Future of sugar in Europe by rraul

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									   Future of sugar in Europe


          And the implication for Turkey and the world market




E D & F MAN Sugar Ltd
    Future of sugar in Europe




           •   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




E D & F MAN Sugar Ltd
     Future of sugar in Europe




 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



E D & F MAN Sugar Ltd
      Future of sugar in Europe

                      Base Level    2006/07       2007/08       2008/09       2009/10            Key Points

  Sugar Quota         17.441        18.441                                                    •No change to
                                                                                              market price 1st
  Isoglucose Quota    0.508         0.608         0.708         0.808                              year

                                                                                              •-20% drop to
  White Reference     631.9         631.9         476.5         449.9         385.5
                                                                                             producer price 1st
  Price (€/t)                                     (-25%)        (-29%)        (-39%)
                                                                                                   year
  Restructuring       NA            126.4         91            64.5
  Levy (€/t)                                                                                    •Beet price
                                                                                               compensation
  Price - Net Levy                  505.5         385.5         385.5         385.5
                                    (-20%)        (-39%)
  Beet Price (€/t)    43.6 (avg.)   32.86         25.05         25.05         25.05          •No change to raw
                                    (-25%)        (-43%)                                     sugar price 1st year
  Raw Sugar Price     496.8         496.8         394.9         372.9         319.5 (-36%)
                                                                                             •Restructuring aid
  (€/t)               (€0.23/lbs)   (€0.23/lbs)   (€0.18/lbs)   (€0.17/lbs)   (€0.14/lbs)
                                                                                              encourages early
  Restructuring Aid   730           730           625           520           420                  exits
  (€/t Quota)
                                                                                              •Refining margin
NB:                                                                                                 slim
 - 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

E D & F MAN Sugar Ltd
    Future of sugar in Europe

                                               EU Commission
                                               Restructuring Aid

                                               Sugar factories
                          800
                          700
                          600
                          500
                euro/mt




                          400
                          300
                          200
                          100
                            0
                                2005/06     2006/07   2007/08   2008/09    2009/10

                                          Price net of levy     Aid to quit


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


E D & F MAN Sugar Ltd
      Future of sugar in Europe


      Restructuring of the EU sugar industry
   Decision to stay or quit



                    Total production cost > €350/mt           Total production cost < €350/mt
                    Or corporate structure keen to exit


                                                           Stay in business
                        Close down
                              †

Conditions for quota sales:
a) - Renunciation of the relevant quota
b) - Definitive & total stop of production in at least one factory
c) - 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   From 3 to 6 million tonne
securing carbon credit                                                   Cut in quota production
E D & F MAN Sugar Ltd
    Future of sugar in Europe


    Meanwhile potential rise in EU raw sugar access under EBA

                            tariff      tariff
                            cut all     free
                                        quota
                                        1701 11 10
       2001/2002                        74,185
       2002/2003                        85,313
       2003/2004                        98,110
       2004/2005                        112,827
       2005/2006                        129,751
       2006/2007            20%         149,214
       2007/2008            50%         171,596
       2008/2009            80%         197,335
       2009 On              100%        Quota
                                        Removed
        Free access under what terms?




E D & F MAN Sugar Ltd
    Future of sugar in Europe


    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




E D & F MAN Sugar Ltd
         Future of sugar in Europe


         Impact of EU changes
         •Major EU destinations


                                     EU export destination
                                                                                                                                                                    EU exports

             600                                                                                                                      2,000,000

             500                                                                                                                      1,800,000
                                                                                                                                      1,600,000

             400                                                                                                                      1,400,000
   000mtwv




                                                                                                                                      1,200,000
             300




                                                                                                                               mtwv
                                                                                                                                                                                                      2002/03
                                                                                                                                      1,000,000
                                                                                                                                                                                                      2003/04
                                                                                                                                       800,000
             200
                                                                                                                                       600,000

             100                                                                                                                       400,000
                                                                                                                                       200,000
              0                                                                                                                              0
                                                 Israel




                                                                                                               Tunisia
                                     Indonesia




                                                                    Norway
                             Egypt
                   Algeria




                                                                                                       Syria
                                                                             Sri Lanka




                                                                                                                         UAE
                                                          Lebanon




                                                                                         Switzerland


                                                                                                                                                  M East   Europe N Africa   CIS   W Africa   Other




E D & F MAN Sugar Ltd
    Future of sugar in Europe



                                            Whites by quality

                        14000
                                                                    EU= 52%
                        12000
                        10000
                                EU=67%
              000mtwv




                        8000
                        6000
                                                                                     EU=10%
                        4000
                        2000
                           0
                                1989/90     1999/00         2002/03        2005/06

                                           45    EU   100     150     150-400


                            Fall in direct white exports




E D & F MAN Sugar Ltd
    Future of sugar in Europe


    The white sugar price and the whites premium

                                                White premium 1mth cont.
              200


              150
       $/Mt




              100


              50


               0
                    1988
                           1989
                                  1990
                                         1991
                                                1992
                                                       1993
                                                              1994
                                                                     1995
                                                                            1996
                                                                                   1997
                                                                                          1998
                                                                                                 1999
                                                                                                        2000
                                                                                                               2001
                                                                                                                      2002
                                                                                                                             2003
                                                                                                                                    2004
                                                                                                                                           2005
                    The white premium was under pressure as EU exports were on the rise….

E D & F MAN Sugar Ltd
    Future of sugar in Europe




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


E D & F MAN Sugar Ltd
    Future of sugar in Europe

    Impact of EU changes
    • Support for regional refineries
      Country/refinery              Opened   Estimated annual
                                             production capacity [MT]
      Dubai/ Al Khaleej             1995     1,200,000
      Saudi Arabia/
      United Sugar                  1997     1,000,000
      Iran/ Khuzestan               2002     175,000
      Algeria/Cevital               2002     700,000
      Nigeria/Dangote               2000     875,000
      Sum                                    3,950,000
      Additional capacity planned
      Bangladesh                  2005/06    400,000
      Cevital                     2006       700,000
      United Sugar                2006       600,000
      Bangladesh                  2005/06    600,000
      Indonesia                   2005/07    1,800,000
      Dubai                       2005/06    720,000
      Azerbaijan                  2005/06    360,000
      Yemen                       2007       650,000
      Syria                       ?
      Sum of the impending expansion         +5,800,000

E D & F MAN Sugar Ltd
        Future of sugar in Europe




with the demise of EU exports in sight.




                          EU
   Guatemala &
    Colombia
                                    Thailand


                 Brazil




                                               Guatemala &                 India ALS &
                                                                      EU
                                                Colombia                    Dubai


                                                                                    Thailand


                                                             Brazil



 E D & F MAN Sugar Ltd
    Future of sugar in Europe


    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




E D & F MAN Sugar Ltd
    Future of sugar in Europe

  Inside 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.

E D & F MAN Sugar Ltd
    Future of sugar in Europe




    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




E D & F MAN Sugar Ltd
    Future of sugar in Europe

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

              25000

              20000

              15000
    000mttq




              10000

              5000

                 0
              19 5

              19 7

              19 9

              19 1

              19 3

              19 5

              19 7

              20 9

              20 1

              20 3

              20 5

                      7
                    /8

                    /8

                    /8

                    /9

                    /9

                    /9

                    /9

                    /9

                    /0

                    /0

                    /0

                    /0
                 84

                 86

                 88

                 90

                 92

                 94

                 96

                 98

                 00

                 02

                 04

                 06
              19




E D & F MAN Sugar Ltd                      raw    white
       Future of sugar in Europe


How Brazil can step in European markets
                                                                  Brazil exports by Quality

                       25000




                       20000




                       15000
           '000 mttq




                                                                                                                                   LQ
                                                                                                                                   Refined
                                                                                                                                   Raws

                       10000




                        5000




                           0
                               1989/90   1994/95   1999/00   2000/01   2001/02   2002/03   2003/04   2004/05   2005/06   2006/07



  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

 E D & F MAN Sugar Ltd
                 Future of sugar in Europe

                                                             Brazil Cane and Sugar / Ethanol Production
                                                                                                                                    40,000
                                       Total Sugar    Total Ethanol      Sugar Consumption     Total Cane
                     500,000
                                                                                                                                    35,000
                                 35 million tonne sugar production
                                 23 million tonnes sugar exports
                                 5 billion litres alcohol exports by 2010/11                                                        30,000
                     400,000




                                                                                                                                             '000 mt of sugar or cbm of ethanol
                                                                                                                                    25,000
   '000 mt of cane




                     300,000
                                                                                                                                    20,000




                     200,000                                                                                                        15,000



                                                                                                                                    10,000

                     100,000

                                                                                                                                    5,000



                          0                                                                                                         0
                               01/02        02/03    03/04       04/05      05/06      06/07     07/08      08/09   09/10   10/11




E D & F MAN Sugar Ltd
    Future of sugar in Europe



    Pressure on costs, synergies and search for sustainable agriculture
  The oil impact
  Sugar as part of a sustainable agricultural commodity is fast becoming part of a complex
  Comprising sugar, ethanol, co-generation, carbon credits                           Oil and Sugar Prices

                                                                       IPE Brent Crude Price       NYBOT No11 Raw Sugar Price

                                          80

                                               Correlation table
                                          70   1985 - 2005     -0.18
                                               2001 - 2005 +0.50
                                          60   2004 - 2005 +0.86
               USD / Brr and Cents / lb




                                          50



                                          40



                                          30



                                          20



                                          10



                                          0
                                           1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005




               Higher correlation between oil and
               sugar prices in the last year.
               Correlation coefficient = 0.86


E D & F MAN Sugar Ltd
    Future of sugar in Europe


    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




E D & F MAN Sugar Ltd
                          Future of sugar in Europe




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


                                                               Handymax orderbook

                         12                                                            300

                         10                                                            250
 demolition/deliveries




                                                                                                         Handymax Bulkcarrier Demolition
                          8                                                            200




                                                                                             orderbook
                                                                                                         Handymax Bulkcarrier Deliveries
                          6                                                            150

                          4                                                            100               Handymax Bulkcarrier Orderbook
                                                                                                         40-60K
                          2                                                            50

                         0                                                             0
                         2001-102002-04 2002-102003-04 2003-102004-04 2004-102005-04




E D & F MAN Sugar Ltd
    Future of sugar in Europe

    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

              900,000

              800,000
                                                                             EU
              700,000                                                        U Arab Emirates
              600,000                                                        Cyprus
                                                                             Egypt
              500,000
     tonnes




                                                                             Afghanistan
              400,000                                                        Iran
                                                                             Azerbaijan
              300,000                                                        Syria
              200,000                                                        Georgia
                                                                             Iraq
              100,000

                   0
                        1993   1995   1997     1999      2001     2003
E D & F MAN Sugar Ltd

								
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