Release of EU Sugar Quota: A Sweet Opportunity for First-Generation Sugar Users

On September 30, 2017, the European Union’s sugar quota system will be abolished to allow greater market orientation among European sugar producers. The sugar quota system was established in 1968 to set a price floor, production limits, and import limits to insulate European sugar producers and end-users from price volatility on the global sugar market. With the abolishment next month, sugar producers will be able to ramp up production and exports, resulting in a variety of implications for downstream industries.

While the exact increase in production and the impact on price remains to be seen as with any commodity, the consensus from the industry is that the rapid uptick in sugar supply will result in a downward trajectory for sugar prices. At Lux Research, we anticipate the price drop to have a significant impact in three key downstream industries: bio-based fuels, bio-based specialty chemicals and materials, and the development of biomass-to-sugar refineries. The decrease in sugar prices coupled with an accelerating trend away from oil as a source for transportation fuel, bio-based products derived from sugar are likely to become increasingly competitive with their oil-based counterparts despite the outlook for oil prices remaining around $50 per barrel. Alternatively, the shift in price point will make biomass-to-sugar projects even more difficult to reach cost parity, particularly in Europe. While several other factors, such as fuel regulations and biomass availability, will continue to drive interests in cellulosic sugars, the surge of low-cost sugars in Europe may reduce interest in the near term.

The abolishment of the European sugar quota is an event with potentially disruptive implications in the bio-based industry. While commercial projects implementing sugar-based conversion technologies have historically centered on low corn and sugarcane prices in the U.S. and Brazil, respectively, the new regulatory climate presents several opportunities for readers to tap first-generation sugars directly in Europe for bio-based projects.

By: Charles Willard and Yuan-Sheng Yu