EU sugar suppliers scramble for markets as profits squeezed

(Reuters) – EU sugar suppliers are scrambling for new markets as they adjust to an expected abolition of quotas, helping to drive down further already depressed prices and squeeze profits.

Suppliers are adapting to the bloc’s decision to scrap production quotas for the sweetener from 2017, and are seeking fresh buyers at a time of plentiful global supplies.

“The different players have started to position themselves for post-2017,” said Stefan Uhlenbrock, a senior soft commodities analyst with F.O. Licht.

“Some of them, like (France’s) Tereos, have started to test markets in other EU beet sugar producers.”

The abolition of quotas will increase the availability of sugar produced in the EU, possibly converting the bloc from a net importer to a net exporter, analysts said.

Competition has increased as European producers look for new market opportunities ahead of the dismantling of quotas.

German sugar refiner Suedzucker on Thursday slashed its outlook for the year, citing lower than expected sales prices for sugar produced this year and a further deterioration of its business.

Low sugar prices and production volumes from this year’s sugar beet harvest will continue to weigh on profits at its sugar business next year, it said.

Associated British Foods, owner of the UK’s leading supplier British Sugar, have also reported that talks with customers in Europe have been challenging, and warned that the upheavals in the sugar market would see profits from the sweetener drop for a second straight year.

The EU introduced its system of national production quotas and minimum beet prices in 1968, to guarantee domestic supplies and provide a minimum income to Europe’s sugar beet farmers.

European sugar producers are now suffering as the planned ending of EU quotas in 2017 puts pressure re on prices, already down due to expectations of a fourth year of global oversupply.

SHIFT TO NET EXPORTER?

The increased availability of EU sugar in the bloc boosts the likelihood that the EU will shift to become a net exporter if world sugar prices are firm and EU efficiency improves.

“In the last five years, the competitive balance in beet sugar has improved considerably versus world market sugar,” said Martin Todd, managing director of consultancy LMC International.

However, short and medium term price volatility poses a major challenge for beet processors/refiners because they have high fixed costs.

“I would expect that the end of production quotas will free up European sugar producers to produce as much sugar as they want, but they will have to compete with Brazilian and Thai sugar for new markets,” said Edward George, head of soft commodities research, at Ecobank.

“If the European producers can outperform their rivals in terms of efficiency and yields, then definitely we could see the EU becoming a net sugar exporter.”

Some EU sugar companies may also have global ambitions with Licht analyst Uhlenbrock saying cash-strapped mills in top producer Brazil could be targeted.