Sugar Industry and International Trade News

2005 | 2004 | 2002 | 2001 | 2000 | 1999 | 1998

• October 7, 2002 - Australia/Brazil Challenge the European Sugar Regime
• August 7, 2002 - WTO Update
• July 5, 2002 - Support Building to Oppose US Protectionist Measures
• January 23, 2002 - Rogers Sugar Income Fund to Acquire Lantic Sugar;
  Kraft Foods to Move Michigan Candy Plant to Montreal

October 7, 2002

Australia/Brazil Challenge the European Sugar Regime

On September 27, 2002, Australia and Brazil lodged formal complaints with the World Trade Organization (WTO) over the sugar subsidies paid by the European Union. Australian Trade Minister Mark Vaile said, "Australia will lodge a request for dispute consultations, the first step in the formal WTO dispute process." Earlier, Vaile had expressed concerns that the EU's reforms to its Common Agricultural Policy do not address the EU sugar regime.

Australia is taking this action in consultation with Brazil, which has launched a similar challenge on EU sugar and a separate case on US cotton. Brazil indicated that they are focussing now on EU sugar subsidies that are prohibited by WTO agreements, but that they are also very concerned about the "protectionist distortions caused by the US Sugar Program."

Secretary of Production and Trade of the Brazilian Agriculture Ministry, Pedro de Camargo Neto, said that the protectionist approaches of both the EU and the US greatly impact Brazilian exports of these key commodities and undermine job creation and economic growth in developing nations. He went on to say that these actions highlight the "difference between the promise of free trade and the reality," adding that concerns about the US Sugar Program may also prevent Brazil from reaching agreement in the ongoing Free Trade of the Americas negotiations.

For its part, the EU rejected the complaints that its sugar subsidies constitute a distortion of trade. However, according to various reports, the EU heavily subsidizes its sugar industry, including export subsidies on some 3.6 million tonnes of refined sugar and sugar products, as well as domestic subsidies to the industry. The EU, now the world's largest refined sugar exporter despite its high cost of production, has long been criticized for export subsidies that undercut other sugar producers who depend on the world price.

The outcry intensified recently with major cane producing countries accusing the EU of pushing world sugar prices below the cost of production. In June, OXFAM released a report identifying developed country agricultural policies as major factors contributing to the impoverishment of developing countries (see August 7, SugarNews). At the Johannesburg UN World Summit on Sustainable Development in August, delegates repeated this message and another Oxfam Report was released dealing specifically with EU sugar policies.* According to that report:

• Europe's sugar industry is receiving a £1billion (approximately US$ 1.6 billion) handout from taxpayers and consumers, allowing it to dump millions of tonnes of subsidized sugar on international markets at the expense of some of the world's poorest farmers
• This has enabled sugar beet farmers in Germany, Britain and France to become the world's largest exporters of white sugar despite being the world's most expensive (high cost) producers. OXFAM noted that it costs €670 (US$660) to produce a tonne of white sugar in Europe compared with just €286 (US$280) in more competitive countries such as Brazil, Ethiopia, Senegal and Mozambique, but duties of up to 140% shut most low-cost producers out of Europe.

Oxfam Community Aid Abroad, issued its own press release publicly welcoming the challenge of the EU sugar subsidies and stressing that the same unfair European agricultural policies threatening Australia's sugar industry are also hurting hundreds of thousands of small-scale sugar producers and farm workers in developing countries.

The EU must now hold consultations with Australia and Brazil. If no agreement is reached, the issue will be referred to a WTO dispute settlement panel for a ruling.

* Oxfam International, “The Great EU Sugar Scam - How Europe’s Sugar Regime Is Devastating Livelihoods In the Developing World"

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August 7, 2002

WTO Update

US Announces WTO Agriculture Proposal

On July 25, at the Quint meeting (Australia, Canada, EU, Japan and the US) in Japan, the US outlined an ambitious new WTO proposal to reform global agricultural trade and “level the playing field” for all countries.

• Under the US market access proposal, all WTO members would reduce tariffs using a formula that would demand greater reductions of high tariffs than low tariffs, and result in no tariff over 25 percent after five years. It also calls for substantial increases in tariff rate quota (TRQ’s) and tighter rules on TRQ administration.
• On domestic support, the proposal calls for only two categories – trade distorting and non-trade distorting. Trade distorting support would be limited to 5% of the value of agricultural production, but non-trade distorting support would not be capped.
• As for export subsidies, they would have to be completely eliminated within 5 years.

EU farm Commissioner Franz Fischler objected to the US proposal because he said it requires more from other countries than from the US. Canadian Federation of Agriculture President, Bob Friesen, was also sceptical saying that, “if the proposal is an attempt to divert criticism from Farm Bill excesses, it will fail,” (Western Producer, Aug. 1, 2002) adding that nobody would see this as a credible proposal. On the other hand, the American Sugar Alliance Chair, Dalton Yancey, said he was encouraged by the ambitious proposal but noted that it can only be successful if all WTO members abide by firm and timely commitments that will effectively address all significant trade-distorting practices in the affected commodity sectors.

Global Sugar Alliance Meets in Geneva to Urge Sugar Reform in the WTO

The Global Alliance for Sugar Trade Reform and Liberalisation (Global Sugar Alliance) was in Geneva and Brussels, June 13-19, to voice its support for multilateral trade reform and underline the urgent need to reform trade in sugar.

While in Geneva the group met with senior WTO officials including the incoming WTO Director General, Supachai Panitchpakdi; the Chair of the Agriculture Committee, Stuart Harbinson as well as WTO Secretariat staff and numerous Ambassadors and Mission staff. Global Alliance members also met with other groups supporting an aggressive outcome for agriculture in the Doha round, including the International Policy Council on Agriculture Food and Trade. The key message of the Global Sugar Alliance is that sugar must be treated equally and fairly with other commodities, recognizing that sugar escaped reform in the Uruguay round. The group supports a single undertaking that results in substantial and meaningful reductions in all trade-distorting sugar policies in line with the three pillars of trade reform outlined in the Doha mandate.

The group also met with EU officials in Brussels to discuss the EU Common Agricultural Policy (CAP) which, with its massive export subsidies on sugar, is a major contributor to the low sugar prices hurting world-price producers including developing countries (see Oxfam article below).

Following the meetings in Geneva and Brussels, the Sugar Alliance agreed to a number of specific follow-up actions. Recommendations specific to sugar will be advanced during the current “modalities” phase of the negotiations to ensure that market disparities in sugar are specifically addressed in this round. The group will ensure its presence in Geneva, working collaboratively with its Missions. They will also continue to liaise with the Cairns Group and other supportive governments and non-governmental organizations. The Global Sugar Alliance is comprised of major sugar producing countries with a common interest in liberalized trade in sugar. The countries include Australia, Brazil, Canada, Chile, Colombia, Guatemala, Honduras, India, South Africa and Thailand.

Oxfam Paper on EU Common Agricultural Policy (CAP) Reform

In June, Oxfam released a paper linking the agriculture policies of the EU and other industrialized countries with the plight of farmers in developing countries. According to Oxfam:

“The agricultural policies of Quad members – including of course the CAP – ensnare developing countries in a vicious circle from which escape is difficult. These policies combine high tariffs, thus closing domestic markets to competition, and enormous subsidies to production, leading to dumping of surplus production on world markets. This in turn results in a drop in world prices and unfair competition, endangering the livelihoods of hundreds of millions of poor farmers throughout the world.” (Time for Coherence, CAP Reform and Developing Countries – Oxfam, June 2002).

Oxfam noted that the EU’s system of subsidies is also geared to “improving the competitiveness of its products in international markets.” For example, they note that Europe now accounts for 18 per cent of total world sugar trade even though its production costs and price are far above world prices /costs:

“How is it possible for the EU to have such a large market share if production costs are, with rare exception, considerably higher than those in many other countries in the world? In reality, subsidies continue to support production and generate large surpluses of many products, such as wheat, sugar, and pork. This surplus production is exported outside the EU at prices under the costs of production. For instance, the export prices of wheat, powdered milk and, sugar are fixed at 46 percent, 50 percent, and 26 percent respectively of their production costs.”

The EU policy hurts global sugar producers, including many developing countries, who depend on sugar for export earnings. It also affects Canadian producers of refined sugar because the EU exports refined sugar, depressing its price in the international market. Not only is the EU market closed to refined sugar from Canada, but all other markets are also effectively closed because Canada cannot compete with subsidized EU sugar that is sold at roughly one quarter (26%) of the cost of production. This is one reason why the sugar industry (both here and internationally) is calling for multilateral trade reform rather than regional and bilateral trade deals. Only a multilateral agreement, including the EU and the US, can deal with the distortions caused by their sugar programs and offer real access opportunities.

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July 5, 2002

Support Building to Oppose US Protectionist Measures

US Food Industry Opposes Bill to Restrict Imports of Sugar Containing Products

On July 2, 2002, the Grocery Manufacturers of America (GMA) commended the members of the US House of Representatives who voiced their opposition to a sugar amendment attached to the pending Trade Adjustment Assistance (TAA) legislation. The GMA referred to a June 28 letter to Ways and Means Committee Chair, Bill Thomas and Trade Subcommittee Chair, Phil Crane. The letter, signed by 60 members of the US Congress, outlined the harmful implications of the sugar provision, which would disrupt trade and hurt U.S. food companies and workers. Canadian producers of refined sugar and sugar containing products remain very concerned that should this amendment pass the legislative process, Canadian exports of legitimate products like iced tea, gelatine, confectionery and other products will face further US trade restrictions.

According to the GMA, the “Breaux” amendment “not only contradicts the overall intent of the trade legislation, but also overhauls current US customs laws.” While the Breaux amendment alleges to deal with products that “circumvent” current quotas, language in the bill is very broad and gives discretion to the US Secretary of Agriculture to reclassify freely traded products into a trade-restrictive category. According to GMA Senior Vice President, Mary Sophos, “The Breaux amendment is in direct violation of NAFTA and WTO trade commitments and its passage could incite retaliation against US agricultural exports to the detriment of US producers of goods other than sugar."

The Canadian sugar industry continues to support the efforts of Canadian Embassy officials in Washington who are seeking assurances from US Congressional leaders that this trade restrictive measure does not become law. Earlier this year, Canada’s Ambassador to the US, Michael Kergin, stated in a letter to the US Senate (February 28) that, “Should the bill be passed, Canada would take steps to defend its interests, including the option of an immediate challenge under the relevant provisions of international trade agreements.”

See: GMA Applauds Pro-Trade Letter on Capitol Hill

US Farm Bill Continues to Generate Global Concern

Earlier this year (May 13, 2002) the US passed its new Farm bill offering increased subsidies for its farmers and creating anxiety for farmers and international trade policy makers around the world. The total estimated spending under the 2002 bill is $190 billion for the next 10 years -- $83 billion in additional spending over the 1996 bill. Last month, Canadian Agriculture Minister Lyle Vanclief, joined colleagues from nine countries around the world expressing concern about the impact new US farm subsidies will have on world producers, particularly those in developing economies. These countries are closely watching the United States to ensure that this protectionist farm policy does not undermine the US commitment to seek substantial reform of agricultural trade policies in the WTO agriculture negotiations.

In a 2002 report released by the Australian Bureau of Agriculture and Resource Economics (ABARE), US government support for agriculture was criticized because it “depresses and destabilises world agricultural prices . . . and harms overseas producers. Most US support has gone to the wealthiest farmers and the least to the poorest.” The lion’s share of government payments is directed at program crops; e.g. wheat, feed grains, rice and cotton, with substantial additional support to soybeans. However, the value of the US budgetary outlay underestimates total support that includes consumer funded price support for dairy products and sugar. In fact, producer support estimates for US milk and sugar industries is well above levels for the program crops – 61% in the case of sugar and 55% for dairy.

The ABARE report, “2002 US Farm Bill: Support and Agricultural Trade” can be downloaded.

Sugar in the 2002 US Farm Bill: Unlike the program crops, support to the US sugar industry is in the form of market price support (averaging 2 times the world price). To protect these prices, the US maintains import restrictions on sugar and sugar-containing products in the form of tariff quotas. In recent years, support prices in the US have created excess supply problems and imports have been reduced to minimum levels permitted under international trade agreements. The new bill does not address the causes of this excess supply situation and effectively increases the US sugar support price. This will serve to increase tension at the border and is particularly worrisome for Canadian exporters of refined sugar and sugar-containing products who already face restrictive quotas. As summarized by ABARE, the sugar provisions in the new farm bill are “a last ditch and highly inefficient approach to addressing policy created market distortions.”

The mood reflected in the Farm bill highlights the need for careful attention to multilateral trade reform in the WTO. That is the only forum that can bring sense to the trade distorting policies of the US (and the EU). Canada needs to adopt thoughtful positions that help ensure that progress towards more liberalized trade is not lost to the inward looking domestic agenda in the US.

The Farm Security and Rural Investment Act of 2002, which governs Federal farm programs for the next 6 years, was signed into law on May 13, 2002. For more information on the sugar provisions in this legislation, visit: http://www.ers.usda.gov/Features/FarmBill/Analysis/sugar2002act.htm and http://www.ers.usda.gov/briefing/FarmPolicy/2002sugar.htm

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January 23, 2002

Rogers Sugar Income Fund to Acquire Lantic Sugar

On January 8, Rogers Sugar Income Fund announced a proposed transaction to acquire Lantic Sugar Limited of Montreal, Quebec. This follows a definitive agreement with Onex Corporation and Belkorp Industries Inc. to exchange 35.5 million units of the Fund for all the outstanding common shares of Lantic Sugar Limited. Following the anticipated approval by the Fund's unitholders and regulatory approval, the transaction will create common ownership of the two companies, Rogers Sugar and Lantic Sugar with combined sales of approximately 650,000 tonnes, annual revenues of approximately $450 million and a market capitalization of more than $300 million. The Trustees of the Fund have unanimously agreed to recommend the transaction to members, which is expected to close in March 2002.

It was reported that Rogers Sugar will benefit from improved geographic and customer diversification, Lantic's recently completed $120 million modernization and the enhanced capital spending flexibility of common ownership of the two companies. As a condition of the deal, the Fund will raise a minimum of $50 million by issuing additional units or convertible debentures, of which Onex and the other Lantic shareholders will purchase 10 percent. Proceeds of the financing will be used to repay senior debit of both Lantic and Rogers. Also, units received in the exchange deal by the selling shareholders will not be marketable for one year.

Rogers Sugar is the leading sugar refiner in western Canada and has been in the sugar business since 1890. The Company has a cane sugar refinery in Vancouver and a sugar beet processing plant in Taber, Alberta. Lantic Sugar operates a world-scale refinery in eastern Canada and over 75% of the company's sales are to industrial users including confectioners, bakeries and dairies.

Kraft Foods to Move Michigan Candy Plant to Montreal

Kraft Foods has re-affirmed plans announced in early January that it will close the 35-year-old Life Savers plant in Holland, Michigan. Production will be transferred to Kraft's Mount Royal, Quebec plant near Montreal in 2003.

Kraft officials have stated that the move will result in lower operating expenses and raw material costs, including the cost of sugar. The Associated Press reported on January 8 that Chamber of Commerce President Chris Byrnes said the Holland plant was hurt by the high cost of sugar in the United States, which, unlike Canada, imposes a high duty on sugar and restricts its imports. By moving Life Savers to Canada, Kraft will save about 10 cents for every pound of sugar, Byrnes said. "When you're buying sugar by the tens of millions (of pounds), that adds up," he said.

The Holland Michigan plant apparently has been underutilized since the divestiture of breath mints and gum when Kraft integrated Nabisco in 2000. The plant is the only US facility producing traditional Life Savers and Kraft is not prepared to invest or add production of other product lines. According to a January 22 report in the Montreal Gazette, the Mount Royal plant has the space to absorb Holland's production. Production at Mount Royal will benefit from lower manufacturing costs, making the best use of manufacturing assets and providing long-term efficiencies.

The Mount Royal plant is Kraft's largest in Canada producing more than 600 skus. Apparently the company is negotiating with the province of Quebec that may provide certain incentives to add jobs to the local operation. The Michigan Economic Development Corp. reportedly offered Kraft a package of incentives valued at about US$ 25.5 million to stay in Michigan but Kraft said it plans to proceed with the move based on the above factors over which the state has no control.

Kraft acquired the Canadian rights for the Life Savers brand from Beta Brands Ltd. in late December 2001. As a result, Kraft now owns the rights to Life Savers throughout North America. In the transition, Beta Brands will continue to supply Kraft with Life Savers under a co-pack agreement.

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