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Future prospects for African sugar: sweet or sour?

Trade Reports

Future prospects for African sugar: sweet or sour?

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Africa’s share of global sugar production is around 5.7 percent, with a similar figure for global exports but a higher one for imports. Thus the continent is a net importer. Most of Africa’s production (excluding Egypt) is concentrated in South and South Eastern countries. South Africa is the dominant regional producer and exporter, and is classified as one of the global low-cost producers.

The global sugar trading regime is complex: high protection rates in the major Organisation for Economic and Cooperation (OECD) countries on the one hand are only partially balanced by concessions to some developing countries that have preferential access deals for relatively minor quantities. Production costs have become almost irrelevant for these two groups. In the middle are the major sugar exporters trading at a global price that is artificially reduced by a combination of denied access and subsidised exports, from the European Union (EU) in particular.

Reforms in the EU sugar regime now operate on a definite timeframe. On the supply side, following an adverse World Trade Organisation (WTO) decision, EU export subsidies are to be slashed, production quotas reduced and the internal domestic prices reduced by around one-third – yet these will still be somewhere near 50 percent above the global reference price. On the market access front, the sugar import regime is to be gradually relaxed, with quota- and duty-free access from the world’s poorest countries under the Everything but Arms (EBA) concession from 2009.

This creates both winners and losers amongst African producers. The losers are those that currently have preferential access (the ‘haves’) and will see their economic rents dissipated, while the winners are those operating almost exclusively on the global market (the ‘have-nots’) who will see their world export price rise. In Africa the first group is mainly Mauritius (a high cost producer) and Swaziland (a lowish cost producer). These production costs are likely to now dictate how a country fares in the sugar market. Among the losers, it is likely that Mauritius, at the extreme, will exit the sugar sector completely.

Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.


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