UK sugar beet farmers grapple with uncertainties

UK sugar beet growers have had to face the challenges of an unresolved Brexit process, the weather, and a ban on neonicotinoid pesticides in the run-up to the official October 1 start of the 2019-20 campaign.

To get the farmer's view on the state of the industry, S&P Global Platts visited Park Farm in Thorney, near Peterborough, in eastern England, to meet National Farmers' Union Sugar Board chairman Michael Sly, along with NFU Sugar head James Northen and commercial analyst Arthur Marshall.

The farm is set in the landscape of the English Fens, which is so flat it looks like some gargantuan steam roller has trundled across it, making the horizon seem incredibly far away and the fields look endless. The sophistication of the equipment used was also impressive. Following planting, the location of each beet seed can be determined to within one centimetre using GPS.

However, by far the most impressive piece of machinery was the enormous Ropa Maus beet loader – which you can see in action here. This takes lifted beet, cleans them and dumps them into the truck to take them to the sugar factory. The reach of the conveyer belt means trucks can be loaded over a fence, hedge or drainage ditch.

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The beet-growing sector is being as adaptable as it can be in an uncertain, post-quota environment. There is a degree of concern, though, that marginal producers might give up on beet if profits shrink due to higher input costs and loss of yield due to pest damage and the weather.

Brexit uncertainty

NFU Sugar's statutory powers are derived under EU law, and while these powers will continue "post-Brexit” the group's mood on Brexit was one of exasperation, given the lack of any clear direction in which events were heading.

NFU Sugar negotiates collectively on behalf of the 3,000 sugar beet growers in the UK with the monopsony purchaser British Sugar, a unit of Associated British Foods. Given the lack of a properly functioning market for sellers of sugar beet, another critical function of NFU Sugar is to monitor the weighing and testing of sugar beet that goes into British Sugar factories, to ensure growers are being paid fairly for what they deliver. After all, they can't go to another beet processor if they're not happy.

The NFU as a whole is lobbying the UK government to change its tariff scheme for a no-deal Brexit, particularly on cereals, something NFU Sugar supports. Northen said this is because sugar beet is rotated with wheat, and for beet farmers, any benefits for for the sugar sector would be outweighed by the impact on cereals.

On the face of it, the tariff regime for sugar appears highly favorable for the domestic sugar industry, particularly because the UK is a deficit country. In the event of a hard Brexit, imports of white sugar would have to pay a duty of Eur150/mt ($165/mt), including those from the remaining EU member states, while a new duty-free import quota of 260,000 mt of raw sugar would be implemented with no restriction on origins. This would effectively rule out sugar imports from the EU-27, however, Marshall pointed out that the tariff would not apply to speciality sugar or products containing sugar. This could be of particular significance if foodstuff manufacturers were to move capacity out of the UK into the EU.

New contract with British Sugar

The link with wheat is also the reason why the contract between British Sugar and NFU Sugar for beet delivered in the next-but-one campaign was historically announced in July, because it is during the wheat harvest that farmers are deciding whether they will rotate sugar beet onto those fields and therefore need to prepare the soil accordingly.

This year the contract was not agreed until September 13, due to disputes over the terms of a three-year contract. The one-year contract price was agreed at GBP19.60/mt ($24.46/mt) for 2020-21, 53 pence more than in 2019-20.

The three-year contract, running from 2020 to 2022, was priced at GBP20.45/mt. Farmers currently with a three-year deal which runs out and the end of 2019-20 can opt into the terms of the new deal from the start of 2019-20.

The contracts will offer bonus price incentives for growers if the European Commission reference price for sugar reaches a certain value. If the price rises above Eur375/mt farmers on the one-year contract will receive 15% of proceeds above that price point. Those on the three-year contract will receive 25% of proceeds over a reference price of Eur400/mt.

Marshall said it was in British Sugar's interest to sign farmers up for the simple reason that it needs enough beet to make the amount of sugar it thinks it can sell profitably.

Sly gave as an example the Wissington sugar factory which is in an area with a wide diversity of soil types, meaning farmers can easily switch crops and are highly price-sensitive as a result.

According to British Sugar's website, Wissington processes 3 million mt a year of beet from which it produces 400,000 mt of sugar – around 20% of the UK's annual consumption – and 64,000 mt of fuel ethanol. Marshall added that he anticipated the bonus paying out, and that the beet area planted might increase slightly from the 100,000 ha due to be harvested in this year's campaign. Sly said he did not see the delay as being that disruptive to cropping plans.

Neonicotinoid ban

One important factor for farmers in deciding on whether or not to plant beet has been the EU-wide ban on neonicotinoid pesticides to protect the bee population. Neonicotinoids mainly kill aphids which spread virus yellows – called this because they turn beet leaves yellow – which reduce both beet yield and sucrose content. National governments are allowed to grant exemptions and several EU countries have done this for the current crop. The consensus among the NFU Sugar representatives was that it would be politically unacceptable to lift the ban in the UK even after Brexit.

But despite the ban, UK beet yields are forecast to rise. Sly said part of the reason is the aphid population is starting from a low base due to pre-ban use of the pesticides. Another base effect is that planting for the 2018-19 campaign was delayed because of the weather and, like this year the summer was dry and hot. Marshall added that that the rise in yields might have been even higher had neonicotinoids still been allowed.

The UK industry is looking to the future and significant investment is being made in developing virus-resistant beet varieties. However, this will take time, not least as there are three different viruses that cause the condition, and industry expectations are that it could take several years to breed beet that can resist all three viruses. Northen said there might also be a trade-off between yields and virus resistance, depending on soil and weather, with the result that some farmers might not use new strains because it would be uneconomic, risking a high virus year in the pursuit of higher yields.

Sly and Park Farm's operations manager, Martin Stuffins, suggested that under the right conditions the pest situation could reach the same levels as in 1974, when the resulting low yields and margins forced many farmers to abandon sugar beet for good.

The neonicotinoid ban also means the crop has to be sprayed, whereas before the neonicotinoids were coated on the seeds. This has meant an increase in costs, particularly for fuel, as more passes have to be made over the beet. Stuffins said fuel made up a major part of costs, an issue made even more prominent at the time of Platts' visit due to attacks on two Saudi oil facilities over the previous weekend. Also looming is the tightening of diesel supply pushing prices up, as fuel is diverted to the shipping sector which will have to meet more stringent sulfur-emissions rules from January 1, 2020.