February 4, 2013
One of the last and worst bastions of the bad old common agricultural policy, the internationally infamous sugar policy, is it seems to be defended to the last euro of taxpayers’ budget contributions. While the building of European butterbergs, wheat mountains and wine lakes have been consigned to the history books, we still have sugar production quotas and insurmountable obstacles to sugar imports.
And defenders of the traditional CAP faith want them to go on for another seven years – at least.While the European Commission is planning to phase out the sugar quota system by 2015, a majority in the European Parliament’s agriculture committee wants quota to remain in place until the 2019/2020 marketing year. Voting in favour of this move the committee is thus supporting the position of the ten beet sugar producing countries in the Council of Ministers, who also want the quotas extended. This can only harm sugar users and consumers and do little for the earnings of sugar beet growers. It will mainly preserve the monopoly profits of sugar beet processors who have already been fed millions of euros from the EU budget to allow them to restructure and meet the realities of an eventual liberalised EU sugar market.
Currently, the EU sugar price stands at 102 per cent above the world price and has been rising steadily as the world price has fallen away from its most recent peak in late 2011. While no one would suggest that the current rock bottom world price is realistic, liberalisation of the EU market would play a major part in stabilising the world market and raising prices to a viable level. Both commercial sugar market analysts and international bodies such as the OECD foresee steadily increasing demand pushing up the world sugar price over the next ten to twenty years.
In any case, even without production quotas, the European sugar industry is likely to remain cosseted behind the high EU tariff wall. With little prospect of any new agricultural trade liberalisation agreement to emerge from the stalled Doha Round, this protection is likely to remain in place for some considerable time. Sugar market analysts at Czarnikow estimate that the current high stocks to consumption relationship on the world market will decline as world production increase falls behind expected increases in consumption. They expect world consumption of sugar to increase by close to 40 per cent over the next twenty years.
While major world exporter, Brazil, will undoubtedly respond to this improved market situation by increasing output, its production costs are estimated to increase by nearly 50 per cent in the same period. The world price can therefore be expected to rise towards the EU protected level.
The OECD predicts that, while world prices are unlikely to reach the peak of over $US600 a ton reached in 2011, they are expected to increase and remain on a higher plateau of around $400 plus and to average higher in real terms (when adjusted for inflation) over the period to beyond 2020, when compared with the last decade. There is confidence that prices will be boosted by a decline in the incipient surplus which has too often in the past dogged the world sugar market.