e d & f man sugar ltd future of sugar in europe and the implication for turkey and the world...

E D & F MAN Sugar Ltd

Future of sugar in Europe

And the implication for Turkey and the world market



• Pressure to reform EU sugar regime

• Inside and outside pressure - WTO & all that

• Deregulation and the waking of the giant aka Brazil

• Pressure on costs, synergies and search for sustainable agriculture

• The future: short term future vs long term prospects

• Implications for Turkey



EU sugar policy changes

• No initial compulsory quota cut: “carrot not stick” approach• Intervention system abolished

– Replaced with ‘reference price’ & private storage• Restructuring fund: attractive buy-out offer for quota

– Degressive over 4 years (€730-€420/t)– Funded by producer/consumer levy

• Prices to EU producers effectively cut by 39% by 2007/08– Reference price cut & levy application

• Raw sugar prices unchanged until 2007/08• Regime to apply July 2006 – 2014/15• All current import arrangements maintained

– ACP/India/LDCs/West Balkans/CXL– Minimum price to apply for ACP & LDC (transitional period)– Raw sugar imports restricted to ‘traditional refiners’ until 2009


Base Level

2006/07 2007/08 2008/09 2009/10

Sugar Quota 17.441 18.441

Isoglucose Quota

0.508 0.608 0.708 0.808

White Reference Price (€/t)

631.9 631.9 476.5(-25%)

449.9(-29%)

385.5(-39%)

Restructuring Levy (€/t)

NA 126.4 91 64.5

Price - Net Levy 505.5(-20%)

385.5 (-39%)

385.5 385.5

Beet Price (€/t) 43.6 (avg.) 32.86 (-25%)

25.05 (-43%)

25.05 25.05

Raw Sugar Price(€/t)

496.8(€0.23/lbs)

496.8(€0.23/lbs)

394.9(€0.18/lbs)

372.9 (€0.17/lbs)

319.5 (-36%)(€0.14/lbs)

Restructuring Aid(€/t Quota)

730 730 625 520 420


Key Points

•No change to market price 1st

year

•-20% drop to producer price 1st

year

•Beet price compensation

•No change to raw sugar price

1st year

•Restructuring aid encourages

early exits

•Refining margin slim

NB: - All million tonnes white value. - % change on base year - Quota includes French DOMS and Azores - Production quotas beyond 2007/08 onwards subject to quota renunciation & uptake of new isoglucose quota, but includes the additional 1 million tonnes on offer to historic ‘C-sugar’ producing countries



0

100

200

300

400

500

600

700

800

2005/06 2006/07 2007/08 2008/09 2009/10

euro

/mt

Price net of levy Aid to quit

EU Commission

Sugar factories

Restructuring Aid

Decision to stay in business or quit a 4 to 5 year financial consideration


Restructuring of the EU sugar industry


Decision to stay or quit

Total production cost > €350/mtOr corporate structure keen to exit

†

Close down

Total production cost < €350/mt

Stay in business

Conditions for quota sales:a) - Renunciation of the relevant quotab) - Definitive & total stop of production in at least one factoryc) - Closure of the factory/factories concerned & dismantle production facilities d) - Restore good environmental conditions to factory site & redeploy workforce

* Possibility that there may be room for the factories to benefit from securing carbon credit

From 3 to 6 million tonne Cut in quota production


Meanwhile potential rise in EU raw sugar access under EBA

tariff tariff cut all free

quota 1701 11 10

2001/2002 74,1852002/2003 85,3132003/2004 98,1102004/2005 112,8272005/2006 129,751 2006/2007 20% 149,214 2007/2008 50% 171,596 2008/2009 80% 197,335 2009 On 100% Quota

RemovedFree access under what terms?



Impact of EU changes

• Major EU destinations

• World White sugar market and price

• Support for regional refineries

• Rise of raw sugar demand and further expansion of cane sugar production

• In sum premium regional markets vs competitive global/transcontinental markets




Impact of EU changes•Major EU destinations

EU exports

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

M East Europe N Africa CIS W Africa Other

mtw

v 2002/03

2003/04

EU export destination

0

100

200

300

400

500

600

Alge

ria

Egyp

t

Indo

nesi

a

Isra

el

Leba

non

Nor

way

Sri L

anka

Switz

erla

nd

Syria

Tuni

sia

UAE

000m

twv



Whites by quality

0

2000

4000

6000

8000

10000

12000

14000

1989/90 1999/00 2002/03 2005/06

000m

twv

45 EU 100 150 150-400

EU=67%

EU= 52%

EU=10%

Fall in direct white exports


The white sugar price and the whites premium


19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

0

50

100

150

200

$/M

t

White premium 1mth cont.

The white premium was under pressure as EU exports were on the rise….


1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

100

150

200

250

300

350

400

450

500

$/M

T

conthigh since 89

low since 89

No.5 spot month. cont.


Declining EU whites could push the world market towards the highs with further premiumsFor regional physical values


Impact of EU changes• Support for regional refineries


Country/refinery Opened Estimated annual production capacity [MT]]

Dubai/ Al Khaleej 1995 1,200,000Saudi Arabia/United Sugar 1997 1,000,000Iran/ Khuzestan 2002 175,000Algeria/Cevital 2002 700,000Nigeria/Dangote 2000 875,000Sum 3,950,000Additional capacity plannedBangladesh 2005/06 400,000Cevital 2006 700,000United Sugar 2006 600,000Bangladesh 2005/06 600,000 Indonesia 2005/07 1,800,000Dubai 2005/06 720,000Azerbaijan 2005/06 360,000Yemen 2007 650,000Syria ?Sum of the impending expansion +5,800,000



with the demise of EU exports in sight.

Brazil

EU

Thailand

Guatemala &

Colombia

Brazil

EU

Thailand

Guatemala &

Colombia

India ALS &

Dubai


Impact of EU changes

• Major EU destinations

• World White sugar market and price

• Support for regional refineries

• Rise of raw sugar demand and further expansion of cane sugar production

• In sum premium regional markets vs competitive global/transcontinental markets



Future of sugar in EuropeInside and outside pressures – WTO and all that

Background and Timetable • ‘Doha Round’ in progress - launched November 2001 to succeed the Uruguay Round • ‘Modalities’ or framework agreed July 2004• Aim to conclude at the Hong Kong Ministerial – December 2005• 2006 ratification for implementation over 5 years from 2008• Negotiations consistently derailed by agriculture and more recently by services agreement

Agricultural Objectives – July 2004 Modality Agreement• Domestic support: To achieve “substantial reductions in trade-distorting domestic support”.• Export competition: Calls for a “reduction of, with a view to phasing out, all forms of export subsidies”. To include; export subsidies, credits and state trading enterprises.• Market Access: “Substantial improvements in market access”. • Technical discussions yet to make substantive progress, suggesting that current objective for Hong Kong completion still far from certain.

Divergence of Aspirations• Political will wavering in developed countries• Differing aspirations & allegiances across developing world• Questions over “one-size fits all” policy for developing countries – particularly those with highly developed agriculture.


Inside and outside pressure - WTO & all that

• Brazil, Australia, Thai challenge the EU and perhaps door open to other challenges where C sugar ~ subsidised sugar ∴ C sugar is cross subsidised according to the WTO ruling

• Ultimate ambition of the European Commission is to eliminate all export subsidies




Deregulation and the waking of the giantExpansion of Brazilian raw and white sugar exports and the future of the sugar industry as part of a sustainable agriculture development-

0

5000

10000

15000

20000

25000

000m

ttq

raw white


Brazil exports by Quality

0

5000

10000

15000

20000

25000

1989/90 1994/95 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

'00

0 m

ttq

LQ

Refined

Raws

Increase in Brazilian exports of low quality from <500k to 4 million tonnes, refined from <200k to >1200k, Raws from <500k to >14m. In future further focus on rapid raws exports


How Brazil can step in European markets



Brazil Cane and Sugar / Ethanol Production

0

100,000

200,000

300,000

400,000

500,000

01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11

'000

mt

of

can

e

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

'000

mt

of

sug

ar o

r cb

m o

f et

han

ol

Total Sugar Total Ethanol Sugar Consumption Total Cane

35 million tonne sugar production23 million tonnes sugar exports5 billion litres alcohol exports by 2010/11


Pressure on costs, synergies and search for sustainable agriculture


Sugar as part of a sustainable agricultural commodity is fast becoming part of a complex

Comprising sugar, ethanol, co-generation, carbon credits

The oil impact

Higher correlation between oil and sugar prices in the last year.

Correlation coefficient = 0.86

Oil and Sugar Prices

0

10

20

30

40

50

60

70

80

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

US

D /

Brr

an

d C

en

ts /

lb

IPE Brent Crude Price NYBOT No11 Raw Sugar Price

Correlation table1985 - 2005 -0.182001 - 2005 +0.502004 - 2005 +0.86

Oil and Sugar Prices over the last year

8

8.5

9

9.5

10

10.5

11

35

40

45

50

55

60

65

70

75

No11 Raw Sugar Prices

IPE Oil Price


The future: Short term v long term prospects• Interactive market place• Short term significant EU exports leading up to the reform• EU exports in 05/06 peak 6.7 million mt• From 07/08 exports will fall significantly to 1.374m – min €514 budget

limits• Ultimately EU pledge to eliminate all export subsidies • Many of EU’s traditional markets turning to raws → rise of regional

refineries and/or regional suppliers [Turkey]• Some of the European markets and EU’s traditional destinations

turning to low quality whites and/or stepping up domestic production



Handymax orderbook

0

2

4

6

8

10

12

2001-102002-04 2002-102003-04 2003-102004-04 2004-102005-04

dem

oli

tio

n/d

eliv

erie

s

0

50

100

150

200

250

300

ord

erb

oo

k

Handymax Bulkcarrier Demolition

Handymax Bulkcarrier Deliveries

Handymax Bulkcarrier Orderbook40-60K


Freight has become a far more important consideration in international commodity tradeFurther supporting regional trade flows…



Implications for Turkey•Filling markets left post fall in EU exports and stepping up Turkey’s traditional export destinations- Turkey needs to renegotiate its WTO accession limits……….

Turkey- export destinations

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1993 1995 1997 1999 2001 2003

tonn

es

EU

U Arab Emirates

Cyprus

Egypt

Afghanistan

Iran

Azerbaijan

Syria

Georgia

Iraq

e d & f man sugar ltd future of sugar in europe and the implication for turkey and the world...

Documents

raw sugar price t

e d f man sugar

europe eu sugar policy

eu raw sugar access

historic csugar

reform eu sugar regime

quota production slide

market price