Sugar Industry and International Trade News

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• July, 2004 - European union proposes controversial sugar reform plan
• June, 2004 - The survival of Canada's sugar industry is a critical issue in your riding.
• May, 2004 - CSI President Encourages US Sugar Industry to ‘Walk the Talk’ on Free Trade

July, 2004

European union proposes controversial sugar reform plan

European Union Farm Commissioner Franz Fischler this month released a long-awaited proposal to reform the EU’s 36 year-old sugar regime, which aims to reduce EU sugar production and the ‘dumping’ of surplus sugar on world markets. However, at a July 19 EU Council meeting, Agriculture ministers failed to agree on the proposed reform and instead proposed further examination of the issues before tabling the proposal at a future session.

Widely perceived to be the most aggressively protected farm sector in Europe, the European sugar regime combines artificially high “intervention” prices, production quotas and high tariffs to block imports. These measures inflate the price of sugar in the EU to more than three times the world market price. At the same time, generous export subsidies mean EU farmers are able to export more than 5 million tonnes of sugar every year onto the world market.

The current EU sugar regime is virtually unchanged since it was put in place in 1968. In fact, sugar is the only sector that has so far escaped the EU’s Common Agricultural Policy (CAP) reform process, initiated in 1992.

Who Pays

EU sugar policy supports high cost producers in Europe, whose surplus production is exported to the world market, depressing world sugar prices. This hurts Canadian and other efficient producers who base their production and exports on world prices. In addition, excessive EU import tariffs prevent sugar from Canada and other countries from competing in the EU market.

In Europe, the regime has been estimated to cost taxpayers and consumers more than Euro 1.6 billion (Cdn $ 2.62 billion) per year. However, the biggest losers are agriculture producers in developing countries who cannot compete with highly subsidized EU exports and have limited, if any access to the EU sugar market.

Fischler’s Proposal

The European Farm Commission proposal involves cutting the price of EU sugar by one third between 2005 and 2008, while sugar production quotas will decrease from 17.4 million tonnes to 14.6 million tonnes. EU-subsidized sugar exports are projected to fall by about 2 million tonnes.

Critics of the EU sugar regime, however, point out that even with the proposed reforms, European sugar producers are in a better position than their counterparts in other parts of the world. Considering that EU sugar prices are more than triple the world price, the proposed cut is not expected to have a substantial near-term impact on the regime’s trade distorting effects.

Following a preliminary debate of the proposal at a July 19 meeting of EU Agriculture ministers, Agriculture Commissioner Franz Fischler said now was the best time to bear the pain of overhauling the European Union's $US7 billion ($CDN9.3 billion) sugar market. However, the plan drew intense debate among member governments. Spain and Ireland are strongly opposing the plan and Germany and France, Europe's two biggest sugar producers, also expressed reservations during the meeting in Brussels. Of the 25 EU member states, only Britain and Sweden are reported to support the plan.

Significant concerns expressed by EU member states include the levels and stages proposed for reducing the sugar intervention price, the schedule for reform and the minimum price for sugar beet. Concerns were also raised regarding the reform of the quota system and the compensation level for price cuts. Given the range and complexity of issues, an EU Special Committee on Agriculture is to conduct a thorough examination of all issues and report to the Council at a future session to be determined. Debate on the proposal is expected to drag on for months.

A Canadian Perspective

The Canadian sugar industry is cautiously optimistic that the EU recognizes its heavily protected sugar regime is not sustainable in a fair trade environment, but Canadian sugar producers are also realistic when it comes to what can be expected from these reforms. “Of course this is a step in the right direction, but the transition will be long, and the outcome not at all certain,” said Sandra Marsden, President of the Canadian Sugar Institute.

Perhaps European policymakers and those in other heavily-protected sugar markets like the United States and Japan need only look as far as Canada for a real solution. “Canada provides an excellent model for other developed countries,” said Sandra Marsden. “We have a sustainable, efficient industry with minimal protection.”

At 8%, Canada’s sugar tariff is the lowest in the world. Canadian consumers and taxpayers don’t subsidize inefficient sugar producers the way they do in the EU, US and other heavily-protected markets. Through rationalization and reinvestment, Canada’s sugar producers today are globally efficient and competitive. In a fair market, with more commercially meaningful access to US and EU markets, Canadian sugar can thrive.

Links to more information about global sugar trade:

• Centre for International Economics - Targets for OECD Sugar Market Liberalisation, prepared for the Global Alliance for Sugar Trade Reform and Liberalisation.

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June, 2004

The survival of Canada's sugar industry is a critical issue in your riding.

Refined sugar production has a 187-year history in Canada, but this important Canadian industry is at risk.

The sugar industry directly employs more than 1,500 Canadians at refineries in Quebec, Ontario, Alberta and British Columbia, as well as hundreds of prairie sugar beet farmers. Canada's efficient sugar production has also contributed to the development of a vibrant value-added food processing sector in Canada that provides good jobs for 312,000 Canadians. Sugar is not an industry that Canada can afford to sacrifice.

Canadian sugar is unique in the world in that it does not depend on government subsidies. Basing prices on world raw sugar markets, Canada's globally-efficient producers sell sugar at prices that are among the lowest in the world.

In a fair market, Canadian sugar can thrive, but the current trade environment is dramatically uneven: while Canada maintains an 8% tariff on sugar imports (the lowest in the world), the US tariff stands at 150%, the European Union's at 225%. The result is that Canada's refined sugar has zero access to markets in most countries.

Distortions in international sugar trade are being exacerbated by one-off regional trade agreements like the one Canada struck with Costa Rica in 2001. The Costa Rica agreement opened the door for more Costa Rican sugar to Canada, yet Canadian producers are prevented from offsetting that lost market in Costa Rica, the United States, or anywhere else.

Canada's sugar industry can't afford to be sacrificed again. This year, trade negotiations between Canada and the CA4 countries (El Salvador, Guatemala, Honduras, Nicaragua) will reach a critical point. The Canadian government's own studies show that further opening Canada's market to the CA4 countries without ensuring viable export opportunities will cost Canada's industry more than $30 million in the near term, and will result in the closure of at least one refinery in western Canada. Canadian sugar producers are expecting the federal government to keep its promise to carefully consider the sustainability of this important industry in future trade negotiations.

Canada's small refined sugar tariff must be maintained until sugar is dealt with on a global level through the WTO, where we can work with countries in similar positions to stand up to the world's big sugar powers. To undertake new regional agreements without involving the United States, our primary potential export market, poses a serious risk to the Canadian industry's sustainability.

Make sure the sugar industry's survival is an election issue in your riding, and that voters in your community know they have your support.

Please contact us for more information.

Sandra Marsden, President /
Larissa Fenn, Coordinator, Trade Policy & Communications

Canada’s sugar industry employs people in your community.

Sugar industry employees and sugar beet growers reside in these ridings:

* Sugar refineries, distribution centres and sugar beet plants

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May, 2004

CSI President Encourages US Sugar Industry to ‘Walk the Talk’ on Free Trade

TORONTO - In a presentation to a US sugar industry conference in Washington last week, Canadian Sugar Institute President Sandra Marsden offered a Canadian perspective on the global sugar industry, and a criticism of the United States’ Sugar Policy which stands in the way of free trade.

Ms. Marsden explained that unlike in the United States, where the US government guarantees sugar producers an inflated price for their product while restricting would-be competitors’ market access, Canadian sugar competes on the world market.

In the absence of the same type of generous price support as is provided in the US, the Canadian industry has rationalized; the number of sugar refineries and sugar beet plants in Canada has dropped from 14 in 1960 to just four today. The result is that Canada’s sugar industry is one of the most efficient and competitive in the world.

“The Canadian experience demonstrates that there are advantages to be gained from competing fairly - without excessive protection. Canada’s comparatively low price for sugar has been an important factor in encouraging many food processors to locate in Canada,” said CSI President Sandra Marsden. “Food processing is now the top manufacturing industry in seven of ten Canadian provinces, and employs more than 300,000 Canadians.”

US Sugar Policy is, however, distorting trade flows throughout North, Central and South America. Heavy restrictions on US market access mean that Canada’s market provides a ‘relief valve’ for surplus sugar produced in the US as well as South and Central American Countries. Meanwhile, Canadian producers have virtually no opportunity to export sugar. “Every year we are losing market share,” said Ms. Marsden.

The answer to addressing the distortion in the global sugar industry is a multilateral solution, through the World Trade Organization. In the interim, Canadian sugar producers will continue to advocate that regional trade agreements negotiated by the Canadian government must not worsen the imbalance for the Canadian sugar industry.

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