Willemien Viljoen, tralac Researcher, discusses the implications of the European Union’s new sugar import regime for African countries

The European Union (EU) is the world’s largest producer of beet sugar and the main importer of cane sugar for refining. Approximately 50 percent of the world’s beet sugar is produced in the EU under a quota system where the total production quota of 13.3 million tons is divided among the EU sugar producing member states. A minimum price for beet sugar (only for in-quota quantities) and a reference price for white sugar and raw sugar all form part of the complex EU sugar regime that is set to change in 2017.

Developing and least developed countries from the African, Caribbean and Pacific Group of States (ACP), including Malawi, Zimbabwe, Lesotho and Swaziland have benefited from the export of raw sugar to the EU market. Currently the EU imports approximately 60 percent of their demand for cane sugar from the ACP countries under the duty-free quota-free access sugar from these countries have to the EU market. Between 1999 and 2013 EU imports of cane and beet sugar (HS 1701) increased by 7 percent. In 2013 the EU mainly imported solid raw cane sugar from Brazil, which has been the EU’s main sugar trading partner since approximately 2008. Brazil has been benefitting from a sugar import quota system that allows for about 1 million tons of sugar to be imported into the EU at a reduced or zero rate of duty. Five African countries are among the top 10 sugar exporters to the EU in 2013; these were Mauritius, Swaziland, Mozambique, Algeria and Zambia. While the EU mainly imported refined sucrose from Mauritius and Algeria, the main exporting product for the majority of other African nations, including Swaziland, Mozambique, Zimbabwe, Malawi and Zambia is raw solid cane sugar to be further processed within the EU.

Since the 2006 reforms of the EU Common Agricultural Policy (CAP), including a new sugar regime that will see the end of the EU production quota and reference price for EU beet sugar, which is likely to see the EU move from being a net importer of sugar to a net sugar exporter. According to the EU the sugar reform will contribute to the simplification of the sugar regime (both production and trade) and greater market orientation of the EU sugar policy. The reforms were introduced through an initial reduction of the EU reference price and minimum price for sugar and strengthened by the decision to eliminate sugar quotas as of 2017.

Recent work by the European Commission (EC) shows that the reform of the EU sugar regime could lead to a 4.2 percent increase EU production of beet sugar, while imports of sugar are estimated to decline by 42.6 percent, mainly due to the replacement of imports from high-cost third countries, like the ACP countries, by domestic production. The research also shows the possibility that the current demand for sugar from ACP countries could decline significantly when the sugar reforms enter into force, due to sugar from competitive sugar producing countries, like Brazil, displacing ACP sugar in the EU market.

Due to the potential negative effect that the sugar reform might have on ACP producers, the world sugar market and the price of sugar, African countries (especially COMESA member states) have called upon the EU to extend the quota system to 2020 to enable them to modernize their domestic sugar industries to become competitive within the world market. African sugar exporting countries have also indicated that they will have to change their focus from the EU market to increasing their stake in regional markets to compensate for the decline in the EU demand that is likely to take place when sugar quotas are abolished. However, as one of the sensitive product sectors in Africa, domestic sugar industries are often protected by high import tariffs and numerous non-tariff barriers that apply to sugar trade in the region. As a result many countries are importing sugar from countries further afield like Brazil, China, India and Thailand, with South Africa being the dominant African supplier of sugar to the rest of the region. To mitigate the predicted decline of sugar industries in the region countries will have to address tariff and non-tariff barriers to sugar trade prevalent in the region, become more competitive through the modernization of sugar production (e.g. through the cultivation of disease-resistant varieties and the impact of improved infrastructure) to be able to compete in existing markets with competitors like Brazil and consider the diversification of products produced from sugar cane that can be more lucrative products, including green products like cellulose and lignin from polymers in the sugar cane, bio-plastic and bio-fertilizers.

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Sources:

Global Trade Atlas (www.gtis.com/gta)

TradeMap (www.trademap.org)

ACP-SRP Sugar Research Programme (http://www.acp-srp.eu/en)

European Commission (http://ec.europa.eu/agriculture/sugar/index_en.htm and http://ageconsearch.umn.edu/bitstream/152362/2/B.3.2_presentation-Burell_Seville2013.pdf)

Business Week (www.businessweek.com)