Sugar’s Challenging Future

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By David Jessop

News Americas, LONDON, England, Mon. Nov. 21, 2011: Sugar no longer gets the coverage it once did. In years past when a development occurred that threatened the industry’s viability, there would have been extensive press and radio coverage, political comment, and a subsequent reaction from Europe and its diplomats.

Today, tourism has taken King Sugar’s crown. The sentiment in much of the Caribbean is that sugar is either of much less economic significance, or is a dying industry. In Europe the view is similar: that the industry in the region can never be efficient, should have disappeared long ago, and those involved are prone to crying wolf.

This is unfair, unjustified in countries where a successful rationalization and transition is underway, and to miss the point about the continuing need for a viable cane based sector as a part of a well diversified Caribbean economy.

One unfortunate consequence of years of criticism of the sector is that it is now harder to encourage support when significant changes to existing arrangements are likely to affect the cane industry’s fortunes. This is despite the fact that what may be happening will touch the many thousands who depend on what is a diminished but still important activity in terms of employment, foreign exchange, the environment, rural life and social welfare.

For this reason, it is worrying to see how little public interest has been shown in the recent proposal by the European Commission (EC) to make significant changes to the EU’s Common Agricultural Policy, which will, by extension, if adopted, affect negatively the sugar industry in the ACP Caribbean.

On October 12 the EC’s Agriculture Directorate announced that it intended to abolish all quotas on the domestic production of sugar – mainly from beet but also some cane – as of September, 2015.

This decision, which forms a part of Europe’s planned long-term approach to agricultural reform, will have the effect of radically altering the nature of the European market for ACP sugar, and has potentially dire consequences for that part of the sugar industry in the Anglophone Caribbean that is Europe-dependent and had hoped to compete in a market where future production is managed.

Since 2009 a transition has been underway in the EU regime for ACP sugar imports. This followed the ending of the ACP EU Sugar Protocol.

As of that year and up to October 2015, a number of major changes are being introduced. During this period the guaranteed prices paid for ACP sugar by Europe has been decreasing and will finally disappear; quotas are being increased; and the number of ACP countries able to benefit from the preferential arrangement is much greater.

In the case of the Caribbean – the only region of the ACP to have signed a full Economic Partnership Agreement (EPA) with Europe – sugar entering the EU market ceased to be subject to any quota as of 2009, offering the region unlimited access at the prevailing minimum price for ACP sugar in the EU market.

During the transition period, minimum guaranteed prices are being reduced up to September 2012. This price is set at a level no lower than 90 percent of the EU reference price for the marketing year in question. After September 2012, prices will be determined by the market.

What is now being proposed, therefore, undercuts the expectation and the potential longer term opportunity the Caribbean was given in the EPA of unlimited market access in a managed market. It has also damaged the hopes of other ACP suppliers and sugar producers in the Least Developed Countries (LDC) who under the earlier ‘Everything But Arms’ initiative already have similar arrangements to those contained in the EPA. This is because, as producers point out, duty free and quota free access is worthless without a remunerative and predicable price.

The decision may be particularly challenging in a nation like Jamaica that has successfully privatized its industry, is beginning to expand its cane acreage and is hoping for a significant turn around in the industry’s fortunes.

In a strongly worded statement following the EC’s announcement, all ACP and LDC cane sugar suppliers expressed dismay with the EC’s proposals to eliminate EU sugar quotas in 2015, noting that it jeopardized the European market balance and the future of their sugar industries.

They argued that market management tools making use of quotas meant that it had been possible to cushion the impact of world market volatility and that as such, the removal of quotas in three years time would be premature. They also noted that the EC’s proposal ignored a recent resolution of the European Parliament and constituted a deterrent to ACP and LDC to invest in increased efficiency, an approach which Europe had supported with an allocation of Euro 1.2 Billion in accompanying measures.

In the case of the Caribbean, Guyana’s Ambassador in Brussels, PI Gomes, noted that for the region, which has ratified and is implementing the EPA, these changes are tantamount to a unilateral modification of a treaty. He also pointed out that the ACP does not have the luxury of the EU system that enables farmers to be subsidized to turn their land to environmental or other uses when the market is oversupplied.

The damaging effect of the new EC proposal on sugar exports from the Caribbean suggests, once again, that Europe, in its rush to resolve its own internal market difficulties, is prepared to set aside its professed commitment to development in favor of market oriented approach that resolves its problems.

David Jessop is the director of the Caribbean Council and can be contacted at david.jessop@caribbean-council.org. Previous columns can be found at www.caribbean-council.org.

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