Instability of sugar trade

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.