1

EU Sugar Reform and Outlook

3rd Africa Sugar Conference

Nairobi, 15th April 2013

2

Latest Update on EU Commission Sugar

Reform and Outlook after 2015

• EU Sugar Market Overview

– Some statistics

• Supply and demand statistics

• Imports from third countries

• The commercial landscape

• EU sugar prices

• EU Commission CAP Reform Process

• Post 2015 market outlook

• Some tentative conclusions for African sugar

stakeholders

3

Sugar beet areas in the EU-27

4

EU sugar beet yields

5

Total EU sugar production

6

The EU sugar quota system

EU sugar production and

preferential imports

Quota Food Use

Out-Of-Quota

(“OOQ”)

Chemical

Ethanol

Carry-Forward

Exports

7

Production and preferential imports within the

quota (thousands of tonnes; 2012/13)

8

Disposal of in-quota sugar in 2012/13 (kt)

9

Production of out-of-quota (OOQ) sugar

10

Disposal of OOQ sugar in 2012/13

11

EU sugar producers and refiners

12

EU sugar producers and refiners

0

1,000

2,000

3,000

4,000

5,000

6,000

Kt

w.s

.e.

Sugar quota 2011/12 OOQ production 2011/12 Refining 2011/12

13

A growing surplus of sugar in the EU

143rd Africa Sugar Conference 13th April 2013

EU surplus / deficit areas 2011/12 by 0.25º square

15

EU domestic white sugar prices

16

Traders (members of ASSUC)

17

Export destinations for EU sugar

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Import origins

19

Origins of imports into the EU

20

African sugar exports to the EU

21

African quality exports to the EU

22

EU markets for African EPA-EBA sugar

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Commission proposals

12th October 2011

• The European Commission proposes for sugar as from 1st October 2015:– New Common Organization of the Markets (COM) regulation.

– EU production quotas abolished.

– EU sugar reference prices remain unchanged.

– Minimum beet price abolished.

– Direct payments to sugar farmers continues (€1.5bn/annum).

– Raw sugar supply needs for refiners abolished.

– Compulsory withdrawal abolished.

– Private storage mechanism maintained.

• Also:– MFN import tariffs – no proposal.

– FTA negotiations – will (presumably) continue.

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CIBE Beet growers.

CEFS Beet processors.

AAF Isoglucose producers (starch

industry).

EFFAT Trades unions.

ASSUC Sugar traders.

ESRA Sugar refiners.

CIUS Industrial sugar users.

ACP African, Caribbean and Pacific

Group.

EU sugar associations

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European Parliament mandate

13th March 2013

• Amendments to proposed new COM regulation:

– Cut and paste old COM sugar legislation into new regulation.

– Maintain quotas until 1st October 2020.

– New (“Dantin”) mechanism for exceptional imports and

exceptional release of OOQ sugar.

– Reinstatement of renounced quotas (to Ireland, Portugal).

– Maintenance of existing rules for Full-Time Refiners.

– Maintenance of existing direct payments to farmers including

€1.5bn per annum (hypothecated) for beet farmers.

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Council mandate

19th March 2013

• Irish Presidency compromise and mandate:

• Commission proposal for new COM regulation largely

accepted:

– I.e. No legislation on sugar quotas, refining needs, etc.

– No reinstatement of renounced quotas.

– Council to decide reference prices “when necessary”.

• However, old COM regulation to be extended for sugar

until 30th September 2017.

– I.e. Sugar quotas, refining needs and all associated

paraphernalia extended until 30th September 2017.

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“Co-decision” or “Trilogue” (Ordinary

Legislative Procedure)

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EU free trade agreements

Where are we? (25th March 2013)

• Forthcoming negotiations– Japan

– United States of America

– ASEAN

– Southern Mediterranean

• On-going negotiations– Canada

– India

– Malaysia and Vietnam (ASEAN)

– Mercosur

– Eastern neighbourhood

– Gulf Cooperation Council

– African, Caribbean and Pacific countries

• Completed negotiations, yet to enter force– Singapore

– Colombia

– Central America

– Ukraine

– African, Caribbean and Pacific countries

• FTAs already in force– Peru (1st March 2013)

– South Korea (1st July 2011)

– Mexico (October 2000)

– South Africa (2000)

– Chile (November 2002)

– ACP – Cariforum, ESA and Southern Africa

Source: http://europa.eu/rapid/press-release_MEMO-13-282_en.htm

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EU free trade agreements and WTO

Sugar quotas already agreed

Other sugar quotas 2013/14 Quantity (kt) Notes

CXL Australia 9.9 Raws only; licences allocated by "tender".

CXL Brazil 334.1 Raws only; licences allocated by "tender".

CXL Cuba 69.0 Raws only; licences allocated by "tender".

CXL "Erga Omnes" 254.0 Raws only; licences allocated by "tender".

CXL India 10.0 Whites or raws; licences allocated by "tender".

Central America 150.0 Increases by 3% per annum. Whites or raws. Imports likely to be "boat race".

Colombia 62.0 Increases by 3% per annum. Whites or raws. Imports likely to be "boat race".

Peru 22.0 Increases by 3% per annum. Whites or raws. Imports likely to be "boat race".

Total (so far) 910.9

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Other issues

• Rules of origin

– Direct transport rule (e.g. co-mingling of different ACP origins of

bulk raw sugar at loading or on board a vessel)

– Cumulation of origin (e.g. adding value to ACP sugar exports)

• Licence regulations

– Polarization cut-off at 99.5 ºZ

– Electronic documents

– Tolerances on import licences

– Documentary requirements (e.g. export licences)

– Uniform customs treatment

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Possible outcomes?

• The big issue for sugar – the only issue – is the end date for EU sugar quotas.

• No harm in continuing to lobby until the last moment.

• Sugar may be left until the end of the CAP reform triologue negotiations (20th June 2013).

• Simple average of 1st Oct 2015, 1st Oct 2017 and 1st Oct 2020 is 30th January 2018. Hence a compromise end date for quotas could be 1st October 2018 ???

• If no decision under the Irish presidency, the negotiations will likely continue after the summer under Lithuanian presidency.

• Declarations may be annexed to any decision, e.g. instructing the Commission to make certain proposals should the EU sugar market collapse after quotas abolished.

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Commercial developments in the EU

Investment in supply chains / logistics, intermodal freight, etc.

Investment in factory efficiency, e.g. beet juice, longer campaigns, etc.

Investment in standalone and off-crop cane refining capacity.

Transferable production quotas (“travail à façon”).

Investment in farm efficiency, e.g. winter beet, GMO, etc.

Procurement of sugar from a diversity of suppliers: beet, cane, processors, refiners, traders, etc.

High beet prices; Low

cereals prices; Low EU-#11

gap.

High beet prices; Low

cereals prices; High EU-#11

gap.

Low beet prices; Low

cereals prices; Low EU-#11

gap.

Low beet prices; Low

cereals prices; High EU-#11

gap.

High beet prices; High

cereals prices; Low EU-#11

gap.

High beet prices; High

cereals prices; High EU-#11

gap.

Low beet prices; High

cereals prices; Low EU-#11

gap.

Low beet prices; High

cereals prices; High EU-#11

gap.

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United States vs. European markets

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Implications for African sugar

• Volatility

• Arbitrage opportunities

• Competitivity

• Flexibility

• Diversification

• Routes to market

• Imports into southern Europe (exports from the North)

• Quality and food safety considerations

• Financial risk management

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Disclaimer

• The opinions, views and forecasts expressed herein reflect the personal views of the author and do not necessarily reflect the views of ED&F Man nor ASSUC nor the member companies of ASSUC (“we”, “our”).

• Any comments or opinions in this report are not intended to be an offer to buy or sell commodities or futures and options thereon as they merely state our views and carry no guarantee as to their accuracy.

• We make no representation or warranty that the information contained herein is accurate, complete, fair or correct.

• All information, prices or projections are subject to change without notice.

• This information is not intended to be construed as investment advice.

• We do not accept any liability or loss or damage arising from any inaccuracy or omission in or the use of or reliance on the information in this document.

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Thank you!

Julian Price

E. D. & F. Man Sugar Ltd.,

Cotton’s Centre, Hay’s Lane,

London.

SE1 2QE

Email: julian.price@edfman.com

Landline: +44 (0) 20 7089 8424

Mobile: +44 (0) 7768 908347

ASSUC aisblEuropean Association of Sugar Traders

Rue de Trêves 49-51, Box 14B - 1040 BrusselsTel +32(0) 27 366 873

http://www.assuc.eu/

@sugartraders