Cheaper sugar ingredients on the way?

- Last updated on GMT

Related tags: Sugar, European union

Long-awaited changes to Europe's heavily subsidised sugar regime
are on the way after the European Commission tabled a new set of
rules that could lead to cheaper sugar ingredients, writes
Lindsey Partos.

Under fierce criticism for distorting sugar prices - currently trading at three times the world price in Europe - the plan from Brussels has been welcomed by food makers who see the changes as leading to a much more liberal sugar trading structure.

"This is a very, very good start,​ David Zimmer, secretary general at the European chocolate, biscuit and confectionery industries association CAOBISCO told FoodNavigator.com​.

CAOBISCO represents an industry that uses some three million tonnes of sugar per year, and 70 per cent of the EU sugar supplies, in a business worth over €40 billion.

Asked if the proposal would mean cheaper sugar ingredients for manufacturers, Zimmer said he "hoped it would lead to competition in the market"​.

Sugar users would no longer be obliged to buy from within national borders and between EU members - as is currently the case - allowing them to source from competitive markets and ultimately buy cheaper sugar.

In extreme cases, companies using sugar have only one source for their sweet ingredient. In the UK, for example, British Sugar is the key supplier of sugar from beet and Tate & Lyle the equivalent for cane sugar. UK food manufacturers buy the majority of their sugar - 70 per cent - from these two companies. A situation that, critics claim, leaves them vulnerable to pricing from the two sugar giants.

"Competition in the market must be the underpinning principle for reform of the EU sugar market,"​ commented Alain Beaumont, secretary general of the European Sugar Users group CIUS, which has a combined annual turnover of €70 million.

The EU member states would have to approve proposals, but the plan from Agriculture Commissioner Franz Fischler tabled yesterday to the Parliament is for a one-third cut in the institutional sugar price rolled over three years and starting from the 2005-6 campaign.

"CAOBISCO considers that the proposed cut is the minimum acceptable reduction and should not be compromised in the negotiations within member states,"​ said the sugar body.

The plan will also see a gradual reduction of overall volumes by 2.8 million tonnes from the current 17.4 million tonnes over the next four years.

In line with recent CAP reform, Fischler yesterday proposed a decoupled payment for sugar beet farmers to partially compensate (60 per cent) for income losses.

The proposals will now be debated in Parliament before being passed to the Council of Ministers, which might adopt any changes to the proposals. Food makers hope the member states will stick with the proposed Commission rules and avoid making any changes to the proposal.

"As one of the major stakeholders in the reform, we have been encouraged by the willingness of the Commission to consult widely on this dossier,"​ said Zimmer. "We expect this level of consultation to continue in the next stages of the process to ensure that the proposal is strengthened and not subject to any dilution, which would only prolong the absence of competition in the industry,"​ he added.

A Commission spokesperson told FoodNavigator.com that the final decision could be taken within 12 months, although the move is off to a slow start as the next Council meeting is not until 18-19 October. And even then, the Dutch presidency will decide if sugar proposals are on the agenda.

Danish ingredients and sugar giant Danisco and UK company Associated British Foods, which owns British Sugar, stand to be hit by the reform as their stocks have the biggest profit exposure to EU sugar: Danisco with 46 per cent and ABF with 34 per cent.

UK sugar and sweeteners supplier Tate & Lyle is also vulnerable, although less exposed because it produces its sugar from imported cane at a lower cost; currently Danisco and ABF use EU grown sugar beet, according to investment bank Goldman Sachs, which predicts sugar profits for Danisco could drop by as much as 40 per cent.

But change o the sugar regime was inevitable and the firms have already made moves to soften the blow on the bottom line. Danisco, which commented to FoodNavigator.com yesterday that the proposal is "quite similar to previous reports in the media about the reform"​ - in line with expectations - is driving further into its ingredients business. In the past few months, the company has acquired food ingredients firm Rhodia as well as a semi-refined carrageenan facility in Scotland and a 80/20 joint venture in China for xanthan gum.

Although welcomed by the food industry, the international development agency Oxfam, which has heavily criticised the EU sugar regime for stunting the sugar market in developing countries, slammed the proposal.

"Today's proposal shows that the EU has shut its ears to the needs of developing countries and placed the interests of big farmers and processing companies ahead of everything else,"​ said Jo Leadbeater, head of Oxfam International's Brussels office.

Related topics: Commodities, Cocoa & Sugar

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