EU subsidies for inefficient beet producers responsible for exportable surplus

Published: 04/13/2018, 3:59:35 PM

The European Union's voluntary coupled support system under the Common Agriculture Policy has in large part created the exportable surplus the European trade bloc must now export to keep its market balanced during its first year of post-quota production, reports Sugaronline.

The European Commission has estimated around 3 million metric tonnes of exports during 2017/18 following the end of the 40-year quota-based sugar production policy while the strengthening Euro against the US dollar exchange rate has seen European sugar prices fall by US$300/tonne.

According to estimates from ASR Group, roughly one third of European beet area, 469,000 hectares across 10 countries benefit from the CAP's voluntary coupled support system providing additional cash to farmers just for growing beet. That area is similar to the beet area of France at around 495,000 hectares.

"These countries are not as efficient at growing sugarbeet as the French, which is why their governments choose to help them. But it also means that because of this support they are producing their own sugar when really they should be buying it from France," Duncan Tate, Vice President for Trading at the ASR Group, told the 8th African Sugar conference in Nairobi, Kenya this week. "Perhaps this goes some way to explain the apparent overproduction in the EU?"

In times of low global sugar prices such as the 2.5-year lows seen in recent weeks, European trade flows will likely push the lower-cost sugar such as French supplies onto the global market but there has also been substantial volumes of subsidised Polish sugar exported as well.

Historical chart data demonstrates that when the EU had been a significant exporter in the past, those trade flows pressured the whites premium refiners like those located in the Middle East receive for refining raw sugar. Refiners operating in more regulated markets like the EU and US are less exposed.

With the EU back on the market in force and expanding further into predominantly African markets despite 2.5-year lows on the global sugar market, the refining margin is expected to remain under pressure as long as European exports continue, Tate said.