3 sugar market trends for 2020
At the advent of a new year and decade, we look at the factors set to shape the sugar market in 2020.
The UK is set to leave the European Union (EU) on 31 January 2020. This motion is in place after a Commons majority of 124 backed Johnson’s EU Bill on 20 December 2019.
This means that the transition period will take place between the 31st January 2020 and 31st December 2020. The UK will still follow all remaining EU rules and regulations for the remaining 11 months of this year, but it is free to start negotiations for various deals from 31st January onwards. Recent revisions to the WAB mean that the transition period can no longer extend past this point.
This provides some clarity, but we still won’t know the full impact on the sugar industry until post-EU deals are struck. To pave the way for these free trade agreements, all the UK, including Northern Ireland, will leave the customs union. As a result, there will no longer be a customs ‘backstop’.
In addition, all ‘level playing field’ commitments have been removed. The EU wanted these in place to prevent the UK from gaining an unfair advantage by lowering standards and using the backstop’s proposed Single Customs Union to gain tariff free trade. They have been replaced by less specific and non-binding commitments yet to be outlined in detail.
The global sugar market will be affected by a number of key factors in 2020.
The sugar tax
In July 2019, Johnson announced a wide-ranging review of what he called “sin stealth taxes”. This came days before Health Secretary, Matt Hancock, was due to publish a green paper recommending the extension of the UK’s sugar tax to milkshakes. Despite this, Johnson doubled down on his promise, citing Brexit as a chance for the UK to start “basing tax policy on clear evidence.”
With the UK now certain to leave the EU, will Johnson stick to his vow? The complications involved in achieving a complete Brexit by the end of this year may prevent the review from taking place. Johnson, however, seemed adamant last July that so-called sin taxes might not “actually change behaviour.”
Therefore, it remains to be seen what role the sugar tax will play in 2020. We have already outlined the potential issues with a blanket removal or reduction of sugar in products in a previous blog. Any changes to the legislation in place could have a big impact on the UK’s sugar industry.
Will the global sugar market recover from record low prices?
In 2019, the global production surplus caused prices to drop below 10 c/lb for the first time in ten years. Since the start of 2020, the price has been 13 c/lb. While some commentators have suggested that this is now a ‘sensible’ international market, price needs to be 16c/lb for producers to turn a profit, which further stresses the severity of the global surplus.
Despite this, the surplus shows no sign of being addressed. Last October, India used overproduction to propel itself to become the world’s biggest sugar producing nation, and recent reports from the cane harvest suggest that Indian sugar production is going to increase again in 2020.
The impact of this surplus will be crucial in 2020. Steps must be taken to address the problem and allow global sugar prices to return to a level of normality. As Indian output shows no indication of slowing down, more emphasis will be placed on Brazil’s role in maintaining a stable market. If not, prices can drop further, perhaps even lower than the ten-year lows we saw in 2019.