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GREAT insights Magazine

EU Sugar Reform in 2015: Cost Competitiveness for Whose Benefit?

August 2012

Richardson, B. 2012. EU sugar reform in 2015: Cost competitiveness for whose benefit? GREAT Insights, Volume 1, Issue 6. August 2012. Maastricht: ECDPM.

Proposals to end internal sugar quotas would likely jeopardise jobs in the cane and beet industries and concentrate rents among multinational food and drink manufacturers. Any accompanying aid for developing country exporters would need to be done differently, but avoiding reform in the first place would be preferable.

The European Commission’s proposal to end its quota management system for sugar in 2015 has sparked major debate in the sector. Done with a view to increasing competitiveness by allowing low cost producers in the region to expand, many in fact see this as unfair and have begun lobbying policy-makers to this effect. 

All this is reminiscent of the last round of reform in 2006, when the EU sugar regime underwent its most radical change in decades. By slashing the internal price of sugar by over a third in order to drive down levels of subsidised exports, dozens of European beet factories were forced to close. As well as hurting domestic producers, this also affected sugarcane farmers and workers in the eighteen African, Caribbean and Pacific (ACP) countries which had preferential access to the EU.

As part of this policy overhaul, the Commission provided restructuring aid to all existing suppliers. While funds allocated to EU countries were left largely in the hands of the private sector, those for the ACP countries were channelled through the EU aid system. Known as the Accompanying Measures for Sugar Protocol countries (AMSP), this ‘Aid for Trade’ package set aside €1.3bn in grant finance to help the ACP enhance the competitiveness of their sugarcane industries, diversify activity in cane growing areas, and cushion the socio-environmental impacts of reform. 

The likely effect of the 2015 proposal will be to tie the EU price closer to the world price and once again reduce the export earnings of many poor developing countries. This has led some observers to suggest that another aid package will be needed this time round. If this does indeed happen, it is crucial to recognise the AMSP’s poor track record in providing safety nets for those who suddenly lost their livelihoods as a result of trade reform. 

This was due to the clash of organisational logics between the EU Delegations and the sugar industry as well as the slow nature of aid disbursement, especially since most AMSP recipients could not be allocated direct budget support because of a lack of government transparency. In Swaziland for example, only 10% of the €134m it was initially allocated had been spent by 2011. Moreover, those projects that were prioritised tended to reflect the EU’s preference for technical assistance and large infrastructural projects like road-building. The upshot in the Swazi case was that those 4,400 people who had their jobs cut or outsourced by the sugar mills were left without any form of adjustment support.

If policy-makers are serious about ‘making trade work for the poor’ and embedding an element of social protection in future Aid for Trade programmes, a change in the relationship between donors and the large milling companies that tend to dominate sugar industries is necessary. 

This could involve earmarking a proportion of aid for retrenchment support and allowing companies to spend this upfront on retraining schemes and microcredit initiatives before claiming it back later once provision has been verified. Support for trade unions monitoring compliance with labour laws and better agricultural extension and negotiating support for cane farmers affected by lower prices would also help. Finally, the EU might consider a more ambitious role in terms of setting up revolving funds for farmers needing seasonal finance and to work with companies in the provision of social goods like HIV/AIDS programmes (since in many developing countries they are actually the main providers of ‘public’ welfare in rural areas). 

On a more positive note, the major success of the AMSP in Swaziland was to give grants to hundreds of small farmers to enter into the sugar industry as outgrowers, allowing them to earn more money and gain access to reliable irrigated water. These gains should not now be jeopardised by further EU reform. 

Despite their efforts at restructuring, the Swazi industry as a whole still relies on the remunerative export market offered by the EU. Were this to be eroded further, the consequences would again be felt among the vulnerable and poor of the country. This would undermine the significant investment that the EU has already put into poverty alleviation within the sector and run counter to its commitments on trade and development policy coherence as set out in the Lisbon Agenda. 

So who would actually benefit from this proposed change in policy? A clue is given in the positions adopted by industry actors. While beet producers in Europe and cane suppliers in the ACP and Least Developed Countries want the quotas extended to 2020, food and drink manufacturers like CocaCola, Kraft and Nestlé have lobbied for their abolition. While it might be assumed that this would in turn benefit consumers through lower prices for fizzy drinks or chocolate bars, it is worth noting that the European Court of Auditors has concluded that most of the cost savings associated with the last round of reform would simply be “added to the profit margin of industrial producers”. (1)

With the decision on internal quotas due in early 2014, policy-makers advancing the cause of cost competitiveness would do well to bear this in mind. 

This article is a summary of the findings of a broader ECDPM Discussion Paper: Richardson, Ben (2012) ‘Trade, Aid and Rural Development: EU Sugar Policy and the Experience of Swaziland’, ECDPM Discussion Paper 133, available at www.ecdpm.org/dp133

Dr. Ben Richardson is a Research Fellow in the Department of Politics and International Studies at The University of Warwick. 

Footnote

  1. European Court of Auditors (2010) Has the Reform of the Sugar Market Achieved its Main Objectives? Special Report No. 6 (Luxembourg: Publications Office of the European Union).

 This article was published in GREAT Insights Volume 1, Issue 6 (August 2012).

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Ben Richardson