At the 2018 general meeting of Cristal Union, the Chairman of the Board of directors of the sugar group, Olivier de Bohan decided to be open and frank about the deterioration of the global sugar market and the challenges which await the entire industry in the years to come.

The end of the sugar quotas system and prices guaranteed by the European sugar regime have made all the difference economically. With new PAC regulatory schemes, Europe has reshuffled the cards at all levels to make sure market risks are managed. The more comfortable and predictable fairytale world in which the sugar beet industry had been operating has gone.

This paradigm shift occurred at the same time as the global market experienced a sharp deterioration in prices, directly linked to surprising and unexpected production levels in India and Thailand, thus generating a new excess of volumes adding to the already plethoric stocks. The 2018 campaign started with serious imbalances which increased the pressure on the brown sugar market whose decreasing trends are likely to fall even further in the coming months, with white sugar having no choice but to follow the trend.

In addition to this deteriorated market, there is also the inconsistency of public policies conducted at both the European and French level: the questioning of the use of phytosanitary products with no known alternatives to date, major trade agreements causing the European producers to fall short, and the difficult-to-comprehend defense of the palm oil sector at the expense of local biofuels sectors; the entire economic longevity of the sugar sector is indeed threatened.

Strong decisions to guarantee the longevity of the group

All these issues oblige the entire sector to think of safeguarding devices at cross-industry level. Cristal Union has taken the lead by reflecting upon its organization and optimizing its agricultural, industrial, commercial and financial mechanisms, with a long term vision. The board of directors has made the decision unanimously to abolish the minimum price of sugar beet as of the 2018 campaign.

The making of this decision – with the board measuring the strong impact it will have on the cooperators – was necessary in order to guarantee the Group’s longevity. Maintaining a minimum price would further distance Cristal Union from the realities of the market and would weaken its own members’ businesses.

Very good performances for the 2017/2018 campaign

The performances of Cristal Union exceeded all expectations agriculturally and industrially. The Group reported an increase in agricultural areas of more than 20% and yields close to records at 15 tons of sugar per hectare on average, which amounts to the best French performance. The duration of the campaigns was extended by almost 30 days, for an average of 125 days across the group, which allowed for a higher absorption of fixed costs. Cristal Union industrial sites also broke production records with an average speed of 135,000 tons of beet processed for a total production of 17 million tons. These record speeds are attributed to the Group’s efforts since 2010 as part of its ambitious “Cap 2017” plan to modernize the means of production and, in particular, to reduce the global consumption of energy (-10%), water (-50%) and CO2 emissions (-25%).

In financial terms, the Group effected a turnover of 2 billion euros for a 12 month financial year (versus 2.5 billion euros for the previous campaign which covered a period of 16 months). The gross operating profit showed 164 million euros and the net result group share is 49 million euros after payment of a price adjustment to the members of the cooperative. The net debt-to-equity ratio is 0.5x, thus Cristal Union is in a very healthy financial situation despite a troubled market context. The Group’s performances during the year have also allowed Cristal Union to guarantee a level of remuneration for sugar beets with its growers of €28.3/t, pulp and interest in shares included, representing an overall financial return close to 50 million euros.

Note that Cristal Union has continued its process of simplifying its legal structure via several mergers and takeovers during the last three years: industrial and financial companies of Vermandoise (2016), the three Vermandoise sugar beet cooperatives and the cooperative of dehydration of Puisieulx (2017) and two out of three Vermandoise dehydration units (2018).

Assets which allow Cristal Union to break into European and global markets.

Cristal Union is able to deal with a global situation which is increasingly more tense and competitive. For several years, the Group has been preparing and adapting its industrial sites in order to be flexible and reactive while remaining effective and environmentally responsible.

Industrially, the Group has invested over a billion euros since 2010 to bring its production sites up to the best technological level, to increase the qualifications of its teams, give a boost to its management of the performance and switch to all-digital. 2018 saw the completion of major projects such as the Sainte Emilie boiler room project, the sugar silo extension in Corbeilles or the creation of an irrigation network in Fontaine-le-Dun. Admittedly, other investment projects will be slowed down, given the context, but it needs to be stressed that the energy transition of the Group to “total gas” is complete and the transition to biomass is at an advanced stage.

Agriculturally, Cristal Union is constantly searching for solutions and supports its growers to improve the agronomic performance and cost effectiveness of their operations. With this in mind, agronomic research shows real opportunities to increase profits, and in particular, new perspectives opened by the Aker research program.

Cristal Union is also behind the launch of an organic sugar beet sector in France. 145 hectares in sugar beets will be produced organically in 2018, with an objective of 1,500 hectares produced organically in 2019. Cristal Union has completed several projects which are aimed at a better monitoring of bio-agents, and in particular, cercosporiosis, and improve agronomic productivity. This project sets up models and integrates ‘Big data.’

The Group has furthermore launched a diversification of its activities by setting up production of an alfalfa production with more than 6,000 hectares harvested for dehydration in 2017, including 30% grown organically. This development reinforces the animal food cluster of the group. As far as pulp is concerned, the Group wishes to accelerate the valuation in compressed form, while being fully committed to a development policy in the methanisation division, whose environmental contribution is clear.

Commercially, Cristal Union is continuing its development in Europe and beyond. CristalCo, the sales subsidiary of the group, has expanded to the Czech Republic, Romania, Bulgaria and to other deficit regions in the European Union, while more than 300,000 tons of sugar were sold beyond its borders. In total, 2 million tons of sugar were sold in and outside Europe in 2017. Furthermore, with its port silo in Dunkirk and its know-how, Cristal Union has the logistical means to become a major player in the European sugar industry regaining control of the global market.

Alain Commissaire, CEO of the Cristal Union Group, stated: “The Group is very aware of the new economic realities of the agricultural world and has made plans to get through this difficult time; while continuing to trace its own groove, Cristal Union has been looking to seize any opportunity for development, acting with caution given the extreme fragility of the markets. With its cooperators’ reputation as the best producers in the world, its modernized and high-performing industrial plant and its healthy financial situation, Cristal Union may be proud of the work carried out by its teams and trust in its future when dealing with the turbulence of the markets.