Forthcoming Changes in the EU Banana and Sugar Markets: A Menu of Options for an Effective EU Transitional Package

Briefing papers
April 2005
Ian Gillson, Adrian Hewitt and Sheila Page

Preferential access under the EU’s Sugar and Banana Protocols has afforded large income transfers to a number of ACP countries. These transfers will be reduced under proposed reforms to the EU’s sugar and banana markets which have had to respond to a number of internal and external pressures. Reducing preferences for sugar and banana exports from ACP Protocol countries will have beneficial effects on development and poverty reduction in other major producing countries which are not party to these agreements. However, losses for some Caribbean ACP suppliers will be high as higher production costs mean that these countries and regions can only sell profitably to a protected market. The most significant losses relative to external income will be for St. Vincent (bananas), Guyana (sugar), Dominica (bananas) and Belize (bananas and sugar). In the absence of assistance, countries losing from changes to the regimes may attempt to delay reform to the detriment of those countries which stand to gain.  

The European Commission has indicated that it will be proposing specific measures to assist the ACP Protocol countries in adjusting to changes to the EU’s Sugar Regime due to begin in 2006. This can be justified under the EU’s international obligations because it is partially withdrawing from a binding undertaking which was of unlimited duration. In its sugar reform ‘action plan’, the European Commission proposes transitional assistance measures along three main axes: i) enhancing the competitiveness of the sugar sector, where this is sustainable; ii) promoting the diversification of sugar-dependent areas; and, iii) addressing broader adjustment needs. The emphasis will be on ACP countries themselves to design and implement country-specific strategies while the role of the Commission will be to propose a broad range of assistance options and deliver efficient support.

Our study identifies a number of options for an effective EU transitional assistance package to support sugar- and banana- dependent ACP countries. As part of this, we propose the creation of a dedicated preference erosion scheme to finance investments supporting industry restructuring and export diversification. The scheme would need to be predictable in order to encourage investment and to avoid strict conditionality to quicken disbursements.

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