The EU’s last agricultural quota system in place was scrapped last Saturday, after nearly 50 years, writes Stephen Cadogan.
The end of sugar quotas has removed the EU quota barrier for operators in Ireland or other member states wishing to re-establish a sugar industry.
The sugar quota system was introduced in 1968, with a support price for producers set significantly above the world market price.
Between 2006 and 2010, the sugar sector was restructured, with the support of €5.4bn for
voluntary compensation, which reduced EU sugar quota production by 6m tonnes.
This included €220 million to Irish beet growers and €6m to machinery contractors, and €127m to Greencore, the holder of the
entire Irish sugar quota, which availed of this voluntary scheme to dismantle its facilities and cease production.
European Commission sources have outlined prospects for the de-regulated industry.
What is the expected sugar market situation?
The average EU sugar price has recovered since the end of 2016 to around €500/t, and has been stable in the last few months.
The EU is the world’s leading producer of beet sugar (roughly 50% of the total).
However, beet sugar represents only 20% of the world’s sugar production; the other 80% is produced from sugar cane.
Most of the EU’s sugar beet is grown in the northern half of Europe, where the climate is more suited to growing beet.
The EU also has an important refining industry that processes imported raw cane sugar.
The Commission’s medium term outlook report estimates that between 2016 and 2026, sugar production will increase by 6%.
Isoglucose production could triple from 700,000 tonnes to 2.3 million tonnes.
Imports will continue to drop, from 3-3.5m to 1.8m tonnes, and exports are expected to increase, from 1.3m tonnes to 2.5m tonnes.
For the upcoming harvest, no longer bound by the limitations of the quota, an increase in production of roughly 20% (20.1m tonnes) is expected. This increase results from both an increase in sugar beet area, and higher yields because of good climatic conditions.
This, however, follows two marketing years with relatively low production.
The production increase is likely to be compensated by a further decrease of imports, an increase in exports
(expected to double to 2.8m tonnes), and a possible rebuild of stocks, which were at the lowest level ever in the summer of 2017.
Since spring 2017, international prices have fallen, as a result of an estimated sugar surplus at world level after two consecutive years of deficit. In September 2017, world market prices were around €311 per tonne.
EU domestic prices have remained stable (€501 per tonne in July 2017), however prices will likely drop from the beginning of the new marketing year and become closer to world trends.
Whilst it is most likely that EU sugar prices will provide a premium, compared to world market prices, they are expected to be closer to world market level in the future.
Are there any new opportunities for the sector following the end of the quotas?
Without regulatory limits on sugar production, sugar producers will optimise use of their production capacity and reduce the unit costs of producing sugar. This will allow competitive suppliers to sell sugar on the world market.
Certain starch-based sweeteners, notably isoglucose, were limited until now to 0.7 million tonnes. This sector can now expand and generate new employment, notably in rural areas. Isoglucose is typically used for production of soft drinks.
The quota for inulin syrups was zero, which de facto prohibited production of this sweetener. The end of quotas therefore provides new opportunities, if the market is there.
EU sugar consumption is expected to remain stable or slightly decline.
Much of the increasing EU output will either compensate for decreasing imports or help to boost export sales.
What tools are provided by the Common Agricultural Policy to the EU sugar sector now that quotas have ended?
Member states have the option of providing voluntary coupled support linked to production to address sectors in difficulties, including sugar beet production. This is an option taken up by 11 member states (Croatia, Czech Republic, Finland, Greece, Hungary, Italy, Lithuania, Poland, Romania, Slovakia and Spain), with overall coupled support for sugar beet in 2017 of about €179m.
The Commission re-introduced a far-reaching system of collective bargaining, applicable post-quota, to help the position of beet growers when negotiating with the other elements of the food chain.
Collective negotiations or written agreements within the chain are compulsory and provide predictable terms for delivering and buying beet. The sugar sector is the only area with such far-reaching agreements, without competition scrutiny.
However, these agreements cannot involve collective negotiation of the selling price. The scheme applicable after the quota end includes the possibility of voluntary value sharing arrangements.
A Sugar Market Observatory is fully operational, to provide the sector with more transparency, by disseminating market data and short-term analysis in a timely manner.
Private storage aid can be granted if necessary, taking into account market prices, reference thresholds, costs and margins.
Like other agricultural sectors, the sugar sector is covered by several disturbance clauses that allow the Commission act in case of severe market crisis involving a sharp increase or decrease of market prices.