The 2021 sugar beet contract: how the changes impact the UK’s sugar industry
Last week, British Sugar and the NFU Sugar announced they had concluded negotiations for the 2021 sugar beet contract. In this blog, we investigate how the offer compares with last year’s contract before exploring how it might impact the UK’s sugar industry.
What are the terms of the 2021 sugar beet contract?
British Sugar and the NFU have learnt the lessons of their delayed announcement last year, announcing the new sugar beet contract three weeks earlier than they did in 2019. Significantly, the 2021 one-year contract will pay British growers £20.30 per adjusted tonne, marking a 70 pence increase from the 2020 contract of £19.60 per adjusted tonne. Like last year, a three-year contract has also been announced to try and safeguard the long-term future of the UK’s sugar beet industry. The three-year contract will pay £21.18 per adjusted tonne, signalling a 73 pence increase from the 2020 contract of £20.45 per adjusted tonne.
Crucially, the new contract includes additional terms that tackle the most important issues facing growers, stating: “The Virus Yellows crop assurance fund introduced from 2021 will compensate growers for a proportion of yield losses suffered where a grower has Virus Yellows present in their crop”. This three-year, £12 million insurance fund marks the first major advance made to protect the UK’s beet growers from Virus Yellows since the loss of neonicotinoids in 2018.
Virus Yellows is the biggest threat that beet growers face.
Beyond that, though, the two organisations have agreed to pilot an innovative futures-linked variable priced contract, providing growers with the freedom to make their own pricing decisions for a portion of their contract. In its trial run, the futures-linked contract will be available to 100 growers, who will be given the option to allocate up to 10% of their tonnage onto this contract.
How could this affect the UK’s sugar industry?
The 2021 sugar beet contract is a ‘competitive package’, which represents a better deal than its 2020 counterpart. Of course, growers will be happy to see the prices for the one-year and three-year contracts increase, but the price is not the major talking point. In fact, if we look towards historical data, the prices for the one and three-year contracts are still considerably below the value of the 2018 and 2019 contracts.
However, the more valuable changes are evident in the Virus Yellows assurance fund and the futures-linked variable pilot. The loss of neonicotinoids in 2018 was a hammer blow for sugar beet growers, and in a recent blog, we detailed how this could affect the UK sugar industry in the long run. This new measure, therefore, will act as a significant insurance policy if growers’ crops fall victim to Virus Yellows, and its inclusion within the package will give farmers confidence that growing sugar beet is a viable option.
But the measure is not without its limits. A £12 million insurance fund may not be enough to cover the three-year period, and growers should be warned against thinking that insurance alone is a sufficient defence against Virus Yellows. While the fund is a positive development for the industry, more must be done to protect growers in the UK from Virus Yellows – and it is the government’s responsibility to find this solution.
The 2021 sugar beet contract offers growers a wider range of benefits.
The futures-linked variable pilot is another interesting development for growers because, in theory, it will provide growers with more flexibility. However, we must remember that it is only a trial: at this stage, we do not have any means of knowing whether it will benefit growers, or if it will even be introduced.
How does this translate to price?
There is currently a global sugar supply deficit, explained in part by the coronavirus pandemic, and by the deterioration of harvests in major sugar producing nations. The deficit has resulted in increased global sugar prices, which has been reflected in the increased prices of the 2021 sugar beet contract.
With growers being paid more for their produce, we must expect that rise to be reflected in the price of refined sugars. Furthermore, if the UK’s sugar beet output drops because the improved terms were not enough to convince farmers to keep growing beet, then prices will rise further.
If this happens, then the focus will turn towards sugar imports. The UK government has confirmed the Autonomous Tariff Quota of 260,000 tonnes of raw sugar cane from anywhere in the world tariff-free once the UK leaves the transition period – and many businesses might need to use this if there are not enough growers in the UK to meet the public demand.
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