The EU and the World Market for Sugar - Finally Sweets for the Developing Countries?

Content's

1 Introduction

2 Some Background Informations

3 EU and the role in the international sugar trade – the status quo
3.1 Imports
3.2 Exports
3.3 Export subsidies
3.4 Who has to pick up the tab?
3.5 Conflicts about EU sugar “dumping”
3.6 Brazil claims at the WTO against the subvention of sugar exports
3.7 Environment – another important point
3.8 Evaluation of the (so far valid) sugar market regulation

4 EU and the role in the international sugar trade – Finally, the change
4.2 Consequences for the countries worldwide

5 Conclusion

6 Figures

1 Introduction

“Without needs the EU murders existences!“ is written in big letters on bills in my homevillage in Germany, which is dominated by agriculture. Most of the farmers earn at least some parts of their income out of selling sugar beets. On the other hand 1000km away in Brussels José Manuel Barroso, President of the European Commission, who doesn’t miss to repeat in any interview the same requirenment: "It's not only about agriculture, it's about services, it's about industrial products, it's about intellectual property rights," he is insisting.^[1] The following Policy Paper is going to show why the sugar subsidies are such a sensitive and important issue and which results the forthcomming reforms of the Common Market Organization (CMO) for sugar will have.

On the 24th of November the European Union Agricultural Ministers agreed on a new cornerstone in the discussion about the reform of the CMO for sugar. Within the recent months the attention about this reform has grown constantly. On one side the affected farmers (especially in France and Germany) of the EU that didn’t want to give up the current status quo; on the other the developing countries that increase their pressure on the EU to open up markets. In respect of the negotiations in the current world trade rounds, which got stuck, the EU was obviously willing to sacrifice a pawn in order to strengthen its position in the negotiations of other (more profitable) topics (e.g. Trade and Services). Due to the delicate history with failures of the Ministerial Conferences in Seattle (3rd Conference), the partial failure of Doha (4th Conference) and finally Cancun (5th Conference) the Honk Kong meeting should deliver a more significant outcome in this topic.^[2] Otherwise the whole GATT respectively the WTO-system might be on disposition. In addition it is important to note that the sugar sector is the only agricultural sector that hasn’t been affected by both of the two big WTO reforms in 1992 (McSharry Reform) and in 2003 at all.^[3] But why is the sugar production such a sensitive topic at all?

The EU is one of the most important and influential actors for production, but also import and export (2nd rank behind Brazil)^[4] worldwide. So far the 30th of June 2006 was a magical key-figure for the EU. On that day the CMO for sugar run out and until last week it was not quite clear how or what will from that day on for the EU sugar producers. So far the cheaply produced sugar from different peripheral countries (e.g. Brazil) had to compete with highly subsidised sugar out of the EU.^[5] Under the pressure of international trading rules and the lobbyism of the european food industry a substantial reform of the market regulation got more and more probable. The important question is now: How will be the future for the consumers, the farmers, the sugar industry and the sugar producing developing countries look like?

2 Some Background Informations

Sugar, one of the most important agricultural products, can be produced in two ways. First, which is the case in moderate regions like the EU, it can be extracted out of sugar beets (30 - 40%). Secondly, within (sub) tropical areas it is produced out of sugar cane (60 - 70%).^[6] The world sugar production is concentrated in Europe, USA, China and Japan (for sugar beets) and in India, Brazil, Thailand and Australia.^[7] Since the 2nd half of the 19th century the world market for sugar can be characterized of a high competition between sugar beets and sugar cane. Due to the trade policy of the EU this competition has aggravated since the 70s of the last century. For more than 30 years the exports get highly promoted and subsidised. Some market experts comment this policy as sugar dumping.^[8] However, it is because of this support (for the agricultural sector in the EU) that countries like Brazil, Thailand or Australia lost important export markets. In addition the aids to the EU farmers increase the erosion of the world price for sugar. Therefore Brazil complained heavily at the WTO against these subsidies.^[9] The Trade Policy of the EU is not in line with most of the general principles (non-discrimination, free trade, predictability, promoting free trade, encouraging development and economic reforms), they state. Other market commentators say, however, that the dramatic increase of the exportable surplus of Brazilians agricultural sector almost explains the decline in the world market prices.^[10] In addition the EU itself refers to the fact that nearly all countries except Brazil and Australia are selling sugar at world market prices and hence at lower prices than their domestic ones.^[11] Nevertheless, due to the pressure of the WTO and in face of the willingness of a reform the end of the “post-war-sugar-politics” has come to an end now. The opening up and the reducing of the overproduction will have a big influence on the agricultural sector in the EU, but also on the sugar exporting countries.

The world sugar production is steadily growing by around 1.5% each year.^[12] Whereas the production of sugar beets is nearly unchanged, the sugar cane enjoys an increasing popularity. As mentioned above, Brazil is heavily contributing to this development within the recent ten years (deregulation of the local alcohol market, devaluation of the Brazil Real and record crops). On the other hand the consumption of sugar has been unchanged within the developed countries.^[13] In Europe the consumption is about 35kg p.a. and person), but in the developing countries it is growing hand in hand with the growth of the population. Since more than ten years the production for sugar overweights the consumption, which leads to an increasing stock of sugar. And this of course is one important reason for the low level of the world price for sugar. Another reason is also the very volatile price itself.^[14] Variations of 100 to 300% within only few years are no rarity (caused by climatically or speculative factors). Countries that do not benefit from export subsidies are exposed to this volatility, which is a big problem for countries, which economy and tax incomes heavily rely on the sugar sales.

[...]

^[1] http://www.eubusiness.com/Trade/051114164245.sqqk628k/view (from 14/11/2005)

^[2] http://www.panda.org/about_wwf/what_we_do/policy/policy_and_events/wto/index.cfm (from 13/11/2005)

^[3] http://www.pan-uk.org/pestnews/pn39/pn39p6.htm

^[4] ftp://ftp.fao.org/docrep/fao/005/y4852e/y4852e10.pdf

^[5] Commission of the European Communities 2003 Reforming the European Union’s sugar policy : summary of impact assessment

^[6] http://assets.panda.org/downloads/publicwwfsugarpositionjune2004long.pdf

^[7] See „Wirtschaftliche Vereinigung für Zucker, 2004“, www.zuckerverbaende.de

^[8] Although „dumping“ is normaly the expression when a company is selling a certain product below the basic price.

^[9] See WTO paper from 2005: EUROPEAN COMMUNITIES – EXPORT SUBSIDIES ON SUGAR

^[10] USDA, Foreign Agricultural Service (2004): Brazil – Sugar Semi-Annual – 2004

^[11] http://europa.eu.int/comm/agriculture/index_en.htm

^[12] http://www.east.asu.edu/msabr/research/workingpapers/msabr0207_ brazilsugar.pdf

^[13] http://www.wwf.de/naturschutz/landwirtschaft/agrarpolitik/zucker/welthandel/

^[14] http://www.ifma.nl/files/papersandposters/PDF/Papers/Zimmermann_2.pdf