Europe needs to import more sugar and food manufacturers are finding it more costly to secure supplies after a heatwave hit this year’s harvest.
Companies that produce candies, cakes and soft drinks will pay much more than normal to source sugar in the near future. That eats into their profit margins and even increases the risk that some will go out of business, according to CIUS, which represents European sugar users. Consumers face even more inflationary pain.
The association is demanding that the European Union temporarily lift import tariffs to allow shipments of refined sugar to alleviate shortages. The problem is that such a move could weigh on local sugar prices, the European Sugar Manufacturers’ Association said. This could hurt growers’ incomes at a time when input costs have skyrocketed and challenge the sustainability of future production, she warned.
The EU – a big producer – sees its production down 7% this season to 15.5 million tonnes after summer heat and drought hit harvests. Plantings have fallen 20% over the past five years after historically low prices prompted farmers to switch to more lucrative crops like corn.
“We are deeply concerned that we have entered a longer-term deficit situation,” CIUS President Yury Sharanov said at a seminar in London. “If proper measures are not taken, the same situation will repeat itself in the next marketing year.”
EU sugar production has fallen by about a quarter since jumping into the 2017-18 season, when the lifting of sugar quotas allowed the region’s companies to produce and export as much as they wanted. That has helped European prices to recover, exacerbated by an energy crisis that forced producers to pass the cost on to consumers.
In some places in Europe, food producers are paying more than £1,000 a tonne to buy sugar on the spot market, much more than usual, traders say. In London futures contracts, the premium on the March contract over May prices has risen over the past month, another indication of a tightening market.
They’re not the only signs of worry about shortages. The EU said imports rose year-on-year in the final quarter of the season, which ended in September. European manufacturers are already exporting less to focus on supplying local buyers, said Josh Gartland, deputy general manager of the manufacturers group known as CEFS.
Despite expectations that the global market will move into surplus this season, S&P Global Commodity Insights forecasts global supply to hold through Q2.
To mitigate this crisis, Europe could buy from countries like Africa and the Caribbean, whose supplies have declined in recent years but may now be more attractive at current prices, CEFS said.
Another option is more trade with the main exporters Brazil and India. However, Indian quotas limit how much millers can ship, while higher ethanol prices have prompted Brazil’s mills to use more sugar cane to make the biofuel.
Bloomberg
