The EU-Mercosur trade agreement's impact on European sugar production could have long-term implications for industrial bakeries' ingredient supply chains, as the sector's safeguard mechanism appears unlikely to prevent further factory closures.

The agreement grants Brazil and Paraguay tariff-free quotas of 180,000 tonnes and 10,000 tonnes respectively - equivalent to one large beet sugar factory's annual output. This comes as the EU sugar sector has already lost 20 factories in eight years, with five closures in the past year alone.

European sugar industry bodies CIBE and CEFS argue the bilateral safeguard clause designed to protect against import surges is structurally flawed. The mechanism triggers only when import volumes surge by 10% alongside prices 10% below EU levels, or when import prices fall 10% below domestic rates.

However, Tariff Rate Quotas are exhausted at the start of each quota year, frontloading imports and eliminating detectable volume surges later. Additionally, the EU-world price differential regularly exceeds 10% under normal conditions, making the threshold routine rather than exceptional.

Supply chain concentration

For bakeries, the concern is less about short-term price movements than structural changes to EU sugar production. The continued consolidation of domestic sugar manufacturing reduces supply chain redundancy and concentrates production in fewer locations.

Marie-Christine Ribera, CEFS Director General, noted the quota volumes match the capacity lost through recent factory closures. Elisabeth Lacoste, CIBE Director, added that the agreement "cumulates with multiple other trade concessions granted for agricultural production, where there are no requirements in terms of competitiveness and sustainability."

Planning uncertainty

The European Commission has announced a €6.3 billion agricultural safety net, though its application to sugar remains unclear. Industry bodies cite the Brexit precedent, where 250,000 tonnes of UK market access was lost without effective compensation measures materialising.

Any safeguard investigation would take months to complete, during which market disruption would continue. For bakeries planning ingredient procurement and cost structures, this creates uncertainty around both EU production viability and the effectiveness of protective mechanisms.

The agreement adds another variable to sugar supply forecasting as bakeries assess whether to adjust supplier relationships, hedging strategies, or contract structures in response to potential further consolidation in EU sugar manufacturing.