London, 20 October 2011

2011/12 is expected to be the year in which global sugar production finally meets demand after three years of deficits, according to agricultural commodity market specialists Czarnikow. The majority of this increased production looks set to come from sugar beet. The growth in beet production is largely concentrated in Europe and Russia which have had more favourable weather conditions than the previous year, and increases in the area planted.

Rising costs in developing markets and global shifts in economic power have also helped to lower beet sugar costs, bringing them closer to those of cane. Although cane remains the more competitive sugar crop, lack of investment in Brazilian cane production means that beet is accounting for the greatest share of global production since 2007/8.

Beet production is forecast to grow by 6m mtrv in the 2011/12 season. This is expected to contribute 70% of global production growth. Beet sugar will account for approximately 22% of global sugar in 2011/12, up from 20% in 2007/08. The production of beet will increase by almost 20% year-on-year, while cane will increase by only 2%.

Western Europe

- Northern European producers have realised a 50% average increase in industrial productivity over the past decade.

- France and Germany are expected to produce around 4.5m mtrv of sugar. each this year, an increase of 13% and 28%, respectively, on last year.

- Austria and Switzerland are expecting near-record total outputs.

- In contrast, Southern European producers such as Italy and Greece are struggling, with Greek production set to halve to 50,000 tonnes.

- Stronger production does not necessarily translate directly into the balance sheet owing to the EU reform process.

- Tightness this year has seen rapidly rising EU prices, which have been very remunerative for the beet sector, prompting further calls for reform from industrial sugar consumers.

Eastern Europe

- Russia’s beet crop is set to rebound strongly, following last year’s dreadful season, with the country’s industry expected to produce 4.6m tonnes of sugar.

- Russian imports are predicted to halve to 1.2m tonnes, down from 2.75m tonnes in 10/11.

- Russian prices are falling due to the larger crop, and are now at a level that is encouraging exports.

- Falling prices also underline an issue faced by the industry as it targets self sufficiency: a lack of stock-holding capacity, both physically and financially.

"We are witnessing a transition to a price discovery mechanism where export tonnages are likely to set the base level for the domestic market. This could increase seasonality in domestic prices and introduce additional volatility," says Toby Cohen, Czarnikow director. “The increase in beet production shows the flexibility in annual beet crops with regards to planted acreage. Multi-year cane harvests are slower to react by comparison.”

Peter de Klerk, Czarnikow analyst, said: “Although cane remains competitive in terms of cost of production, the rapid increase in beet production is certainly welcome after three years of stock draw-downs.”

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