The EU sugar reform was widely expected to bring about higher world market prices. The immediate effect of the massive decreases in export availability of EU sugar was, however, muted. This can be explained by the fact that the first years of the reform coincided with seasons of record sugar output in India and further rapid expansion of sugar production in Brazil.
The absence of the previously guaranteed supply of EU sugar has nevertheless taken a toll on the 2009/10 season, during which both India’s and Brazil’s sugar outputs were far below expectations due to bad weather in mid-2009. World market prices reached a 29-year high.
On the import front, the sugar regime reform has not changed the concept of restricted market access for imported sugar, and imports to the EU market remain highly regulated. Imports from all sugar producers not party to preferential trade agreements remain subject to the out-of-quota import tariffs: EUR 339/tonne in the case of raw sugar and EUR 419/tonne in the case of white sugar. Due to the prohibitive import duty, most sugar imported to the European Union must be delivered under one of the existing preferential access schemes, including:
- • the ACP/India Sugar Protocol to be replaced by Economic Partnership Agreements (EPA) trade regime as from 1 October 2009;
- • deliveries under the EBA initiative;
- • regional tariff rate quota (TRQ) for sugar under the West Balkan Free Trade Agreement; and
- • WTO quotas under the WTO most-favoured-nation principle (WTO schedule CXL) - the quotas agreed at the time of accession of Finland, and later of Bulgaria and Romania to the European Union.
Our analysis shows that, in general, in the case of preferential exporters, the reform of the EU sugar regime works towards the same goals as within the Community. On the one hand, the reform stimulates efficient producers to increase production, which can be directed to the still-lucrative EU market with prices considerably higher than those of the world market, while market access continues to improve considerably. On the other hand, due to severe cuts in prices, high-cost producers are expected to abandon sugar production or to consolidate production to achieve efficiency goals.
There are a number of developing countries, with preferential access to the EU market which have undertaken ambitious projects aimed at increasing both efficiency and the output of their sugar industries so as to take full advantage of their better market access to the European Union. An important consideration is that after the reform, with the consequent cut in European domestic production, preferential exporters have received not only rights to export more, but also face higher demand. Obviously, the situation varies greatly from country to country.
There are clear winners and losers of the reform. In the winning camp there are low- cost producers who are meeting a new and challenging environment by expanding cane supply and processing capacities, and thus further lowering costs of production and improving efficiency. Sudan’s potential here is particularly remarkable. On the losing side, there are high-cost producers who are not able to cut their production costs nor ready to take advantage of the better market access to the European Union. So far, only St. Kitts and Nevis have decided to abandon sugar production.
1. Senior Economist, International Sugar Organization, 1 Canada Square, Canary Wharf, London E14 5AA, United Kingdom.