Sugar has fallen out of favour in some circles - even Sugar Puffs has dropped the word from its name - but lower prices are likely to keep sugar in EU buyers’ good books.
Behind the headlines about the dangers of sugar consumption, there is a small revolution in the offing for the EU sugar industry. Currently, the EU market is price-protected, but with protection ending in a couple of years, EU sugar prices are likely to fall, bringing opportunities for manufacturers.
Last June, the EU announced plans to abolish sugar production quotas by 2017. This was done to help exports into the global market and cut subsidies by up to 40% to the largest sugar farms across France, Germany, Italy and Spain from 2014 to 2020. As trade barriers are removed, EU sugar prices will come more into line with the rest of the world.
Global sugar prices have fallen steadily from the highs seen in 2011 - they are currently 7% down year on year, and down 12% since January 2013. However, prices levelled early in 2014, and have more or less remained so. EU sugar prices have also fallen - by 27% since the start of 2014, and by more than 38% since January 2013. The price premium between EU and world sugar prices has narrowed by 50% since February, from more than €310 to just over €150 per tonne higher than world prices in October.
The fall in EU prices is mainly down to high production levels, which in 2014/15 is forecast to reach 16.3 million tonnes, three million tonnes above the quota for food use. It is expected EU production will remain above quota and consequently the price premium between European and world prices is likely to continue to narrow as the 2017 deadline approaches.
Good ending stocks mean the global market is not expected to be in short supply, encouraging further price falls.