The end of the EU sugar quota regime next year will significantly change the bloc’s market conditions, but the impacts are hard to predict given the key but uncertain role of global trade and world market prices with regard to a debate in the European Parliament.
Price volatility will increase and the EU must mitigate it by setting up new risk management tools to ensure cultivation of sugar beet and sugar production in the bloc, recommend the authors of a study presented to the Parliament agriculture committee (ComAgri).
The study on the outlook for the EU sugar sector following the end of quotas in September 2017 was carried out by a group of experts for the Parliament’s policy department, after a request by ComAgri members, many of whom called for a new risk management safety net. A ‘sugar expert group’ is monitoring the market, to help member states and sugar businesses prepare for the change and increased competition. What Europe’s place on the global market after 2017 will be, and the immediate and medium-term impact on prices, is hard to predict at this stage, the study authors warned in a ComAgri session on July 13.
The elimination of the long-standing sugar and isoglucose production quotas and minimum beet purchase price will bring “big changes” to the “strategic” sector, with foreign trade to be a key factor in the supply/demand balance and thus prices, states the study.
Given the uncertainty of the world market developments, the study considers three scenarios for the post-quota era, noting that fuel prices will be an important driver, as they will determine how much sugar beet will go into bioethanol production.
The first scenario assumes world white sugar prices will remain at the “relatively low” current level of EUR350 per tonne. This would require restructuring in the EU industry, with beet cultivation falling but potentially compensated by higher yields. Reduced use of beet for bioethanol could cause a slight rise in EU sugar output, to 17 mln tonnes, while imports would fall and EU exports increase. The EU market would become more self-sufficient and EU prices would hover at around EUR400 per tonne, under this scenario.
Under the second scenario, which assumes a bigger long-term drop in world prices, to EUR250 a tonne, EU prices would in turn become under pressure and a “deep restricting” necessary. Beet cultivation and sugar production would only remain in the “most competitive” regions, mainly in the EU-15, with annual output falling to 16 mln tonnes and “substantial imports” needed. The EU would be a net importer and many sugar factories and beet growers would have to close down, leading to “very adverse economic, social and environmental effects” according to the authors.
The third scenario envisages high world prices, around EUR500 a tonne, due to supply decrease or higher fuel prices. Under the “optimistic” scenario there would be “no risk” for the EU sector, which would be able to increase beet and sugar production. EU output could rise to as much as 18.7 mln tonnes, exceeding domestic demand, cutting imports and boosting exports to 4 mln tonnes.
The study for ComAgri states that regardless of the scenario that will play out, the liberalisation of the EU sugar market will clearly increase price volatility and the risk for market operators – and they suggest a series of new or enhanced market support instruments through the CAP.
They call for a “broad set of instruments and regulations” to safeguard beet cultivation and sugar production – encompassing income support for growers, regulation of external trade, intervention tools and promotion and close monitoring of the market situation.
A long-term risk management system is needed, including continued ‘coupled’ income support, says the study, which notes that ten EU countries are using coupled aid for beet growers, namely the Czech Republic, Croatia, Finland, Greece, Spain, Poland, Romania, Slovakia, Hungary and Italy. However, the bloc’s biggest two beet producers and the most efficient, France and Germany, have not chosen to apply coupled payments, it adds.
The EU must also consider tools to limit income volatility, such as countercyclical payments or income insurance, says the study, which also suggests – in theory – allowing cultivation of GM beet varieties, which would reduce input costs and improve yields.
Beet farmers should also be given investment support and a stronger position in delivery contract negotiations, says the study, which also proposes an “income risk management toolkit” – pointing to Canada’s ‘AgriStability’ programme as a possible template for its design.
However, such a system “requires full knowledge” of the costs and revenues generated by individual farms, which is not common in the EU, so the bloc would need time to gather relevant data on the financial situation of individual holdings, state the authors.
International Sugar Journal