Sugar reform was introduced in Europe in 2006 with the aim of improving competitiveness and market-orientation of the EU sugar sector and guarantee its long term future. Under the programme, financial incentives have been offered to the less competitive producers to leave the market. The goal is to reduce the volume of sugar on the market by six million tonnes by 2010.
The European Commission has said that it has achieved nearly all targets to reduce sugar production for the coming marketing year, starting in October. Many sugar players are now upbeat about the prospects for European sugar following the upheaval of the last few years.
For instance, Danisco brought forward its plan to sell its sugar division from 2010 to 2008 as a result of a better outlook. The division is in the process of being sold to Nordzucker.
There have also been rumours of ABF’s interest in snapping up the fruits of market consolidation, as it has not discounted reports of interest in Spanish Ebro’s sugar division, which is currently up for sale.
However in a pre-close period trading update in advance of its full year results on November 4th, ABF said: “The challenge for the industry going forward is the recovery of high input costs including energy and beet.”
It has reiterated earlier warnings that profit from its sugar business will be substantially lower than last year.
For the 24 weeks ended March 31 2008 ABF reported a drop in revenue for sugar to ₤567m, compared to ₤579 for the prior year period. Revenue for the business sank from ₤87m to ₤58m.
China and Africa
Alongside the EU sugar regime, depressed pricing in China has also contributed to a drop in ABF’s sugar profits. These are said to have been the result of a record crop.
ABF is in the process of developing its beet business in north east China. Last year it forged an agreement with Chinese sugar group Hebei Tian Lu, which is expected to revolutionise beet sugar production technology and boost yields.
ABF's British Sugar division already had four sugar cane refineries in the south of China, but having identified a "major opportunity" to improve beet sugar yields by applying the expertise it has garnered through British Sugar's activities in Europe.
The company also has expansion projects underway in Illovo, South Africa, where it has a subsidiary called Illovo Sugar.
“Illovo has continued to trade well with an expectation of higher volumes and the benefit of higher domestic and world sugar prices,” it said.
It has said, however, that the decline from sugar will be more than compensated for by good growth in operating profit from its Primark, Grocery and Agriculture business divisions.