EU sugar production post-quota a burden to sugar producers and isoglucose alike

Published: 10/31/2017, 10:49:25 AM

With the yoke of nearly 30 years of production controls thrown off, it's no surprise that European sugarbeet farmers have jumped into growing as much as physically they possibly can in time to supply the 2017/18 campaign, but they may have inadvertently shot themselves in the foot, reports Sugaronline.

France's beet production is expected to soar by 25% this season to nearly 6 million metric tonnes, the highest seen since production quotas were introduced in 1968, while Rabobank says total European production could nearing 20.5 million tonnes this season, up nearly 20% on the year.

But as production surpasses consumption, exports could be well over 2.5 million tonnes. That exposure on the world market means more volatility to European farmers-not just of sugarbeet but also of wheat and maize who supply for isoglucose production-as sugar prices are prices are pushed down by surpluses in India, Thailand and Brazil.

"The end of quotas has meant an increase of sugar production," Starch Europe's Managing Director Jamie Fortescue told the 2nd European Starch Conference held this week in Budapest, Hungary. "It has been an exceptional year and we're all suffering the consequences," he said.

Zoltan Reng, CEO of Hungarian starch producer Hungrana, owned in a 50/50 joint venture by ADM and Agrana, says the European Union's projections for sugar production for 2017 made two years ago are already coming true. As a result, beet farmers are not making any money this year and probably won't next year either.

"There has to be some kind of consolidation in the industry as there was in the dairy industry [post-quotas] even though the two industries are very different. Smaller players will probably lose this game if they can't float for the next two years," Reng said.

With so much area planted under beet, there's a major risk that unless processors have tied in farmers into two-year contracts, there won't be as much beet planted next year.

"With private companies [across Europe], it has been quite a struggle to get a beet price agreement with farmers but with cooperatives it's less of a battle because farmers get a share of profits," said Rabobank's sugar analyst Ruud Schers. "We're seeing flexibility of beet price [in contracts] with a fixed base price and then an additional price that is linked to sugar price. Farmers can opt for one-, two- and three-year contracts."

With volatility remaining a key feature of the sugar market, it could be smarter for farmers to lock in for longer-term contracts, he said.

"Especially for next year, all those processors with longer term contracts will likely have better results," he said.

Reng says there's a Hungarian saying that farmers only have memory long enough for a year. "This year they won't make money so next year they won't plant," he said.