Food manufacturers should act now to avoid “unpleasant surprises” when EU sugar quotas are lifted next year, Rabobank has warned.
Although EU sugar production is expected to surge when quotas are abolished in October 2017, the regime change will not necessarily mean lower prices on the Continent, a new report concluded this week.
Currently around 80% to 85% of the sugar processed in the EU for use in food comes from EU sugar beets, and that percentage set to increase when quotas are abolished due to greater domestic production and declining imports.
But the removal of export restrictions could result in more EU sugar finding its way abroad, which would hit domestic availability, Rabobank warned.
The EU market will also become much more vulnerable to fluctuations on the world sugar market, and buyers should begin implementing strategies to avoid future price hikes now, it urged.
This could include hedging longer-term contracts to fix future volumes at an acceptable price level, and looking into alternative sweeteners such as isoglucose to replace sugar as a raw material in products.
“The general assumption that abolishing the EU sugar quota as of October 2017 will only have positive effects for sugar buyers is too good to be true.” said Ruud Schers, analyst at Rabobank.
“Sugar buyers should brace themselves for the possibility that high world prices for sugar may trigger regional supply tightness in the bloc, which could push their sugar prices up considerably. The good news is that sugar buyers do not have to wait until October 2017 to start taking preventative measures against this risk.”
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