International Agriculture News

EU sugar companies struggle to survive as prices plunge post-quotas

European Union sugar companies have emerged from the cocoon of production quotas and are now fighting to survive in a fiercely competitive world market with prices and profits plunging.

The EU’s largest sugar producer, Südzucker, has said it expects to report an operating loss of 100 million to 200 million euros in its sugar segment in 2018/19 while its rivals are also struggling.

“At the current price level, there is hardly a sugar company in Europe which can still produce at a break-even,” a spokesman for the EU’s number two producer Nordzucker said.

The EU abolished limits on sugar beet production at the end of September 2017, dramatically boosting output and paving the way for the EU to become a net exporter for the first time in more than a decade.

The rise in EU production has come at a time when appetite for sugar is declining in the increasingly health-conscious trading bloc, throwing supplies onto a world market already awash with the sweetener.

“Everyone can produce as much as they want and initially everyone only looked at the cost side of the equation and tried to reduce production costs by processing more beet and producing more sugar,” F.O. Licht analyst Stefan Uhlenbrock said.

“But this leaves out of consideration that prices must collapse if all key players do the same and raise output massively – and this is the situation right now. Over time this will result in a survival only of the fittest.”

Associated British Foods, parent of British Sugar, has been shielded to some extent by diversification. The company’s other businesses include the fashion chain Primark.

“Around 16% of ABF’s profits came from sugar so clearly it’s not the driving force,” said George Salmon, analyst at Hargreaves Lansdown.

“For sugar, they’ve been very clear, saying that removal of quotas causing a weaker sugar price is going to have an impact.”