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UK sugar beet sowings soar - as double shake-up looms

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UK sugar beet sowings have risen even faster than those in many other European Union countries, as the nation braces for the knock-on effects of Brexit as well as the bloc's industry deregulation.

Associated British Foods, currently the sole processor of UK beet for sugar, said the area it had contracted with farmers for growing sugar beet "has been increased by a third" for 2017-18.

That is double the 15% rise in EU beet sowings overall, as estimated by commodities house Sucden, and larger too than the 16.7% increase, to 110,000 hectares, in UK plantings as forecast by US Department of Agriculture analysts.

Associated British Foods, adding that the UK beet crops was "now well established and making good progress", highlighted the ditching in October of EU sugar output quotas, reforms which are encouraging the expansion in the bloc's plantings.

'Largest importer of EU sugar'

Indeed, the ABF comments follow a forecast two weeks ago from France's Tereos, the world's third largest sugar producer, that its domestic sugar beet processing volumes in 2017-18 will rise by one-quarter to 19m tonnes.

Smaller rival Cristal Union has estimated that its growers will raise sowings this year by 25%.

However, the UK industry faces an extra incentive for expansion, given that it is a major importer of EU sugar – trade over which Brexit has placed a question mark.

The UK imports roughly half of the 2m tonnes or so of sugar it consumes every year, with some 60% brought in as raw sugar, and refined in the country, but approximately 40% in the form of white sugar purchased from elsewhere in the European Union, mainly from France.

"Brexit threatens a major export destination for continental EU sugar exports," according to the USDA, which rates the UK as "the largest importer of EU sugar".

Turning back the clock

Indeed, the prospect of a more domestically focused sugar supply chain has prompted signs of a reversal in a decades-long retreat in the UK beet industry, which has consolidated in the key East Anglia arable farming region.

Al Khaleej International, the sugar giant based in the United Arab Emirates, has submitted plans for what would be first sugar beet factory built in the UK for 90 years.

The factory would be built in Yorkshire, in northern England, near to where British Sugar closed a plant a decade ago, and would produce some 5,000-6,000 tonnes of sugar a day.

'Marginally improved our outlook'

Associated British Foods' comments came as the group outlined a "strong" performance over the last three months, reporting 20% growth in sales and adding that its underlying operating performance had come in ahead of its expectations.

The group said that it had enjoyed "strong" revenue growth in sugar, adding that the retreat in world prices of the sweetener would have "little impact" for now, given that most sales in the European Union were being made at previously-agreed prices.

The southern African Illovo business will see its sugar output rise by some 300,000 tonnes to 1.7m tonnes in the year to September, thanks to the retreat in drought conditions in the region.

However, ABF attributed its improvement in particular to "stronger profit delivery" at the Primark clothes retailing business, "which has marginally improved our group outlook for the full year".

Market reaction

The group's shares stood 2.6% higher at 2997p in afternoon deals in London, having earlier touched 3102p, their highest in 10 months.

Credit Suisse nudged higher by 150p, to 3350p, its target price for the stock, on which it kept an "outperform" rating.

"Primark clearly holds the key to valuation here, and this update confirms it is in robust health," Credit Suisse analyst Charlie Mills said.

By Mike Verdin

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