LONDON/PARIS (Reuters) - EU farmers are ramping up production of sugar beet this year when they will be freed at last to grow as much as they want and sell it globally, after a decade of strict output quotas and export limits.
Farmers have started drilling the first post-quota crop this month in several EU member states, including top EU producer France where planting is expected to increase by 20 percent, in line with an expected rise across the bloc.
Their return to global trade means European producers will compete for business with emerging beet sugar exporters like Russia and Ukraine, as well as refiners that import cane to make white sugar, such as the United Arab Emirates.
But it also means farmers now face the sort of risk they have not seen for years: exposure to prices that can go down as well as up. After rallying to a 4-year high in September, benchmark ICE white sugar futures have slumped more than 17 percent, touching their weakest in over 9 months last week.
“We are bound to see price volatility but that’s something we face in other crops as well. This is part of a farmer’s job these days. It’s up to us to find ways of withstanding it,” said Alexandre Pele, whose family has grown sugar beet on a farm 60km south of Paris for more than a century.
EU farmers say they are now ready to compete globally after the sector was thoroughly restructured, following a 2005 ruling by the World Trade Organization that the EU unfairly subsidized its sugar producers, which led to a sharp cutback of exports.
For the past decade, Brussels took steps to limit the crop with quotas, while guaranteeing a floor price for farmers. The EU went from exporting nearly a third of its sugar crop to becoming a net importer, under a regime now set to be dismantled in October.
For their first season of free trade, farmers have so far been offered contracts with a good rate of return, by cooperatives and other buyers that want to encourage planting to build up a surplus for export.
Pele, who sells through Cristal Union, one of France’s main sugar beet buying cooperatives, plans to increase his planting area by around 10 percent this year.
“We have certain strengths in France after the restructuring of the sugar industry in 2006, so I think we’re ready for the world market,” he said.
French sugar cooperative Tereos, which says it collects more than 40 percent of the French crop, expects to boost output by 25 percent. The group said it signed contracts to buy 19 million tonnes of beet from its members in 2017/18, up from 15 million.
Sowings have also begun for the next season in the EU’s number two grower, Germany, where there could be “double-digit” growth in the planted area, said Guenter Tissen, CEO of industry association WVZ.
Sugar beet sowings are set to climb by one-third in Britain, although this partly represents a rebound after a bumper crop in 2014/2015 forced farmers to scale back planting.
Under their new contract with processing company British Sugar, farmers will receive a minimum price for their beet, as well as a bonus amount if world sugar prices climb.
“We have for the first time a sugar beet contract in the UK that does begin to reflect an element of market return,” said William Martin, who plans to sow 220 acres of sugar beet in his Cambridgeshire farm this year.
However, Britain will remain a net importer in the short-term and output in the long term could depend on trade deals struck with major sugar cane producers like Brazil following last year’s UK vote to leave the European Union.
While sugar yields depend on weather, an initial estimate from Green Pool pegs EU production for 2017/2018 at 18.3 million tonnes in white sugar value, with exports of 3.4 million tonnes.
Platts is forecasting total production for that season at 19.27 million tonnes, with exports estimated at 2.4 million tonnes. By comparison, the European Commission forecasts production at 16.6 million tonnes in the previous 2016/2017 season now coming to a close.
In the 2005/2006 season, before output was curbed, the EU produced 18.9 million tonnes and exported 7.4 million tonnes, International Sugar Organization figures show.
Sugar beet is used to produce 20 percent of the world’s sugar. While sugar cane is usually cheaper as a raw material for refineries, white sugar from beets can be competitive in international trade when total costs are factored in.
The EU’s return to the global stage is likely to intensify competition in its historically traditional export markets in the Middle East and North Africa, increasingly supplied by cane sugar processed in Dubai, Iraq and Saudi Arabia.
Central and South Asia could also offer attractive markets for EU exports, although the bloc could run into competition from other emerging exporters like Ukraine and Russia.
Even with the surge in output, the bloc’s aim to re-emerge as a major exporter could be dampened in the short term by dwindling domestic EU sugar stocks, which are poised to fall by more than 50 percent in the current season.
Worries over domestic supplies deepened this month when the EU approved an additional 700,000 tonnes of out-of-quota sugar for export in the 2016/2017 year.
“I think there is that drive to export and to stake your claim in the export market,” said Erin Burns, senior EU sugar analyst at Platts. “But, until the end of September, the domestic stock situation looks very tight. So what we could see is exports only happening if stocks get to a comfortable level.”
Additional reporting by Sybille de La Hamaide, Valerie Parent and Michael Hogan; Editing by Veronica Brown and Peter Graff