Cosun achieved an excellent financial result in 2017. The profit for the year exceeded that for 2016. All business groups contributed to the group result. We are proud of all our staff who helped bring about this remarkable feat. The prospects for 2018 are not as rose coloured. The sharp drop in sugar prices on the world market and in Europe during the year will feed through into the results for 2018.
The growth in the global population and advances in economic wellbeing and prosperity are driving worldwide demand for food. Europe has witnessed a pronounced economic recovery and Cosun benefited from the accompanying boost in consumer confidence; our group reported higher results than in 2016. During the first half of 2017 European and world sugar prices fluctuated at a reasonably high level. In the second half, we saw an unparalleled drop in prices. Nevertheless, the sugar operations achieved a substantially higher result than in 2016. Our other activities also performed well, with higher volumes, higher turnovers and higher profits before non-recurring items.
Dirk de Lugt Albert Markusse
Chairman of the Board President & CEO
The world sugar market amounts to approximately 175 million tonnes and is growing by 1.5% per annum on average. World sugar production in 2017 was about 5 million tonnes higher than consumption. This imbalance exerted pressure on sugar prices on the world market.
The termination of the common EU sugar market organisation in September 2017 triggered a significant increase in the area under sugar beet in Europe. In combination with the good conditions during the growing season, this resulted in a very substantial beet harvest. Sugar prices in the European Union accordingly came under severe pressure.
Cosun has taken measures in recent years in anticipation of the end of the common market organisation. It has, for instance, opened sales offices in southern Europe and other regions that consume more sugar than they produce. Now that we have gained a foothold, we will replace the imported cane sugar we are currently selling there with beet sugar. To this end, we have increased the capacity of our factories in order to process more sugar beet.
With the abolition of the EU sugar market organisation, conditions have become more dynamic and more comparable with those on the markets for other arable products such as potatoes and cereals. The record production volumes in Europe and the rest of the world have reduced sugar selling prices to very low levels. Selling prices are expected to firm up again when production and consumption return to balance on both the European and the world market. However, we know sugar prices will remain volatile and we will be hit harder by movements in the world market than in the past.
Despite the sharp drop in international sugar prices, Cosun maintained its position thanks to strict cost control on sugar sales contracts concluded in 2016 and the contribution of the non-sugar activities to the group result. The greater part of the growth on the previous year, however, came from our sugar activities. All in all, 2017 was a good year for Cosun.
Some of the profit for the year was invested in our production facilities. The sugar factories have been scaled up, the potato processing capacity has been increased in Europe and China and our factories have been modernised across the board. We have also invested in energy savings and process innovation and in research and development to optimise existing products. In Dinteloord, a completely new innovation center has been built for researchers to share their know-how and experience.
Government measures affect the primary sector as well as the manufacturing sector. Regulations are in place, for example, on the use of crop protection agents and measures have been taken to promote biodiversity and prevent the undesirable increase in temperatures. The European playing field is not level in all these areas. Some countries, for example, subsidise beet production, others, such as the Netherlands, do not.
The Paris climate agreement is being transposed into government policy. We expect the ambitious energy saving targets to have a significant impact on our activities. Cosun will bear its responsibility as an arable farming cooperative by redoubling its efforts to meet the targets. We will do more than our share, and we will also seize the opportunities provided by developments in green chemicals.
Robert Smith stood down as CEO on 1 June 2017. We are extremely grateful to Robert for his dedication and the results achieved under his leadership in recent years. He has been succeeded by Albert Markusse, who was managing director of Suiker Unie. Albert Markusse has been succeeded by Paul Mesters.
2018 will be a difficult year for Cosun. International sugar prices are at a historic low and are expected to remain weak for the foreseeable future. The profitability of our sugar activities, and therefore of Cosun as a whole, will come under extreme pressure.
Our strategy of not being entirely reliant on the sugar activities and of widening our portfolio by processing other vegetable raw materials therefore seems to have been a judicious one. The return on these activities is expected to be in line with that for 2017 and they will contribute to the group result. Even though the result for 2018 will be lower, we are looking to the future with confidence.