High grain prices look set to stymie European plans for a rebound in sugar production, leaving the region reliant on record imports – if it can get hold of them – to replenish inventories on their way to the lowest in at least 50 years.
Grain has become a "tough competitor for high cost, high risk" sugar beet plantings in the European Union thanks to the improved returns on offer, and growers' dismal experience this season, when 2m tonnes of the root crop were lost to weather damage in the UK alone.
"European Union sugar processors are asking sugar beet growers they contract with to increase acreage by at least 10-15% for the 2011 harvest, but it can be doubted whether farmers will follow suit," US Department of Agriculture attaches said in a report.
"Farmers may resist increasing their harvest risk without receiving adequate compensation in their contractual arrangements."
The attaches estimated at just 1.4%, or 209,000 tonnes, growth in EU beet sugar production in 2011-12, taking it to 15.3m tonnes.
'Critically low supplies'
This will be way short of the amount need to meet consumption, and replenish "critically low" supplies weakened by last year's poor harvest and the difficulty in wrenching imports from a tight international market.
Indeed, EU inventories are expected to end 2010-11 at 1.13m tonnes, the lowest since at least 1960 and representing a stocks-to-use ratio of a thin 6.1% - half that of a year before.
The attaches, terming Europe's sugar squeeze "unprecedented", forecast imports hitting an all-time high of 3.7m tonnes next season to replenish stocks and avoid the kind of shortages which have forced supermarkets in Portugal to limit customers' sugar purchases.
However, it highlighted the difficulty that the EU has had in buying in foreign sugar, despite the announcement of a zero-duty quota.
"High world prices for sugar continue to have a negative effect on sugar imports, despite the temporary lifting of the EU import duty," the report said.
The EU has, besides facilitating sugar imports, pre-announced 650,000 in exports for 2011-12 in an attempt to reassure beet farmers that the region will not put block off the region's market from potentially higher international prices.
However, beet farmers are being deterred by a knock-on effect from the imposition of tough sugar market restrictions in the last decade, agreed with the World Trade Organization, following complaints over cheap EU sugar exports.
A shutdown of production facilities has increased the beet processing season to 100-105 days, extending the period to which crops are exposed to winter weather.
An extra 10-15% increase in output implying a rise in the processing season to 110-120 days.
"Sugar beet farmers were already complaining that a 100-day processing season creates an unacceptable level of risk on them.
"It can hence be seriously questioned whether beet farmers will be willing to increase their risk, especially in light of a market situation, in which grain production is almost guaranteed to bring higher profits to the farm."See the original article >>