Summer scorcher adds to fear of rise in autumn sugar price

Sugar prices look set to rise as the effects of a substantially reduced UK crop is made worse by the recent drought across Europe, warned a major supplier.

Peter Hough, development director of Napier Brown, which meets about one-fifth of UK manufacturers' demand, predicted shortages as the impact of a 2.4Mt quota cut - imposed on growers last autumn under the EU Common Agricultural Policy (CAP) sugar reform - is felt for the first time this harvest.

Although there were nearly 1.4Mt of sugar in EU intervention stores, "product might be a bit tight", said Hough.

"There may not be very much sugar around in the third to fourth quarter of the year, while silos are emptied and new production starts to go in," he warned. "That's not something that we have seen for a long time."

He said that the quota cut coincided not only with a rain-starved crop, but also with higher distribution and energy costs.

Short-term pain for sugar buyers, however, will soften into long-term gain as the new regime, which favours the most-efficient European beet producers and cane producers in the developing world, settles in: "Prices will come down in September 2009 and it could be a significant reduction."

Irish processor Greencore has renounced its quota and closed its sugar plant at Mallow, while British Sugar is closing its York and Allscott factories at the end of the 2006/7 harvest and concentrating activities at its other four UK sites.

"There are other factories closing around Europe," said Hough, who said he expected to see further consolidation among producers and changes in UK processing schedules.

British Sugar, part of Associated British Foods, has confirmed its intention to acquire 83,000t of additional sugar quota in the UK following consolidation of its Polish operations into two factories last year and an application to acquire 11,000t of additional quota there. Other processors, such as Tate & Lyle, have yet to make their plans clear.

Despite the dramatic failure of the World Trade Organisation talks last month, Hough predicted that by 2009 the EU would have moved from being a net exporter to a net importer of mainly refined sugar, with imports accounting for up to 25% of consumption.

Imports would be from the EU's preferred partners in the least developed countries, such as Malawi, Zambia, Mozambique, Sudan, Ethiopia and Bangladesh, and from African, Caribbean and Pacific countries.

Napier Brown expects to increase its 300,000-400,000t a year of imports by 200,000t from October 2009.