Problem

Instability of sugar trade

Other Names:
Instability of trade in sugar, sugar preparations and honey
Nature:

There are two world sugar markets: one protected by regional commercial agreements at relatively high prices; the other, unprotected, and characterized by sales at relatively lower prices. One of the major reasons for the chronic instability of the latter market is that it is open to commercial dumping. A certain number of countries consider that their profits are insufficient and therefore accumulate surpluses until forced to dump them on the free market. Other countries limit their purchases, particularly when the price rises, because of lack of sufficient foreign exchange.

The world sugar market is such that of some 100 million tonnes produced, 70% are consumed in the producing country, 30% are exported. About 50% of the export trade is governed by the Commonwealth Sugar Agreement, the USA Sugar Act, agreements governing Cuban exports to the centrally planned economies and the EEC/EU's imports from the Lomé countries. The remaining tonnage constitutes the free market, which is governed by the International Sugar Agreement]. (There are also higher priced sales to the US under its current legislation, which could be called 'special arrangements', though they are considered under the ISA as part of the free market).

The free market is limited in size as a result both of special arrangements and of protection for domestic production in most developed countries; and is partly taken up by developed country exports, where protective programmes have resulted in more than self-sufficiency, these exports being sold at prices far below cost and often heavily subsidized. Efforts to improve the situation through international sugar agreements have not been successful in the past decade. Although admittedly flawed in some of its particulars, the essential reason for the lack of success of the ISA of 1977 was the absence of the largest exporter to the market it attempted to regulate; and efforts in 1983-84 to negotiate a new agreement failed because of the inability of major exporters to agree on their own roles in the proposed agreement. The United Nations Conference, in which the negotiations were held, ultimately settled for an administrative agreement which was intended to prepare the way for a new economic agreement when attitudes become more propitious. The result of this whole situation has been chronically low foreign exchange earnings for most developing country exporters, relieved only by short bursts of high prices at wide intervals and, more importantly, higher prices under the particular arrangements referred to above.

Claim:

Annual fluctuations in the free market have a considerable effect. The situation is especially difficult because the developed producing countries treat the free market as a means of dumping their surpluses and are not especially concerned about the price impact on developing producer countries which do not have large internal markets to absorb most of their production. Efforts towards national self-sufficiency and increases in the production of beet sugar, particularly in Europe, aggravate the difficulties. As recently as 1976 the EEC/EU has moved from a net importer to by far the largest exporter to the free market in each of the past five years. It has been estimated that removal of the trade barriers instituted by the protectionist countries in western Europe would result in a very substantial increase in their import requirements and increase the annual export earnings of the developing countries.

Counter Claim:

In a bizarre reversal of geography, Europe is the world's largest exporter of white sugar even though it costs twice as much for European producers to grow than farmers in poor countries. The high prices European consumers pay for sugar subsidies European exports which destroy the livelihoods of more efficient farmers abroad. In any sane world, Europe would import most of its sugar from countries such as Colombia, Malawi, Brazil, Guatemala and Zambia. Instead European sugar is dumped abroad at below cost prices, putting farmers who could otherwise sell in local markets out of business. The biggest beneficiary in Europe is the sugar industry, handed a monopoly by Brussels to process at fixed prices, making companies like British Sugar one of the most profitable in the food sector. Research commissioned by the European Commission shows that full liberalisation of the sugar market would cut European production from 20m tonnes a year to 6m tonnes. Under the regime, 1.9m tonnes is imported from the developing world: with liberalisation this would rise to 10m tonnes while EU exports would fall to zero. The impact of this on the world sugar market would be dramatic – global sugar prices would rise by 30%, making an enormous difference to the livelihoods of millions of small farmers around the world. European consumers would be better off as well, even with higher world sugar prices, given that European prices are three times the world average.

Problem Type:
E: Emanations of other problems
Date of last update
05.01.2018 – 19:31 CET