www.thedairysite.com/news/37627/council-votes-to-improve-milk-mar...
Thecattlesite.com, ‘EU dairy proposals - are they lacking?’, 16 February 2012
http://www.thecattlesite.com/news/37463/eu-dairy-proposals-are-they-lacking
Editorial comment
Getting to grips with strengthening the functioning of dairy supply chains, in order to reduce
production disruptions that arise from price volatility, is clearly a complex issue, given the divergent
interests of farmers, processors, retailers and consumers. From an ACP perspective, the most
interesting aspect of the initiative is the regulatory tools that the EU is setting in place to rebalance
power relationships within dairy supply chains. These include:
the regulatory framework for the organisation of producers;
support to producer organisations;
the use of framework contracts or the establishment of compulsory contracts with clear specification
of the issues to be covered.
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 47
However, it needs to be borne in mind that the financial position of EU milk producers is also
underpinned by the single payments system and the EU’s expanding safety-net policy, of which
measures to strengthen the functioning of dairy supply chains form an integral part.
Where unequal power relationships exist along supply chains, the development of government
policies on the functioning of supply chains could prove effective in laying a more solid basis for dairy
sector development in an era of heightened price volatility and import surges. Indeed, policy
initiatives to strengthen the functioning of supply chains may be relevant well beyond the dairy
sector.
Source:
http://agritrade.cta.int/Agriculture/Commodities/Dairy/Elaboration-of-measures-to-strengthen-the-
functioning-of-EU-dairy-supply-chains-continue
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 48
Debate on functioning of supply chain continues - 07 June 2010
On 4 May European farmers’ and agri-cooperatives’ organisation COPA-COGECA adopted a position
paper on ways to support farmers within the food supply chain. It noted that in the last ten years, the
farmers’ share of the final retail price had fallen from 30% to 20%, with revenues received from the
sale of products in some instances being insufficient to cover farmers’ costs and ensure a fair income.
This is attributed in part to the ‘huge buying power of a handful of processors and supermarkets’
which use their market power to pursue unfair pricing practices.
In this context COPA-COGECA has called for:
an adjustment to competition rules to allow producers’ organisations and cooperatives to grow in
size and scale, in order to strengthen their position in the supply chain;
the establishment of an independent ‘European Food Trading Agency’ to provide advice on food
chain issues and contribute to a more transparent and fairer supply chain;
the establishment of a ‘Food Trading Ombudsman’ to adjudicate on disputes;
a review of the impact of private retail labels on the competitiveness of the agri-food sector;
a revamped policy to give farmers and cooperatives more access to measures to improve
competitivity and to adapt to climate change.
Any moves towards renationalising the CAP however were firmly rejected by COPA-COGECA.
MEPs meanwhile have suggested the adoption of measures ‘to prevent market concentration and
ensure price transparency and social equality throughout the supply chain.’ Calls have been made for
an ‘EU-wide code of conduct for supermarket chains’ with an ombudsman having ‘power to settle
disputes’, and for the EU’s top 20 food traders to be required ‘to produce annual reports on their
market shares, so as to provide data on demand, supply and price trends.’ Others have argued for
measures which ‘help the weakest link in the supply chain … without undermining competition’,
while the secretary general of Eurocommerce, which represents the retail, wholesale and
international trade sectors, has argued that ‘too much price transparency would bring too much
bureaucracy’ and thus slow trade.
Sources
COPA-COGECA, point of access to press releases, ‘EU leaders adopt position on food supply chain, 4
May 2010
http://www.copa-cogeca.be/Main.aspx?page=Archive&lang=en
TheCattleSite.com, press article, ‘EU Agriculture Committee seeks fairer food market’, 5 May 2010
http://www.thecattlesite.com/news/30673/eu-ag-committee-seeks-fairer-foo...
COPA-COGECA, point of access to press releases, ‘EU leaders adopt position on future CAP, 4 May
2010
http://www.copa-cogeca.be/Main.aspx?page=Archive&lang=en
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 49
Editorial comment
With the move away from price support to direct-aid payments, it was to be expected that the share
of farmers in the final retail price would decline, since reforms were designed explicitly to lower the
price of agricultural raw materials towards world market price levels. Farmers were accordingly to be
compensated for these price declines by increased levels of direct-aid payments.
This is a separate issue from the question of the distribution of the burden of price declines during
cyclical downturns in increasingly volatile agricultural markets (volatility however within an overall
trend of rising prices). This suggests that policy initiatives regarding the functioning of the food
supply chain will be designed to address a specific range of issues. Currently the most important
would appear to be to reduce the budgetary burden of crisis interventions. In 2009 the costs of the
emergency programme in the dairy sector was equivalent to 12% of the budget for direct-aid
payments to EU dairy farmers. Demands for similar emergency programmes in the cereals and fruit
and vegetable sectors would soon come up against serious budgetary constraints. This underlying
budgetary reality can be seen as an important factor influencing the current policy discussions on the
functioning of the food supply chain in Europe. Against this background two questions arise:
what will be the impact on the ACP of internal EU measures dealing with the functioning of the
supply chain?
should elements of these policy initiatives on the functioning of the supply chain be extended to ACP-
EU trade relations?
Source:
http://agritrade.cta.int/Agriculture/Topics/CAP-reform/Debate-on-functioning-of-supply-chain-
continues
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 50
EC proposes action to improve functioning of food supply chain - 09
December 2009
According to an EC press release, ‘the recent sharp decline in agricultural commodity prices alongside
persistently high consumer food prices’ has raised concerns over the ‘functioning of the food supply
chain in the EU’. Against this background the EC has agreed a communication proposing ‘concrete
actions to improve (the) functioning of the food supply chain in the EU’. In part these proposals aim
to improve ‘commercial relationships between actors of the chain’ to the ultimate benefit of all
concerned.
Commissioner Fischer Boel, in her blog, highlighted three main thrusts of the communication: the
importance of the newly launched European food prices monitoring tool; the importance of boosting
‘farmers’ bargaining power in the supply chain’ and the importance of farmers working together.
More specifically in the communication the EC identifies:
‘significant tensions in contractual relations between actors of the chain, stemming from their
diversity and differences in bargaining power’;
a ‘lack of transparency of prices along the food chain’;
‘increased volatility of commodity process’.
It further notes the continue fragmentation of EU food markets.
Specifically the communication notes that the Commission proposes to:
‘promote sustainable and market-based relationships between stakeholder of the food supply chain’,
by identifying ‘unfair contractual practices stemming from asymmetries in bargaining power’ and
monitoring ‘potential abuses’, by working with national competition authorities to monitor the
functioning of the food supply chain and by drafting ‘standard contracts with stakeholders from the
different sectors’;
‘increase transparency in the food supply chain’ by establishing a ‘European food prices monitoring
tool’, improving ‘oversight of agricultural commodity derivatives market’ so as ‘to contain volatility
and speculation’. The Commission is also proposing the establishment at the national level of ‘price
comparison services’ to allow consumers to compare prices of different retailers;
‘foster the integration of the internal market for food and the competitiveness of all sectors of the
food supply chain’ by removing measures which ‘impede cross-border trade’ and ‘force’ retailers to
source locally, looking at ‘how farmers’ bargaining position can be strengthened’.
A report is to be prepared on the effectiveness of these measures by the end of 2010.
The EC has also posted the Commission staff working papers which went into the formulation of the
EC communication on the functioning of the food supply chain in the EU (see sources below).
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 51
The EC initiative to improve the functioning of the food supply chain has been welcomed by
European farmers’ group COPA-COGECA, who however also called for ‘much stronger measures’ to
be urgently introduced. In its press release, COPA-COGECA argued that ‘the EU food market is
dominated by large retailers, and farmers’ share in retail food prices is continuing to be eroded’. The
Secretary-General of COPA-COGECA, Pekka Personen, called for ‘measures to facilitate the
concentration of supply to make sure that farmers can have a better position on the market’, as well
as measures ‘to address the problems of late payments, market abuses and distortions of
competition in the food chain’.
Sources
Europa Press Releases Rapid, Press release, IP/09/1593, 28 October 2009
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1593&f...
Europa Press Releases Rapid, Memorandum, MEMO/09/483, 28 October 2099
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/483&...
EC, Commissioner Mariann Fischer Boel’s blog, 29 October 2009
http:/blogs.ec.europa.eu/fischer-boel/abracadabra-where-did-the-money-go/
EC, Communication on ‘A better functioning of the food chain in Europe’ (provisional), ref.
COM(2009) 91, 28 October 2009
http://ec.europa.eu/economy_finance/publications/publication16061_en.pdf
EC, Staff working document on price transmission along the food supply chain, ref. SEC(2009) 1450,
28 October 2009
http://ec.europa.eu/economy_finance/publications/publication16067_en.pdf
EC, Staff working document on competition in the food supply chain, ref. SEC(2009) 1449, 28 October
2009
http://ec.europa.eu/economy_finance/publications/publication16065_en.pdf
EC, Staff working document on outcomes of the high-level group on competitiveness, ref. SEC(2009)
1448, 28 October 2009
http://ec.europa.eu/economy_finance/publications/publication16069_en.pdf
EC, Staff working document on agricultural commodity derivative markets, ref. SEC(2009) 1447, 28
October 2009
http://ec.europa.eu/economy_finance/publications/publication16071_en.pdf
EC, Staff working document on improving price transparency, ref. SEC(2009) 1446, 28 October 2009
http://ec.europa.eu/economy_finance/publications/publication16073_en.pdf
EC, Staff working document on value-added repartition, ref. SEC(2009) 1445, 28 October 2009
http://ec.europa.eu/economy_finance/publications/publication16075_en.pdf
EC Directorate-General for Economic and Financial Affairs, Paper on functioning of the food supply
chain, Occasional Papers, No. 47, May 2009
http://ec.europa.eu/economy_finance/publications/publication15234_en.pdf
EC Directorate-General for Economic and Financial Affairs, ‘Summary for non-specialists’ of
Occasional Paper No. 47, May 2009
http://ec.europa.eu/economy_finance/publications/publication15236_en.pdf
COPA-COGECA, Press release, 29 October 2009
http://www.copa-cogeca.be/Main.aspx?page=Archive&lang=en
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 52
Editorial comment
EU concerns over the functioning of the food supply chain find a strong echo in ACP countries, where
inequalities in power relationships can mean that ACP agricultural producers obtain only a tiny
percentage of the final sale value of the food-and-agricultural products they grow. EU investigations
and policy responses may carry important lessons for ACP countries in their own efforts to
strengthen the negotiating position of agricultural producers in both national and international
supply chains.
However, it needs to be recognised that ACP governments tend to face severe budgetary restrictions
on the types of policy tools they can use in addressing inequalities in power relationships in the
various supply chains in which national producers are engaged. This means that often trade-policy
tools, such as the use of import licences, are the only means available to address inequalities in
power along the supply chain.
A case in point is the use of import licensing in the Namibian horticultural sector, where this tool has
been effectively used as part of a wider policy to effectively encourage greater local sourcing of fruit
and vegetables by major retailers and traders. This has seen the domestic supply of fruit and
vegetables increase from 5% of local consumption to around 25% in only five years. Against this
background, more nuanced approaches are needed in dealing with non-tariff barriers to trade.
Source:
http://agritrade.cta.int/en/Resources/Other/Key-topics/Market-access-and-market-
developments/News/EC-proposes-action-to-improve-functioning-of-food-supply-chain
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 53
Emerging consensus on new EU rules to regulate dairy sector relations - 16
January 2012
Following a dispute between the EU Council and European Parliament on new rules to strengthen the
functioning of the dairy supply chain within the EU, a reconciliation process between Council and EP
representatives has reached a consensus. The new rules seek ‘to boost dairy farmers’ bargaining
power’ within the supply chain, thereby ensuring ‘fairer prices for raw milk’. The new rules ‘will allow
producers’ organisations to negotiate raw milk prices for the farmers they represent’. They also
provide exemptions to certain competitions rules relating to combinations of producers.
Under the new rules it is left to the discretion of member state governments ‘whether or not to
impose contracts covering milk delivery from farmers to collectors or processors’. Where compulsory
contracts are required, these have to stipulate the price to be paid for milk, the payment periods and
the ‘arrangements for collecting and delivering the milk’. The contracts also have to be for a
minimum of 6 months.
After presentation to the Agriculture Committee in December, the results of this intra-institutional
reconciliation process will be voted in plenary in February 2012. ‘The new regulation … will enter into
force in 2012, after it is endorsed by both Parliament and the Council.’
The EC welcomed the agreement, maintaining that it will ‘prepare the milk sector for the new
economic context and reinforce the position of the dairy producers in the supply chain’. The
Commission argued that the new regulation ‘will open the way towards a modern management of
agricultural markets, less bureaucratic, better organised between the public authorities and private
actors with tools tailored to new economic challenges’.
The secretary general of EU farmers’ organisation Copa-Cogeca welcomed the new rules, remarking
that ‘the agreement responds to our calls to strengthen farmers positioning in the food chain as they
currently only get a fraction of the price.’ The exceptions to competition rules to allow ‘a greater
concentration of supply’ and stipulations on minimum requirements for contracts were particularly
welcomed. However, the chair of Copa-Cogeca’s Milk Working Party warned that ‘this dairy package
is not sufficient in order to meet all the challenges’, and that tools such as intervention buying and
support to private storage would continue to be necessary to address crisis situations on the EU
market resulting from heightened global dairy price volatility.
In terms of global prices, online analysis Agrimoney .com reported in November 2011 that dairy
prices had fallen for seven consecutive months, with the expectation that by June 2012 they could be
down 20% from their earlier peak levels.
Sources
Thedairysite.com, ‘Fairer deal for dairy farmers: New rules agreed’, 6 December 2011
http://www.thedairysite.com/news/36715/fairer-deal-for-dairy-farmers-new...
EC, ‘Commissioner Dacian Cioloş welcomes informal agreement by Council and Parliament on new
rules for the milk sector’, MEMO/11/877, 6 December 2011
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/11/877&...
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 54
Copa-Cogeca, ‘Copa-Cogeca welcomes EU agreement on milk package’, 6 December 2011
http://www.copa-cogeca.be/Main.aspx?page=Archive&lang=en
Agrimoney.com, ‘Dairy price warning, as China's milk imports halve’, 25 November 2011
http://www.agrimoney.com/news/dairy-price-warning-as-chinas-milk-imports...
Editorial comment
The significance of the new rules reaches beyond the dairy sector, given broader EU moves away
from administratively determined prices towards market-based prices. The new rules represent the
elaboration, in concrete regulatory form, of efforts to rebalance relationship along supply chains that
are characterised by substantial inequalities in the distribution of power among stakeholders. As
such, the approach as a wider applicability than just the dairy sector – for example, it could also be
applicable to the sugar sector.
However the intra-institutional compromise leaves it to the discretion of EU member states whether
to make contracts compulsory. This would suggest that there is no consensus among member states
on the desirability of regulating contractual relations within food supply chains. This may make it
more difficult to extend aspects of the EU’s evolving policy on strengthening the functioning of
specific food supply chains to the ACP–EU level. This is despite a recognition in the EC’s ‘EU raw
materials paper’ of February 2011 on the potential relevance of such initiatives in dealing with the
production consequences of global price volatility (see Agritrade article ‘ Agriculture speculation and
the EC raw materials communication’, 1 March 2011).
The granting of exemptions to competition rules would appear to recognise the unique
characteristics of the functioning of certain agricultural supply chains, which seem to require special
exceptions.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Dairy/Emerging-consensus-on-new-EU-rules-to-
regulate-dairy-sector-relations
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 55
EC policy developments on addressing unfair trading practices- 04 March
2013
On 31 January 2013, the EC ‘adopted a European Retail Action Plan and a Green Paper on unfair
trading practices in the business-to-business food and non-food supply chain’. The primary focus of
this initiative is on improving the functioning of the retail sector within the EU single market. In terms
of unfair trading practices (UTPs), the EC’s primary concern relates to the effects they can have on
investment and innovation.
In terms of agricultural producers’ interests, the initiative aims to promote ‘fairer and more
sustainable trading relationships along the food and non-food supply chain’. The EC’s interest in UTPs
can be traced to the 2009 food price spikes, which generated concerns over the functioning of food
supply chains. At that time, it was concluded that ‘consumers were not offered sufficiently fair deals
in terms of product range and prices’, while ‘intermediaries / food processing industrials / retailers
squeezed the margins of agricultural producers’.
An EC Retail Market Monitoring Report published in 2010 identified the lack of rules addressing
UTPs, or the lack of enforcement, ‘as one of the major problems of the retail sector’. While
agreement was reached on ‘a set of principles and examples of fair and unfair practices in vertical
relations in the food supply chain’ in the High Level Forum for a Better Functioning Food Supply
Chain (see Agritrade article ‘Report on improving functioning of food supply chain released’,
forthcoming), an impasse was reached on the issue of enforcement of these principles. Only 8 of the
11 organisations participating in the forum were able to agree on an enforcement mechanism to
address UTPs. These eight organisations, however, ‘announced their intention to launch the
implementation of the principles of fair practice on a voluntary basis in early 2013’.
This initiative provides a parallel track to the EC’s Green Paper process aimed at assessing the relative
merits of voluntary and regulatory disciplines. Currently, within the EU ‘different approaches exist to
address UTPs at national level.’ Where UTPs are addressed, member states vary on whether they
adopt a regulatory or self–regulatory approach. Some EU member states, however, rely solely on
general competition law.
The Green Paper sets the scene for an EC investigation into ‘the magnitude of unfair trading
practices’ and their economic effects. The aim is to examine the ‘effectiveness of self-regulatory and
legislative frameworks put in place to address those practices at national level’. Inputs from
interested parties are invited, and the consultation is open until 30 April 2013.
The EC’s retail action plan and Green Paper on UTPs has been criticised by the fair-trade NGOs
Traidcraft and the Fair Trade Advocacy Office for relying too heavily on a voluntary approach. They
maintain that the UK experience shows that a voluntary approach does not work, and argue that
unfair contracts result in poorer working conditions for workers and lower returns for farmers in
developing countries. They identify a need for the EU to extend initiatives on UTPs to the
international level, and call for ‘swift and tough action’ by the EC to end UTPs along food supply
chains, along the lines of the UK’s proposed Groceries Code Adjudicator. This, it is argued, should
allow ‘anonymous complaints’ that lead to the investigations and, where unfair businesses practices
are pursued, fines.
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 56
Sources
EC, ‘Commission adopts a European Retail Action Plan and consults on unfair trading practices’,
IP/13/78, 31 January 2013
http://europa.eu/rapid/press-release_IP-13-78_en.htm?locale=en
EC, ‘European Retail Action Plan and Green Paper on unfair trading practices in the business-to-
business food and non-food supply chain – frequently asked questions’, MEMO/13/47, 31 January
2013
http://europa.eu/rapid/press-release_MEMO-13-47_en.htm?locale=en
EC, ‘Communication from the Commission to the European Parliament, the Council, the European
Economic and Social Committee and the Committee of the Regions setting up a European retail
Action Plan’, COM(2013) 36 final, 31 January 2013
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0036:FIN:...
EC, ‘Consultation by the European Commission on the Green Paper on unfair trading practices in the
business-to-business food and non-food supply chain in Europe’ - questionnaire
http://ec.europa.eu/internal_market/consultations/2013/unfair-trading-pr...
Traidcraft/Fair Trade Advocacy Office, ‘EU’s snail pace to tackling supply chain abuse’, 31 January
2013
http://www.fairtrade-advocacy.org/ftao-publications/press-releases/459-e...
EC, ‘Green paper on unfair trading practices in the business-to-business food and non-food supply
chain in Europe’, COM(2013) 37 final, 31 January 2013
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0037:FIN:...
Editorial comment
In June 2012, a coalition of consumer organisations petitioned the EC for the ‘Code of Practice the
Commission has promised to govern food retailers [to] be extended to cover the overseas suppliers’.
This delegation included representatives of ACP farmers (see Agritrade article ‘ Sustainability
concerns go mainstream in Dutch fruit and vegetable sector’, 29 July 2012). The need for such a code
of practice is highlighted by the debate around the distribution of costs and benefits of sustainability
certification along fruit and vegetable supply chains and the growing concern over the lack of
transparency in price formation in the ACP–EU sugar trade. In recent years there has been
considerable variation in contract prices paid for ACP sugar, under different types of marketing
arrangements. With an increase in the volume of ACP sugar exports falling within the scope of
contracts between sister companies, issues related to the transparency of price formation are likely
to come increasingly to the fore.
This consultation offers ACP stakeholders an opportunity to make their concerns related to UTPs
known to the European Commission.
Source:
http://agritrade.cta.int/en/layout/set/print/Agriculture/Topics/CAP-reform/EC-policy-developments-
on-addressing-unfair-trading-practices
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 57
ACP EXPERIENCES
Short-term earnings windfall projected in Jamaican sugar sector - 06
September 2011
According to a press report, ‘sugar producers will receive a 115 per cent increase on sugar prices for
the 2011/2012 crop’. Agriculture Minister Robert Montaque said ‘the existing private manufacturers,
with the consent and agreement of COMPLANT … signed an Agreement with ED & F Man Sugar
Limited for the supply of some 80,000 tonnes of sugar for the 2011/2012 crop year, at a price of
US$936.98 per tonne.’ This however is only a 1-year deal. Appeals were therefore made for sugar
cane farmers ‘to wisely invest earnings they make in the lucrative year ahead’, since ‘subsequent
years will see a substantial reduction once the agreement ends’.
Analysis in the press noted two contracts signed for the supply for sugar from government-run
estates, ‘one with Eridania Suisse of Italy (79,000 tonnes at €333.20 per tonne) and the other with
Tate and Lyle of Britain (100, 000 tonnes at €370 per tonne).’ According to Robert Montaque, by 15
August the Jamaican sugar industry ‘will be completely in private hands for the first time in many,
many years’.
Sources
Jamaica Observer, ‘Sweet price increase for sugar producers’, 7 August 2011
http://www.jamaicaobserver.com/business/Sweet-price-increase-for-sugar-p...
Editorial comment
The wide range of basic prices obtained from the sale of Jamaican sugar this crop season highlights
the challenges facing ACP sugar exporters in managing sales on highly volatile markets. Since the
beginning of 2011, raw sugar prices on the world market have fluctuated widely, losing 26% of their
value nearly from January to May before recovering virtually all of the lost value in July 2011. US raw
sugar import prices showed similar fluctuations, while EU prices showed more stability (moving only
within 3.4% window). However this more stable EU price saw fob world market prices above EU cif
prices in January, February and July 2011. Analysts suggest that prices could fluctuate within a 30%
band until the end of the year, ranging from a high of 31c/lb to a low of 21.5 c/lb (see Agritrade
article ‘ Price volatility a growing feature of global sugar markets, while confus...’, September 2011).
It is likely that the Eridania Suisse and Tate & Lyle contracts involve both a basic price and some form
of profit sharing arrangement. The deductions made by the processing companies prior to
determining the profits to be shared will be critical to the effects of these arrangements. These could
vary considerably from company to company, and between ACP countries.
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 58
In this context there would appear to be a need for greater transparency in the distribution of
revenues along ACP–EU supply chains, given the growing concentration of ownership in the EU sugar
sector.
Sources:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Short-term-earnings-windfall-projected-
in-Jamaican-sugar-sector
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 59
Tongaat Hulett CEO highlights income gains from electricity co-generation -
16 July 2012
In a recent interview, Peter Staude, Chief Executive Officer of Tongaat Hulett, highlighted the
potential revenue benefits for sugar cane growers of investing in electricity co-generation. He
pointed out how in Zimbabwe cane farmers were being paid US$65/tonne, compared to
US$45/tonne paid to South African cane farmers. In response to questioning, Mr Staude attributed
the difference to the use of the sugar cane fibre in co-generation, saying that ‘once you get the
proper value for the fibre in the cane …, and you put in high-pressure boilers and turbo alternators, a
typical sugar mill …will take the same fibre and generate four times as much electricity as we do at
the moment …, and that gives everybody the possibility to pay more … for the cane.’
The sale of co-generated electricity by Tongaat Hulett reflects a wider regional trend, with both
Swaziland and Malawi now supplying electricity to their national grids. South Africa, however, is held
to be lagging behind because of the absence of an appropriate regulatory framework for electricity
co-generation. According to a press report, Mr Staude took the view that ‘the slow pace of
consolidating the policy framework for electricity co-generation as well as the biofuels sector was
frustrating the industry’ and was ‘stunting a potentially huge new market that could see farmers,
both commercial and emerging ones, planting more crops for the production of biofuels’.
Sources
Moneyweb.com, ‘Tongaat full-year results: Peter Staude - CEO, Tongaat’, 28 May 2012
http://www.moneyweb.co.za/mw/view/mw/en/page295799?oid=571041&sn=200...
Business Day, ‘Biofuels sector “frustrated” by lack of a policy framework’, 2 June 2012
http://www.businessday.co.za/articles/Content.aspx?id=164186
Bioenergyconsult.com, ‘Salient features of sugar industry in Mauritius’, 17 April 2012
http://www.bioenergyconsult.com/sugar-industry-mauritius/
Editorial comment
While a number of sugar companies in Southern Africa are now generating electricity not only for
their own needs, but for sale to national grids, this practice is by no means universal. It requires
considerable investment in new equipment and may even require investment in off-season feedstock
procurement to ensure year-round co-generated electricity production, thereby gaining a better
price, since supplies contribute to meeting base-load requirements of the grid. Given these
investment needs, it is not surprising that millers have focused on securing adequate remuneration
for these investments and have continued to treat cane-based feedstocks as ‘waste’, with no
commercial value attributed to them.
While recent comments by the CEO of Tongaat Hulett suggest that this may be changing, to date this
practice has only been in Mauritius, where the diversification of revenue streams and the common
pooling have been built into sugar sector adjustment strategies from the outset.
For such practice to become generalised, it will be essential to allocate a commercial value to the
sugar cane residues that are used as a feedstock for electricity co-generation and to integrate this in
pricing formulas agreed with public authorities. The pricing policy set within evolving public policy
frameworks for electricity co-generation across the Southern African region are likely to have a
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 60
strong influence on whether sugar cane farmers can gain commercial benefits from electricity co-
generation.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Tongaat-Hulett-CEO-highlights-income-
gains-from-electricity-co-generation
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 61
Functioning of supply chain issues gaining in prominence in the sugar sector
in Eastern and Southern Africa - 06 September 2011
Despite efforts by the Kenyan government to seek a further 2-year extension of the current COMESA
special safeguard, the pending lapse of this provision (introduced in 2000 and renewed in 2003 and
2007) is giving added urgency to efforts to reform the Kenyan sugar sector. Press articles based on
submissions to parliamentary committee hearings suggest that sugar production costs in Kenya are
currently 74% higher than those in neighbouring Sudan (KSh 41,800, compared to KSh 24,000).
Earlier in 2011, Sudan announced the launch of a joint venture with Egyptian investors to expand
sugar milling capacity by 450,000 tonnes.
According to press reports, the Kenyan parliament is considering a bill aiming to ‘ensure that sugar
cane farmers get a slice of the Sh20 billion industry and that millers make decent profits’. The new
bill will give farmers ‘the right to sell their crop to the highest bidder, while millers will lose their
monopoly over their weighbridges’. It will also set a price for sugar cane based on the sucrose
content, and will give farmers a share of revenues from by-products, notably the sale of molasses
and bagasse. The bill will further regulate the period of time within which the mills will need to settle
payments for sugar cane supplied by farmers and the prices charged for farm inputs supplied by the
mills to out-growers.
The bill also proposes to reform the Sugar Development Fund, with money in future primarily being
spent on ‘research, development of infrastructure in sugar cane growing areas and loans to farmers,
millers and refiners of sugar and its by-products’. A ceiling of only 3% will be set for expenditures on
administrative expenses. The primary focus of expenditures under the fund will be on improving cane
yields and opening up a number of revenue streams from sugar cane production.
It is hoped that the new regulatory framework will set the stage for successful privatisation of the
sector. Setting the regulatory framework for sugar sector relations is however only one dimension of
the challenges faced. The importance of improving management in the sector is highlighted by the
current experience in neighbouring Uganda. Despite early optimistic reports about a 20% expansion
of Ugandan sugar production in June 2011, by late July the local press was warning of shortages.
Press reports suggested that there were serious management problems at the Kinyara estate,
including poor coordination of milling capacity expansion, compounded by out-grower complaints
over the price paid by the mill and poor logistical management of cane transportation. Difficulties in
securing cane supplies have led to the temporary closure of the mill.
These difficulties need to be seen in the light of a 21,000 tonne shortfall in domestic production
compared to domestic needs (production 350,000 tonnes, consumption 371,744 tonnes) – a shortfall
that could increase to 130,000 tonnes, according to press reports.
Strengthening the functioning of supply chains between smallholder out-growers and millers is a
common challenge across Eastern and Southern Africa. In Zimbabwe, Tongaat-Hulett is looking to
expand the areas under sugar cane from 8,805 to 15,880 ha by 2015, resulting in an expansion of
sugar cane production from 413,000 tonnes to 1,400,000 tonnes. This calls not only for investment in
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 62
land development, irrigation and road infrastructure but also ‘the administrative capacity of the
farmers associations’.
Sources
Daily Nation, ‘Reforms in sugar as COMESA reprieve ends’, 1 August 2011
http://allafrica.com/stories/201108020129.html
The New Vision (Kampala); ‘Sugar shortages may last until 2012’, 27 July 2011
http://allafrica.com/stories/201107280104.html
Financial Gazette (Harare), ‘Hulett rolls out private grower rehab programme’, 20 July 2011
http://allafrica.com/stories/201107260994.html
Daily Monitor, ‘Sugar production up by 20%’, 23 June 2011
http://allafrica.com/stories/201106231014.html
Albawaba.com, ‘Egypt and Sudan to establish joint sugar plant’, 16 January 2011
http://www.albawaba.com/main-headlines/egypt-and-sudan-establish-joint-s...
The Standard online, ‘State plots for extension of COMESA safeguard’, 12 July 2011
http://www.tralac.org/cgi-bin/giga.cgi?cmd=cause_dir_news_item&cause...
Editorial comment
The relative importance of smallholder sugar cane production varies greatly from country to country
across Eastern and Southern African, and in many of these, smallholder sugar cane production carries
a particular political significance. As the current bill before the Kenyan parliament highlights, issues
related to the distribution of costs and revenues along the supply chain is an important area for
policy regulation, given the vast inequalities in power relationships between the mills and
smallholder out-growers.
There is considerable divergence in a range of critically important areas including:
the sources of revenue which are placed in the common pool to be divided between millers and
growers (in some limited to revenue from sales of raw sugar and molasses, in others, including a
wider range of sugar cane products, such as electricity, co-generation and ethanol);
the percentage formula for the division of revenues between miller and growers;
the costs that can be deducted from revenues, prior to the division of the common revenue pool.
Given the growing price volatility on international and regional sugar markets, benefits could
potentially be gained from a cross-country comparison of the arrangements in place for the
distribution of costs and benefits along the supply chain, with a view to determining the most
appropriate regulatory basis for strengthening the functioning of the sugar supply chain in Eastern
and Southern Africa countries.
It is clear that with a move towards regional free trade in sugar and sugar products, discrepancies in
the regulatory treatment of the distribution of costs and benefits within sugar supply chains could
come to have an important bearing on private sector investment flows across the region’s sugar
sectors.
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 63
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Functioning-of-supply-chain-issues-
gaining-in-prominence-in-the-sugar-sector-in-Eastern-and-Southern-Africa
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 64
CORPORATE PERSPECTIVES
EU
Further EU corporate mergers under way in preparation for ongoing EU sugar
sector reforms - 25 October 2011
Press reports indicate that in preparation for the abolition of national production quotas, the French
‘sugar cooperative Cristal Union is to acquire French peer Societe Vermandoise in a deal worth nearly
1 billion euros’. It is argued that the move will help Cristal Union to compete on EU and world
markets. The merger would create the second largest sugar company in France (after the Tereos
cooperative) and the fifth largest in the EU.
Cristal Union brings together 5,350 farmers producing ‘[900,000] tonnes of sugar and 4.5 million
hectolitres of alcohol per year’, at 11 sites where some 1,500 people are employed. ‘Groupe
Vermandoise produces 550,000 tonnes of sugar and 600,000 hectolitres of alcohol each year’ at four
sites, employing 568 people and taking sugar beet from 3,800 growers.
In addition to mergers within France, Cristal Union is also expanding internationally, with an
investment in a sugar refinery in Algeria to be launched in mid 2012. Cristal Union’s French rival
Tereos has also expanded internationally, having developed a large business in Brazil via its listed
subsidiary Tereos Internacional.
Meanwhile ACP representatives are, according to an article in the Caribbean-based Business Journal,
continuing to argue for a ‘managed’ EU market, including the maintenance of MFN tariffs, a limit on
further bilateral tariff liberalisation for sugar products and a continuation of priority access for ACP
sugar suppliers.
Sources
Reuters, ‘French sugar coop eyes EU reform with 1 bln deal: Cristal Union agrees purchase of 51 pct
of Vermandoise’, 4 October 2011
http://www.reuters.com/article/2011/10/04/vermandoise-cristal-idUSL5E7L4...
Business Journal, ‘ACP ministers deal with sugar trade & sector transformation’, 3 October 2011
http://bizjournalonline.com/?p=2395
Editorial comment
Corporate consolidation in the EU sugar sector and the internationalisation of the sugar operations of
EU sugar companies are an ongoing trend. The process of consolidation will reduce competition in
the EU market, enhancing the importance of ensuring a transparent functioning of sugar supply
chains, in the context of the removal of price guarantees for ACP sugar suppliers.
The internationalisation of the operations of EU sugar companies beyond the ACP will increase
pressure for the further opening up of the EU sugar market, from within the EU sugar industry, so
that companies with close corporate links with ACP suppliers do not secure competitive advantages
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 65
over companies that have international links with non-ACP sugar producing or processing countries
(e.g. Brazil and Algeria respectively).
Against this background, the prospects for ACP interests effectively holding the line against further
EU sugar trade liberalisation appear to be receding.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Further-EU-corporate-mergers-under-
way-in-preparation-for-ongoing-EU-sugar-sector-reforms
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 66
TATE & LYLE/ASR
Tate & Lyle Sugars argues for improved access to low-cost non-ACP cane
sugar supplies - 03 June 2013
In April 2013, with the cost of importing sugar into the EU from preferred countries at a 10-month
high, Tate & Lyle Sugars (TLS) expressed concerns, reported by Bloomberg, that sugar production
quota abolition will allow EU beet processing companies “to produce and sell as much quantity as
they wish”, while traditional refiners will not enjoy free access to their globally sourced raw sugar
supplies. TLS called for “some kind of mechanism to allow the cane refiners to compete with fully
liberalised beet and isoglucose sectors”.
Figures made available on sugar prices at the EC CAP management committee on 11 April 2013
showed that since the end of 2011, the gap between EU and world market prices for white sugar has
been growing, with only a slight dip in the last month.
According to Bloomberg’s report, TLS representatives have argued that since “the ACP, LDC countries
account for less than 5 percent of the world trade…, to continue to limit us to their supply volume
wouldn’t be giving a parallel treatment.” TLS representatives insisted that “the EU must allow
imports from elsewhere” in cases where ACP/LDC countries “cannot fulfil refiner needs”. TLS
representatives also highlighted how certain north-western European sugar beet producers can
produce sugar more cheaply than some ACP/LDC suppliers.
According to documents produced for the EC’s Advisory Group on Sugar, TLS’s concerns about the
opening up of new sources of raw sugar imports are only partially addressed through the sugar tariff-
rate quota (TRQ) arrangements under the Andean Pact and Central American FTA arrangements.
These will provide access to only 246,000 tonnes of raw sugar in their first year of operation,
increasing at a rate of 7,380 tonnes per annum. While India has requested expanded access for its
sugar exports under the pending EU–India FTA, the EU continues to treat sugar as a sensitive product
in these negotiations.
This has left the EU using a series of interim measures to improve availability of sugar on the EU
market. Between January and March 2013, “the European Commission’s sugar management
committee … authorised the import of 584,000 tonnes of white sugar…, nearly half the amount the
EU is projected to approve this year.”
As noted in an article on the website Euractiv.com, the situation on the EU sugar market is of concern
to others. The chief procurement officer for Unilever has estimated that the retention of the current
EU sugar regime cost Unilever €26 million in 2012. This estimate is based on the difference between
the EU and world market prices for white sugar.
Sources
Bloomberg.com, ‘Tate & Lyle urges EU to guarantee sugar supplies as costs soar’, 17 April 2013
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 67
http://www.bloomberg.com/news/2013-04-17/tate-lyle-urges-eu-to-guarantee...
EC, ‘Advisory Group on Sugar’, web page giving point of access to ‘Latin America: Negotiation
Mercosur; implementation of the agreements with Central America, Colombia and Peru (trade part):
EU TRQs offered in future FTAs for raw sugar and sugar products’, documents and presentations, 4
March 2013
http://ec.europa.eu/agriculture/consultations/advisory-groups/sugar/inde...
EC, ‘Advisory Group on Sugar’, web page giving point of access to ‘EU-India FTA’, Sugar Advisory,
documents and presentations, 4 March 2013
http://ec.europa.eu/agriculture/consultations/advisory-groups/sugar/inde...
Euractiv.com, ‘Sugar quota feeds bitter debate ahead of CAP vote’, 4 March 2013
http://www.euractiv.com/cap/sugar-quota-speaks-bitter-debate-news-518179
Editorial comment
Tate & Lyle Sugars’ concerns that some ACP raw sugar suppliers produce more expensively than
northern European beet processors need to be seen against the background of British Sugar’s ‘inside
track’ to sugar produced in Southern Africa, which includes many of the lowest-cost sugar producers
in the ACP.
British Sugar, TLS’s main UK competitor, has corporate links through its parent company ABF to
Africa’s biggest sugar producer, Illovo Sugar, which through a joint-venture sister company plays an
important role in the marketing of sugar from the Southern and Eastern African region.
This would appear to pose certain challenges for TLS in directly accessing the low-priced sugar
produced in the ACP, with TLS’s ‘free market’ access being restricted to a number of the higher-cost
ACP producers.
This in turn needs to be seen against the background of the investments made by British Sugar and
other beet refiners in co-refining of beet and raw cane sugar.
For Tate and Lyle Sugars, it is not just about increasing supplies of imported raw sugar to the EU
market, but also about expanding imports from low-cost producing countries, to which its
competitors do not have an ‘inside track’.
This potentially complicates the ACP processes of alliance building on sugar sector issues.
Sources:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Tate-Lyle-Sugars-argues-for-improved-
access-to-low-cost-non-ACP-cane-sugar-supplies
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 68
Tate and Lyle Sugars initiate a further legal case management of EU sugar
regime - 09 December 2012
At the end of August 2012, Tate & Lyle Sugars launched a third legal claim for damages against the
European Commission for alleged ‘mismanagement of the European Union’s sugar market’. Tate &
Lyle Sugars (now owned by American Sugar Refiners) claim that the EC’s management of the current
EU sugar regime is ‘putting the entire cane refining sector at risk’.
Tate & Lyle Sugars’ claim lays responsibility for under-utilisation (60–70%) of its refining capacity in
the UK and Portugal at the door of ‘EU sugar policy mismanagement’. The company maintains that it
warned the EC as early as 2006 about the potential shortages that would arise for raw cane sugar
refiners, ‘but the Commission failed to respond accordingly’. It also claims that the EC has violated
regulatory stipulations which require ‘any additional, out-of-quota sugar imports’ to be raw cane
sugar, by also allowing imports of refined sugar. The most recent complaint concerns ‘the European
Commission’s management of the European sugar market during spring and early summer 2012. Two
earlier complaints contested the Commission’s decisions impacting the sugar sector in the 2010-11
marketing year and the period November 2011 to January 2012.’
Under its three complaints, Tate & Lyle Sugars are ‘claiming damages worth €198 million’. The EC has
until the end of October 2012 to respond to the initial complaint. An EC spokesperson maintains that
‘the regulations contested by Tate and Lyle represent a balanced policy towards the sugar market.’
Tate & Lyle Sugars’ action comes against the background of calls from food product manufacturers
for the EC to ‘either increase quotas and/or allow food manufacturers to import sugar tariff-free
from the world market’.
During the UK House of Lords’ deliberations on the future of the EU sugar regime, Tate & Lyle Sugars
laid out the background to their claims for damages (see Agritrade articles ‘ The future of EU sugar
production quotas’, 23 September 2012 and ‘ Industrial users set out their views on sugar reform
against backdrop of...’, 9 September 2012). The House of Lords in its final report observed that ‘the
Commission has at least attempted to balance the interests of the beet production and cane refining
industries’ and must continue to do so ‘in a timely and transparent manner’.
Sources
Guardian (Trinidad & Tobago), ‘European Commission faces legal action over sugar rules’, 23
September 2012
http://www.guardian.co.tt/business/2012-09-23/european-commission-faces-...
Foodnavigator.com, ‘Food and drink supplier seeks EU pay out’, 30 August 2012
http://www.foodnavigator.com/Legislation/Food-and-drink-sugar-supplier-s...
Foodnavigator.com, ‘Tate & Lyle Sugars take legal fight to European Commission over sugar rules’, 25
September 2012
http://www.foodnavigator.com/Legislation/Tate-Lyle-Sugars-take-legal-fig...
European Union Committee of the UK House of Lords, ‘Leaving a bitter taste? The EU Sugar Regime’,
4th report of session 2012–13, 4 September 2012
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 69
http://www.publications.parliament.uk/pa/ld201213/ldselect/ldeucom/44/44...
Editorial comment
The policy changes introduced through the EU’s sugar reform process have had very different effects
on the relative competitiveness of traditional raw cane sugar refiners and beet sugar refiners. This is
in part linked to the agreed reform of import licensing arrangements, which broadened out the right
to import raw sugar beyond traditional raw cane sugar refiners. With beet refiners investing in plant
modifications – which, according to Tate & Lyle’s oral submission to the UK House of Lords
Committee hearing, added ‘some 1.85 million tonnes of new refining capacity’, traditional cane sugar
refiners faced intensified competition from these new co-refiners for supplies of imported raw sugar.
With co-refiners in a financial position to offer better prices for raw cane sugar (since their capital
costs are covered by their beet processing operations), it is argued that these reforms and the EC’s
management of the EU sugar regime have contributed to the widely divergent financial
performances of traditional cane sugar refiners and co-refining beef processing companies.
While the UK House of Lords Committee’s report argued that ‘the Commission has at least attempted
to balance the interests of the beet production and cane refining industries,’ the serious financial
problems faced by traditional raw cane sugar refiners are likely to increase pressure on the European
Commission to review its management of the sugar regime and to level the playing field between
traditional raw cane sugar refiners and beet co-refiners. During the House of Lords hearings, the
president of Tate and Lyle Sugars argued that ‘if national [production] quotas remain, traditional
cane refiners should also have a national quota’ (i.e. preferred priority access to imported raw sugar
under duty-free, quota-free and reduced duty sugar trade arrangements), but that ‘if quotas are
abolished, our access to raw material should be unrestricted.’
On the basis of price developments since November 2010 (see Agritrade article ‘ USDA highlights
impact of sugar price volatility on ACP exporters and tr...’, 25 November 2012) it seems likely any
broadening of duty-free or reduced-tariff access for non-ACP sugar in line with the calls made by Tate
& Lyle Sugars could potentially have an impact on the commercial position of ACP sugar exporters in
contract negotiations with EU importers.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Tate-and-Lyle-Sugars-initiate-a-further-
legal-case-management-of-EU-sugar-regime
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 70
Fair-trade component a key factor in BSI acquisition by ASR - 02 December
2012
Representatives of the parent companies of American Sugar Refiners (ASR) – Florida Crystals
Corporation, with 64% ownership, and the Sugar Cane Growers Cooperative of Florida of Belle Grade,
with 36% ownership – have spoken about the motivation behind ASR’s recent acquisition of a
majority shareholding in Belize Sugar Industries (BSI). Reported in the Florida press, Gaston Centens,
Vice President of Florida Crystals, maintained that ‘the Fair Trade component of the acquisition was
important’. Barbara Miedema, speaking on behalf of the Cooperative, noted ‘Belize is a key supplier
for our European holdings.’ Another news service reported that the BSI sugar mill crushed ‘more
than 1 million tons of sugar cane and produced 114,000 tons of sugar in its most recent crop’, and
that ‘BSI also processes the cane of 6,000 independent growers, who farm roughly 55,000 acres,’ all
of which qualify for Fairtrade certification.
In 2012, ASR bought Tate and Lyle’s European sugar division which operates sugar refineries in
London (UK) and Lisbon (Portugal). ASR stated at the time that it was ‘good to have synergies to be
able to have some control over your supply from field to factory to the supply chain’.
According to a Florid Crystals spokesperson, ASR plans to use its technical expertise to help BSI
‘become more efficient and produce more sugar and to help the independent growers produce more
cane’.
The Palm Beach Post reports that ASR is now ‘the world’s largest cane sugar refining company,
producing 6.5 million tons of sugar a year’. Within the ACP, in addition to Belize, Florida Crystals
operates a sugar mill in the Dominican Republic.
In October 2012, Tate & Lyle Sugars announced a new partnership with the firm IMCD Benelux (a
food ingredients buyer and distributor serving European food manufacturers) to supply Fairtrade-
certified sugar. This comes after difficulties reported by by European manufacturers in sourcing
supplies for growing Fairtrade food product markets.
Sources
Palm Beach Post, ‘Florida sugar companies acquire Belize sugar firm’, 10 October 2012
http://www.palmbeachpost.com/news/business/florida-sugar-companies-acqui...?
Prnewswire.com, ‘American Sugar Refining Completes Purchase of Tate & Lyle Sugars’, 30 September
2012
http://www.prnewswire.com/news-releases/american-sugar-refining-complete...
Foodproductdesign.com, ‘American Sugar Refining acquires majority of BSI’, 4 October 2012
http://www.foodproductdesign.com/news/2012/10/american-sugar-refining-ac...
Foodnavigator.com, ‘IMCD partners with Tate & Lyle to meet Fairtrade sugar demand’, 26 October
2012
http://www.foodnavigator.com/Financial-Industry/IMCD-partners-with-Tate-...
Editorial comment
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 71
While the purchase of a majority shareholding in BSI by ASR needs to be seen in the context of the
2008 decision of Tate & Lyle to progressively convert its entire range of direct consumption sugars to
Fairtrade-certified, it also needs to be seen in the light of wider developments. The most significant
of these was the purchase by Associated British Foods (the owners of Tate & Lyle’s main UK rival,
British Sugar) of a 51% shareholding in Illovo. This gave indirect control of supplies of fair-trade sugar
from Malawi and Zambia to Tate & Lyle’s main UK market competitor (as Illovo owns 100% of the
Malawian sugar sector and 95% of the Zambian sugar sector).
With supplies of Mauritian certified fair-trade sugar linked into the marketing arrangement with
Nordzucker (see Agritrade special report ‘ Corporate restructuring in the EU sugar sector:
Implications for the ACP’, May 2010), Chinese-owned companies taking a direct role in marketing of
Jamaican sugar (see Agritrade article ‘ New marketing agency agreement signed with PCSC in
Jamaica’, 18 June 2012), and sugar supplies from Fiji falling (see Agritrade Executive Brief ‘ Sugar
sector’, June 2012), securing control over supplies of sugar ‘from field to factory to refiner’ would
appear to have been essential for the fulfilment of Tate & Lyle’s fair-trade sugar strategy.
The recent high prices that traditional EU refiners needed to pay in 2012 to secure supplies of raw
cane sugar will have provided a further incentive to consolidate control over supplies of raw cane
sugar to Tate & Lyle Sugar’s EU refineries (see Agritrade article ‘ USDA highlights impact of sugar
price volatility on ACP exporters and tr...’, 25 November 2012).
The involvement of the world’s largest cane sugar refiner ASR in the supply of fair-trade sugar from
Belize to the EU market could well raise ethical questions for the EU fair-trade movement. This is
particularly the case in an era of heightened price volatility and the emergence of intra-corporate
trading of fair-trade sugar, where basic price formation will be less transparent than in the past.
Similar issues arise along the fair-trade supply chains from Malawi and Zambia, given Associated
British Foods’ indirect corporate involvement at all stages of the supply chain from the estate/millers
through the trading company to European refiners/marketers.
Increasingly, issues related to the internal process of price formation and basic returns to sugar cane
farmers per tonne of sugar cane delivered to millers are likely to take on greater economic
significance than the simple question of the fair-trade premium.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Fair-trade-component-a-key-factor-in-
BSI-acquisition-by-ASR
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 72
ASR to take shares in Belize Sugar Industries - 09 July 2012
According to press reports, employees of Belize Sugar Industries (BSI) have voted to accept a bid
from American Sugar Refiners (ASR) to take a majority shareholding in the company. The proposed
agreement involves ASR settling BSI’s external debt (US$6.2 million) and outstanding dividends to
employees (US$5.2 million), investing US$40 million in factory modernisation and a further US$20
million in cane field development.
According to representatives of the Belize government, the deal will result in a ‘huge injection of
resources into the industry’. However, Belize sugar farmers remain interested in taking a
shareholding in BSI (see Agritrade article ‘Debate intensifies over expansion of Belize Sugar Industry
share ownership’, 6 October 2011). The government remains open to this, offering to sell part of its
remaining shareholding in BSI to sugar cane farmers collectively. The deal with BSI is expected to be
finalised on 30 June 2012.
Sources
Lovefm.com, ‘Discussions continues on sale of sugar industry majority shares’, 31 May 2012
http://www.lovefm.com/local_news.php?item=318
Editorial comment
ASR is the owner of Tate & Lyle’s sugar division, the purchaser and processors of raw cane sugar
exported from Belize to the EU. Tate & Lyle also has an outstanding commitment to convert its entire
direct consumption sugar range to fair-trade. Given the growing competition between Tate & Lyle
and British Sugar on the UK fair-trade sugar market, it remains to be seen whether the purchase of
shares in BSI by ASR will provide a boost to fair-trade certification in Belize. During discussions in
2011 with the Jamaican sugar sector, representatives of Tate and Lyle sugar had suggested that
assistance could be given with fair-trade certification if a multi-annual marketing agreement were
concluded (see Agritrade article ‘Tate & Lyle seeking long-term sugar supply arrangement’, 5 July
2011).
The decision by ASR to take shares in BSI can be seen in part as a response to British Sugar’s growing
ownership interest in sugar milling operations in Southern Africa, in countries which are currently the
main ACP sources of supply for fair-trade sugar (in both Malawi and Zambia, via the 51% stake in
Illovo owned by British sugar’s parent company Associated British Foods).
The vertical integration of European sugar companies with sugar milling companies across the ACP
raises important issues related to the transparency of the functioning of ACP–EU sugar supply chains.
This may well be an issue to which the Belize Cane Farmers Association and the government of Belize
need to pay close attention, as the last of the price guarantees for ACP raw sugar are phased out
from 1 October 2012 and prices to be paid for ACP raw sugar will be determined by the functioning
of market forces.
Source: http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/ASR-to-take-shares-in-Belize-
Sugar-Industries
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 73
COMPLANT/PCSC
New marketing agency agreement signed with PCSC in Jamaica - 18 June 2012
According to reports from the Jamaica Information Service, an agency agreement was signed in May
2012 which gave the Chinese-owned Pan Caribbean Sugar Corporation (PCSC) ‘the right to market its
own sugar, under the provisions of the Sugar Industry Control Act’. The Minister of Agriculture
explained that for the next three crop years, ‘the rest of the industry will continue to pool their sugar
in order to satisfy an agreement to supply Tate and Lyle of Britain with a specified quantity of sugar.’
This consists of two sugar estates not controlled by PCSC, and planters affiliated to the Jamaica Cane
Farmers Association.
The Minister sought to reassure farmers that the dual marketing arrangement would not place them
at a disadvantage, since the Sugar Industry Authority (SIA) would ‘independently verify the
authenticity of whatever proceeds will be declared by Pan Caribbean’ and would ensure that PCSC
used the ‘existing cane payment formula’. The Minister maintained that PCSC had ‘outlined specific
proposals to allow for transparent and direct consultation with the cane farmers in relation to the
marketing of its sugar’.
The CEO of PCSC meanwhile ‘gave an undertaking to work with the Cane Farmers Association to
arrive at a mechanism that is transparent, efficient, and cost-effective’.
Sources
Jamaica Information Service, ‘Agreement signed to sustain viability of sugar industry’, 8 May 2012
http://www.jis.gov.jm/news/leads/30508
Editorial comment
Developments in the Jamaican sugar sector raise the wider issue of the future role of commodity
boards and sector-specific parastatal bodies in an era of privatisation, globalisation and liberalisation.
Indications of a shift to a supervisory function for the SIA, related to determining the proceeds to be
shared with sugarcane producers and the regulation of relations between stakeholders in the supply
chain, suggests a new role for such bodies.
Part of this new role may need to focus on elaborating a new modernised framework for the
management of private-sector-based relationships along specific supply chains, in a context of vast
inequalities in power relationships within supply chains and heightened global price volatility.
This experience, as it evolves, could well have wider relevance beyond the sugar sector and beyond
Jamaica.
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 74
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/New-marketing-agency-agreement-
signed-with-PCSC-in-Jamaica
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 75
Pan Caribbean Sugar Company sets out its vision - 07 May 2012
In 2010, the Sugar Industry Enquiry Commission in Jamaica submitted its recommendations for the
future of the Jamaican sugar industry. The report ‘questioned whether the marketing of sugar by
private producers would need the same structure as when the industry was largely state-owned.
However, no recommendation was given as to how it should be reshaped.’ To date, no formal
decision has been taken on the future marketing arrangements for Jamaican sugar. However,
according to press reports, the Chinese-owned Pan Caribbean Sugar company (PCSC – the subsidiary
set up by the Chinese Complant group) has now withdrawn from ‘the pooling arrangement for a
three-year supply deal between British sugar refiner Tate and Lyle and Jamaica Cane Product Sales
(JCPS)’.
According to Ambassador Derrick Heaven, Executive Chairman of the Sugar industry Authority, this
has created ‘a difficult situation’ in terms of delivery of the 150,000 tonnes under contract. As a
result, JCPS can now guarantee to deliver only 50,000 tonnes. This followed Tate & Lyle’s efforts in
January 2011 to ensure ‘supplies of 200,000 tonnes annually for five years’.
According to Francis He, CEO of PCSC, the company has spent some US$20 million so far on new
equipment, designed to reduce production costs by at least 15% once the old equipment is phased
out. PCSC aims to process 700,000 tonnes of cane within 3 years, involving smallholder farmers, who
would be provided with ‘cheaper fertiliser and herbicide’, while the company would ‘provide a lower
rate for harvesting, reaping and transportation’. Overall, the aim is to reduce production costs on the
agricultural side by 30%.
PCSC is continuing with plans for a refinery at Monymusk, including a co-generation facility, which
would make the company independent of electricity supplied by Jamaica Public Service. This is
expected to provide a further area of cost savings.
PCSC is firmly committed to marketing its own sugar, seeing the JCPS operation as very expensive.
PCSC is, however, willing to assist other estates with the marketing of their sugar, maintaining that ‘if
Worthy Park, Appleton, Long Pond and St Thomas want to pool sugar into us, we will do it through
commercial terms’.
Press reports indicate that, along with Complant’s six factories in Africa, the long-term aim is to
supply the Chinese market with sugar.
PCSC would welcome more competition amongst local sugar processors for cane, with the best cane
getting the best payments. This looks likely to further complicate one of the major unresolved issues
from the Sugar industry Enquiry Commission, namely the cane payment system to be used,
‘remuneration to cane growers for the bagasse used in electricity generation and the issue of quality
base payment for harvesting’.
Meanwhile, according to the Bank of Jamaica, sugar production in the first two months of 2012 was
up by 29%. If this performance continues throughout the season, production of 180,000 tonnes could
be achieved, the highest level of production since 2004.
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 76
Sources
Jamaica Gleaner, ‘Sugar industry reform in limbo’, 26 March 2012
http://jamaica-gleaner.com/gleaner/20120326/business/business1.html
Jamaica Gleaner, ‘Sugar pooling arrangement in trouble’, 23 February 2012
http://jamaica-gleaner.com/gleaner/20120223/business/business4.html
Sunday Gleaner, ‘China eyes “bumper” sugar season’, 27 November 2011
http://jamaica-gleaner.com/gleaner/20111127/news/news1.html
Jamaica Observer, ‘Jamaica’s sugar production up by 29%’, 29 March 2012
http://www.jamaicaobserver.com/business/Jamaica-s-sugar-output-up-by-29-?
Editorial comment
Because of delays in operationalising the recommendations of the 2010 Sugar Industry Enquiry
Commission, many issues are still unresolved – including the basis of payments to farmers for sugar
cane, the charges to be levied on inputs supplied and the marketing arrangements for Jamaican
sugar.
Given the clear intention of PCSC to no longer pool their sugar, the offer from CEO Francis He to act
as marketing agent for other sugar estates beyond PCSC, and the potential for a major reorientation
of the direction of Jamaican sugar trade, there would appear to be a need for the establishment of a
clear framework for the future functioning of the sugar supply chain in Jamaica.
This could draw from the experience of the EU in the dairy sector, where concerns over the impact of
inequalities in power relationships along supply chains have given rise to calls for the establishment
of a policy framework to strengthen the functioning of supply chains. In some EU member states, the
new policy is being used to establish framework contracts for relations between milk producers and
dairies. These framework contracts stipulate the types of areas to be covered within any supply
contracts, and even the basis for price determination.
In the sugar sector, framework contracts could address issues such as:
the basis for cane payments (e.g. according to level of sugar content);
delivery schedules;
inputs supply obligations and charges;
deductions;
even, perhaps, transportation risk sharing.
The new policy framework could even extend to the framework for relations between sugar sector
companies which enter into common pooling arrangements for the marketing of their sugar.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Pan-Caribbean-Sugar-Company-sets-out-
its-vision
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 77
Debate on marketing arrangements for Jamaican sugar - 08 April 2012
The question over the arrangements for the marketing of Jamaican sugar is becoming pressing. In
March 2012 the Chinese-owned Pan Caribbean Sugar Company (PCSC) complained that after 7
months it had still not been granted a licence to trade in the sugar it produces. Francis He, CEO of
PCSC, told the press that ‘according to the agreement signed between our company and the
Jamaican Government last year, we were guaranteed a licence to sell our sugar without any
restrictions.’ Freedom to market their own sugar was described by Mr He as the foundation of the
company’s investment in Jamaica (including its plans for a new automated factory and refinery at
Monymusk).
The Frome, Bernard Lodge and Monymusk sugar estates which are now in the hands of PCSC (the
Jamaican subsidiary of Complant International) were formerly part of a pooling arrangement for the
export of sugar to refiners and traders in the EU through Jamaican Cane Product Sales (JCPS is a
private company jointly owned by sugar farmers and manufacturers, and is contracted as a
marketing agent by the Sugar Industry Authority (SIA).
However the July 2011 USDA briefing on developments in the Jamaican sugar sector pointed out that
‘the Purchase and Sale Agreement between Complant International Sugar Company Limited and the
Government of Jamaica does not require that Complant International operate within the framework
of the JCPS.’ According to USDA’s report, ‘According to the [then] Jamaican Minister of Agriculture,
the future role of the JCPS is uncertain since as of August 1, 2011 the sugar industry in Jamaica would
have been fully privatized.’
However, the chairman of the SIA, Ambassador Derrick Heaven, has said that ‘In law, the sole
importer and exporter of sugar is the SIA (Sugar Industry Authority). Pan Caribbean is seeking to be
appointed an agent, but the agency agreement they seek from the SIA must conform to the law.’ He
maintained that the SIA was ‘seeking to ensure that we strike a balance between what was promised
and the current legislation, but it takes a little time.’
The press reports that ‘a reliable source’ close to the original contract negotiations between the
Jamaican government and Complant maintained that ‘Complant made it clear from the beginning
that they wanted to sell their own sugar, that there would be no commercial arrangement between
them and JCPS. The source commented that ‘there is no law that prevents [the SIA] giving the green
light to the Chinese’, since ‘the Sugar Industry Control Act, which was revised in 1994, talks only
about the pricing mechanism.’
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 78
Sources
Jamaica Gleaner, ‘Wait for licence troubles sugar company’, 12 March 2012
http://jamaica-gleaner.com/gleaner/20120312/lead/lead7.html
USDA, ‘Jamaica Sugar Annual’, GAIN report, 21 July 2011
http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Annual_Kin...
Foodnavigator.com, ‘EC bids to offset sugar supply shortfall in EU next year’, 25 November 2011
http://www.foodnavigator.com/Legislation/EC-bids-to-offset-sugar-supply-...
Editorial comment
Given the privatisation process now complete in Jamaica, the question arises of what kind of modern
market management regime is required to ensure a solid basis for the sustainable development of
the Jamaican sugar sector. In this context, the proposals of EU Agriculture Commissioner Dacian
Cioloş for the establishment in Europe of modern market management arrangements to replace EU
production quotas could hold some interest for the Jamaican sugar sector authorities.
According to Commissioner Cioloş, this modernised market management regime, in addition to the
safety nets provided by EU direct payments, would consist of ‘a clearer, strengthened role for
producer organisations and obligatory contracts, before sowing, between growers and processors’.
Effectively, the EC is looking to extend its approach to strengthening the functioning of supply chains,
from the dairy sector where the approach was first developed in 2009 in response to the farmers’
crisis in the sector, to the future regulation of the sugar sector.
Elements of this approach that are particularly relevant to the Jamaican context would include
ensuring transparent contracts, possibly through the establishment of ‘framework contracts’
stipulating what should be included – such as delivery schedules, price, the basis of profit sharing
arrangements and permitted deductions, and even the revenue streams to be included in the
common revenue pool to be divided between growers and millers.
The experience in Jamaica has shown that the privatisation, rather than simply removing government
from the sugar industry, is throwing up new challenges which may require the adoption of innovative
approaches, if national economic development aspirations are to be met.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Debate-on-marketing-arrangements-for-
Jamaican-sugar
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 79
Jamaican privatisation brings in Chinese company - 30 August 2010
At the beginning of August the Jamaican government signed an agreement with a Chinese company,
China National Complete Plant Import & Export Co Ltd (Complant), for the sale of ‘Jamaica’s three
largest plants – Frome, Monymusk and Bernard Lodge’ for US$9 million, a commitment to invest
US$127 million, the leasing of ‘approximately 30,000 hectares of cane lands at a rate of US$35 per
hectare per annum for 50 years… renewable for an additional 25 years’ and a commitment to
conduct a feasibility study for ‘the construction of a sugar refinery and ethanol facility’. The
company, an investment arm of the government of the People’s Republic of China, already has
construction interests in Jamaica. The three mills which have been loss-making enterprises for more
than three decades, will only be taken over at the end of the 2010-11 season, so as to enable the
Jamaican government to fulfil a forward-sales agreement with Tate & Lyle for 100,000 tonnes of
sugar.
This completes the sale of government-owned sugar plants in Jamaica, following the sale in 2009 of
‘two other state-owned factories, Duckenfield and Long Pond to private local buyers’.
Sources
Jamaica Information Service, press release, ‘J$8b sugar divestment agreements signed between
government and Chinese investors’, 2 August 2010
http://www.jis.gov.jm/officePM/html/20100802T160000-0500_24875_JIS_J_8B_...
Jamaica Observer, ‘Government seals sugar deal with Chinese firm’, 31 July 2010
http://www.jamaicaobserver.com/news/Gov-t-seals-sugar-deal-with-Chinese-...
Reuters, ‘Jamaica sells 3 sugar plants to China’s Complant’, 31 July 2010
http://www.businessday.co.za/articles/Content.aspx?id=116661
Editorial comment
It is unclear what the impact of the sale of these three estates to a Chinese company will be in terms
of the export markets served by Jamaican sugar production. The desire to defer a formal takeover
until the Jamaican government had fulfilled its contractual commitments to Tate & Lyle, in the
context of a previous commitment to buy from private companies if a shortfall in supply emerged,
suggests that a reorientation of export sales may occur.
Certainly, the entry of a state-owned Chinese company into the Jamaican sugar sector may sit
uneasily with increasingly concentrated ownership structures in the EU and the recent purchase of
Tate & Lyle’s sugar division by a Cuban-American owned company. However, the Jamaican
government has now fulfilled its long-stated objective of divesting these loss-making assets, a goal
articulated in their Sugar Adaptation Strategy and supported by the EU. The fulfilment of this
objective should now allow the smooth deployment of sugar protocol accompanying measures
support in the form of budgetary support.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Jamaican-privatisation-brings-in-
Chinese-company
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 80
ABF/ILLOVO
ABF is set to buy Illovo - 30 June 2006
With Associated British Food set to buy a majority shareholding in Illovo, managing director Don
MacLeod claimed that ‘Illovo would benefit from British Sugar’s knowledge of the European market,
particularly once our operations in LDCs receive unrestricted access in the EU from 2009’. ABF chief
executive George Weston meanwhile said ‘It is expected that Illovo will benefit from the application
of British Sugar’s proven expertise in improvement of operational efficiencies, co-product
development, marketing and product innovation’.
The majority share purchase follows a 129% increase in Illovo’s headline earnings, resulting from
increased sugar production and ‘a significant increase in world and regional sugar prices, cost savings
and a material reduction in financial costs’. Malawi accounted for 39% of the operating profit, South
Africa 21%, Zambia 20%, Swaziland 10%, Tanzania 9% and Mozambique 1%. Despite this strong
performance Illovo is concerned about ‘illegal sugar imports into some of the African countries’.
Illovo plans to expand sugar production in Zambia, Malawi, Mozambique and Tanzania. These plans
are costed at R2.25 billion over the next six years, including provision for electricity co-generation,
both to meet its own needs and make sales to the national grid. Sugar production is expected to
increase by 300,000 tonnes by 2010 (at a cost of R500 million) and a further 305,000 tonnes after
2010 (at a cost of R825 million). ABF is fully behind these expansion plans. The acquisition of Illovo,
even without this expansion doubles ABF's sugar output.
Sources
Bloomberg, May 23rd 2006
http://www.businessday.co.za/articles/companies.aspx?ID=BD4A204208
Food Navigator.com, May 22nd 2006
http://www.foodnavigator.com/news/printNewsBis.asp?id=67852
Business Report, May 22nd 2006
http://www.busrep.co.za/index.php?fArticleId=3256171&fSectionId=552&...
Editorial comment
Commercial electricity co-generation is seen as an important dimension of the development of
Illovo’s operations in southern Africa, given the pending electricity shortage in the region and likely
increases in electricity charges. The expansion of production by 605,000 tonnes in LDCs after 2010
suggests that both Illovo and ABF see a strong potential for growth in LDC sugar exports beyond the
entry into force of unrestricted EBA access.
Source:
http://agritrade.cta.int/Agriculture/Commodities/Sugar/ABF-is-set-to-buy-Illovo
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 81
ABF faces temporary setback - 03 February 2011
According to press reports, Associated British Foods (ABF) maintains that ‘a rapid thaw has put one-
quarter of the UK sugar beet crop at risk.’ Thus, ‘while the first three-quarters of the beet crop had
produced yields in line with expectations’, the sharp change in temperatures has ‘raised questions
over the remainder’. Indeed, in the fourth week of January British Sugar announced that it had
abandoned processing at its Newark sugar beet factory, since ‘any crop left in the ground now will
not be fit for processing.’ While it was feared that this under-supply of contractual commitments by
the affected farmers could result in a subsequent loss of quota allocation, ‘British Sugar has agreed
to waive the contract performance rules for the current campaign.’ The UK is the EU’s fourth-ranked
beet grower.
ABF has also been hit by drought in South Africa, which ‘has cut sugar production below target’ to a
15-year low. However, it is already projected that South Africa’s sugar production will recover in the
season April 2011-March 2012 due to good rains, although a full recovery in production levels is not
expected until the 2012-2013 season. Financially, the strong rand (which has gained 28% against the
US dollar from the beginning of 2009 to January 2011) is cushioning the South African sugar sector
from the full impact of increases in fuel and fertiliser prices.
ABF’s cane-sugar-related earnings are likely to be boosted by the production response to the full
implementation of the EU’s ‘Everything But Arms’ regime, while it is reported that the ongoing EU-
SADC EPA negotiations would even secure a duty-free quota for South African sugar exports.
Sources
Agrimoney.com, ‘Fast thaw leaves 25% of UK beet at risk, warns ABF’, 20 January 2011
http://www.agrimoney.com/news/fast-thaw-leaves-25percent-of-uk-beet-at-r...
Ausfoodnews.com, ‘Concerns over UK sugar sour ABF shares’, 21 January 2011
http://www.ausfoodnews.com.au/2011/01/21/concerns-over-uk-sugar-sour-abf...
Farmersguardian.com, ‘British Sugar abandons weather-hit crop’, 24 January 2011
http://www.farmersguardian.com/home/arable/arable-news/british-sugar-aba...
Farmersguardian.com, ‘Beet growers’ showdown talks with British Sugar’, 27 January 2011
http://www.farmersguardian.com/home/arable/beet-growers-showdown-talks-w...
Business Recorder, ‘South African sugar producers see better crop in 2011’, 16 January 2011
http://www.brecorder.com/news/agriculture-and-allied/world/1144271:news....
Editorial comment
As only the fourth-largest sugar producer in the EU, difficulties with the final quarter of the crop is
unlikely to have a serious impact on overall EU sugar beet production. With its corporate investments
in the southern African sugar sector, ABF looks well placed to meet any shortfalls on the sugar beet
side of the business, through its expanded raw sugar-cane purchases. ABF’s raw sugar-cane
purchases have proved extremely resilient in the face of high world market prices, given the strong
corporate integration which exists along their supply chain. The acquisition of a 51% stake in the
South African-based Illovo gives ABF extensive sugar estate production across southern Africa, while
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 82
Mitre, the British Sugar/Illovo joint venture, handles the trading and marketing aspects, including
sales to ABF-owned refineries in Spain.
This raises important questions about the transparency of the functioning of the supply chain,
particularly relating to contractual arrangements. The EC has recently paid considerable attention to
policy initiatives to strengthen the functioning of the dairy supply chain in the EU, with particular
attention being paid to the transparency of contractual arrangements. There may be lessons from
this experience which are relevant to the development of ACP-EU sugar sector relations in the era
beyond guaranteed prices for ACP raw sugar exports
Source:
http://agritrade.cta.int/en/layout/set/print/Agriculture/Commodities/Sugar/ABF-faces-temporary-
setback
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 83
Zambian Sugar’s exports grow by a third, while Mozambique sugar sector
deemed a success - 06 October 2011
By March 2011, annual sugar exports from Illovo-owned Zambia Sugar, Zambia’s top sugar producer,
‘had exceeded 230,000 tonnes’, up 31% on the previous year (175,000 tonnes). The local market
consumed around 143,000 tonnes, accounting for 37% of consumption, up 10% on the previous year.
Exports are divided equally between the EU and African markets.
The improved production performance was a product of both the expansion of the area under sugar
and improvements in the Mazabuka processing plant. The company reported that total sugar
production in the year to March 2011 was 385,000 tonnes, up from 315,000 tonnes the previous
year, and around a third of the sugar cane processed was produced by out-growers: in the last year,
out-grower production has grown faster than the company’s own sugar cane production.
In the year to March 2011, molasses exports enjoyed particularly strong growth, almost tripling from
15,000 tonnes to 43,000 tonnes. Local consumption of molasses however grew only marginally by
2,000 tonnes to reach 43,000 tonnes also.
Elsewhere in the region, the sugar sector in Mozambique is reported as having made the most
progress in the post-war period (i.e. since 1992). From production of 13,000 tonnes in 1992, total
sugar production is expected to reach 600,000 tonnes by 2015. Sugar production in 2011 is projected
to be 40% higher than in 2010.
Sources
Times of Zambia, ‘Country sugar records 33 p.c. export growth’, 8 August 2011
http://allafrica.com/stories/201108082247.html?
Macauhub.com, ‘Sugar industry among those that have most progressed in Mozambique’, 8 August
2011
http://www.macauhub.com.mo/en/2011/08/08/sugar-industry-among-those-that...
Illovo.co.za, ‘Zambia Sugar plc: Annual Report 2011’, point of access
http://www.illovo.co.za/About_Us/grouplistedsubsidiaries/ZambiaSugarPlc....
Editorial comment
With Illovo’s close corporate links to the EU market (the company is 51% owned by UK-based
Associated British Foods, the owners of British Sugar), a strong trade relationship with the EU market
has been maintained, despite the world market price sometimes exceeding the EU market price.
Indeed, there has been a fivefold increase in Zambia Sugar’s exports to the EU since 2004, with the
most significant growth taking place from the beginning of 2008. This stands in stark contrast to
overall patterns of ACP sugar exports, which have fallen off markedly in the face of high world
market prices.
This suggests that corporate links have a strong influence on patterns of sugar exports. This being
noted, Zambia Sugar’s exports to African markets have also increased, reflecting both the high world
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 84
market prices and progress in regional tariff reductions in the ‘sensitive’ sugar sector. Zambia Sugar’s
exports to neighbouring markets are roughly equal to those to the EU market. This marketing
strategy allows the company to manage the risks associated with exchange rate movements.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Zambian-Sugar-s-exports-grow-by-a-
third-while-Mozambique-sugar-sector-deemed-a-success
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 85
Illovo to expand sugar exports to EU - 25 December 2010
In November, Illovo (a subsidiary of Associated British Foods, which also owns British Sugar and a
variety of other European sugar sector interests) announced plans to increase the group’s sugar
exports to the EU to some 300,000 tonnes, up 11% from 270,000 tonnes in 2009. Illovo Managing
Director Graham Clark told Reuters that Zambia was providing a major boost to the group’s exports,
while additional tonnages were also available from Mozambique, Malawi and Swaziland. Overall,
however, Illovo’s global sugar exports were deemed ‘unlikely to exceed 355,000 tonnes, compared
with 742,281 tonnes last year’. This is in part a result of the dry weather conditions in South Africa,
the company’s original production base.
Illovo’s expansion of sugar exports to the EU market contrasts with the situation prevailing in a
number of other ACP suppliers, who have found the EU market less and less commercially attractive
under the impact of CAP-reform-induced price reductions. Addressing the press in November 2010,
John Prasad, CEO of the Fiji Sugar Corporation, said Fiji that was ‘looking for markets outside of the
European Union’, since ‘other global markets currently offered better prices than [the] European
Union market.’ He noted that with world market prices of between 26 and 28 US cents/lb and an EU
price of 19 US cents/lb, ‘the world market is for the first time doing a lot better than the EU market.’
While he expressed the hope that the EU market price would recover somewhat, he highlighted the
importance of selling Fijian sugar ‘at the best price to help revive the industry’.
In recent years these types of consideration have impacted on the volume of ACP sugar exports to
the EU, giving rise to a situation where Bloomberg reports that Portuguese refiners are ‘having
trouble finding raw sweetener at competitive prices’. According to analysis by the US Department of
Agriculture, ‘traditional suppliers are taking advantage of current high prices and diverting sugar to
the world market’.
Sources
International Business Times, ‘S. Africa’s Illovo Sugar aims for EU export boost’, 18 November 2010
http://www.ibtimes.com/articles/83509/20101118/s-africa-s-illovo-sugar-a...
Fiji Times, ‘Prasad says they're looking beyond the EU for better prices’, 22 November 2010
http://www.fijitimes.com/story.aspx?id=160336
Bloomberg, ‘Sugar refiners in Portugal see high prices, shortage, USDA says’, 24 November 2010
http://www.businessweek.com/news/2010-11-24/sugar-refiners-in-portugal-s...
Editorial comment
Illovo appears to be increasingly focusing its sugar exports on the EU market, despite a world market
price level which is leading certain traditional ACP suppliers to re-evaluate their marketing strategies.
With EU food and drink manufacturers complaining of a lack of availability of raw sugar from
traditional suppliers, and the new CEO of the Fiji Sugar Corporation arguing that non-EU markets are
increasingly important, this suggests that intra-corporate trade relationships may be coming to play
an increasingly important role in ACP-EU sugar trade flows (see Agritrade Special Report, ‘ Corporate
restructuring in the EU sugar sector: Implications for the ACP’).
In the context of recent internal EU policy discussions on strengthening the functioning of
agricultural supply chains, which have highlighted the importance of inequalities in the distribution of
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 86
power along certain supply chains, this potentially raises questions about the transparency of the
functioning of ACP-EU sugar supply chains. This is an issue which ACP policy makers could usefully
take up and address before the completion of the transition to an entirely ‘market-based’ process of
price formation in the ACP-EU sugar trade.
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 87
Some setbacks but overall good times for Illovo Sugar - 09 December 2009
Output projections for Zambia Sugar’s year to March 2010 have been cut from 420,000 tonnes to
350,000 tonnes. This is attributed to ‘off-season rains in the early part of the growing period’.
However, production of 350,000 tonnes will still be a record for the company. In the current season
the company reports that ‘export demand from regional markets has been buoyant, with good
realisations being achieved as a result of increased world sugar prices, whilst preferential quotas into
the European Union have been supplied in full’. The company expects lower prices for EU sugar from
October 2009 to be ‘offset by increased market access’. Meanwhile, Illovo, the owner of Zambia
Sugar, reported an 18% rise in first-half profits on its operations in Malawi. This has contributed to an
increase in headline earnings across the Illovo Group of between 25% and 30% compared to the
previous year.
In parallel to Illovo’s performance, British Sugar’s owner, Associated British Foods (which also has a
51% share in Illovo) has announced an increase in pre-tax profits, taking them to £655 million in the
latest financial year. ‘Overall ABF group revenue was up 12% ... and adjusted operating profit [was]
up 8%’. This improved performance follows on from the finalisation of the 2010 beet contract, ‘which
meant that the price paid to growers would remain unchanged next season’.
Sources
Reuters Africa, 2 November 2009
http://af.reuters.com/article/investingNews/idAFJOE5A10C420091102?feedTy...
Bloomberg.com, 2 November 2009
http://www.bloomberg.com/apps/news?pid=20601116&sid=aqOUcL6jfK64#
Bloomberg.com, 3 November 2009
http://www.bloomberg.com/apps/news?pid=20601116&sid=aCUoNth2r2l8#
Farmer’s Weekly Interactive, 3 November 2009
http://www.fwi.co.uk/Articles/2009/11/03/118568/British-Sugars-owner-rep...
Editorial comment
The financial performance of southern Africa’s sugar industry is increasingly interlinked with the
financial performance of EU sugar companies, given the pattern of investments which has emerged
in the region in recent years. While currently both southern African sugar growers and sugar mills are
benefiting from high global prices which have prevented the full effects of EU reductions in
administratively determined prices from being transmitted through to the market price paid, in the
years beyond 2012 this financial performance is likely to diverge. This raises challenges with regard
to the utilisation of EC ‘sugar-protocol accompanying measures’ programme support. Will these
funds be used in the coming period to strengthen the financial position of sugar out-growers in
southern Africa, in preparation for the likely reduction of EU prices once price guarantees for ACP
sugar are eliminated from October 2012? The deployment of accompanying-measures funding in
such a manner would be wholly consistent with the trajectory of internal EU policy in the dairy and
fruit-and-vegetable sectors, where the issue of the unequal distribution of power along the supply
chain is most sorely felt within the EU.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Some-setbacks-but-overall-good-times-
for-Illovo-Sugar
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 88
TONGATT HULETT
Tongaat Hulett expansion plans on track - 29 October 2010
Tongaat Hulett reports expected sugar production in Zimbabwe in the 2010/11 season of between
330,000 and 350,000 tonnes, up from 259,000 in 2009/10. The decline in sugar production from its
Zimbabwean operations appears now to have bottomed out. Tongaat Hulett’s CEO, Peter Staude,
said that ‘a recovery programme to improve yields and the outgrower cane from Zimbabwe had
already been put in place’, with this expected to yield results in the next three years. Measures to
increase sugar production to the previous level of 600,000 tonnes have been identified, with further
measures believed to be capable of further expanding production to around 820,000 tonnes. Both of
Tongaat Hulett’s mills in Zimbabwe ‘operate white-end sugar refineries with a combined capacity to
produce 140,000 tonnes of white sugar per annum’.
According to press reports, ‘production in Mozambique was also expected to jump to between
230,000 and 250,000, from 134,000 tonnes in the 2009/10 season’. However other reports suggest
that severe drought in KwaZulu Natal province may cause South Africa’s sugar cane production to
drop to 2 million tonnes, noting that this will be 26% less than the record crop of 2.7m tonnes in
2002/03.
Meanwhile in Tanzania, sugar production has expanded by 27% to 318,000 tonnes. Tanzania
however remains a sugar deficit country, and hence with high world market sugar prices, has not
exported sugar to the EU since 2007 (previously some 20,000 tonnes per annum were exported).
Sources
Financial Gazette (Harare), ‘Tongaat Hulett remains buoyant over output growth’, 16 September
2010
http://allafrica.com/stories/201009160866.html
Tanzania Daily News, ‘US sugar imports to hurt economy’, 9 September 2010
http://allafrica.com/stories/201009100038.html
Bloomberg, ‘South African drought may cut sugar output 26% this year, Moneyweb says’, 5 October
2010
http://www.bloomberg.com/news/2010-10-05/south-african-drought-may-cut-s...
Editorial comment
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 89
The trend towards expanded production to serve expanded export markets in the EU( in both
Mozambique and Zimbabwe, but also Zambia, Malawi and Swaziland) highlights the potential within
the ACP to meet in full the 3.5 million tonne ceiling, which provides the safeguard limit for ACP sugar
exports. However, the decision of Tanzania to exit the sugar export trade in the face of high world
market sugar prices highlights the contrary trend. With the EU guaranteed price having been reduced
to 90% of the reference price, at current euro-US dollar exchange rates, any world market price
above 18 US cents/lb makes exporting raw sugar to the EU less competitive, compared to selling on
the world market.
This is leading to a situation where the ACP is delivering historically low volumes of sugar to the EU,
and the European Commission is beginning to argue that sugar tariff-rate quotas under new trade
agreements are essential in order to ensure a ready supply of raw cane sugar to EU sugar refineries.
It is far from clear how these contradictory trends will evolve, and what impact this will have on the
long-term future of sugar production in the Eastern and Southern African region.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Tongaat-Hulett-expansion-plans-on-track
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 90
MAURITIUS
Getting ahead of policy change: Lessons from the Mauritian sugar experience
- 28 January 2013
A presentation at the meeting of the World Association of Beet and Cane Growers (WABCG) and
International Sugar Organization (ISO) in November 2012 by representatives of the Mauritian sugar
company Omnicane implicitly highlighted the importance of both getting ahead of the policy making
process in major markets such as the EU and staying on top of technical innovation within the sector.
The presentation highlights how the process of restructuring the Mauritian sugar industry
substantially pre-dated the implementation of EU sugar sector reforms. As early as 1999, the
Mauritian sugar sector introduced its first high pressure power plant for the co-generation of
electricity, and in 2,000 began the process of mill restructuring.
The Mauritian restructuring process involved the closure of 8 sugar mills and the centralisation of
crushing operations, the introduction of a voluntary retirement scheme for some 15,000 workers and
staff, and the regrouping of small growers into group farming schemes. These initial efforts were
then consolidated into a Multi-Annual Adaptation Strategy Action Plan 2006–2015, which was a
prerequisite for the efficient mobilisation of EU sugar protocol accompanying measures support. The
adaptation strategy included developing plans for the full exploitation of the value-added potential
of sugar cane, which embraced:
co-generation of electricity for both own use and commercial sale;
a shift to refined and speciality sugar production;
the development of bio-ethanol and bio-gas production;
the production of liquid fertilisers and ‘green’ cement, as well as improved water management.
The Mauritian experience highlights the scope for tapping into the full revenue potential of sugar
cane production. In addition to producing 200,000 tonnes of refined sugar for export to EU, including
a range of speciality sugars, the Mauritian sugar sector aims to produce:
180 GW renewable energy for own use and distribution across the grid;
25 million litres of bio-ethanol;
8,500 tonnes of food-grade CO2;
75,000 tonnes of liquid fertilisers;
760,000 tonnes of process steam;
10 MW bio-gas;
an unspecified amount of green cement;
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 91
a range of value-added products from rum, through chemical and pharmaceutical products, to value-
added sweets and chocolates.
Omnicane aims to have zero wastage from the cane produced, and to move as far up the value chain
as possible.
Sources
WABCG/ISO, ‘From King Sugar to Queen Cane: Omnicane’s experience’, G. Chasteau de Balyon,
Omnicane, see Session 2 of Consultation Program for download of 10-MB presentation, 26
November 2012
http://www.wabcg.org/index.php/wabcg_en/content/view/full/1047
Editorial comment
Mauritius’ sugar sector restructuring process was planned many years in advance, in the light of the
initial EC plans for the reform of the sugar sector. When CAP reform was first initiated in the arable
sector in 1992, it was envisaged that the sugar sector would be the next sector subject to reform.
Detailed plans and proposals were drawn up by the EC, with proposals being tabled for reform in
2000. These proposals were rejected by EU member state governments, which preferred to defer the
difficult process of sugar sector restructuring. However, the writing was clearly on the wall in terms
of the future reform of the EU sugar sector.
The Mauritian authorities proved to be fully aware of these trends and began timely preparations to
respond to them. They launched a first phase of restructuring in 2000 at the sugar production level,
focused on reducing production costs and enhancing underlying price competitiveness. This led into
a second phase of restructuring linked to product diversification and market development.
Mauritius’ experience highlights two important points. First, the lengthy process of policy
formulation within the EU, which provides considerable advance notification of forthcoming reforms.
Second, the importance of using the time provided by this advance notification to commence
processes of necessary restructuring, using nationally mobilised resources.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Getting-ahead-of-policy-change-Lessons-from-the-
Mauritian-sugar-experience
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 92
Second Mauritian sugar company looking to expand in Eastern Africa - 18
February 2013
Press reports in January 2013 indicate that ‘Mauritius sugar miller Alteo Ltd is seeking strategic
partners in East Africa to increase its sugar output.’ The planned investment is aimed at expanding
the company’s sugar production outside Mauritius to 400,000 tonnes annually. Currently, the new
company, which brings together Deep River-Beau Champ Ltd and Flacq United Estates Ltd, produces
160,000 tonnes of sugar in Mauritius and 90,000 tonnes in Tanzania through its 75% stake in the
Tanganyika Plantation Company (TPC). Alteo also has a minority stakeholding in the Marromeu sugar
estate in Mozambique, which is operated by Sena company, a subsidiary of the Brazilian Company
Açúcar Guarani (which owns 91% of the shares), itself a subsidiary of Tereos Internacional.
According to the reports, Alteo is seeking to develop bio-energy initiatives (co-generated electricity
and ethanol) alongside its sugar production in Tanzania and Mozambique, in line with its practices in
Mauritius. By the end of the year to June 2012, Alteo’s investments in Tanzania had contributed to a
19% increase in the company’s pre-tax profits.
Alteo’s investment plans need to be seen against the background of ‘East Africa’s growing sugar
consumption’. According to press reports, ‘in 2012, Kenya, Tanzania, Rwanda and Uganda faced a
sugar shortfall of nearly 430,000 tonnes’.
Alteo’s growing interest in investing in sugar production in Eastern Africa not only builds on its
existing links, but also follows the investment of US$194 million in expanded sugar production in the
coastal zone of Kenya by Omnicane, the leading Mauritian sugar company, in association with Kwale
International Sugar Company. This investment is due to lead to a 12% increase in cane crushing
capacity in Kenya (initially producing 52,500 tonnes of sugar a year), but also the establishment of an
ethanol plant, producing 30,000 litres per day, and an 18-megawatt power plant. Milling operations
are scheduled to begin in mid 2013. According to press reports, while Omnicane has taken only a
20% shareholding in the joint venture (with an option to increase this to 50% after one year of
operation), its role as the managing partner is expected to shake up sugar cane production in Kenya.
However, the future of the sugar sector privatisation process in Kenya remains uncertain, given the
parliamentary Finance Committee’s opposition to current government plans.
In Rwanda, government assistance using financing provided by the Dutch government is being
extended in order to nearly triple sugar production in the Kabuye Sugar Works in Rwanda, from the
current level of 11,000 tonnes to 30,000 tonnes.
Sources
The East African, ‘Entry of Mauritian sugar millers to shake up industry’, 5 January 2013
http://www.theeastafrican.co.ke/business/Entry-of-Mauritian-sugar-miller...
Ciel Group, ‘Alteo: Vision in motion’, web page
http://www.cielgroup.com/group/alteo.aspx
Tereos Syral, ‘Tereos Internacional’, web page
http://www.tereos-syral.com/web/syral_web.nsf/Page/U1D3T1Q0/Tereos_Inter...
Business Day, ‘Mauritius’ Omnicane starts sugar production mid 2013’, 22 October 2012
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 93
http://www.businessdailyafrica.com/Corporate-News/Mauritius-Omnicare-sta...
Omnicane, ‘Omnicane Annual report 2011’, July 2012
http://www.omnicane.com/index.php?tid=64&lang=1
The Star, ‘MPs oppose sale of five sugar companies’, 29 December 2012
http://allafrica.com/stories/201212310426.html
The New Times, ‘Kabuye Sugar Works to triple production’, 31 December 2012
http://allafrica.com/stories/201212310279.html
Editorial comment
Growing Mauritian corporate investment in sugar cane production and milling in Eastern and
Southern Africa in part reflects the long-term vision of creating a sugar cane-based, value-added
product industry in Mauritius, increasingly sourcing raw sugar from sister mills outside Mauritius.
However, it also reflects growing consumer demand for sugar in the Eastern and Southern African
region, which is creating market opportunities beyond the EU (see Agritrade Special Report ‘ Regional
developments in ACP sugar sectors 2011–2012’, 16 December 2012).
The full development of a multi-product sugar cane industry in countries like Kenya and
Mozambique, however, will require regulatory reforms as regards access to the electricity
distribution grid and statutory biofuel blending requirements.
Issues related to the domestic functioning of sugar supply chains will also arise, particularly the issue
of which revenue streams go into the common pool to be divided between sugar cane farmers and
millers. Currently practices differ from country to country. It would appear to be important for
farmers’ organisations in the Eastern and Southern African region to share information on best
practices in terms of the pooling of revenues and their division between farmers and millers.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Second-Mauritian-sugar-company-
looking-to-expand-in-Eastern-Africa
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 94
Mauritius continues to expand value-added sugar exports -27 December
2011
In November 2011, the Mauritius Chamber of Agriculture reported a 5% expansion in sugar
production (to 410,000 tonnes). This expansion in production is supporting efforts to further increase
the production and export of value-added sugars.
At the corporate level, as a result of higher production of refined sugars and the generation of
revenues from electricity co-generation, Omnicane, the leading sugar company in Mauritius, has
announced an increase in pre-tax profits of 17%. Omnicane is also investing in the wider East African
region through its joint venture with the Kenyan group Kwale International Sugar (see Agritrade
article ‘ Kenya secures sugar safeguard extension against background of foreign in...’, 20 November
2011).
Sources
Reuters, ‘Mauritius revises up 2011 sugar output: Chamber’, 15 November 2011
http://news.yahoo.com/mauritius-revises-2011-sugar-output-chamber-122900...
Reuters, ‘Omnicane profit rises on refined sugar sales’, 14 November 2011
http://af.reuters.com/article/mauritiusNews/idAFL5E7ME27E20111114?rpc=40...
Editorial comment
Mindful of the resilience of EU refined sugar prices relative to raw sugar prices, the Mauritian sugar
industry has been successfully pursuing a strategy of investment in moving up the sugar value chain,
as well as developing other revenue streams from sugar cane production (e.g. electricity co-
generation). The start of this strategy pre-dated the announcement of EU sugar sector reforms, and
was based on the EC signalling its intention to reform the sugar sector in the 1999–2000 period.
As part of this restructuring strategy, the Mauritian sugar industry has sought out new corporate
partners in Europe, to assist them in packaging and marketing refined sugar products. The experience
gained on the EU market is seen as being of considerable value when it comes to the packaging and
marketing of refined sugar in both regional markets and international markets, where the growth of
sugar consumption is projected to be far stronger than in the EU.
Mauritius’ ultimate aim is to transform itself into a producer of value-added products based on sugar
cane. Investment in the development of sugar production in neighbouring East African countries
needs to be seen in this light, for it assists in securing supplies of sugar to enable the development of
a globally competitive scale of production of value-added sugar products. Mauritius’ experience is of
considerable interest for countries considering how to reorient their more traditional sugar
industries to take advantage of future market conditions and opportunities.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Mauritius-continues-to-expand-value-
added-sugar-exports
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 95
Mauritius completes move to refined sugar exports, other countries face
variable prospects - 09 August 2011
According to press reports, the Mauritius Sugar Syndicate (MSS) estimates that ‘income from sugar
exports will rise 4.2 percent this year as the industry shifts to producing refined and specialty sugars.’
This needs to be seen in the context of a 7.1% decrease in the volume of sugar produced in
Mauritius. According to MSS CEO Jean-Noel Humbert, ‘for the first time since the Dutch introduced
sugar in 1650, Mauritius will be exclusively producing value-added sugars.’
Mauritian refined sugar is marketed in the EU under a six-year contract (up to 2015) with Suedzucker
AG of Germany. Exports now consist of 70% refined white sugar (known as EEC Grade 2) and 30% of
15 varieties of speciality sugars. In 2010, Mauritius produced 256,267 tonnes of refined white sugar
and 110,000 tonnes of speciality sugars, as well as 81,450 tonnes of raw sugar.
According to Jean-Noel Humbert, ‘it isn’t viable to export raw sugar anymore’, following the reform-
driven price reductions in the EU.
It has also been reported in the press that the injection of $100 million in government funding to
improve the performance of the Fijian sugar industry ‘did not work’. According to FSC’s chief
executive Abdul Khan, if the industry’s performance was to improve, then the yield of high-quality
cane produced in a cost-effective fashion would need to increase, while ways would need to be
found to ‘generate revenue from multiple products and buyers’. Abdul Khan called for improvements
in FSC’s management system. However there was optimism that sugar production in Fiji could rise to
190,000 tonnes this year, after a disappointing total of 130,000 tonnes last season. This however ‘is
dependent on the efficiency of the mills’.
In the Caribbean, press reports suggest that sugar production in Jamaica is set to increase by 13.5%,
although the performance of different estates varies greatly, with some exceeding production
expectations and others failing to fulfil their contribution obligations ‘under the pre-financing
arrangement to British refiner Tate & Lyle’. This in part arises from the refurbishment programmes in
progress, including the expected final full takeover of the Monymusk, Frome and Bernard Lodge
Estates by the Chinese company Complant International Sugar Industry.
Sources
Bloomberg.com, ‘Mauritius’s sugar export income to increase on shift to refined, specialty’, 23 June
2011
http://www.bloomberg.com/news/2011-06-23/mauritius-s-sugar-export-income...
Fijilive.com, ‘$100m for sugar did not work: FSC CEO’, 4 June 2011
http://www.fijilive.com/news/2011/06/04/33648.Fijilive
Radio Fiji, ‘FSC expects good crushing season’, 8 April 2011
http://www.radiofiji.com.fj/fullstory.php?id=35839
Jamaica Gleaner, ‘Increased sugar production signals hope for industry’, 20 June 2011
http://jamaica-gleaner.com/gleaner/20110620/business/business3.html
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 96
Editorial comment
The transition of Mauritius to production of refined and speciality sugars raises important issues for
high-cost island producers of sugar across the ACP. If Mauritius, with a well-functioning sugar
industry with a long tradition of efficiently supplying high-quality raw sugar to the EU market, no
longer believes that the export of raw sugar to the EU market is commercially viable, what does this
mean for the commercial viability of future raw sugar sales from other high-cost island producers
elsewhere in the ACP?
Clearly in countries as diverse as Jamaica and Fiji the limited future commercial attractiveness of the
EU raw sugar market is recognised. However there are significant differences. Whereas in Mauritius
EU restructuring support and EIB loan financing was used to ‘pump-prime’ a market-led restructuring
process, in Jamaica this is largely being left to private investors (including foreign private investors),
with EU support being used to help carry the burden of social adjustment associated with the
privatisation and restructuring process. Critical to the market adjustment process in Jamaica will be
the pending decision on the establishment of a refinery at the Frome Estate (see Agritrade article, ‘
Ambitious plans for Jamaican sugar sector’, June 2011). In Fiji, by contrast, press reports consistently
highlight the lack of financing for comprehensive sugar-sector restructuring and the poor utilisation
of the funds available. This leaves the Fijian sugar sector locked into continuing to export raw sugar
to the EU market (see Agritrade article, ‘ Tate & Lyle seeking long-term sugar-supply arrangement’,
June 2011), despite aspirations to diversify both their product range and the markets served.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Mauritius-completes-move-to-refined-
sugar-exports-other-countries-face-variable-prospects
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 97
Local refining of imported raw sugar raises longer-term regional issues - 05
July 2011
According to press reports, Joel Noel Humbert, the chief executive of the Mauritius Sugar Syndicate,
has indicated that the industry ‘is considering importing 35,000 metric tons of raw sugar a year’ for
refining locally to meet domestic sugar needs. This would enable installed refining capacity to be
more fully utilised. Traditionally Mauritius has exported all its own sugar production to preferentially
priced markets and has imported refined sugar to meet domestic market needs. However Mr
Humbert stressed that plans were ‘still at an early stage’.
This needs to be seen against the background of a 32% decline in Mauritian sugar production since
2002.
Mauritius: Centrifugal sugar production (MT)
2002 2003 2004 2005 2006 2007 2008 2009 2010
684,
000
552,
000
550,
000
580,
000
550,
000
535,
000
460,
000
467,
000
467,
000
Source: USDA, on web portal Indexmundi.com.
In Ethiopia serious management problems are holding back plans for the large-scale expansion of the
sugar sector. Abay Tsehaye, Director General of the Ethiopian Sugar Corporation (ESC), has
announced details of a strategic plan with the aim of producing around 2.5% of the world’s sugar
within 5 years, on the basis of investment in eight new factories producing an annual total of 2.2m
tonnes of sugar. However Mr Tsehaye noted that investments and progress made in the last 5 years
have ‘been threatened by increasing production costs and the necessity to employ excessive
manpower’.
Sources
Bloomberg.com, ‘Mauritius considers importing raw sugar for local demand to boost refiners’, 24
May 2011
http://www.bloomberg.com/news/2011-05-24/mauritius-considers-importing-r...
Mauritian centrifugal sugar production by year
http://www.indexmundi.com/agriculture/?country=mu&commodity=centrifu...
Addis Fortune (Addis Ababa), ‘State’s sugar earns 4.1 billion Br in nine months’, 23 May 2011
http://allafrica.com/stories/201105250732.html
Editorial comment
Mauritius has made substantial investment in refining capacity, as part of the country’s efforts to
move up the value chain and thus reduce the commercial consequences of reduction in the EU raw
sugar price. It is therefore a logical step for the country to move over to importing raw sugar for local
Recent Agritrade Articles on EU Sugar sector developments and implications for the ACP Page 98
refining to meet domestic market needs. By increasing the throughput of the refineries, such a move
helps reduce the unit costs of production.
Developing knowledge and expertise in refining sugar and packaging and marketing refined sugar
products for both EU and national markets provides the Mauritian sugar industry with an ideal
platform from which to branch out into serving other third-country markets. Indeed, developing
refined sugar products for export to third-country markets would represent a logical next step, in
view of the uncertainties over EU sugar sector policy beyond 2013.
However, were these third-country markets to lie within a future regional customs union, this would
raise issues linked to the common external tariff for raw sugar within any wider regional customs
union. In the ESA region this is likely to be an important issue, given the efforts under way to develop
sugar production from Ethiopia and Sudan in the north, to Malawi, Zambia and Zimbabwe in the
south.
Source:
http://agritrade.cta.int/en/Agriculture/Commodities/Sugar/Local-refining-of-imported-raw-sugar-
raises-longer-term-regional-issues