The EPA and EBA allow duty and quota free trade between the EU and many LDCs. Analysing the 2018/19 sugar import figures throws up some fascinating trends and insights into the global market.
What are the EPA and EBA and how do they affect the sugar market?
The Economic Partnership Agreement (EPA) and Everything But Arms (EBA) scheme were created by the European Union (EU) to promote trade with less developed countries (LDCs). To do this, it was agreed that all imports to the EU from these countries (except arms) would be duty and quota free.
As sugar cane grows in many of the hot, tropical countries that benefit from the initiatives, they have direct bearing on the global sugar market. The following link provides a full breakdown of the EPA agreement and the countries involved.
Brexit may have started, but a deal struck by Theresa May’s government in 2017 means the UK government will still uphold the terms of the EPA/EBA. More on both this and how Brexit could affect the sugar market can be found here.
In theory, the scrapping of the quota system under EPA/EBA should provide growers in LDCs with greater opportunity to adjust their production methods, explore new markets and drive commercial benefits. And as trade is a two-way process, the agreement should also provide importers with more choice.
EPA/EBA sugar will always be in demand because sugar cane is used to produce specialist sugar products, such as demerara sugar, that cannot be produced with sugar beet.
What are the main findings from the 2018/19 import data?
The key measure used to compare imports is the amount of EU sugar import licenses issued for EPA/EBA sugar in 2018/19. By using this methodology we can also compare the findings with the two other seasons since the quota system was removed.
In 2016/17, the EU’s cumulative import licenses was 1,317,000 tonnes. In 2017/18 this number fell sharply to 556,270 before bouncing back to 1,100,721 tonnes in 2018/19. In short, this means that since the removal of production quota system in 2017, import licenses to the EU rocketed, halved and then recovered.
With a total of 303,279 tonnes, Swaziland was the EU’s top supplier for 2018/119. This is the first time this has happened, seeing the kingdom overtake traditional leading supplier Mauritius (213,089 tonnes), Belize (181,884 tonnes), and Mozambique (121,332 tonnes).
Guyana and Jamaica, traditionally both big players in the cane export market, experienced particularly poor export campaigns in 2018/19. Before the EPA/EBA, Guyana was a consistent supplier of between 175,000 and 200,000 tonnes of raw sugar to the EU, but in 2018/19 only 49,733 tonnes of import licenses were issued. Similarly, Jamaica used to export between 125,000 and 145,000 tonnes of raw sugar to the EU before EPA/EBA, but only managed 6,600 tonnes in 2018/19 – a reduction of well over two thirds from 2017/18 (21,025 tonnes).
What does the 2018/19 import data tell us about demand for sugar?
The recovery of imports from EPA/EBA countries obviously demonstrates increased demand. What, however, has caused this?
Sugar cane will, of course, always be needed. Using refined cane sugar allows expert manufacturers like us to produce specialist sugars and syrups that aren’t possible from sugar beet. There will also always be demand for EPA/EBA sugar because it is extremely difficult to produce organic sugar from sugar beets.
However, the increase of EPA/EBA imports in 2018/19 can also be explained by the strong drop in EU sugar production in this period. With just enough beet sugar produced to make the EU self-sufficient in 2018/19, demand for EPA/EBA sugar has increased as European nations have turned to LDCs for additional imports.
Given the difficult harvest conditions experienced throughout Europe this season, we can predict there will be similar demand for EPA/EBA sugar next year. This gives countries like Swaziland and Mauritius opportunity to advance on their increases from 2018/19.
What does the import data tell us about the wider market?
The main takeaway from the last three years of import data is that the EPA and EBA initiatives have not increased sugar trade to the extent they hope to, with the struggles of Jamaica and Guyana notable examples of this shortfall. The main driver behind this has been price.
In the past it was often cheaper to import sugar from EPA/EBA countries than from other European member states, or from other cane sugar producing Developing Countries (DCs) such as Brazil or India. But as a result of the global surplus, sugar prices have been consistently low, and this has coincided with the removal of the quota system (although global prices have now started to increase in the opening months of 2020).
Prices are now so low that it is no longer cheaper to import from EBA/EPA countries. Therefore, imports in 2018/19 were considerably lower than in 2016/17 because some European countries chose to import cane from countries not under the two agreements. Second, we can assume that some growers in LDCs are stopping growing sugar cane and starting to grow other more profitable crops. The knock-on effect of this is a reduction in the number of sugar cane growing nations to import from.
The EPA/EBA initiatives were created to promote free trade between the EU and LDCs. Although they set out an environment in which this could thrive, it didn’t mean it would automatically happen.
As ever, we must be cautious when analysing market data because there is no definitive answer. Hopefully, the evidence from the 2018/19 import data, coupled with Ragus’ biannual sugar market report, has connected the dots and indicated what direction the market might be moving in.
Ragus researches and audits sugar producers all over the world to help produce its range of sugar products. This involves sourcing beet sugars from Europe and cane sugars from EPA/EBA countries. Visit our product finder to discover our range of pure sugars and syrups.