Sugars Role in Development PolicyIntroduction
Ladies and gentlemen,
Its a great pleasure to be with you this evening to make some comments about the future role of sugar exports in the development of the EUs poorer trading partners.
The German Marshall Fund does excellent work in picking out the central global challenges of the moment. And it has found a good topic for this evenings discussion, at the right time as the European Commission and EU member states work towards agreeing an overhaul of the Unions sugar common market organisation by November this year.
A difficult and sensitive topic, though.
Sugar is not a staple food, and yet it has seized the imagination of politicians and peoples around the world.
It caused a sensation when European explorers first brought it home from their overseas adventures during the Early Modern Era. It then counted heavily in many governments foreign policies during the age of empire until Europeans went to great lengths to start producing it at home at the end of the nineteenth century, initially in northern France.
And before the 1959 revolution in Cuba, that former powerhouse of the global sugar industry, a popular saying claimed that without sugar, there is no country.
This expresses quite well the heart of the problem which were looking at tonight: the fear that, if a developing countrys sugar industry goes to the wall, so does its social structure.
A thousand questions branch off from this central anxiety, and I cant do them justice in this brief address. What I hope to do this evening is to give some context and set out the main lines of the European Commissions thinking.
The EU is committed to development-friendly trade
Whatever else one can say about the EU sugar sector and its relationship with developing countries, one thing is clear: change is in the air. Change can be threatening. So it may be helpful to remind ourselves of where weve come from in terms of the EUs traditional approach towards trade and development in general: this may give at least a crumb of reassurance about our likely destination.
Let it never be said that the EU takes no account of the worlds poor in its policies on agriculture, trade and development.
The Union is still the worlds biggest importer of farm products from developing countries, buying as much as the US, Japan, Canada, Australia and New Zealand together. Thats not a bad foundation for trade-fuelled development.
And when our farm policy has evolved in the past, it has frequently shifted in such a way as to give more help to poorer countries, not less.
The UKs accession to the EU in 1973 is a clear illustration. Britain brought with it a strong tradition of buying farm goods from its former empire including large volumes of sugar. Instead of cutting this link, in 1975 the EU signed the Sugar Protocol with 19 African, Caribbean and Pacific countries. The guaranteed imports laid down in the Protocol have been worth millions of tonnes of sugar exports and billions of euros to those countries over the 30 years of the deals operation.
Then theres the Everything But Arms – EBA – agreement signed with the worlds Least Developed Countries in 2001. Much of this evenings discussion may turn on whether a reform of the EU sugar regime will devalue the EBA pact. But whatever our respective views on this and Ill return to the question later lets not forget that everything is a big word. It gives LDCs a large export scope and includes a number of products other than sugar which are sensitive for the EU. I could mention bananas and rice.
Its easy to denigrate the EBA deal. Its less easy to find any similar initiatives pursued by other big players in global farm trade.
Moreover, in the current WTO round, among groups of richer countries its often the EU that is calling most loudly for special concessions to poorer countries. We are quite prepared to let them lower their trade defences much more slowly than we lower ours.
Finally, of course, the Union has a generous development budget backed up by a lot of expertise on how best to spend it. And this is in addition to member states individual aid programmes.
Why change is coming to the sugar sector
So its clear that the EU has always wanted to see the movement of goods ease poverty around the world, not just raise living standards within its own borders. And preferential trade in sugar has certainly made a strong contribution to observance of this principle.
But times change, and even if our principles are stable, the tools for applying them may also change. It looks very likely that sugar trade will soon occupy a slightly different position in our toolbox, for two main reasons.
First, we need to find a better fit between our sugar market and the rest of the CAP. The broom of reform has already swept through most of the EUs agricultural sectors.
We cannot let the 35-year-old sugar regime gather dust, undisturbed, in a forgotten corner. The Commission has a legal mandate to examine reform options, and we have been doing that. EU farm ministers will then decide a model for the future we hope, one that will restore the symmetry of the CAP, giving beet farming and sugar production the same market orientation, the same flexibility, the same environmental disciplines that most other forms of agriculture in the EU now enjoy.
Second, if we dont decide now on a new form for our sugar regime, external forces will decide it for us, with a rather more brutal logic than we would apply. Analysis was clearly showing two years ago that the industry would soon be heading towards the cliff edge. If we didnt slash our internal price which, at three times the world level, creates enormous distortions the market would tip over and only deep cuts to home production would restore balance. This was one of the findings.
Since that analysis was carried out, a WTO panel has handed a victory against us to Australia, Brazil and Thailand on two counts: first, we can no longer subsidise extra sugar exports to balance out preferential imports; and second, unsubsidised exports will have to go. The annual volumes in question are 1.6 million tonnes and up to 3 million tonnes, respectively piling further pressure onto our market.
To this pressure can be added a further 1.3 million tonnes if the EU gives up all agricultural export refunds to help make a success of the Doha Round.
The logic is clear: the old methods for stabilising the market will no longer work. We need a new approach.
Impact on developing countries
What is this process likely to bring for developing countries which enjoy preferential sugar trade with the EU?
The Commission College intends to table its reform proposals on June 22. The final package that passes into law will be up to member states. But I can tell you bluntly that a deep cut to the EUs internal price will almost certainly be a central feature deeper than the 33% which the Commission suggested last July. Without this, I believe that the idea of a balanced EU market is a pipe dream.
This will, of course, reduce the expected returns to LDCs and the historical ones to Sugar Protocol countries on sugar shipped to the EU under preference.
We have listened carefully to the LDCs request that, for a transitional period, we continue to import their sugar at high prices but in bound quantities.
However, we do not wish to alter a central element of the EBA pact just 4 years after negotiating it. Nor do we feel able to operate a dual price structure in the EU a lower internal price alongside a higher guaranteed value for some overseas suppliers. Furthermore, much of the history of our sugar regime is a history of delay to much-needed change while other sectors embrace that change. We have to end this habit of hesitation. If now is the time for the EU to build a durable future for its domestic sugar production, founded on a more realistic price, then now is also the time for our trading partners to come to grips with this new reality.
But lets see this in proportion. Under the Commissions coming proposals, the EU price would drop from its current very high level but would keep well above typical global market quotations. Sending sugar to the EU should still be attractive for a number of LDCs. And of course the EBA agreement will continue to cover a huge range of products besides sugar.
For the ACP countries covered by the Sugar Protocol, the situation is a little different. Its been agreed that the Protocols provisions will be integrated into the Economic Partnership Agreements which were currently negotiating with all ACP states. So well be viewing them as part of a larger commercial whole.
At the same time, were not hiding from the difficulties which a lower EU price will bring to ACP countries, nor shirking the challenge of supporting them through these.
No fewer than three Commissioners are giving a good deal of thought to this: Development Commissioner Louis Michel, Trade Commissioner Peter Mandelson, and myself. Between us, were looking to come up with assistance packages tailored to the particular needs of individual states.
In some cases, that will mean helping countries to sharpen their sugar industrys competitive edge. Were talking about improving technology and management in fields and factories, promoting alternative uses for sugar cane, and diversifying sugar markets. Other issues to be looked at would be quality production, research, and access to finance for small and medium-sized companies.
This would be our first choice of approach. But there are cases where pumping money into the local industry will achieve nothing because of serious underlying problems. In such cases, our funds can help best by breaking down obstacles to developing alternative industries obstacles such as high transaction costs, poor skill levels, limited access to capital, and market instability. There might also be cash to cushion the immediate social and environmental effects of factory closures.
In conclusion, ladies and gentlemen, I shant pretend that the coming reform of the EU sugar regime will leave no mark on the role of sugar trade in development. I shant pretend that there wont be stiff challenges to be faced.
But I would emphasise that there will be challenges for everyone. Our trading partners may have to adjust. So will the EU sugar sector. Im confident that we can find the right sort of adjustment that fairly balances competing interests.
I come full-circle to the popular Cuban saying which I cited a few minutes ago: Without sugar there is no country. The leadership of the 1959 revolution questioned this view. But having set out on the road to a more diverse economy, it was lured off course by lucrative sugar export contracts with the Soviet bloc. Decades later, Cubas struggle to re-orient its economic mix was all the more painful.
After the EUs reform of its sugar regime, sugar trade will still play a role in the development of poorer countries. Let us bolster that role where we can. But where we need to look to new forms of help, let us do this sooner rather than later.
Thank you for your attention.