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EU-Mercosur deal: what does it mean for the EU sugar industry?

July 5, 2019

1 mins read

The negotiations over a free trade agreement between the EU and Mercosur (Argentina, Brazil, Paraguay and Uruguay) were concluded on the 28th of June 2019.

The EU-Mercosur agreement raised numerous complaints from the European agriculture lobbies. The liberalisation of the EU sugar market in 2017 already impacted the sector and farmers substantially. Since the end of EU quotas, EU sugar production jumped by 14% y-o-y in 2017/18 as the market was no longer regulated and prices decreased as a result. However, in 2019, a leading sugar mill company announced future capacity closures in France, Germany and Poland as their margins depleted. Prices of EU sugar immediately edged higher following these announcements and have not decreased much since.

The EU-Mercosur deal allows for 180,000 tonnes of South American sugar to have free access to the EU market, representing 9.4% of the estimated EU production in 2019/20. The sugar is likely to come mainly from Brazil, producing 15% of the global sugar output. Brazilian sugar is already at a discount compared to the European beet sugar, which is likely to further weaken EU sugar demand, due to it being less competitive.

Looking at the approaching 2019/20 season starting in October, the EU Commission estimated an increased EU sugar production at 18.3 million tons (+4% y-o-y) driven by higher yields despite lower crop area. Additional output coming from Brazil and domestic production, coupled with lower exports, according to the commission, are likely to exacerbate the current EU sugar price volatility.
European sugar lobbies perceive this EU-Mercosur deal as a new punch in their industry as it would mean additional sugar availabilities in the market adding pressure downward on prices.

Market Outlook Sample

Anais Divanach
Anais Divanach

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