EU sugar sector has shown satisfactory overall resilience

The EU sugar sector "has shown satisfactory overall resilience", according to a long-awaited study commissioned by the European Commission published on 31 January 2022, available online here: The study was undertaken by by Areté s.r.l. and IHS Markit, with a budget of around €450,000 excluding VAT.

Of course, it’s difficult for the Commission to be totally candid in such a document, but the study doesn’t really tell us anything we didn’t already know. For example, did we really need to be told that, "only a balanced supply/demand situation can ensure economic viability at the same time as ensuring adequate sugar supplies"?

Moreover, owing to copyright issues (the LMC International dataset) and to the confidential nature of price data provided by DG AGRI, the published conclusions cannot be reviewed with the benefit of the underlying data which is anonymised in various aggregates and codes. There may be conclusions in the study that one may wish to question, and indeed to some extent we may be able to “reverse engineer” the published data and/or cross-refer the data with other sources such as company reports in order to do so. But for the most part, the reader can only accept – or question – the conclusions at face value.

That said, sugar sector stakeholder associations will be able to question both the Commission and Arete at a meeting of the Arable Crops Civil Dialogue group on 25 February 2022.

Some of the ball-park numbers given as to the costs of production are quite interesting. For example, the study quotes an estimate by LMC International, specifically made for the purposes of the study, which, for calendar 2020, estimates the total production cost of refined cane sugar in Portugal was between 350 and 400 Euros/tonne range, given CIF prices for raw cane sugar of between 280 and 290 Euros/tonne). Meanwhile, the costs of production at the farm and factory levels are also given for sugar beet as follows:

The study promises to identify the main drivers of sugar selling prices in Europe (one finds oneself really excited to turn to this chapter of the study!), but empirically it fails to do so.

The study discusses the risks related to sugar beet cultivation and concludes that the most significant risks related to sugar beet farming are (a) variation of climatic conditions and (b) pests. Of course, various aspects of climate change are also cited as being of major concern, but there are no concrete agronomic or meteorological data to quantify this concern. Nevertheless, it gives a useful check-list of the many challenges and opportunities which the EU sugar sector faces or may face in future.

There is a similar discussion of the market risks faced by sugar processors and refiners, which adds “policy-related factors” to the mix, e.g. macroeconomic conditions (notably the high costs of energy, the causes of which are not mentioned) and exogenous factors such as the Brazilian real exchange rate.

Of these challenges, the authors of the study found that “policy risks” were the most onerous on sugar producers, according to surveys undertaken by the study authors, notably the Voluntary Coupled Support (VCS) policy and other subsidies (including third country subsidies), EU regulations concerning plant protections (e.g., neonicotinoids), the Farm 2 Fork and Green Deal initiatives, nutrition policies, labelling requirements, trade policy and international trade agreements, and national policies. The study also name-checks Brexit and Covid.

The study aims to discuss risk management tools, but again disappoints, and it actually mentions "lobbying" as a possible tool to mitigate these risks. Among the other risk management tools identified in the study include insurance, hedging on the derivative markets, mutual funds (“pooling”), diversification (including varying the sugar/ethanol mix), research and development, and public subsidies, e.g. the Income Stabilization Tool – which isn’t really being used in the sugar sector.

It is not possible to discern in the study the actual value of these risk management tools, nor for that matter the value of the decoupled direct payments received by arable farmers whose single farm payments were augmented by incorporation of the sugar sector into the direct payments scheme in 2006/09. However, the coupled subsidy VCS, introduced in 2013 when the Council decided to abolish sugar quotas in 2017, is described in the study as being “the only measure that proved to be effective in supporting the incomes of sugar beet growers undergoing difficulties”.

Hence I find it rather disappointing that the study has not been more innovative.

Nevertheless, the paper is clearly well worth studying in detail because, as the executive summary says, “[it] will be applied in the context of the development of future policy measures for the EU’s sugar sector” and the outcome will be “to consider any appropriate future policy developments in light of the key findings and conclusions made in the context of this study. Such future policy developments could encompass any relevant regulatory and non-regulatory initiatives related to market and crisis management tools, market transparency in the sugar supply chain, contractual relations between growers and sugar producers, international trade and the evolution of the bio-economy”.

Lobbyists take note!