Sugar beet ‘well placed’ for post-quota world

Sugar beet growers are being asked to consider a range of pricing options for the crop which will come into effect once quotas end in 2017.

Options include maintaining the current system of a fixed price agreed ahead of planting, which would cushion growers from market volatility.

But farmers could also be offered the more risky and potential more lucrative option of a price more closely linked to the market.

The options are being considered by British Sugar and NFU Sugar, who will continue to represent growers in price talks after quotas end on 30 September 2017. Both sides agree that different basic beet prices are needed to reflect different attitudes towards risk and reward.

See also: Cut harvest losses to make sugar beet pay

Some growers might choose a predetermined fixed price for all their crop.

Others might choose a fixed price for some of their beet, playing the market with the rest. Growers could be offered a price linked to factory delivery date (see box).

A market-derived price link would give growers the opportunity to benefit from changes in the EU or world sugar price or alternative crop prices. Growers could be offered a guaranteed beet price, plus a potential premium if a predetermined threshold is exceeded.

Possible beet price options

  • A fixed price, known in advance, as happens now
  • A price linked to the processed sugar market
  • A price linked to alternative arable crops
  • A price linked to delivery date
  • Single season and multi-year contracts

Growers could also be offered different length contracts to grow the crop, varying from a single season to a multi-year commitment.

The theory is that longer contracts would enable growers to plan ahead, invest in the crop and mitigate risk while managing the impact of market volatility.

“We could do longer-term contracts – we are open to that,” says British Sugar managing director Richard Pike.

“If it actually provides greater stability – and allows growers to invest for the future – we can do that.”

Linking the beet price to the international market would enable growers to benefit when the market is buoyant, but would also mean lower returns when the market is subdued.

Any grower who wants to benefit from market peaks will also have to accept market troughs, says Mr Pike.

Plan now

NFU Sugar chairman and Cambridgeshire farmer William Martin says it is important to consider all options sooner not later. “In 2016, beet growers will be planting their final crop under the current arrangement, so we have to start planning now for what the post-quota world will look like.”

Although quotas will end, NFU Sugar will continue to represent growers as farmers’ sole negotiator in price talks with British Sugar, says Mr Martin. “We want to hear from growers about their views on beet pricing options and their attitude to risk and reward.”

Forecasts suggest an expansion in the EU sugar area when production quotas end. The European market is expected to align with the world market – and be more influenced by world sugar prices, which have fallen to seven-year lows.

Under the current regime, EU-grown sugar for human consumption is limited to 13.5m tonnes, with the UK accounting for just over 1m tonnes of this.

Imports of up to 3.5m tonnes complete EU sugar requirements, with EU exports to the rest of the world restricted to 1.4m tonnes.

When quotas end, the EU will be allowed to produce as much sugar as it wants. Export restrictions will be lifted, although import rules will be maintained. The minimum beet price payable to growers of €26.29 (£19.10) will also be abolished, as will the EU reference price of €404/t (£286/t).

Beet profitability ‘difficult to forecast’

Sugar beet growers are well placed to compete against overseas producers once quotas are lifted in 2017 – but crop profitability is difficult to forecast.

Abolishing quotas will give the industry the opportunity to expand to supply the internal EU market as well as the wider world market, says Martin Todd, managing director of LMC International, a UK-based economic consultancy specialising in agricultural commodities.

But British growers will also have to contend with competition from imports of sugar and isoglucose – as well as competition from overseas producers, who will be supplying the global market too – once quotas end on 30 September 2017.

“The end of quotas is going to be an opportunity for the efficient in Europe to expand production,” says Mr Todd.

“That will be not only to supply the internal market, but also the external market. But we know it isn’t going to be easy and we know there are going to be a lot of risks.”

Growers have already experienced the impact of volatile prices during the past three or four years.

But fundamentally beet is doing very well – compared both to cane sugar as well as other crops against which it is fighting for a place in the farm rotation.

Beet is also doing well in terms of yield growth against alternative crops across the EU. But at the same time, different cost influences make it very difficult to forecast just how profitable sugar beet will be once quotas end.

Volatility will remain a key feature of the post-2017 marketplace. Future uncertainties affecting price include the level of isoglucose production, EU sugar imports and the extent to which other European countries will continue to produce sugar – as well as their cost base.

“That complicates the picture further – and then there is the impact of the weather,” says Mr Todd. As now, the European sugar price may not be the same as the world price and it is likely that there will continue to be different prices for different markets.

Dennington Hall Farms, Woodbridge, Suffolk

Longer contracts and more price certainty are key for many farmers considering whether to continue growing sugar beet after quotas end in 2017.

“Whether we grow beet in the future depends on whether we are going to get a return – and whether that return is something we can manage sensibly,” says Laura Rous, of Dennington Hall Farms, near Woodbridge, Suffolk.

“I fully appreciate that lots of people will want something different from their contracts, but what we would quite like is a three- to five-year contract, ideally with a minimum price guarantee.”

Some 60ha of sugar beet are grown by the business alongside 1,200ha of combinable crops and vining peas. “Beet is a small but important part of our rotation,” says Ms Rous. “It has been a steady break crop and has easy-to-forecast margins – with good cashflow.”

Timetable for BPS rollout

  • January/February – Farmers and landowners register for BPS
  • February – Registered applicants should check land details including land use and cover
  • March – Sort out entitlements and eligibility
  • April/May – Submit BPS claim

Constraints to growing more beet include an average field size of just 6ha – the farm has rarely, if ever, grubbed up hedgerows – and soil type, which is a mixture of heavy Hanslope clay and Series 1 Beccles sandy clay loam.

Yielding about 70t/ha, beet is lifted by contractors early in the season. A Maus loader helps deal with smaller fields, making beet growing viable across more of the farm.

But soil compaction is an issue, although the crop spreads the annual workload and helps in blackgrass control.

Ms Rous says the business will have to “think very hard” about growing beet in future if the option of an early lift is no longer available. It is also difficult to consider growing more beet if there was no way of mitigating volatility, she adds.

Spreading risk is all important. “That is my main concern – [as cereal growers] we are exposed to volatility in commodity markets and we like beet a lot because have been protected from the volatility of the sugar markets.”