One of the great achievements of the EU sugar policy makers was to make the EU sugar industry globally competitive before letting it loose on the global market place. During the honeymoon period in the first year, post liberalization of the sugar regime1, a positive sentiment supported significant expansion in production amongst the top sugar producers. But like all honeymoons, this was short lived. The reality that very few, if any other sugar industries play by the rules has become self-evident. The fact that the policy makers had not developed a contingency plan to address the relative excesses of other sugar industries save for the safeguard measure against dumping through punitive tariffs, is in itself both remarkable and arguably reckless.
With EU sugar producers adding to the global glut in 2017/18, the global price invariably dropped and has been stagnant, with stocks well replenished. This has hit the profitability of all sugar companies in the EU. Public announcements by Suedzucker and Crystal Union that they are to close seven sugar factories over the next year are an acknowledgement of the financial crisis in the industry. There has been a silent kill at British Sugar where senior staff have been rationalised as a cost-cutting measure after its profit dropped by over £100 million last year. It is doubtful that the EU policy makers had envisaged this scenario – so sudden after the liberalization.
Following the reform of the sugar regime in 2006, the industry went through a seismic upheaval informing rationalization on a grand scale. Five member states ceased producing sugar and sugar production in six member states declined by over 40%. Over the last decade, nearly half of sugar factories in the EU have closed, from 189 to 109, leading to the loss of 4.5 million tonnes of production capacity. There were financial inducements for those companies/factories which closed down their units. No such thing now for those companies who managed their operations to be globally competitive only to be left to their own devices to struggle through the current downturn.
Press reports in the recent past have been replete with subsidized sugar output in India adding to the glut, and the top structural sugar exporters, namely Brazil, Australia, Thailand have launched a formal complaint to the WTO with EU and Guatemala in tow. Brazil has taken the high moral ground by switching to ethanol production resulting in the sugar production drop by some 10 million tonnes. But it is still a major sugar exporter. The RenovaBio policy approved by the Brazilian Congress in December 2017, supporting significant expansion in ethanol production, is effectively cross-subsidizing sugar production. When there is an upturn in the market, companies producing both sugar and ethanol will doubtless switch their operations. While the WTO complaint by Brazil has curbed the expansion of the Thai sugar sector, the industry continues to enjoy some level of support from the government.
Indeed, there is no country without sin when it comes to supporting their local sugar industry. In a recently published report2 by the American Sugar Alliance (ASA), focusing on 22 countries accounting for 80% of global sugar production, 65% global consumption and 83% global exports, noted that “Government intervention in the world sugar market remains extreme and widespread with a wide variety of measures to support domestic sugar producers” through various means – tariffs, quotas, domestic price supports, input subsidies, export subsidies, ethanol mandates.
There is no loss of irony, that while the ASA persistently notes that America’s no-cost sugar policy sets it apart from other industries, the sugar producers do enjoy a safety-net. In 2013, the US government bailed out the industry following alleged dumping by Mexico. Further, domestic sugar price in the US is far higher than the world price – it is currently twice that of the global price.
By their lack of foresight, the EU sugar policy makers have necessarily exposed the EU sugar producers to the unlevel playing field that is the global market. An umbrella is poor protection against a hurricane when a robust structure is needed. Before more factories close, there is plenty of scope for the policy makers to level the playing field for its producers. This is a plea for fairness. There is also a compelling case for the EU sugar industry to band together and form an effective lobby along the lines of American Sugar Alliance which continues to serve the US sugar industry with great merit.
1 This was at the end of September 2017
2 Darren Hudson (2019) An examination of foreign subsidies and trade policies for sugar. https://sugaralliance.org/wp-content/uploads/2019/05/Texas-Tech-foreign-sugar-subsidies-5-19-FINAL.pdf