By David Brough
LONDON (Reuters) - The European Union, a net sugar importer, could emerge as a major exporter of white sugar to the Middle East and Africa after production quotas are lifted in 2017, eroding the market share of northern hemisphere refineries.
The EU is expected to end sugar production quotas - currently at some 14 million tonnes per year - as part of reforms to create a freer sugar market.
Analysts said the volume of EU sugar exports after the lifting of quotas would be linked to growers' assessments of international sugar prices relative to alternative crops such as grains, as well as production and freight costs.
Some analysts said they believed the EU had the potential to export some 2 million tonnes a year after quotas are lifted.
"When world sugar prices are high, EU beet farmers will export a lot of sugar – and vice versa," said Robin Shaw, soft commodities analyst with broker Marex Spectron.
Shaw said he saw potential for big swings in annual EU output after the lifting of quotas, as beets have a short cycle and farmers can quickly switch out of the crop into alternatives.
"The EU will have big swing capability - between sowing a little beet or a lot," he said.
The EU produced 15.45 million tonnes of sugar in 2013/14 (October/September), according to the London-based International Sugar Organization (ISO). EU sugar consumption was estimated at 18.2 million tonnes in the same period.
The main markets for EU white sugar exports would be nearby destinations, notably the Middle East and North Africa, and possibly further afield, in West and East Africa.
Depending on freight rates and quality requirements, EU sugar exports post-2017 could even appeal to Asian markets, said Tracey Allen, commodity analyst with Rabobank.
REFINERY OVERCAPACITY
The likely surge in EU sugar exports will eat into the market share of refineries in the northern hemisphere.
Such refiners include ASR Group, owner of Tate & Lyle, and India's Shree Renuka Sugars Ltd (NS:SRES).
"There could be a doubling of EU sugar exports by 2018/19, increasing competitive pressure for northern hemisphere refineries such as Al Khaleej in Dubai and Cevital in Algeria," said Sergey Gudoshnikov, a senior economist with the ISO.
Rising competition facing such refineries from the increased flow of white sugar exports from the EU will force plants to cut costs and scramble for new markets.
Analysts predicted downward pressure on whites-over-raws sugar premiums, now close to breakeven levels for many refineries, due to expectations of increased supplies of EU white sugar.
The October/October white premium was $77.00 (45.90 pounds) /$77.50 per tonne on Friday.
The lifting of a 690,000-tonne EU production quota for isoglucose, a cereal-based sweetener, is likely to lead to an increase in isoglucose output to the equivalent of 2 million tonnes of sugar in the EU market, Gudoshnikov said.
The isoglucose quota is now equivalent to less than 5 percent of the total EU sugar production quota.
(Editing by Dale Hudson)