Mercosur deal costs 7 sugar factories

Thanks to a tariff reduction to 1,5 million tons of sugar, the European sugar industry is once again hit in an already difficult period. This volume corresponds to the production of 7 European sugar factories, says the French sugar organization AIBS.

All European sugar-producing countries are struggling and are in crisis. It also hit the French sector hard, resulting in several factory closures, says L'Association Interprofessionnelle de la Betterave et du Sucre (AIBS). The Mercosur deal between the European Union and the South American countries is therefore an extra big blow.

Huge amount of sugar
Within Mercosur, the EU abolishes the import tariff for Brazilian sugar. This concerns 180.000 tons per year, for a period of 5 years. In total, therefore, 900.000 tons that can be freely exported to Europe. In addition, Paraguay is allowed to import 10.000 tons. This is organic cane sugar. In addition to sugar for consumption, 450.000 tons can be freely imported annually for the production of ethanol, plus another 200.000 tons at a reduced import tariff. If you add it all up, you arrive at 1,5 million tons, AIBS says. Good for the production of 7 European sugar factories.

Another thorn in the side of the organization is the cultivation of this South American cane sugar. The cultivation requirements are not comparable with the EU. Three quarters of all crop protection products used are not allowed here. Brazil has recently allowed the production of GMO sugar cane and pre-harvest spraying with glyphosate is also allowed.

Südzucker fears loss
The Germans also fear a sweet tidal wave of sugar coming from South America. "When such volumes reach the European market, it disrupts the German sugar industry", says Südzucker spokesman Dominik Risser. For the 2019-2020 financial year, it expects to lose between €200 and €300 million in the sugar segment. Südzucker closes 5 factories in Poland, France and Germany. Good for a production of 700.000 tons of sugar.

The International Sugar Organization (ISO) expects world production for the 2018-2019 season to be 1,8 million tons above consumption. This increases the world stock. This is despite the fact that world production is declining compared to the previous season. For example, the EU produces more than 3 million tons less sugar. Consumption is also declining. Analysts no longer expect a consumption increase of 2%, but an increase between 1,5% and 1,9%. Due to a relatively high maize price, more Brazilian sugar is processed into ethanol, as a substitute for maize.

Higher EU stock
EU data shows that the average sales price rose slightly in April, to €319 per tonne. The spot price in June was €470 per tonne. A year earlier, that was €320 per tonne. The Union's sugar balance shows that until May, slightly more sugar was imported than exported. As a result, the stock increases by 880.000 tons, to 1,35 million tons. With a production of 18,22 million tons this harvest year, and a consumption of 18 million tons and export of 3,3 million tons, the balance comes to 1,56 million tons.

Niels van der Boom

Niels van der Boom is a senior market specialist for arable crops at DCA Market Intelligence. He mainly makes analyses and market updates about the potato market. In columns he shares his sharp view on the arable sector and technology.

n.vanderboom@boerenbusiness. Nl

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