Brazil is already the main sugar supplier to the Middle East and Northern African countries, and should reinforce this position even further, after the World Trade Organization (WTO) limited European Union exports of the commodity.
An open panel discussion at the WTO concluded that the EU was causing distortions in international trade, especially due to the subsidies from the bloc’s governments to its producers, therefore the WTO condemned the EU to limit its shipments to 1.4 million tons per year.
The consequences of the decision, which became effective towards the end of May, have not yet been felt in the 2005/2006 European crop, which ended in September, but beginning in the 2006/2007 crop, the limit for shipments will be observed, according to International Sugar Organization (ISO) economist Leonardo Bichara Rocha.
He claims that the EU output, which totaled 21.8 million tons in the last crop with exports of 7.5 million tons, should close at 17.1 million for the next crop.
"Exports from Europe to the Middle East and North Africa are basically white sugar for direct consumption. With the forecast of decline in these sales, some of these countries have established their own refining capacity, and began importing more raw sugar from Brazil," Rocha said.
Even some Brazilian companies are investing in refineries in the region, as is the case with Cristalsev, currently building a plant in Syria in partnership with Cargill Africa and local companies.
This trend has been happening for some time now, but should become more pronounced from now on. According to Rocha, until the end of last decade, Gulf countries imported approximately 500,000 tons of sugar from Brazil per year, a volume that presently revolves around 1.5 million. "Refineries are emerging in the Middle East that sell Brazilian VHP sugar," said Rocha.
The VHP acronym means the product has a very high polarization ratio, i.e., not refined but almost there, thus lowering refinement costs. Besides this differential, production costs in Brazil are low, and the country is fully capable of meeting the demand.
According to the specialist, more than 20 new plants should be inaugurated in Brazil in 2007 alone, which should increase production capacity by approximately 2 million tons.
"The companies doing their own refining in these countries are profiting, since the VHP cost is lower than that of ready-for-consumption white sugar," Rocha claimed.
"And the countries with no refineries, which used to buy from the EU, are now importing from their refinery-equipped neighbors," he said.
Whereas the EU output should decrease to 17.1 million tons in the 2006/2007 crop, Brazilian exports alone should go up from 17.8 million to 20.8 million tons, in a market that should exceed 46 million tons throughout the world during the same period.
In the long run, though, Rocha claims that Brazilian exports should not continue increasing at the same rate; instead, they should remain at around 2% after the market reaches a balance. "There is a natural limit for consumption growth," he concluded.
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