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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