Downside for Africa in cutting the EU sugar price?

20 June 2005
Ian Gillson
Comment
The power of the sugar lobby never ceases to amaze me. It now seems that once proponents of radical reform to the EU’s Sugar Regime are backtracking.

Sugar beet is grown in all EU Member States except Luxembourg, Estonia, Cyprus and Malta. The Sugar Regime, first introduced in 1968, provides for guaranteed prices to producers and growers within the EU and controls the supply of sugar through quotas on production and imports, export refunds and intervention buying if the domestic price of sugar falls below an intervention price. The Sugar Regime is financed primarily by EU consumers (who pay higher than world prices) and levies on EU sugar production. Annexed to the Lomé Convention, the Sugar Protocol provides a binding commitment, of indefinite duration, for 1,294,700 tonnes of preferential imports of cane sugar to the EU market at guaranteed prices from 19 ACP countries.

There are a number of internal and external pressures that have made reform of the Sugar Regime inevitable. Pressures include:

  • reducing tariffs on non-Protocol imports (Uruguay Round Agreement on Agriculture);
  • reducing domestic support for sugar producers and eliminating export subsidies (July Framework Agreement, WTO);
  • increasing imports from non Sugar Protocol countries (Everything But Arms);
  • the possibility of extending duty free access to non-Protocol countries (Economic Partnership Agreements under the Cotonou Agreement).

The EU is planning to cut the minimum beet price by 42% from 2006. Those EU countries which stand to lose the most are Ireland, Italy, Greece, Portugal and Spain.

But according to Oxfam, who little more than a year ago were lobbying for complete liberalisation, such deep reform will adversely affect the few, but by no means all, African countries allowed to sell their sugar in the European market and receive the (high) European price.

Instead, Oxfam now proposes that prices cuts be made more gradually and that African farmers should be given better access to European markets. And not all subsidies should be scrapped just “payments that distort trade, encourage overproduction and dumping” (The Guardian, 20 June 2005).

But postponing reform of the EU’s Sugar Regime cannot be justified. Countries must eventually face the costs of adjustment and, in any case, such a strategy would be unsustainable given the pressures for reform and the widespread global view that tariff preferences distort international trade. Reducing preferences for sugar exports from Sugar Protocol countries will have beneficial effects on development and poverty reduction in other major producing countries which are not party to the agreement although losses for some ACP suppliers (mostly Caribbean not African) will be high, as higher production costs mean that these countries and regions can only sell profitably to a protected market.

Any trade preferences bring with them the threat of future preference erosion. Financial solutions must also be found. This means that for countries where production remains viable, support should be provided for restructuring. This could mean increasing the competitiveness of the declining sector (including branding and niche marketing opportunities) or developing related products e.g. ethanol. Niche markets (such as Fair Trade or organics) provide a price premium which could allow some ACP countries to maintain production. However these approaches may be unable to preserve significant levels of output for those countries whose long-term competitiveness is in decline. In the long run, diversification into other activities is the best strategy for high-cost Sugar Protocol countries. Although the inability to diversify into new sectors could be hampered by characteristics such as vulnerability to natural disasters, topographical features and smallness, diversification would reduce risk and bring more stable export revenues.

As for justifying Green Box support, if it looks like a duck, waddles like a duck, quacks like a duck, and swims like a duck – it must be a duck.

Ian Gillson