Decline in per tonne sugar earnings in Barbados indicative of broader challenges
26 September 2010
According to press reports, figures released in Barbados showed a decline in the price received for sugar exports to the EU from [Barbados dollars] B$1,622.6 (€622.3) per tonne in 2008 to B$1,344.8 (€515.76) per tonne in 2009, a decline of 17.1%. This was attributed to exchange rate fluctuations of the euro against the US dollar, to which the Barbadian dollar is pegged at an exchange rate of US$1 = B$2. This declining trend in local currency earnings is expected to continue into 2010.
Six monthly average exchange rate of the euro to the US dollar
| Jan-Jun 2008 | July-Dec 2008 | Jan-Jun 2009 | Jul-Dec 2009 | Jan-Jun 2010 | Jul-Aug 2010 | |
| €1 = | 1.53122 | 1.41054 | 1.33200 | 1.45436 | 1.32849 | 1.28321 |
According to the 2009 Barbados Economic and Social Report, despite this decline in unit revenues earned on sugar exports to the EU, exports to the EU increased from 27,800 tonnes in 2008 to 30,300 tonnes in 2009 (+9%) on the back of a 5.4% expansion in sugar production.
Meanwhile, the Barbados Agricultural Management Company (BAMC), which manages heavily indebted plantations, has reported an accumulated deficit of B$232.6 million. While BAMC has been able to maintain lands owned by heavily indebted plantations under sugar cane, this has been achieved ‘at a relatively high cost’. The government has made additional annual payments, above the price paid to farmers by BAMC, totalling B$32.6 million between 2000 and 2010. According to BAMC Chairman George Reid, ‘the years 2010 and 2011 will be critical to the future of the industry in Barbados,’ with serious restructuring challenges to be faced.
Editorial comment
For the period 1 October 2007 to 30 September 2008, the EU guaranteed price for ACP sugar exports was €496.8 per tonne, while from 1 October 2008 to 30 September 2009 the guaranteed price fell to €448.8 per tonne, a decline of 9.7%. However average US dollar earnings on euro-denominated sugar exports to the EU fell some 13% between January and June 2008, and January and June 2009. While the euro strengthened in the second half of 2009, it subsequently fell again (see table), with the euro 13.2% lower against the US dollar in the period January to June 2010 compared to the corresponding period in 2008, with this decline continuing into the third quarter of 2010.
These currency movements in the face of a relatively strong world market sugar price have had a major impact on the relative attractiveness of the EU sugar market not only for Caribbean suppliers, but for all ACP suppliers. This has seen some East African countries halt exports, since importing to meet domestic needs was more expensive than the benefits gained from exporting to the EU. Similarly, a traditional supplier in southern Africa, while meeting its contractual supply commitments, slowed down the rate of expansion of its sugar exports to Europe in the face of more favourable prices on regional sugar markets.
These commercial considerations are generating a situation where ACP sugar supplies to the EU market are falling short of EC expectations. This is leading some in the EC to look beyond the ACP for long-term suppliers of raw cane sugar for EU sugar refineries. This is consistent with broader EU trade policy, with policy makers now more willing to contemplate expanded tariff-rate quota (TRQ) regulated access to EU sugar markets, in exchange for concessions in other areas from those governments with which the EC is negotiating bilateral free-trade area agreements.
However, it should be noted that such a development, by broadening out supply options for EU sugar importers, would be likely to strengthen the hand of EU sugar importers in their contractual negotiations with ACP suppliers. This needs to be seen in a context of widening inequalities in the distribution of commercial power along ACP-EU sugar supply chains, despite the traditionally close collaboration established between ACP exporters and EU importers.
In this context, recent EU policy initiatives to strengthen the functioning of food supply chains, particularly in terms of ensuring the transparency of price formation and contractual arrangements, could take on a growing significance in ACP-EU sugar sector relations.
