Political lobbying is the most effective instrument currently available to EU sugar stakeholders to manage the risks associated with their businesses, according to the recently published European Commission-sponsored study by Areté/IHS Markit1. It concludes that after the abolition of EU sugar quotas in 2017, the taxpayer-funded Voluntary Coupled Support (VCS, now known as Coupled Income Support, CIS2), is “the only measure that has proved to be effective in supporting the incomes of beet growers undergoing difficulties”3. After discussing the many threats, opportunities, and risk management mitigation strategies available to players in the sugar value chain, the study finds that VCS remains the only effective measure. So much for the value of lobbying, and so disappointing4.
We are left to conclude that the post-2017 EU sugar policy aims towards greater market orientation, but not yet. Until then, the sector must continue to contend with market-distorting subsidies, new policies such as the European Green Deal, which aims to bring about more sustainable agricultural and food systems. The study examines various mitigating strategies and policies – dividing them into three categories: “what works”, “what doesn’t work”, and “wait and see” – established in discussion with stakeholders.
The study finds that the EU’s external trade policy has had “no effect” on the viability of beet growers and processors. Still most sectoral stakeholders perceive prospective free trade agreements (notably with Mercosur) as major threats to the sector’s economic viability in the future5. Hence, perhaps, the importance the EU attaches to establishing “level playing fields” with its trade partners abroad, including the African, Caribbean and Pacific (ACP) and Least Developed Countries (LDC). The French presidency of the EU Council is quite explicit, announcing that its priorities include “the reciprocity of trading standards – in other words, ensuring (e.g., using ‘mirror clauses’, due diligence requirements, anti-deforestation measures and measures to avoid ‘carbon leakage’) that agri-food products imported into Europe [must] abide by the EU’s environmental and health standards, particularly as regards the sustainable use of phytopharmaceutical products and low-carbon agriculture”6.
The Areté study does not directly address the question of whether or not the EU sugar sector is financially sustainable at world market prices given higher input costs such as energy and fertilizers, and the unquantified yet no doubt substantial additional costs of the Green Deal and the subsidiary “Farm To Fork” strategy, recently denounced as a “predictable disaster” in Le Betteravier Français7.
Instead, analysis from LMC International in the study posits that the EU domestic sugar market should tend towards an equilibrium amounting to world market prices plus an EU premium. The EU domestic sugar trade should not be based on fixed prices negotiated annually, but on a differential basis. The negotiating focus is on the value of the EU premium, including amounts for complying with various sustainability criteria. The problem is that markets are not always so logical. Moreover, world market prices are distorted by subsidies available to other globally important sugar producers8. Faced with these problems, how are we to establish an EU sugar market premium, or more pertinently, premiums in each EU Member State or groups of the Member States such as the three groups established for price reporting purposes9?
In France, the “Egalim-2” law seeks an alternative approach whereby retailers would be obliged to pay farmers a fixed share of final consumer prices, including products containing sugar10. In the UK, the National Farmers Union has negotiated sugar beet supply contracts with British Sugar based on ICE #5 futures prices11. These two approaches do not seek some econometrical determination of the EU sugar premium, instead, they are based on data of the value of traded goods, e.g., for ICE futures markets on the obligation to make or take delivery at expiry.
Rather than political lobbying, transparency is the key to EU sugar sector resilience and sustainability: transparency as regards the underlying data, transparent forward prices (e.g., via CFTC reporting12), transparent supply and demand estimates, transparent carbon intensity measurements, and transparent lobbying (n.b. the Transparency Register13). In this way, the allocation of scarce economic resources may be optimized, leading to better business decisions for all stakeholders in every region of the European Union. It is excellent that the European Commission is so alive to the necessity to provide as much market-influential data as it can within the bounds of confidentiality and competition law, notably via the Agri-food Data Portal14. More data could and should be provided in a timelier fashion, including by the UK. Data that support commercially viable, sustainable solutions to ensure predictability of revenues for all players in the EU sugar value chain.
Julian Price, https://www.julianprice.com/, sugar trade analyst
Endnotes
1 https://ec.europa.eu/info/news/eu-sugar-sector-has-shown-satisfactory-overall-resilience-end-quotas-2022-jan-31_en
2 See Articles 32 to 35 of https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2021.435.01.0001.01.ENG
3 See page 174 of the Areté study.
4 https://www.julianprice.com/data/eu-sugar-sector-has-shown-satisfactory-overall-resilience
5 See page 226 of the Areté study.
6 https://www.consilium.europa.eu/en/meetings/agrifish/2022/01/17/
7https://www.lebetteravier.fr/2022/02/08/le-desastre-annonce-de-la-strategie-farm-to-fork/
8 Search for “sugar” at the WTO website: https://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htm
9 https://datawrapper.dwcdn.net/37a9y/8/
10 https://vimeo.com/657866562
11 https://www.nfuonline.com/updates-and-information/futures-linked-sugar-beet-contract-faqs/
12 https://www.cftc.gov/
13 https://ec.europa.eu/info/about-european-commission/service-standards-and-principles/transparency/transparency-register_en
14 https://agridata.ec.europa.eu/extensions/DataPortal/home.html
EU sugar study ought to prompt the establishment of market-based solutions to enhance sector resilience
Political lobbying is the most effective instrument currently available to EU sugar stakeholders to manage the risks associated with their businesses, according to the recently published European Commission-sponsored study by Areté/IHS Markit1. It concludes that after the abolition of EU sugar quotas in 2017, the taxpayer-funded Voluntary Coupled Support (VCS, now known as Coupled Income Support, CIS2), is “the only measure that has proved to be effective in supporting the incomes of beet growers undergoing difficulties”3. After discussing the many threats, opportunities, and risk management mitigation strategies available to players in the sugar value chain, the study finds that VCS remains the only effective measure. So much for the value of lobbying, and so disappointing4.
We are left to conclude that the post-2017 EU sugar policy aims towards greater market orientation, but not yet. Until then, the sector must continue to contend with market-distorting subsidies, new policies such as the European Green Deal, which aims to bring about more sustainable agricultural and food systems. The study examines various mitigating strategies and policies – dividing them into three categories: “what works”, “what doesn’t work”, and “wait and see” – established in discussion with stakeholders.
The study finds that the EU’s external trade policy has had “no effect” on the viability of beet growers and processors. Still most sectoral stakeholders perceive prospective free trade agreements (notably with Mercosur) as major threats to the sector’s economic viability in the future5. Hence, perhaps, the importance the EU attaches to establishing “level playing fields” with its trade partners abroad, including the African, Caribbean and Pacific (ACP) and Least Developed Countries (LDC). The French presidency of the EU Council is quite explicit, announcing that its priorities include “the reciprocity of trading standards – in other words, ensuring (e.g., using ‘mirror clauses’, due diligence requirements, anti-deforestation measures and measures to avoid ‘carbon leakage’) that agri-food products imported into Europe [must] abide by the EU’s environmental and health standards, particularly as regards the sustainable use of phytopharmaceutical products and low-carbon agriculture”6.
The Areté study does not directly address the question of whether or not the EU sugar sector is financially sustainable at world market prices given higher input costs such as energy and fertilizers, and the unquantified yet no doubt substantial additional costs of the Green Deal and the subsidiary “Farm To Fork” strategy, recently denounced as a “predictable disaster” in Le Betteravier Français7.
Instead, analysis from LMC International in the study posits that the EU domestic sugar market should tend towards an equilibrium amounting to world market prices plus an EU premium. The EU domestic sugar trade should not be based on fixed prices negotiated annually, but on a differential basis. The negotiating focus is on the value of the EU premium, including amounts for complying with various sustainability criteria. The problem is that markets are not always so logical. Moreover, world market prices are distorted by subsidies available to other globally important sugar producers8. Faced with these problems, how are we to establish an EU sugar market premium, or more pertinently, premiums in each EU Member State or groups of the Member States such as the three groups established for price reporting purposes9?
In France, the “Egalim-2” law seeks an alternative approach whereby retailers would be obliged to pay farmers a fixed share of final consumer prices, including products containing sugar10. In the UK, the National Farmers Union has negotiated sugar beet supply contracts with British Sugar based on ICE #5 futures prices11. These two approaches do not seek some econometrical determination of the EU sugar premium, instead, they are based on data of the value of traded goods, e.g., for ICE futures markets on the obligation to make or take delivery at expiry.
Rather than political lobbying, transparency is the key to EU sugar sector resilience and sustainability: transparency as regards the underlying data, transparent forward prices (e.g., via CFTC reporting12), transparent supply and demand estimates, transparent carbon intensity measurements, and transparent lobbying (n.b. the Transparency Register13). In this way, the allocation of scarce economic resources may be optimized, leading to better business decisions for all stakeholders in every region of the European Union. It is excellent that the European Commission is so alive to the necessity to provide as much market-influential data as it can within the bounds of confidentiality and competition law, notably via the Agri-food Data Portal14. More data could and should be provided in a timelier fashion, including by the UK. Data that support commercially viable, sustainable solutions to ensure predictability of revenues for all players in the EU sugar value chain.
Julian Price, https://www.julianprice.com/, sugar trade analyst
Endnotes
1 https://ec.europa.eu/info/news/eu-sugar-sector-has-shown-satisfactory-overall-resilience-end-quotas-2022-jan-31_en
2 See Articles 32 to 35 of https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2021.435.01.0001.01.ENG
3 See page 174 of the Areté study.
4 https://www.julianprice.com/data/eu-sugar-sector-has-shown-satisfactory-overall-resilience
5 See page 226 of the Areté study.
6 https://www.consilium.europa.eu/en/meetings/agrifish/2022/01/17/
7https://www.lebetteravier.fr/2022/02/08/le-desastre-annonce-de-la-strategie-farm-to-fork/
8 Search for “sugar” at the WTO website: https://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htm
9 https://datawrapper.dwcdn.net/37a9y/8/
10 https://vimeo.com/657866562
11 https://www.nfuonline.com/updates-and-information/futures-linked-sugar-beet-contract-faqs/
12 https://www.cftc.gov/
13 https://ec.europa.eu/info/about-european-commission/service-standards-and-principles/transparency/transparency-register_en
14 https://agridata.ec.europa.eu/extensions/DataPortal/home.html
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