Washington, DC
May 31, 2007
By David Orden, Senior Research
Fellow, International Food Policy
Research Institute (IFPRI)
Major changes are on the horizon for sugar, one of the world's
most highly protected agricultural commodities. A recent shift
in European Union (EU) policy, which could significantly reshape
sugar markets in both industrialized and developing countries,
is receiving scant attention in the U.S. Current protectionist
measures greatly restrict access to sugar markets worldwide,
distort global competition, and lower prices and revenues for
many competitive, low-cost producers and exporters.
The substantial EU sugar reforms, initiated in 2006, focus on
cutting subsidies to farmers and closing obsolete sugar mills.
Over time, these policy changes could cause sugar production in
the European Union to fall by one-third, shifting the EU from a
net exporter to a net importer of sugar. Reducing EU
protectionism will also have a ripple effect across the globe,
increasing world sugar prices and providing new opportunities to
low-cost producers, such as Brazil, Colombia, Guatemala, South
Africa, and Thailand. Conversely, countries that currently have
preferential access to sugar markets would experience economic
losses.
The full impact of these reforms is uncertain, including how the
EU will cope with future challenges, such as the full
liberalization of sugar imports from the least developed
countries in 2009. Nevertheless, the changes are significant and
could influence U.S. sugar policies.
Currently, U.S. policy protects sugar producers and processors
from competition by limiting imports and excluding lower-cost
producers from open access to the market. This keeps domestic
sugar prices artificially high. However, 40 countries have been
given preferential access to U.S. markets, including certain
high-cost producers, such as a number of Caribbean countries.
As EU reforms proceed, and as U.S. corn sweetener and sugar
markets become more integrated with Mexico under NAFTA, the U.S.
could come under pressure to change its sugar price support
program. Potentially, the U.S. could end sugar subsidies and
institute a buyout, as it has for peanut quotas and tobacco
price supports. Restrictions on imports and domestic production
could be relaxed and tariffs lowered. Although these changes
would bring sugar prices down, their impact on developing
countries would vary.
More open global trade in sugar would benefit some poor African
countries that are low-cost producers of sugar, including Malawi
and Zimbabwe. Other countries, such as Mauritius and Swaziland,
would be hurt economically due to loss of preferential market
access.
In order to be competitive in global sugar markets, developing
countries would have to produce sugar efficiently and massively,
meaning they would have to engage in large-scale, high-tech
production, calling into question the opportunities for
smallholder farmers. Nevertheless, it may be possible for
small-scale sugar producers to organize themselves in
cooperatives that could successfully compete.
Among developing countries, Brazil is by far the key player in
global sugar markets. Being both the world's largest producer of
ethanol (all produced from sugarcane) and greatest exporter of
low-cost sugar, Brazil's sugar policies have a major impact on
world markets. If Brazil decided to primarily produce ethanol
from its sugarcane, for example, the price of sugar would
increase worldwide. On the other hand, if Brazil focused on
sugar production, prices on the global sugar market would fall.
The potential impact of policy changes on farmers in both
developed and developing countries is huge, but more open global
trade in sugar would result in more winners than losers. Taking
a cue from the EU, the U.S. should seek to reform its sugar
policy, to provide better market access. This would benefit both
low-cost sugar producers in developing countries, as well as
consumers in the U.S.
The International Food Policy Research Institute (IFPRI)
seeks sustainable solutions for ending hunger and poverty. IFPRI
is one of 15 centers supported by the Consultative Group on
International Agricultural Research, an alliance of 64
governments, private foundations, and international and regional
organizations. |
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