Race begins for dominance in EU sugar market

The starter's gun for consolidation of the European sugar industry has been fired - ahead of the introduction of reforms - as France's Tereos takes an early lead with the announcement of a takeover of Britain's Napier Brown for £34m.

Although the deal is small, it is a taste of things to come ahead of the big shake-up for European the sugar market in 2017.

More consolidation is expected as the EU prepares to abolish sugar production quotas, eliminates the guaranteed price offered to sugar beet farmers and ends export limits.

"Trading houses and companies in the sector will be looking at opportunities and to capitalise on the shift in regulation in 2017," said Tracey Allen, sugar analyst at Rabobank.

Until now, the EU has been a net sugar importer after Brussels imposed production quotas in 2006 and capped exports. However, liberalisation will shift the flows of sugar in and out of Europe.

The region's countries produced just under 17m tonnes of beet sugar in the 2013-14 crop year, according to EU data, and sugar experts believe that production could rise 15-20 per cent, after 2017.

Of the European beet sugar producers, France has the highest potential to increase output. Some analysts forecast French production rising 25 per cent to 5.5m tonnes.

Napier Brown is a non-refining sugar distributor in the UK owned by Real Good Food, an Aim-listed food business. The company said that "the changes taking place within the European sugar market mean that the future of this business is best served by it becoming part of an international production group".

Tereos, one the world's fifth-largest sugar groups, with operations around the world, including Brazil, said it saw the UK as an important sugar market. "This acquisition is a new step in our ambition of European development in anticipation of the end of the EU Sugar Regime in 2017," said the French company.

The deal highlights that the whole sugar supply chain will be affected by the liberalisation. The large producers, mainly based in Germany and France, are securing a foothold in the region.

European liberalisation will also mean that the region's sugar prices, which are protected by tariffs, will come down to international levels. International sugar prices were trading at around 13 cents a pound.

Production costs of German and French beet sugar producers are among the lowest in the world, and the lifting of quotas could mean more sugar on to the international market.

The sweetener is one of the most-heavily subsidised commodities in the world, with various government support policies leading to a current supply glut.

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