Sugaronline Editorial - End of an Era By Meghan Sapp

Published: 09/29/2017, 12:29:00 PM

The European Union rejoins the world sugar market on Sunday, and no one really knows what that means.



The European Union rejoins the world sugar market on Sunday, and no one really knows what that means

 


After more than a decade—too long for some, not nearly long enough for others—the European Union’s sugar market opens back up on Sunday for the first time since 1968. No more production quotas, isoglucose free to do what it wants, but imports remain tightly controlled while exports are likely to become an important feature for the world market.

Until now, it’s been all speculation as to what would happen when quotas end, but from October 1 it’s getting real.

With the shackles of production quotas thrown off, France planted sufficiently to boost its production to the highest level seen in 25 years while Germany’s production is seen 23% higher than last year. British Sugar expects production to jump more than 35%, expansion that will bring new jobs, but Tate & Lyle is looking at things getting worse—at least until Brexit when it believes things will turn around drastically.

For those who wound down beet production as part of the 2006 reform of the EU sugar regime, it’s tough to say yet if there will be much of a comeback. Slovenia cautiously planted 75 hectares this year to see how things might look but despite a lot of noise over the past several years, Ireland’s return to beet production for sugar or ethanol remains in doubt.

Isoglucose will no longer be limited to production quotas, so the expectation is that some soft drinks and other food manufacturers will switch from sugar but reformulation takes time. We’ll get a better idea of the starch industry’s expectations later this month at the Starch Europe conference in Budapest, Hungary.

The most immediate change expected is falling prices, enough of a difference that the sugar tax set for implementation in 2018 could be completely offset, but with stocks drawn down in expectation of a bumper crop this autumn, the price difference may be a smoother transition than expected. Thanks to increased European export availability, Australia’s ABARES expects global sugar prices to fall to 10-year lows but though those estimates were made before Hurricanes Irma and Maria hit key North American and Caribbean production.

With production seen increasing 20% for 2017/18, imports are also likely to fall 50%, according to European Commission estimates. That is going to revolutionise traditional trade flows for long-time exporters like those from the African, Caribbean and Pacific who have been struggling to adjust to the new post-reform market despite financial assistance from the EU. What’s more, they may find themselves against stiffer competition from Brazil as the country seeks to secure more quota during the Mercosur negotiations currently underway, something that the European industry is nervous about as well.

So whereas the world was hoping for some kind of market clarity after October 1, it’s becoming more apparent by the day that market stability may still be a ways off. Welcome back to the world, Europe! It’s a funny place to be.

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