European Beet Sugar Refiners Marching Forward
Last month, the two EU agricultural powerhouses Germany and France agreed that protectionist sugar quotas need to be maintained until 2020, giving European beet sugar producers plenty of reason to celebrate. The current status quo allows for beet sugar companies to maintain profits and operate on good margins and the decision to maintain the quotas for another seven years is good news for the sector. But whilst beet sugar refiners thrive and prosper, the situation for Europe’s cane sugar producers is much less optimistic. Many of the continent’s large cane sugar companies are reporting heavy losses, closing factories or going completely out of business. An article in The Financial Times published November 14, traces back the events that have caused the current situation.
According to the FT, the production quotas imposed by Brussels in 2006 are amongst the key reasons for gap that is currently seen between the commercial viability of beet and cane sugar production. The quotas allow beet sugar to supply more than 80 percent of EU sugar demand, with the rest coming from developing countries with preferred status exporting cane.
Developing countries were given three years to start producing the cane for Europe, but various factors such as logistical and weather problems, prevented them from producing enough of the sweetener. This has created a deficit and forced cane sugar refiners to turn to non-preferential suppliers such as Brazil and Thailand and pay higher import tariffs in order to fill the gap.
!m(/uploads/story/829/thumbs/pic1_inline.png)Importing on more expensive tariffs (this year refiners had to pay import tariffs of more than €300 a tonne) pushed EU prices higher to as much as $800 a tonne in 2012 and subsequently created a shortage of affordable white sugar on the continent.
To cope with the problem the EU has announced its intention to temporarily increase supplies with imports of raw cane sugar at reduced duties and sales of domestic beet sugar produced in excess of national production quotas.
This might allow cane sugar refiners to repair some of the damage they have suffered having to rely on expensive imports from non-preferential suppliers. Many of these companies have been backed into a corner, struggling to stay in business. Tate & Lyle Sugars, for example, reported losses of £37 million last year and its main production facility on the Thames is running at 60 percent capacity.
Meanwhile, beet sugar refiners have every reason to celebrate. Protected by production quotas and import tariffs, they’ve been able to capitalise on the higher overall sugar prices in Europe and to rake in substantial profits. Last week AB Sugar, controlled by the UK’s Associated British Foods (ABF:LSE), reported a 62 percent increase in operating profits to £510 million. In Germany, the largest beet sugar producer Südzucker (SZU:BER) reported even better results with a 90 percent increase in operating profits for the first half, while its main rival Nordzucker increased its earnings before interest, tax, depreciation and amortisation, for the same period by more than twofold.
And with the quotas very likely to stay in place for the next seven years, the future of beet sugar companies seems well secured. Some of them have already started acquiring assets. Earlier this year Südzucker spent £255 million to acquire a 25 percent stake at commodity traders ED&F Man. It won’t be surprising if other beet sugar refiners begin to follow a similar pattern.
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