8. Sugar

EU dumping depresses world prices

Today the European Union is the world's largest exporter of sugar. Every year, the EU dumps millions of tonnes of subsidised sugar on to the world market. EU sugar exports depress world prices and reduce the market shares of developing countries, thus depriving them of the foreign exchange they need to develop their economies. Inevitably the household incomes of all rural people involved in sugar cane production suffer. This year the Uruguay Round Agreement of the General Agreement on Tariffs and Trade (GATT) comes into force. In theory, the Agreement means that its signatories must reduce subsidies to agriculture and export dumping, and allow greater access for agricultural commodities to their markets. But the Agreement is a political deal and its impact on EU sugar policies will be negligible.

This chapter looks at world sugar markets: which countries export and import and why world sugar prices are both low and notoriously unstable. It considers the conditions of sugar producers in developing countries, and why these conditions are often so bad. It looks at EU sugar policies, and the impact of these on the developing world. Finally it outlines how fair trade organisations are working to improve the position of poor producers.

8.1 World sugar markets

Sugar is produced in around 120 countries, reflecting the wide range of climatic conditions in which cane and beet can be grown, as well as its perceived importance as a strategic food product. But of the approximately 110 million tonnes of raw sugar produced in the world annually (of which cane accounts for around 65 per cent) about three quarters is consumed in the country of origin. (1) This leaves some 27 million tonnes to be traded internationally. The European Union is the world's largest exporter, accounting for about 20 per cent of the world market in 1994/1995, followed by Australia with 14 per cent. Thailand, Brazil and Cuba are the largest developing country exporters, together accounting for almost 40 per cent. About another 50 developing countries export sugar. For several of them, sugar has been a major export for many years, and remains so (see table).

(1) This and other statistics used in this Chapter are based on factory-processed sugar. About one-sixth of developing country cane sugar production does not come into this category, but is processed on a small scale by the "open pan" method to produce low quality sugar e.g. gur in India and panela in Latin America, for domestic consumption.

Two important features distinguish the world sugar market. First, most of the world's sugar producing countries protect their own producers from competition with outside suppliers. Major markets, for example India and China, are broadly self-sufficient in sugar, meeting their needs from domestic production behind protectionist barriers. The European Union and Japan also have highly restrictive import regimes and maintain domestic prices at very high levels. Second, special trade agreements have been very important in world sugar trade. Until the collapse of the Soviet bloc in 1989, Cuba traded 4 to 5 million tonnes annually under special barter arrangements with the former Soviet Union and the other centrally planned economies of Eastern Europe. The United States imports over 2 million tonnes of sugar per year at the high price received by US domestic sugar producers under quota arrangements with about 40 countries. The EU imports approximately 1.3 million tonnes from the African, Caribbean and Pacific (ACP) countries party to the Sugar Protocol annexed to the Lomé Convention (see section 8.3).

World prices The protection of the world's major sugar markets and special trade arrangements mean that world sugar prices are both low and notoriously unstable (see graph). World prices are low because, for many sugar producers, world prices do not need to reflect their production costs. Producers can cover their fixed costs on their domestic or preferential markets, so world market prices need cover only variable costs to be attractive. Alternatively, governments directly subsidise sugar exports to make them competitive. The current cost of production of the lowest cost producers, such as Australia, Thailand, southern Brazil and parts of the EU, is between 10-12 cents/lb for raw sugar, as against an overall average cost of production of 15 cents/lb. Yet since 1970, real prices have been within a band of 4 - 11.5 US cents/lb, with sudden peaks to 30 cents/lb in 1974-75 and 1981-82. (2) According to UNCTAD, world sugar prices would rise by 46 per cent if protective sugar policies were entirely removed. (3) World sugar prices are unstable because the world sugar market is what economists call 'thin' - there are a relatively small number of buyers and sellers and changes in the quantities of sugar traded can have a large impact on the price. In most years the world market is a dumping ground for national surpluses, but in some years unfavourable climatic conditions makes it the source-of- last resort for badly needed sugar supply. Sugar prices are the most variable of any major internationally-traded agricultural commodity.

(2) Real prices deflated by UN Index of unit values of manufacture exports, 1986=100. Food and Agriculture Organisation and International Sugar Organisation. The World Sugar Market Prospects for the 1990s.
(3) UNCTAD (1994). The World Sugar Market Study by the UNCTAD Secretariat

These characteristics of the world market - unstable, but usually low prices - mean that if developing countries are suddenly forced to shift from trading under special arrangements at stable prices that are usually higher than world market prices, to trading on the world market, the consequences for their sugar industries and sugar workers can be disastrous. This was the case in the mid-1980s for the Philippines and the Dominican Republic when their US import quotas were cut. Traders could not sell their sugar at a profit on the world market, because at the time world prices were at an historic low due to the collapse of the International Sugar Agreement (see below); so thousands of sugar producers were thrown out of work. More recently, producers in Cuba have suffered from the ending of the agreement with the former Soviet Union (see box).

From the early 1980s to the early 1990s, the world supply of sugar was greater than demand overall. This reflected increased self-sufficiency in the EC, India and China and a switch to alternative sweeteners in the US and Japan. However, in 1993 the world market moved into deficit. This pushed the world price for raw sugar up more or less continuously during 1994, from about 10 cents/lb to a peak of about 15.5 cents/lb in the first half of January 1995. The main reason for the market deficit was a reduction in Eastern European beet production. This reflected chronic problems in the sector (and the economy as a whole), due to lack of investment, reduced access to inputs, deteriorating infrastructure, etc. These factors have reduced production by nearly 40 per cent over the last five years. Speculative buying by India and China also contributed to the price rise. Since January 1995, prices have fallen back sharply, to around 12 cents/lb in June, as estimates of the market deficit have been reduced. This is largely due to the expectation of an exceptionally large Brazilian crop, and higher-than expected production in India and Thailand. Prices are expected to fall further during the second half of this year, which could bring the market back towards its 1991-3 level of around 9-10c/lb. The International Sugar Organisation (ISO) predicts that the deficit in the world sugar market is approaching its end; the market may be back in surplus next year. Up to the year 2000 prices are projected to be in the range of 7.5-12.5c/lb. But the world market is particularly difficult to forecast due to the changes in the former Soviet bloc.

Cuba Until 1993, Cuba was the biggest exporter of sugar in the world. In 1992 it exported 7.2 million tonnes, leading the EU with 5.0 million tonnes. Sugar accounts for 75 per cent of Cuba's total export trade, and sugar production supports about one fifth of the labour force. Before its socialist revolution, Cuba exported sugar to the US. When the rebels successfully overthrew Batista in 1959, the US immediately cut Cuba's sugar quota to zero and boycotted all Cuban products. The Soviet Union stepped into the gap and agreed to barter the Cuban sugar crop for fuel, machinery, fertiliser and other products. From this time until the collapse of the Soviet bloc, Cuba exported 3 to 4 million tonnes to the USSR per annum and a further one million to the former communist countries of Eastern Europe. After the collapse of the Soviet Union in 1991, Cuba signed new barter arrangements with Russia and some of the other CIS republics. But the volumes involved are much smaller and the return, now based on the world market price, much lower. In 1993, Cuba exported no more than 2 million tonnes of raw sugar to Russia, and there has been a virtual demise in its exports to Eastern Europe.

The consequences of this precipitate drop in preferential trade for the Cuban economy has been dire. Cuba's agriculture depends on imported inputs such as fuel, fertilisers, herbicides and parts for machinery and equipment. The decline in export earnings from sugar means that less inputs can be imported and, in turn, that less sugar and other crops can be produced. In 1991 Cuba had 8.2 billion pesos available to purchase imports, in 1992 this had dropped to 2.2 billion and in 1993 to 1.70 billion. In 1993 production of sugar dropped by 40 per cent to 4.3 million tonnes, the largest single fall in 20th century Cuban history. Sugar exports had to be temporally suspended. Production fell again to 3.5 million tonnes in 1994/95. Food sectors, such as poultry which depend on imported feed, have also been affected. No figures on increasing levels of malnutrition or unemployment as a result of the collapse of Cuban agriculture are available. But there has certainly been a substantial reduction in the supply and variety of basic foods. Basic consumer goods, like soap, detergent, toilet paper and toothpaste, are virtually unobtainable. There are frequent power cuts and the public transportation system is in crisis.

International Sugar Agreements Attempts to raise and stabilise world sugar prices through international agreement have ended in failure. The 1977 International Sugar Agreement (ISA) established export quotas for its members at times of surplus supply. The effect of these quotas in 1978 and 1979 was to lower the exports of member states by some 2 million tonnes. But the EC refused to sign the Agreement, and behaved as a 'free-rider', using the opportunity of ISA members' export restraint to encourage an uncontrolled expansion of its own production and exports. This resulted in the collapse of the Agreement in 1984, and world market prices fell by over 30 per cent.

8.2 Conditions for Producers

In many developing countries, the income earned by small cane farmers, and the wages and working conditions of employees in the sugar industry are very poor. These poor conditions are the result a number of factors, including the great inequalities in wealth and power in many sugar producing developing countries and low world market prices.

Inequalities of wealth and power One aspect of inequality is very often poor land distribution amongst the population. Where sugar is produced on large plantations, as it is in many developing countries, and land-owners do not recognise trades unions, conditions are often particularly bad.

In the Dominican Republic, for example, where sugar plantations cover 12 per cent of the country's agricultural land, the conditions of the thousand of cane cutters are appalling. Many of them are immigrants from neighbouring Haiti. They live in compounds called batays close to the sugar fields. As many as seven people live in single room barracks, without water or electricity. The state sugar corporation, the CEA, fails to provide adequate health services, so children die needlessly from preventable diseases, and despite government pronouncements, there is still evidence of forced recruitment and workers being prevented from leaving plantations. Lack of organisation within the ranks of the cane cutters has helped to keep them weak. In the Philippines, the situation is similar (see box).

In Thailand, by contrast, sugar has provided farmers with a good and stable income for several years. Sugar is produced mainly by small farmers (the average farm size is estimated to be 6.2 hectares) and since the 1960s cane growers associations have represented their interests with considerable force. Since 1970, the growers' associations have negotiated a fixed price for each season's crop with the cane millers, and in 1984, an Act of Parliament was passed to ensure that the annual revenue from total sugar sales was shared between farmers and millers on a ratio of 70:30. Thai farmers have also benefitted from the fact that the industry as a whole has greatly increased production and export since the early 1980s. By the late 1980s Thailand became the world's third largest exporter. Favourable physical conditions, fertile soil and climate, and a modern low cost processing industry are the main reasons for the industry's success. There is, however, another group of people involved in the sugar industry in Thailand: tens of thousands of people migrate each year from the North-East to cut cane in the Central and Eastern regions. It is debatable whether they receive a fair share of the revenue from the industry. They are certainly not part of the revenue sharing system between millers and farmers.

Low World Prices The above makes clear that countries' internal policies and priorities are of prime importance to the conditions of the world's sugar farmers and workers. When the price of sugar on the world market has been high, the workers in the Philippines and the Dominican Republic have seen few benefits.

Yet conversely, their workers have been badly affected when the industries have been in crisis because of falling prices. Higher world prices would at least offer some protection to the jobs and income levels of workers and small farmers. This is clear from the history of the ACP countries, which receive a high price for their sugar exports to the EU. Even in ACP states where ineffective government has reduced the sugar industry to a dilapidated state, as in Guyana, the conditions of the workers cannot be compared to those in a country like the Dominican Republic. In other ACP countries, revenue from the sugar industry has been used to provide schools, health services and infrastructure and to fund diversification into other sectors.

The Philippines From the beginning of this century until the mid-1970s, the Philippines exported virtually all its sugar to the US under a special agreement. In 1970 sugar accounted for about 18 per cent of the country's export earnings. The US market continued to be of importance to the industry until the early 1980s, when two factors combined to end the country's quotas for the US market. First, the US government wished to put pressure on Marcos, who it had supported throughout the 1970s. Second, when Pepsico and Coca Cola announced that they would allow unrestricted use of alternative sweeteners in their drinks, US demand for sugar plummeted. Between 1982 and 1987 the US cut its sugar imports by 70 per cent. This hit the Philippines and the Dominican Republic very hard, as well as a number of Central and South American countries. On Negros, a quarter of a million people were left without work in 1985 when the US quota was slashed, leading to famine. Desperate sugar workers tried to farm the land which the sugar estates owners could not afford to cultivate. But they were prevented from doing so by the estates' private armies.

Today the Philippines is no longer a major sugar exporter: sugar products account for little more than 1 per cent of export earnings. But for the large numbers of landless or near landless people on Negros, work on the sugar estates is still the only means of a meagre survival. The average daily wage of male cane cutters is little more than the cost of the daily rice needs of a typical family of six. So all family members have to work, families cannot afford to send their children to school. A recent health survey found that long term deficiencies in the workers diets would soon result in severe retardation of their mental development. Even more shocking, the average life-span of cane cutter is 30 years. Land reform laws have been in place for several years but the landlords have largely blocked their implementation. By 1993, only 9000 hectares of the 70,000 hectares of cultivated land on Negros had been redistributed. Many landowners do not recognise unions and serious harassment of activists is common. But through collective action, some sugar workers have been able to dramatically improve their lives. On a number of estates, workers have gained access to land to grow food for their own consumption and for sale in local markets. They gained the land either though squatting or by negotiating through the National Federation of Sugar Workers with the landowners. For the first time, workers have an adequate diet and, with the help of the union, several of the new communities have set up initiatives to provide healthcare and education.

8.3 EU Sugar Policy

Today the EU is the world's largest exporter of sugar. Yet 20 years ago the then European Community was a net importer of sugar. Europe's improved position in world sugar trade is the result of Common Agricultural Policy (CAP) subsidies provided to European production and export of beet sugar. Without these subsidies, most European production and export would not be viable. The core of the CAP is guaranteed minimum prices for agricultural products from within the EU. Once a year, Farm Ministers meet to agree guaranteed minimum prices (known as support prices) for the next agricultural year. These are generally much higher than world prices. EU sugar prices have been on average around 2.5 times higher than the world market price for the past five years (an average of 26.29 US cents/lb as opposed to 10.92 cents/lb on the world market between January 1989 and November 1994.)

For sugar, producers are guaranteed minimum prices only for a set amount, or a 'quota' of sugar; and not for unlimited output as with other crops, such as cereals. But the guaranteed minimum price for sugar still applies to an amount of sugar that is much larger than Europe needs for its own consumption. In 1993, EU producers received guaranteed prices for about 25 per cent more sugar than the EU consumed. The profits that the farmers make in this way encourage them to produce extra sugar that they sell at the world market price. So every year the EU exports about a third of its sugar production.

The EU protects its farmers from competition with producers in other parts of the world. If prices on world markets are below those in the EU, which they usually are, imports are taxed to ensure that they cannot undercut EU-produced food-stuffs. Because world prices are usually much lower than EU prices, agricultural surpluses can only be exported if the EU pays a subsidy to make up the difference, a practice called 'dumping'. For sugar, producers have to pay a tax or 'levy' to cover the cost of subsidising exports. But they can afford to pay this levy, because the guaranteed minimum price for sugar is so high.

Impact on developing countries The rapid expansion of EC sugar exports in the early 1980s was a major factor in the collapse of world sugar prices after 1979/1980. The EU's subsidised sugar exports are estimated to depress world market prices by about 12 per cent. A World Bank study puts the long-term impact at 17 per cent and the effect at the beginning of the 1980s at around 30 per cent. It estimates the annual costs as $160m for Australia and Brazil, $72m for Thailand, $50m for the Philippines and South Africa, $20m for the Dominican Republic, and $13m for Colombia and Guatemala (in 1984 $ values).(4)

(4) Borrell, B. & Duncan, C. (1990). A Survey of the Costs of World Sugar Policies. World Bank PRE Working Paper WPS 522, Washington D.C.World Bank.

As noted earlier, however, the ACP countries party to the Sugar Protocol have benefitted from the EU's sugar policy. The Sugar Protocol allows its 18 signatories to export specified quantities of cane sugar to the EU each year, at prices closely related to the high prices received by EU sugar beet farmers. The ACP sugar suppliers are a diverse group. For some, their sugar exports to Europe are vital to their economic survival. These are mainly the smaller Protocol members, in particular the high-cost producers in the Caribbean. Their sugar industries could not compete at low world market prices. For others, mainly the African signatories, exports under the Protocol provide important foreign exchange earnings but are much less important to their economies as a whole. Overall, the ACP sugar industries directly employ some 275,000 people and thousands more in related economic activity. In the EU, cane sugar refiners employ approximately 3,000 people.

The GATT Agreement In 1994, 121 countries signed the GATT Uruguay Round Agreement. Significantly, this makes their agricultural policies subject to internationally agreed rules for the first time. Signatories have committed themselves to allowing a minimum level of imports into their markets for agricultural commodities, to reducing the amount they spend on agricultural export subsidies and on domestic support for agriculture, and to reducing their volumes of subsidised exports, over the period of the agreement: 1995 -2001 for developed counties and 1995 - 2006 for developing countries. (5) The implementation of the Uruguay Round Agreement will be overseen by the new World Trade Organisation.

(5) The smallest and poorest developing countries, defined by the United Nations as the 'least developed countries', are exempt from making any changes in their agricultural policies.

The Uruguay Round Agreement's impact on world sugar production and world sugar prices will be limited. Much of international sugar trade is carried on among countries that are no party to the Agreement: for example, Cuba, some countries of the former Soviet bloc and China. Other major sugar producers, although signatories to the Agreement, are developing countries and therefore face smaller obligations as a result of the Agreement. The EU and the US have interpreted the Agreement's provisions in the way that has the least possible impact for their domestic industries.

Under the Agreement, the EU must cut its volume of subsidised sugar exports by 21 per cent.

However, the enlargement of the EU to include the Scandinavian countries, which previously imported sugar, means that EU exports will anyway fall by about this amount. The EU must also change its variable levy on sugar imports to a fixed tariff, and then reduce this tariff by 20 per cent. However, a special 'safeguard provision' allows the EU to charge additional duties which will stop non-ACP imports entering the EU market. Even if world sugar exporting countries were willing to give sugar to Europe, the tariff plus the special duties would make these imports more expensive than domestic EU sugar. Potentially, the EU's obligation to reduce its expenditure on subsidising sugar exports could require changes to EU sugar policy. The EU has therefore made provision to cut Member States' sugar quotas on an annual basis if the level of world market prices means that it is in danger of breaching the Uruguay Round ceiling on expenditure on subsidising sugar exports. Similarly, the Uruguay Round Agreement will mean few changes to US sugar policy. The level of US sugar imports is now fixed under the Uruguay Round agreement at 1.14m tonnes, but as in the EU, tariffs on additional duties will keep non-quota imports out of the US market. Analysts are therefore predicting world price rises for sugar of between just one to three per cent a year as a result of the GATT Agreement. (6)

(6) See, for instances, the projections cited in Pryke, J. and Woodward, D. (1994). The GATT Agreement on Agriculture: Will it Help Developing Countries? CIIR seminar background paper, CIIR.

8.4 Fair Trade in Sugar

Fair trade means buying directly from producer organisations in the South at a fair price. Establishing fair trade arrangements with organisations of small-scale sugar farmers is difficult. Unlike coffee and cocoa, which are tropical commodities, either sugar beet or cane can be produced almost anywhere in the world; so there is direct competition in production between North and South. Because sugar is perceived to be a strategic food product, many countries have established their own sugar producing and processing sectors. These two factors mean that countries' sugar markets tend to be protected and regulated. As discussed above, all sugar imports into the EU, except those from the Sugar Protocol countries, are taxed to bring their price up to above the agreed minimum price on the EU market. So any fair trade sugar imports in the EU from non-ACP countries are very expensive.

For instance, the Dutch EFTA member Fair Trade Organisatie bought sugar from Costa Rica in June 1995. The producers received US$ 550/tonne, twice as much as the prices on the world market. On top of that it had to pay US$ 720/tonne in import duties to the EU, thus more than doubling the fair trade sugar's price! The technology required for milling and refining sugar requires considerable capital resources, especially if the sugar is to meet the increasingly strict requirements of the food and drink industries in the North. Growers need the mill as cane is worthless without being processed into raw or white sugar immediately after harvesting. For historical reasons, almost all ACP sugar is exported as raw sugar to the UK, where it is refined by Tate & Lyle. These factors mean that very few small-scale producer cooperatives exist in the South with whom Northern alternative trade organisations can form fair trade partnerships.

Again, this situation contrasts with that for coffee and cocoa: their beans can be collected, processed and graded ready for shipment without substantial investment, so cash-poor small-scale farmers can organise to take greater control of these steps and hence strengthen their position in the marketplace.

Despite these difficulties, some sugar is being fair traded in Europe. Since 1986 muscovado sugar from the Philippines and brown sugar from Nicaragua and Costa Rica has been imported by EFTA members and sold in fairtrade shops, mainly in the Bene-lux countries. Traidcraft in the UK imports raw cane sugar packed by members of a disabled workshop in Mauritius. Since 1991, about 80-100 tonnes of muscovado has also been imported annually for use in Muscao brand chocolate, made in Switzerland. One supplier is Alter Trade in the Philippines, which markets sugar for cooperatives on Negros that have managed to get land under the governments' land reform programme. Alter Trade offers several benefits to the cane workers compared with the large privately owned mills, or 'Sugar Centrals'. It comes to collect the cane; the groups have to arrange and pay for their own transport to the Sugar Centrals. It pays a set rate for the tonnage of cane collected; the Sugar Centrals deduct for trash and pay differing amounts for the rest of the yield according to their own grading systems.

Romeo Malalay, chairman of one of the coops supplying Alter Trade says: 'When we were under the landlord we were merely workers - harvesting and planting cane. We earned just enough income to live, but with no leeway. Now with the coop all our earnings are shared. We have the leeway to decide what to do with the money.'

Last year Max Havelaar (Switzerland) and TransFair International began importing refined white sugar from a cooperative in Costa Rica, Coope Agre. This sugar is used by manufacturers who wish to sell chocolate with the Max Havelaar fair trade mark on the Swiss market. About a 120 tonnes are currently being imported. Coope Agre produces 20,000 tonnes of white sugar each year and represents 800 producers. The European fair trade movement hopes that fair trade imports of sugar will demonstrate to the northern food industry that small-scale southern producers can produce sugar of good quality; and might even help start a debate on why we grow and process sugar at such high prices in the North and dump it on the world market to the detriment of producers in the South.

Tables and graphs

The significance of sugar exports to selected developing countries

Sugar exports
as a % of total
exports by value
Number of sugar farmers
and plantation, factory and
administrative workers
% of exports sold
on world market
Cuba 74.7% 480,000 61%
Fiji 51.9% 43,000 56%
Belize 36% - 41%
Mauritius 34% 72,000 10%
Guyana 31.7% 32,000 14%
Guadeloupe 30.3% - -
Dom. Rep. 19.8% - 48%
Jamaica 9.1% - 1%
Guatemala 5.7% - 93%
Zimbabwe 3.9% - 0%
Thailand 3.3% 1,300.000* 100%
Philippines 1.1% 353,000* 43%
Brazil 1.1% 3-4,000,000 90% *
* Figures do not include administrative workers.
Source: CAP tales (April 1993).
Reform of the EEC Sugar Regime. Farmers Link, Norwich.
World sugar exports 1994/1995
EU 20%
Brazil 12%
Australia 15%
Thailand 10%
Cuba 15%
Other 28%
World sugar spot price New York monthly averages in US $cents/lb
Source: E, D & F Man
World and EU sugar prices average 1989-1994 in US $cents/lb
World 10.92
EU 26.29
Annual income losses caused by EU export subsidising million US$
Brazil 160
South Africa 50
Australia 160
Dominican Rep. 20
Thailand 72
Colombia 13
Philippines 50
Guatemala 13

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