Sugar giant ED&F Man hired Continental Farmers Group to grow Ukrainian beet even as many other operators are cutting back for fear that prices will "correct downwards".

ED&F Man - whose sugar operations span more than 40 countries, sourcing sugar mainly from the Americas, Asia and Africa - has formed a joint venture with Continental Farmers to supply it with the beet to reopen a refinery in Mykolaiv, southern Ukraine.

"Man has been unable to secure sufficient beet for the Mykolaiv refinery, and is partnering with Continental Farmers Group to assure supplies," John O'Reilly, at broker Davy, said.

"Continental Farmers Group has proven farming capability in Ukraine, including in sugar beet."

Expansion plans

Continental Farmers planted 3,000 hectares with sugar beet for the 2011-12 crop, making it, with wheat and rapeseed, one of the group's major crops on the 16,000 hectares it sowed in Ukraine for the latest season.

The tie-up with Man, which stretches to joint holding of farmland, will boost Continental Farmers' plans to increase its Ukrainian empire to 50,000 hectares by 2016, although the group declined to comment on how much land was included in the tie-up.

The deal would take them "a lot further along the line towards that" target, a person familiar with Continental Farmers said.

The initial expectation is for a harvest of 100,000 tonnes of beet, although production is expected to rise "sharply after that", with a "significant number of hectares of sugar beet under harvest by 2014".

At the average Ukraine yield of roughly 30 tonnes per hectare, the initial harvest equates to some 3,500 hectares.

'Prices to correct'

However, the announcement comes as many other beet producers were reported to be considering plans to cut back, after a bumper harvest drove beet output to 18.6m tonnes, and sugar production rocket to 2.33m tonnes.

"The local market can absorb between 1.8m-2.0m tonnes of sugar. Thus prices are expected to correct downwards and surfaces could decrease next year," Agritel's Kiev office said.

Ukrtsukor Mykola Yarchuk, the head of Ukraine's sugar producers' union, told the Kommersant-Ukraine on Monday that Ukraine's sugar beet sowings could shrink to 450,000-500,000 hectares this year, from 540,000 in 2011.

Longer term, some analysts believe that Ukraine may be able – if it can keep costs down - to revive exports to neighbouring Russia, which remains a net sugar importer despite a bumper beet harvest itself this year.

'Profit-accretive'

The deal will likely be "profit-accretive for Continental Farmers from the outset", Mr O'Reilly added, resting a price target of E0.28 on the group's shares, and an "outperform" recommendation.