E D & F MAN Sugar Ltd
Future of sugar in Europe
And the implication for Turkey and the world market
E D & F MAN Sugar Ltd
Future of sugar in Europe
• Pressure to reform EU sugar regime
• Inside and outside pressure - WTO & all that
• Deregulation and the waking of the giant aka Brazil
• Pressure on costs, synergies and search for sustainable agriculture
• The future: short term future vs long term prospects
• Implications for Turkey
E D & F MAN Sugar Ltd
Future of sugar in Europe
EU sugar policy changes
• No initial compulsory quota cut: “carrot not stick” approach• Intervention system abolished
– Replaced with ‘reference price’ & private storage• Restructuring fund: attractive buy-out offer for quota
– Degressive over 4 years (€730-€420/t)– Funded by producer/consumer levy
• Prices to EU producers effectively cut by 39% by 2007/08– Reference price cut & levy application
• Raw sugar prices unchanged until 2007/08• Regime to apply July 2006 – 2014/15• All current import arrangements maintained
– ACP/India/LDCs/West Balkans/CXL– Minimum price to apply for ACP & LDC (transitional period)– Raw sugar imports restricted to ‘traditional refiners’ until 2009
E D & F MAN Sugar Ltd
Base Level
2006/07 2007/08 2008/09 2009/10
Sugar Quota 17.441 18.441
Isoglucose Quota
0.508 0.608 0.708 0.808
White Reference Price (€/t)
631.9 631.9 476.5(-25%)
449.9(-29%)
385.5(-39%)
Restructuring Levy (€/t)
NA 126.4 91 64.5
Price - Net Levy 505.5(-20%)
385.5 (-39%)
385.5 385.5
Beet Price (€/t) 43.6 (avg.) 32.86 (-25%)
25.05 (-43%)
25.05 25.05
Raw Sugar Price(€/t)
496.8(€0.23/lbs)
496.8(€0.23/lbs)
394.9(€0.18/lbs)
372.9 (€0.17/lbs)
319.5 (-36%)(€0.14/lbs)
Restructuring Aid(€/t Quota)
730 730 625 520 420
Future of sugar in Europe
Key Points
•No change to market price 1st
year
•-20% drop to producer price 1st
year
•Beet price compensation
•No change to raw sugar price
1st year
•Restructuring aid encourages
early exits
•Refining margin slim
NB: - All million tonnes white value. - % change on base year - Quota includes French DOMS and Azores - Production quotas beyond 2007/08 onwards subject to quota renunciation & uptake of new isoglucose quota, but includes the additional 1 million tonnes on offer to historic ‘C-sugar’ producing countries
E D & F MAN Sugar Ltd
Future of sugar in Europe
0
100
200
300
400
500
600
700
800
2005/06 2006/07 2007/08 2008/09 2009/10
euro
/mt
Price net of levy Aid to quit
EU Commission
Sugar factories
Restructuring Aid
Decision to stay in business or quit a 4 to 5 year financial consideration
E D & F MAN Sugar Ltd
Restructuring of the EU sugar industry
Future of sugar in Europe
Decision to stay or quit
Total production cost > €350/mtOr corporate structure keen to exit
†
Close down
Total production cost < €350/mt
Stay in business
Conditions for quota sales:a) - Renunciation of the relevant quotab) - Definitive & total stop of production in at least one factoryc) - Closure of the factory/factories concerned & dismantle production facilities d) - Restore good environmental conditions to factory site & redeploy workforce
* Possibility that there may be room for the factories to benefit from securing carbon credit
From 3 to 6 million tonne Cut in quota production
E D & F MAN Sugar Ltd
Meanwhile potential rise in EU raw sugar access under EBA
tariff tariff cut all free
quota 1701 11 10
2001/2002 74,1852002/2003 85,3132003/2004 98,1102004/2005 112,8272005/2006 129,751 2006/2007 20% 149,214 2007/2008 50% 171,596 2008/2009 80% 197,335 2009 On 100% Quota
RemovedFree access under what terms?
Future of sugar in Europe
E D & F MAN Sugar Ltd
Impact of EU changes
• Major EU destinations
• World White sugar market and price
• Support for regional refineries
• Rise of raw sugar demand and further expansion of cane sugar production
• In sum premium regional markets vs competitive global/transcontinental markets
Future of sugar in Europe
E D & F MAN Sugar Ltd
Future of sugar in Europe
Impact of EU changes•Major EU destinations
EU exports
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
M East Europe N Africa CIS W Africa Other
mtw
v 2002/03
2003/04
EU export destination
0
100
200
300
400
500
600
Alge
ria
Egyp
t
Indo
nesi
a
Isra
el
Leba
non
Nor
way
Sri L
anka
Switz
erla
nd
Syria
Tuni
sia
UAE
000m
twv
E D & F MAN Sugar Ltd
Future of sugar in Europe
Whites by quality
0
2000
4000
6000
8000
10000
12000
14000
1989/90 1999/00 2002/03 2005/06
000m
twv
45 EU 100 150 150-400
EU=67%
EU= 52%
EU=10%
Fall in direct white exports
E D & F MAN Sugar Ltd
The white sugar price and the whites premium
Future of sugar in Europe
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
0
50
100
150
200
$/M
t
White premium 1mth cont.
The white premium was under pressure as EU exports were on the rise….
E D & F MAN Sugar Ltd
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
100
150
200
250
300
350
400
450
500
$/M
T
conthigh since 89
low since 89
No.5 spot month. cont.
Future of sugar in Europe
Declining EU whites could push the world market towards the highs with further premiumsFor regional physical values
E D & F MAN Sugar Ltd
Impact of EU changes• Support for regional refineries
Future of sugar in Europe
Country/refinery Opened Estimated annual production capacity [MT]]
Dubai/ Al Khaleej 1995 1,200,000Saudi Arabia/United Sugar 1997 1,000,000Iran/ Khuzestan 2002 175,000Algeria/Cevital 2002 700,000Nigeria/Dangote 2000 875,000Sum 3,950,000Additional capacity plannedBangladesh 2005/06 400,000Cevital 2006 700,000United Sugar 2006 600,000Bangladesh 2005/06 600,000 Indonesia 2005/07 1,800,000Dubai 2005/06 720,000Azerbaijan 2005/06 360,000Yemen 2007 650,000Syria ?Sum of the impending expansion +5,800,000
E D & F MAN Sugar Ltd
Future of sugar in Europe
with the demise of EU exports in sight.
Brazil
EU
Thailand
Guatemala &
Colombia
Brazil
EU
Thailand
Guatemala &
Colombia
India ALS &
Dubai
E D & F MAN Sugar Ltd
Impact of EU changes
• Major EU destinations
• World White sugar market and price
• Support for regional refineries
• Rise of raw sugar demand and further expansion of cane sugar production
• In sum premium regional markets vs competitive global/transcontinental markets
Future of sugar in Europe
E D & F MAN Sugar Ltd
Future of sugar in EuropeInside and outside pressures – WTO and all that
Background and Timetable • ‘Doha Round’ in progress - launched November 2001 to succeed the Uruguay Round • ‘Modalities’ or framework agreed July 2004• Aim to conclude at the Hong Kong Ministerial – December 2005• 2006 ratification for implementation over 5 years from 2008• Negotiations consistently derailed by agriculture and more recently by services agreement
Agricultural Objectives – July 2004 Modality Agreement• Domestic support: To achieve “substantial reductions in trade-distorting domestic support”.• Export competition: Calls for a “reduction of, with a view to phasing out, all forms of export subsidies”. To include; export subsidies, credits and state trading enterprises.• Market Access: “Substantial improvements in market access”. • Technical discussions yet to make substantive progress, suggesting that current objective for Hong Kong completion still far from certain.
Divergence of Aspirations• Political will wavering in developed countries• Differing aspirations & allegiances across developing world• Questions over “one-size fits all” policy for developing countries – particularly those with highly developed agriculture.
E D & F MAN Sugar Ltd
Inside and outside pressure - WTO & all that
• Brazil, Australia, Thai challenge the EU and perhaps door open to other challenges where C sugar ~ subsidised sugar ∴ C sugar is cross subsidised according to the WTO ruling
• Ultimate ambition of the European Commission is to eliminate all export subsidies
Future of sugar in Europe
E D & F MAN Sugar Ltd
Future of sugar in Europe
Deregulation and the waking of the giantExpansion of Brazilian raw and white sugar exports and the future of the sugar industry as part of a sustainable agriculture development-
0
5000
10000
15000
20000
25000
000m
ttq
raw white
E D & F MAN Sugar Ltd
Brazil exports by Quality
0
5000
10000
15000
20000
25000
1989/90 1994/95 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
'00
0 m
ttq
LQ
Refined
Raws
Increase in Brazilian exports of low quality from <500k to 4 million tonnes, refined from <200k to >1200k, Raws from <500k to >14m. In future further focus on rapid raws exports
Future of sugar in Europe
How Brazil can step in European markets
E D & F MAN Sugar Ltd
Future of sugar in Europe
Brazil Cane and Sugar / Ethanol Production
0
100,000
200,000
300,000
400,000
500,000
01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11
'000
mt
of
can
e
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
'000
mt
of
sug
ar o
r cb
m o
f et
han
ol
Total Sugar Total Ethanol Sugar Consumption Total Cane
35 million tonne sugar production23 million tonnes sugar exports5 billion litres alcohol exports by 2010/11
E D & F MAN Sugar Ltd
Pressure on costs, synergies and search for sustainable agriculture
Future of sugar in Europe
Sugar as part of a sustainable agricultural commodity is fast becoming part of a complex
Comprising sugar, ethanol, co-generation, carbon credits
The oil impact
Higher correlation between oil and sugar prices in the last year.
Correlation coefficient = 0.86
Oil and Sugar Prices
0
10
20
30
40
50
60
70
80
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
US
D /
Brr
an
d C
en
ts /
lb
IPE Brent Crude Price NYBOT No11 Raw Sugar Price
Correlation table1985 - 2005 -0.182001 - 2005 +0.502004 - 2005 +0.86
Oil and Sugar Prices over the last year
8
8.5
9
9.5
10
10.5
11
35
40
45
50
55
60
65
70
75
No11 Raw Sugar Prices
IPE Oil Price
E D & F MAN Sugar Ltd
The future: Short term v long term prospects• Interactive market place• Short term significant EU exports leading up to the reform• EU exports in 05/06 peak 6.7 million mt• From 07/08 exports will fall significantly to 1.374m – min €514 budget
limits• Ultimately EU pledge to eliminate all export subsidies • Many of EU’s traditional markets turning to raws → rise of regional
refineries and/or regional suppliers [Turkey]• Some of the European markets and EU’s traditional destinations
turning to low quality whites and/or stepping up domestic production
Future of sugar in Europe
E D & F MAN Sugar Ltd
Handymax orderbook
0
2
4
6
8
10
12
2001-102002-04 2002-102003-04 2003-102004-04 2004-102005-04
dem
oli
tio
n/d
eliv
erie
s
0
50
100
150
200
250
300
ord
erb
oo
k
Handymax Bulkcarrier Demolition
Handymax Bulkcarrier Deliveries
Handymax Bulkcarrier Orderbook40-60K
Future of sugar in Europe
Freight has become a far more important consideration in international commodity tradeFurther supporting regional trade flows…
E D & F MAN Sugar Ltd
Future of sugar in Europe
Implications for Turkey•Filling markets left post fall in EU exports and stepping up Turkey’s traditional export destinations- Turkey needs to renegotiate its WTO accession limits……….
Turkey- export destinations
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1993 1995 1997 1999 2001 2003
tonn
es
EU
U Arab Emirates
Cyprus
Egypt
Afghanistan
Iran
Azerbaijan
Syria
Georgia
Iraq
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