The fu­ture of Caribbean sugar

Stabroek News Sunday - - WORLD NEWS -

In a few days’ time, CARICOM’s Coun­cil for Trade and Eco­nomic Devel­op­ment (COTED) will meet.

Among the top­ics that Min­is­ters and of­fi­cials will con­sider are sev­eral rec­om­men­da­tions that will de­ter­mine whether the sugar in­dus­try has a fu­ture.

This long over­due dis­cus­sion will ex­plore whether there are ways in which the re­gion’s cane sugar pro­duc­ers, through tar­iffs and other mea­sures, can re­di­rect out­put to­wards meet­ing the CARICOM mar­ket’s re­quire­ments.

Just over a month ago, on Oc­to­ber 1, the in­dus­try lost the last ves­tige of its pref­er­en­tial mar­ket in the Euro­pean Union (EU) which abol­ished, as a long-planned do­mes­tic mea­sure, na­tional sugar pro­duc­tion quo­tas in Europe. The ef­fect, ac­cord­ing to in­dus­try an­a­lysts, is that the price paid for African, Caribbean and Pa­cific (ACP) cane sugar will very rapidly re­duce and, as Europe be­comes self-suf­fi­cient in beet sugar and be­gins to ex­port, cane sugar im­ports into Europe will fall to zero.

They also sug­gest that the new Euro­pean regime will de­press world mar­ket prices.

Once EU pro­duc­tion rises to more than 3m tonnes per an­num, they say, the price of its sugar will con­verge with, and de­press al­ready low world mar­ket prices, re­duc­ing global de­mand for cane sugar from high-cost pro­duc­ers in the ACP and the least de­vel­oped by around 1m tonnes per an­num.

This, and the ex­pected re­turn of the global sugar mar­ket to sur­plus next year means that CARICOM will, be­fore long, cease to have any sig­nif­i­cant ex­port mar­ket.

Al­though some in­dus­tries are de­vel­op­ing cop­ing strate­gies through the in­tro­duc­tion of me­chan­i­cal har­vest­ing, sugar re­fin­ing and the pro­duc­tion of food grade sugar for ex­port, this is un­likely to be enough.

In a be­lated re­sponse to what is an ex­is­ten­tial threat, the in­dus­try in the Caribbean has de­vel­oped rec­om­men­da­tions on the way in which CARICOM can now ad­dress the is­sue, pre­vent­ing the likely cri­sis that will oc­cur if noth­ing is done.

Their think­ing largely stems from a sugar in­dus­try work­shop held in Ja­maica ear­lier this year which con­sid­ered the fu­ture for sugar in the four re­main­ing CARICOM sugar-ex­port­ing coun­tries: Bar­ba­dos, Belize, Guyana and Ja­maica.

At the con­fer­ence, all par­tic­i­pants ac­cepted that with­out some form of re­me­dial ac­tion at a re­gional level, the re­struc­tur­ing of the EU mar­ket would even­tu­ally re­sult in an end to the pro­duc­tion of raw sugar in CARICOM, un­less al­most all of its fu­ture pro­duc­tion can be sold into the re­gional mar­ket.

As mat­ters stand, some 0.2m tonnes of the 0.3m tonne CARICOM mar­ket for food grade sug­ars and white sugar is met from ex­ter­nal sources. This is de­spite there be­ing a com­mon ex­ter­nal tar­iff which, in the­ory, is meant to af­ford a high de­gree of pro­tec­tion to the sin­gle mar­ket’s sugar pro­duc­ers.

Why the re­gional mar­ket has failed in this way varies from coun­try to coun­try, but gen­er­ally re­flects gov­ern­ments set­ting aside through tar­iff waivers and safe­guard mech­a­nisms the present com­mon ex­ter­nal tar­iff on im­ported sug­ars; usu­ally un­der pres­sure from do­mes­tic food and soft drink pro­duc­ers cit­ing fail­ure of re­gional sup­ply for the spe­cific sug­ars they re­quire.

It is true that in the past the sugar in­dus­try has not been a re­li­able sup­plier to re­gional in­dus­trial users – it chose to pri­ori­tise sup­ply­ing Europe where prices were higher – but that sit­u­a­tion has now changed dra­mat­i­cally.

There is a sur­plus of re­gional sup­ply avail­able and as one re­cent un­pub­lished in­de­pen­dent study sug­gests, up to 99% of the re­fined sug­ars presently im­ported into the re­gion could eas­ily be sub­sti­tuted by re­gion­ally pro­duced ‘plan­ta­tion white’ with no or low-level in­vest­ment by in­dus­trial users.

To pro­tect and give a fu­ture to the re­gional sugar in­dus­try and the 0.2m peo­ple who de­pend on it, the in­dus­try is propos­ing that COTED agree to apply on a uni­form ba­sis, a com­mon ex­ter­nal tar­iff (CET). This, it is sug­gested, should be set at 40 per cent on all im­ported raw and brown sugar and re­fined sugar from out­side the Caribbean sin­gle mar­ket. The in­dus­try also be­lieves that the time has come for the re­gional mar­ket to be man­aged and po­liced rig­or­ously.

How­ever, cen­tral to the fu­ture suc­cess or fail­ure of the re­gion’s sugar pro­duc­ers’ de­sire to de­velop a pro­tected mar­ket, will be achiev­ing a wider un­der­stand­ing of the likely price im­pact on soft drinks, con­fec­tionary, sweet­ened milk, and bak­ery prod­ucts, and the con­se­quent re­ac­tion of the in­dus­tries con­cerned and con­sumers.

Ac­cord­ing to sugar in­dus­try sources, ini­tial in­de­pen­dent stud­ies sug­gest that al­though the uni­form im­po­si­tion of higher du­ties would in­crease prices to in­dus­trial users, this should not af­fect the mar­ket for lo­cally pro­duced soft drinks. This, they say, is be­cause such pro­duc­ers’ fin­ished prod­ucts are al­ready pro­tected against ex­ter­nal com­pe­ti­tion by an ex­ist­ing high tar­iff wall.

They add that the same stud­ies in­di­cate that the ad­di­tional cost to con­sumers would be mar­ginal: be­tween US$1 to US$10 per an­num, or an ad­di­tional six cents on a lo­cally pro­duced two litre bot­tle of Coca-Cola, presently cost­ing US$3.00. They do how­ever recog­nise that other users of im­ported sugar, such as the sweet­ened milk in­dus­try, may need ad­di­tional tar­iff pro­tec­tion and tech­ni­cal sup­port.

Those in­volved in mak­ing sugar’s case be­lieve that the im­po­si­tion of a CET on all sugar en­ter­ing CARICOM would mit­i­gate the ad­verse im­pact of EU re­forms by cre­at­ing a larger Caribbean mar­ket into which in­dus­tries could sell sugar at a price that is vi­able. They also sug­gest that a re­gional mar­ket for sugar would make the in­dus­try at­trac­tive again to in­vestors.

Bal­anc­ing the in­ter­ests of sugar, a large ru­ral em­ployer, with those of much smaller but sig­nif­i­cant do­mes­tic man­u­fac­tur­ers is likely to prove chal­leng­ing.

If what is pro­posed is to work, it will need the four CARICOM coun­tries con­cerned, the some­times-frac­tious sugar in­dus­try, and the food and soft drink man­u­fac­tur­ers to jointly recog­nise the ben­e­fits that could flow from in­te­gra­tion, and the prac­ti­cal steps re­quired to achieve this.

In the long term, if the ideas about to be con­sid­ered can be made to work, it will con­firm that the CARICOM sin­gle mar­ket and econ­omy is rather more than just an in­ter­est­ing idea. In the short term, how­ever, the challenge will be for COTED to de­ter­mine how best to en­cour­age con­ver­gence while not dam­ag­ing the in­ter­ests of any of the par­ties con­cerned.

David Jes­sop is a con­sul­tant to 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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