How stockpiling affects the sugar supply chain

Mar 28 2019

Brexit uncertainty has caused some of our customers to stockpile. Here we look at the impact this has on the supply chain and how Ragus is equipped to meet demand.

 

What causes stockpiling?

 

Uncertainty is the main reason why businesses begin stockpiling goods. Not knowing what the future of the supply chain will hold requires preparation, with this often taking the form of being ready to combat potential shortages. Having an adequate amount of goods, therefore, limits risk and ensures businesses can still satisfy customer requirements.

In addition, times of supply chain uncertainty mean businesses often seek to quickly load up on goods, which puts considerable pressure on the shipping and transportation processes. The fear of future complications means they aren’t willing to adopt a ‘wait and see’ approach and feel far more comfortable with a warehouse full of received goods than the prospect of potentially facing long delays.

An example of this that we are currently experiencing at Ragus Sugars is Brexit. Potential additional tariffs on sugar coming from the EU, and a lack of clarity surrounding border controls and access to labour once Britain leaves the EU, has resulted in some of our customers ordering well ahead of schedule. Sometimes even going as far to ask for a year’s worth of deliveries at before the March 29th deadline! We understand this position, but usually advise against such measures as we are fully equipped to maintain normal levels of customer supply.

Pre-Brexit stockpilng has lead to Ragus Sugars experiencing an unusually busy start to the year

Pallets to packaging: stockpiling’s impact on every level of the sugar supply chain

 

Once businesses take a collective decision to stockpile to combat future uncertainty, the entire sugar supply chain feels the effect. Whether it’s companies producing the packaging materials or the manufacturers of wooden pallets for warehouse storage, the trickle-down effect is far reaching, and, ironically, usually causes shortages. Understandably, end consumers are often unaware of just how extensive the ramifications of a rush to stockpile goods is for every actor in the sugar supply chain.

From a Ragus Sugars point of view, the effect of the recent pre-Brexit stockpiling has been a historically busy first few months of the year. Border delays at Calais due to French strikes have ranged from 15 to 20 hours a day, sending a ripple effect through the supply chain caused by people believing they are witnessing a post-Brexit future. As a result, we have had to utilise our decades of experience and expertise to ensure all customer needs are still addressed to the highest standards.

The recently announced Brexit delay could, in theory, bring an end to this unusually high volume of orders, or see a repeat nearer to the time of the next deadline. However, our customers now have a somewhat less pressing window in which to implement their post-Brexit measures and can plan for possible outcomes, with many already employing a dedicated Brexit employee. But with no tangible framework for exiting the EU currently in the works, we could still be faced with a ‘watching and waiting’ scenario for the next few months!

 

Why Ragus Sugars’ advises against stockpiling

 

While we are fully appreciative of the legitimate supply chain worries our customers have in times of uncertainty, we would not suggest stockpiling as a means of coping. Instead, we advocate maintaining normal ordering schedules, backed by the knowledge that our track record of excellence in this area and supplier relationships means we can meet customer needs. In a Brexit context, this means we are already anticipating the several possible outcomes and developing solutions to address each one of these.

For more information on how to benefit from Ragus Sugars’ 97% rate of delivery perfection, contact us now.

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Ragus Pure Sugars’ Kay Sandhu earns Chairman’s Award at the Nestlé Supplier Awards 2019

Mar 21 2019

Ragus Pure Sugars also named as a top 10 UK supplier. Kay’s Individual Award for Above and Beyond recognises our ‘never say no’ approach to meeting client demands.

 

Double recognition for Ragus Pure Sugars

 

Our top 10 ranking by Nestlé comes after achieving perfection on over 97% of deliveries. We are all delighted to receive such praise from a company of Nestlé’s stature and believe our ‘never say no’ approach to customer supply requests means we will only continue to the climb the rankings.

Such an honour is not possible without a team effort, but we must also congratulate Kay Sandhu, our sales office manager, on her superb achievement. Receiving a Chairman’s Individual Award for Above and Beyond service from the largest food company in the world is no mean feat. It is the perfect recognition of Kay’s tireless efforts in creating such high levels of customer satisfaction and ensuring every delivery strives for perfection.

“For our team’s work to be singled out by such a major global company is a real honour,” says Kay. “Everyone in the sales department is delighted to receive such praise for our work with Nestlé. Now let’s get to 100% perfection and make the top five supplier list!”

As well as Ragus being named a top 10 UK supplier, our sales office manager Kay Sandhu, pictured above, received a Chairman’s individual Award for Above and Beyond.

What are the Nestlé Supplier Awards?

 

The Nestlé Supplier Awards are an annual event in which Nestlé recognise the individuals who deliver for them every day. We as suppliers play an important role ensuring Nestle can deliver for its customers, with the ceremony and awards recognising every aspect of the supply chain that makes this possible. Nestlé ranks its list of UK suppliers based on their ability to match a specific set of standards across all deliveries for the year, with a panel of judges then awarding both individuals and companies awards to reflect this.

How are suppliers ranked by Nestlé?

 

Nestlé measures each delivery its suppliers make against a vendor evaluation scorecard (VES). The VES sets out an exacting set of strict criteria that every delivery must meet, with these being centred on key factors such as time and quantity. Percentage scores are then given for each delivery based on the number of constituent items that complied with the VES. This means that if a delivery contains two items and one of them fails to meet just a single VES criteria, the entire shipment earns just 50%!

“Being assessed in such a tough way makes the award win even sweeter,” concludes Kay. “It’s great to see our focus on quality, consistency and responsiveness to our customers’ needs come to fruition in this way, and we hope it leads to even greater success at next year’s awards.”

Give us a chance to win your top supplier award for your pure sugars category – take a look at our product finder and then contact us.

Feature image ©2019Nestlé

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Sugar prices set to rise if no deal Brexit, shows Government Tariff Reference Document

Mar 15 2019

Industrial sugar costs will rise if the UK leaves the EU without a deal on 28 March, as a result of a new post-Brexit tariff regime announced by Government.

New post no deal Brexit tariffs increase EU sugar import costs

Industrial sugar customers across sectors such as food and beverage, pharmaceuticals, brewing and baking are facing an increase in the cost of some raw materials if the UK leaves the EU on 28 March without a deal.

On 13 March, the Government has published its new tariffs, The Customs Tariff (Establishment) (EU Exit) Regulations, potentially leaving only two weeks for businesses to prepare for the prices changes. And the tariffs are likely to remain in place for only one year, possibly resulting in another tariff and price change end-March 2020.

Tariff cost to industry of £37.5m annually

The new €150/t levy on imported white refined sugar for direct consumption, applied because the UK is a deficit sugar market requiring approximately 250,000 tonnes of sugar imports each year, will increase industrial sugar processing costs.

A price increase of this magnitude, which could turn into an annual £37.5m cost rise across the industry, cannot be absorbed by the supply chain, so will be passed on to sugar buyers. This will result in a minimum increase of €150/t for white sugar imported from EU countries.

However, as I write this, MPs have decided that leaving with no deal is not an option and the prospect of an extension is looking possible, adding to uncertainty. An extension could mean this latest tariff notice is irrelevant, but it may be a good indication of what trade negotiators will be seeking out of future trade deals.

Ragus produce a wide range of Pure Sugar products at its world-leading sugar manufacturing site in the UK, including sugars, refiner’s syrups, treacle and Molasses. Ragus’ manufacturing site produces hundreds of tonnes of sugars and syrups each day, all manufactured to the highest quality to ensure customers’ specifications are met.

 

What will be the sugar import tariffs post a no deal Brexit?

Should the UK leave on 29 March without a deal, and day-by-day the outcome is looking increasingly unlikely, the new tariffs and resulting price changes will apply after 28 March.

The tariffs on sugar imports into UK for direct consumption will be:

• White refined sugar: €150/t, which is a special tariff as UK is a deficit market
• Raw Cane Sugar €419/t, the default WTO tariff
• Molasses: currently €0/t
• Glucose Syrup: €200/t

Tariffs on sugar imports for refining into white sugar will be:

• Raw Beet Sugar: €339/t, the default WTO tariff
• Raw Cane Sugar: €339/t, the default WTO tariff

The UK would continue trade preference agreements with LDC/LPAs that have existing EU trade agreements.

Who will pay for the sugar tariff increases?

In conclusion, the import of white refined sugar to supply the deficit UK market, which is approximately 250,000 tonnes, will go up by €150/t, if imported from the EU, but reduce to €150/t if imported from outside the EU.

Realistically, though, this sugar will come from within the EU. The consequence of this will be that the UK supply chain won’t absorb the resulting additional £37.5m cost of this sugar coming from the EU.

As a result, the UK white sugar market price is likely to increase by a minimum €100/t post-Brexit.

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Brexit blog 2: Will UK sugar price volatility improve post-Brexit?

Mar 07 2019

Post-Brexit tariff-free deals with non-EU countries should reduce UK sugar prices and help calm a volatile market. But only if markets function properly.

Why is the UK sugar price so volatile?
Sugar prices in the UK when buying in sterling fluctuate extensively. For example, over the last 12 months, for some buyers the price of sugar in the UK has changed by 35%. A 35% increase in raw materials costs is a huge deal for our customers, such as brewers, bakers, confectioners, food and beverage producers and pharmaceutical companies.

Sugar is bought and sold within the EU using euros. So, if you are buying in sterling from a euro supplier, the UK price volatility is driven by the euro-sterling currency fluctuations, known as the Unofficial Sugar Conversion Rate, or USCR. The USCR can change every 14 days, depending on underlying exchange rates. If the euro-sterling exchange rate is more than 1% different when compared to the rate two week’s previously, the USCR will change.

UK sugar buyers must then add another €20 per tonne to ship sugar across the Channel – UK prices are always higher than those in continental Europe. In addition, UK buyers and end consumers pay more for sugar cane derived products because of EU tariffs, as I’ve discussed previously.

What can reduce sugar price volatility?
There are dozens of sugar cane producing nations outside of Europe – 80% of world sugar production is by sugar cane producing nations. Theoretically, so many suppliers spread geographically around the world manages risk, as the chances of massive under or over supply are reduced. This level of competition should keep prices down.

This is only in theory. There are, in fact, only two major producing nations: Brazil and India. Nearly half of all sugar production in Brazil ends up being used for ethanol production to fuel vehicles.

India is the largest consumer, so if domestic production is poor, then India not only won’t export, but may well buy up surplus global production. The unique features of these two largest players impact significantly on global sugar market prices and price volatility.

Why has UK sugar cane consumption declined in the last decade?
Because of our history and our existing close ties with many commonwealth nations that are also sugar cane producers, the UK is Europe’s largest consumer of sugar cane derived sugar products. Approximately 25%, or 450,000 tonnes each year, of the sugar we consume is from sugar cane.

Before 2006, the ratio of UK sugar beet consumption versus sugar cane was 50:50, so we imported over a million tonnes of sugar cane each year for UK consumption. Then, in 2006, the EU introduced a 36% cut in prices paid to sugar producers generally, cane and beet. The result of this was huge investment by European sugar beet farmers to improve productivity and output. This massive increase in EU grown tariff-free sugar beet has meant that sugar cane imports have declined.

As I highlighted in my previous blog, How will a no deal hard Brexit affect the UK sugar industry?, if the UK leaves the EU without a deal, or a deal which enables the UK to negotiate its own trade deals with non-EU sugar producers, we should have access to global markets and not be so reliant on the EU’s sugar beet production.

But, as you’ve seen so far, the global sugar market is not quite so simple.

The UK leaves the EU with no deal or a deal allowing third party trade agreements
In a perfect post-Brexit world, the UK can negotiate trade deals with sugar cane producing countries with low or no tariffs. These multiple sources of supply should result in low and stable prices to fill the gap between the UK’s domestic sugar beet supply for white sugar, currently 1.4m tonnes, and current domestic demand of 2m tonnes. Trade deals should also drive down the current cost of sugar cane imports, artificially elevated because of EU tariffs.

But the UK’s sugar market functions as an oligopoly, which means there is limited competition because there are only a small number of refiners. Two to be precise: one sugar beet refiner dominating the market and one that imports sugar cane for refining into white sugar.

Naturally, businesses don’t want prices to go down, and, with so few producers, it is possible for a dominant supplier to effectively dictate sugar prices, whatever deals and fixed prices we negotiate with non-EU sugar producers.

As a result, we are unlikely to experience the full benefits of a post-Brexit world in which we can import tariff-free sugar.

What happens if the UK does a tariff-free Brexit deal with the EU?
Should the UK negotiate a deal that includes remaining in the customs union and single market, little is likely to change. That’s because the UK will continue to take its sugar supplies mainly from domestic sugar beet production and it is reasonable to assume low or no tariff sugar beet imported from the EU.

Sugar cane will continue to be imported but will remain subject to some form of tariffs, quite possibly the same levels of between €90 and €419 per tonne currently in force. The benefits of global tariff-free sourcing from multiple suppliers won’t be realised and the price-volatile USCR will remain.

Back in the early 1990s, we used to set our prices for our customers annually, as the sugar market was relatively stable. Whatever the outcome for sugar post-Brexit, that’s a market state we’d like to see returning so our customers don’t experience huge fluctuations in raw material costs during the year. Such a situation may be possible if the UK can negotiate the right Brexit deal followed-up by free-trade agreements with sugar cane producing nations.

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