Francisco Redruello, senior food analyst for Euromonitor, said in a recent blog post that EU sugar consumption was estimated by the industry at 16-16.5 million tonnes in 2012 - a figure “significantly higher than the quota”.
The EU currently has a 13m ton cap on sugar production that looks set to run until 2020, unless a deal is struck to end the system earlier. See HERE.
“This imbalance explains why EU27 sugar market prices continued to grow in 2012, despite falling international prices,” said Redruello.
Euromonitor International’s Economic Observer found that international sugar prices declined 19% in 2012, while EU prices rose 11%.
Deficit will not rise
However, Euromonitor does not expect the EU’s 3m metric ton deficit to grow in the short-term.
Redruello told ConfectioneryNews.com: “This is because consumption of sugar in Western Europe is barely growing due to maturing consumer demand and health/obesity concerns regarding sugar-based food products,” said Redruello.
Nonetheless prices will still remain high and “the consensus among analysts – and the view held by the EU Commission - is that the abolition of the quota by end of 2014/15 marketing year would put downward pressure on EU sugar prices."
“This would be positive for sugar confectionery manufacturers as they can use part of the savings in stepping up investment on innovation.“
High import duties
EU Confectioners could look to import from overseas, but even this has its drawbacks.
“Sugar imports into the EU are discouraged through heavy import duties, a situation frequently denounced by global confectionery manufacturers,” said Redruello.
Confectioners are able to buy sugar from outside the EU, but will incur an import tariff of around €400 ($533) per metric ton on top of the market price and transportation cost.
Over the years, The European Commission has used special measures to allow more sugar onto the EU market.
Last December, it said it would release 1.2m metric tons of additional sugar onto the EU market.
Robert Guichard, sweeteners procurement manager for Mondelez and president of European Sugar (CIUS) previously told this site said that the Commission would need exceptional measures every year, as it has done for the past three, to prevent shortages.
“How can it be exceptional if it’s happening every year,” he said.
Global sugar prices
Global sugar prices did rise 4% between 19 Feburary and 14 March, but favorable weather conditions in Brazil, the principal sugar grower, may lead to a bumper crop driving international sugar prices down further.
Redruello said the temporary rise in international prices was sparked by slow transit at Brazilian ports and news of a possible tax break on sugar cane-based ethanol production in Brazil sparking fears that refined sugar would be diverted to biofuel.
“Sugar buyers could achieve hedge against risk in May by going long (buying) on call options (right to buy) at US$0.17-0.18 per pound support levels (lowest price expected after latest retracement),” he said.