As oil prices continue to rise, the prospect of more sugar being used in the production of bio-fuel has raised concerns about the supply and price of sugar in the EU, which could have serious implications for European food manufacturers. Alan Osborn reports.

European food manufacturers are increasingly concerned that western governments might turn to sugar beet as a source of bio-fuel in the next few years, with possibly serious consequences for the price and availability of sugar in the long term.

Production of bio-ethanols, which are based among other things on sugar distilled from beets, rose by 70.5% in 2004/5 and experts see this growth rate continuing for several years given the European Union’s (EU) energy targets.

At the very least the trend will unsettle the market and perhaps call into question existing forecasts for the global price of sugar over the next two years. Companies are a little wary of saying just how much sugar they use but given that in Germany confectionery manufacturers buy 800,000 tonnes of sugar a year to produce 3.5m tonnes of products, it is clear that the price of the commodity lies at the very heart of cost and profit projections.

At present, European companies are anticipating a fall in sugar prices from 2008 thanks to the new sugar regime brought in by the EU last year. But the soaring price of oil and the need to find some alternatives has, says David Zimmer, secretary-general of the Association of the Chocolate, Biscuit and Confectionery Industries of the EU (CAOBISCO) which represents about 2,000 manufacturers, “put us in a new situation”.

In particular, it would be “a serious worry”, says Zimmer, if governments decided to subsidise bio-fuels in an effort to ease the energy crisis. This would divert sugar from the food chain and while it wouldn’t necessarily affect the world sugar price it could have dramatic effects on its availability. The confectionery and biscuit industry is currently responsible for 30% of the EU’s total sugar consumption.

“It means we’ll have to monitor availability,” Zimmer told just-food. Since the EU reforms came into force there have not been significant changes in the market but important factors are pending, most notably a decision by Brazil to produce 30m tonnes of sugar annually for use as bio-fuel.

“Our main concern at present is that the (EU) regime change must deliver greater competition with a downward pressure on the sugar price. Where bio-fuels are concerned we have to monitor availability and avoid market disruption through subsidies. But it’s not just sugar,” Zimmer warned. “Oilseed, rape-seed – the same issues arise with these and so we have to monitor these other crops as well.”

Dr Karsten Keunecke, managing director of the chocolate division of the German Confectionery Association (BDSI), was also concerned about the bio-fuel issue but added that initiatives to stem the escalation in fuel prices were as important to food producers as to any other manufacturers.

“We still hope to see prices being reduced for sugar in 2008/9 and hope that it won’t be eaten up by a new outlet for sugar (such) as bio-fuel,” Keunecke said. “That could mean that the market price may even rise, though at the moment I don’t see that happening. It’s a situation which doesn’t please us but on the other hand it may help to keep fuel prices down which is important to us – it’s a game of sums.”