Sugar beets – significant intra-regional reallocation likely to happen

From 2017 onwards the EU quota system for sugar will be abolished. This system has led to a situation in which growers have a de facto license to produce and sell at very attractive prices. Without a quota system the competition on the European sugar market will increase and most likely lead to much lower sugar beet prices. A recent agri benchmark study conducted by Raphael Albrecht shows that we can expect a strong reallocation of sugar beet production within the key regions.

One of the selected regions Raphael looked at more closely is the Bay Cologne-Aachen (Köln-Aachener Bucht) in Germany. In Germany, this is one of the traditional hot spots in beet production. Since it is not really economic to ship sugar beet over longer distances, these hot spots were created by the establishment of sugar factories.

The study generates the following interesting results:

1. There is a massive scattering in the competitiveness of sugar beet producers. The on-farm equilibrium price (the price needed in order to realize a profit comparable to the one for the next best crop option) for sugar beet within the Bay Cologne-Aachen ranges from 25.1 Euro per tonne to 36.8 Euro per tonne. This implies that once sugar beet prices will go down to 35 Euro per tonne  some farmers will be better off by terminating sugar beet production (and switching to competing crops such as rapeseed) while for other sugar beet will still be their best crop option.
   
   
2. With the current allocation of production through the quota system, the minimum price to sustain the current level of total regional output is in the range of 37 Euro per tonne of sugar beet. This price is subject to a calculation of an assumed price for the next best option with in many cases is rapeseed; the respective rapeseed price used here is 360 Euro per tonne.
   
   
3. However, once production of beet will become more flexible the same level of output can be maintained with a price of about 34 Euro per tonne. This is due to the fact that currently not all the producers are making use of their full sugar beet capacity which is defined by an agronomical threshold of 25 % of beet in the entire rotation.

Further analysis for this and other regions are published in the Thünen Report.

Ein Ansatz zur Abschätzung der interregionalen Wettbewerbsfähigkeit der Zuckerrübenproduktion - am Beispiel ausgewählter europäischer Regionen
Thünen Report 24 (in German), pdf-document