While high world market prices have to an extent reduced the financial impact of reductions in the EU guaranteed price for ACP sugar exports, EU prices for sugar imports by November 2010 were nevertheless still 23% below those prevailing in November 2007 in US dollar terms (the relevant comparison when looking at EU and world market prices). However, as duty-free quota-free (DFQF) access has been introduced alongside the price reductions, not all ACP suppliers have been equally affected by the reform process. Impacts vary not only from region to region, but also between countries within regions.
Despite this, some broad conclusions can be drawn. A cross-section of ACP sugar exporters has since 2009 sought to reduce sugar exports to the EU in order to take advantage of higher priced regional and world markets. This has resulted in low levels of supply of ACP sugar to the EU market in the past season (1.45 million tonnes, compared to a safeguard ceiling of 3.5 million tonnes). However this is likely to be a temporary phenomenon, as planned production increases and an easing off in world market prices are expected to restore growth to ACP sugar exports to the EU market. This carries important policy implications when seeking to address the treatment of sugar under bilateral free-trade area (FTA) agreements, the WTO Doha Round and the 2013 round of CAP reforms.
2. Developments in the Southern and Eastern African region
Since the introduction of DFQF access under the Everything But Arms initiative in 2001, least developed countries (LDCs) in Southern and Eastern Africa have seen a boom in investment in sugar production (see Agritrade special report ‘ Regional perspectives on changing EU-ACP sugar sector relations: The imp...’, May 2010). Following the granting of similar DFQF access for sugar under Interim Economic Partnership Agreement (IEPA) arrangements, this extended to non-LDC countries, notably Swaziland and Zimbabwe.
This investment boom was largely led by South African-based sugar companies (Illovo and Tongaat Hulett), but also included investment from European and Mauritian sugar companies. These national distinctions however are being blurred by changing patterns of corporate investment (see Agritrade special report ‘ Corporate restructuring in the EU sugar sector: Implications for the ACP’, May 2010). Further north in Sudan and Ethiopia, state-led investment in sugar sector development dominates, while in Uganda local companies are rapidly expanding production. This trend continued and was consolidated in 2010–11.
Tongaat Hulett’s investments in Zimbabwe aim to double production to 600,000 tonnes, reaching between 330,000 and 350,000 tonnes in 2010/11 (see Agritrade article ‘ Regional sugar trade and production in Eastern and Southern Africa growing’, July 2011). Illovo investments in Zambia saw production up 62% in 2010 to 315,000 tonnes, with a target of 440,000 tonnes by March 2011. This is seen as a staging post towards up to 1 million tonnes of sugar production (see Agritrade article ‘ Investments under way to expand ESA sugar production’, May 2011). While production in Malawi fell 3% to 295,000 tonnes in the face of poor weather conditions, plans are in place to boost production to 500,000 tonnes by 2015. Illovo’s refining capacity in Swaziland is also being expanded, while investments in Mozambique from a number of sources have seen production expanded to reach 425,000 tonnes in the 2010/11 season, with a target of 500,000 tonnes for 2012.
Further north in Tanzania production has expanded by 27% to 318,000 tonnes, although Tanzania remained a net sugar importer (even after terminating exports to the EU from 2007). Neighbouring Uganda, meanwhile, is looking for an 11% expansion of production in 2011 to reach 335,000 tonnes. With the Kenyan sugar industry still grappling with problems of privatisation, production has averaged just over 500,000 tonnes per annum since 2005, some 200,000 tonnes short of national consumption. In the face of high global sugar prices, this has given rise to calls in the East African Community (EAC) for the implementation of a strategy to attain self-sufficiency in sugar and halt the drain on foreign exchange which sugar imports represent.
Beyond the EAC, new joint venture investments in Sudanese sugar production with Egyptian companies were announced in 2010, marking further progress towards the Sudanese government’s objective of becoming ‘the new Brazil’ (see Agritrade article ‘ Investments under way to prepare region for free trade in sugar’, March 2011). Similar state-led investments in sugar production were announced in Ethiopia on the basis of import credit loans from India.
Meanwhile, Mauritius, the region’s largest exporter of sugar to the EU, continued to invest in the restructuring of its engagement with the EU market by moving up the value chain, through the new commercial partnership established with Suedzucker for the marketing of 400,000 tonnes of direct consumption sugars (see Agritrade article ‘ Developments in Italy create new opportunities for ACP sugar exporters’, May 2011). This restructuring needs to be seen against a background of declining sugar production in Mauritius, with major diversification of revenue streams from sugar cane production (see Agritrade interview with Jocelyn Kwok, Secretary-General of the Mauritius Chamber of Agriculture: ‘ Production and trade adjustment in the ACP: The experience of the sugar...’). It also needs to be seen in the context of plans to import raw sugar for local refining to serve the national market (see Agritrade article ‘ Mauritius completes move to refined sugar exports, other countries face...’, July 2011).
With high world market prices, sugar producers in Southern and Eastern Africa have increasingly looked to supplying regional markets, which offer better net returns than exporting to the EU market. Ethiopia, Tanzania and Kenya have halted triangular trade arrangements, while Malawi, Swaziland, Zimbabwe, Zambia and Mozambique have all reduced anticipated sugar exports to the EU in order to benefit from higher priced regional markets, which can be served at lower cif charges. The growing importance of regional markets in a context of high world market sugar prices cannot be underestimated, although it needs to be borne in mind that as a whole the Southern and Eastern African region is a net sugar exporter. This raises questions about the regional supply and demand balance, should world market prices fall back to a lower level (e.g. around 20 US cents/lb).
These developments in patterns of trade of Southern and Eastern African sugar producers were a significant contributing factor to the under supply situation which prevailed on the EU market in 2010/11. Significantly, those supply chains with the strongest corporate linkages to EU sugar sector companies maintained higher levels of exports to the EU than other suppliers with looser corporate linkages to the EU market.
In view of the planned production expansion in the region and the likely decline in world market prices, it is anticipated that supplies of sugar to the EU market from the Southern and Eastern African region will expand significantly, reaching in excess of 1.7 million tonnes by 2015/16, compared to less than 1 million tonnes in 2009/10. However this will critically be determined by the relative level of EU and world market sugar prices, and the treatment to be accorded to South African sugar exports under the SADC–EU EPA negotiations, which are yet to be concluded. South African negotiators are seeking a tariff-rate quota (TRQ) for sugar exports as a transition to DFQF access (see Agritrade article ‘ South Africa seeks duty-free access to EU sugar market’, October 2010). While this is still an area of intense negotiation, the recent granting of sugar TRQs to Latin American exporters under FTA agreements has potentially increased the chances of some level of TRQ access for South Africa.
3. Developments in the West and Central Africa region
In Central and West Africa, Benin, Sierra Leone and Togo are currently reported to be the only sugar exporters to the EU. Benin’s entire commercial sugar production is exported to the EU, while the production of both Togo and Sierra Leone production appears to be developed exclusively for export to the EU. The region’s traditional exporters of sugar to the EU, Côte d’Ivoire and the Republic of Congo, have both exited the EU market in the light of the high world market prices. Illovo is currently investing in Malian sugar production, largely for national and regional markets, with an expansion of production expected in 2011. The Cameroon sugar sector, where French sugar companies have an interest, had been facing difficulties in finding regional markets in the light of their high production costs. The surge in world market sugar prices will however have eased these difficulties, with production between 2007 and 2010 steadily rising by a cumulative total of 35%. Overall, sugar production in West and Central Africa is largely for local and regional markets, as the region is a large net sugar importer.
4. Developments in the Caribbean region
While initially the Caribbean sugar sector was insulated by the strength of the euro against the US dollar from the worst effects of EU price reductions, the 2009–2011 period saw financial difficulties emerging in the sugar sector (see Agritrade article ‘ Decline in per tonne earnings in Barbados indicative of broader challenges’, October 2010).
In Jamaica, financing difficulties saw the country’ sugar industry enter into pre-financing arrangements with European importers (the Eridania–Tate and Lyle alliance). Seasonal financing was provided against future sugar production, based on a minimum guaranteed price and a profit sharing agreement linked to the sale price of the refined sugar products manufactured. Initially these arrangements were seen as a prelude to the possible purchase of government-run estates by Eridania. However by December 2009 it had become clear that this was not an option.
With production having fallen 40% between 2000 and 2010 (reaching levels below the quota-restricted access enjoyed before 2008) and exports to the EU set to fall to 74,000 tonnes, the search continued for new investment partners who would help restructure the sugar cane industry by investing in the opening up of new revenue streams. In July 2010 an agreement was reached on the sale of the remaining three government-controlled estates to the Chinese company Complant International (see Agritrade article ‘ EC releases aid funding following sugar privatisation’, October 2010). It is unclear what impact this deal with have on future patterns of Jamaican sugar exports. In May 2011 Tate & Lyle sugar was seeking a 5-year contract to purchase up to 200,000 tonnes of Jamaican sugar. The newly privatised companies however were keen to handle their own marketing arrangements (see Agritrade article ‘ Tate & Lyle seeking long-term sugar supply arrangement’, July 2011).
Barbados is currently facing serious problems of financial viability in its sugar sector. A report by the Inter-American Development Bank in February 2011 noted a rising gap between production costs and export prices, resulting in ‘an increasing financial burden’. While the country’s policy orientation is towards the development of production of specialist sugars and the opening up of a diversified range of revenue streams, it is far from clear where the required financing will come from to implement these ambitious plans. In the 2009/10 season, Barbadian sugar exports to the EU were less than half the previous quota-restricted access. In mid 2011, drought and cane fires look likely to reduce production still further to only 25,000 tonnes.
Belize, one of the region’s more competitive sugar producers, has suffered from poor crops in the last two seasons, producing less than 90,000 tonnes (compared to over 100,000 tonnes previously). A lack of financing for investment is seen as leaving little room for error. A promising start to the 2011 season was undermined by the breakdown of turbines, requiring a closure of the processing plant for nearly a month, and these difficulties are leading Belize Sugar Industries to explore the scope for bringing in joint venture partners as a means of raising capital to take the sugar cane industry to a new level (see Agritrade article ‘ Caribbean sugar industries face difficulties’, May 2011).
On the marketing side, the Belize sugar sector has yet to benefit from Tate & Lyle’s conversion to fair-trade procurement for all its direct consumption sugars. Equally it is unclear how the takeover of Tate & Lyles’ sugar division by American Sugar Refiners and the opening up of TRQ access for Latin American sugar suppliers will impact on these arrangements. (See Agritrade articles ‘ Tate & Lyle sugar division sold to US company’, August 2010; ‘ EU-Mercosur negotiations relaunched, Central America negotiations concluded’, June 2010; and ‘ Latin American deals concluded, Asian negotiations launched’ April 2010.)
Guyana for its part continues with its ambitious investment plans, but has yet to reap the benefits, with production having fallen in 2008 and 2009 due to strikes, weather-related disruptions and problems with the new Skeldon mill. This leaves sugar production short of the ambitious target of 300,000 tonnes, at an estimated 264,000 tonnes. Meanwhile, Guyana’s sugar exports to the EU fell to under 150,000 tonnes in 2009/10, compared to over 200,000 tonnes in preceding seasons. This reflects in part the growing commercial attractiveness of regional sugar markets in the context of high world market prices. Nevertheless it is anticipated that once current problems have been addressed, production of 300,000 tonnes and beyond can be achieved.
The bright spot on the Caribbean sugar horizon is the Dominican Republic, whose sugar industry is seen as being well placed to capitalise on rising global sugar prices (see Agritrade article ‘ Favourable global sugar prices in prospect’, February 2011). While production is still some 20% below the levels attained in the early 1990s, a steady expansion of production has been under way since 2005 (+14%). With DFQF access to the EU market and the new owners of Tate & Lyle sugar division having production interests in the Dominican Republic, new commercial opportunities in the EU could open up. However, in the short term the US sugar market looks more commercially attractive: no sugar exports to the EU from the Dominican Republic took place in 2009/10, and only small tonnages (50,000 tonnes) are projected for the coming years. The resumption of significant exports to the EU would thus appear to be contingent upon the re-emergence of a significant price premium on the EU market.
Table 1: Traditional sugar quota and current exports levels (in tonnes)
|Sugar protocol quota||Traditional SPS access||2009/10 exports (estimate)|
|St Kitts & Nevis||16,946.6||1,831.3||0|
|Trinidad & Tobago||47,555.4||5,592.2||0|
Source: compiled by author from various sources
5. Developments in the Pacific region
Since the announcement of EU sugar sector reforms, Fiji’s sugar production has collapsed to almost half its earlier levels, with total production in 2010 below the level of preferential access Fiji earlier enjoyed. In 2010 production was disrupted by mill breakdowns, which reflected shortcomings in earlier mill upgrade programmes (see Agritrade article ‘ Future of Fijian sugar sector in changing global context’, January 2011). In the face of acute financial difficulties and high turnover of management staff, it is unclear whether the Fijian Sugar Corporation (FSC) will be in a position to push ahead with its ambitious investment programme. This includes investment in moving up the value chain and a substantial diversification of export markets. Market diversification can be seen as vital, in view of the shifting patterns of global sugar consumption and favourable world market sugar price projections. Ironically, given these aspirations, in 2010 Fiji first placed restrictions on exports of sugar to Pacific regional markets and in 2011 began importing sugar to meet domestic market needs.
Fiji’s sugar exports to the EU have fallen dramatically, contributing significantly to the financial difficulties of Tate & Lyle’s sugar division. Indeed, FSC’s difficulties in meeting contractual obligations may leave the new owners of Tate & Lyle’s sugar division with little alternative but to seek out new sources of raw sugar supply in order to maintain throughput at their refineries and stem the financial haemorrhage. This would then give added urgency to Fijian efforts to identify and exploit new markets, where lower transportation costs are faced and net profits are better.
Note: This report was first published as the annex to the Agritrade ‘Executive brief: Update 2011: Sugar sector’, available from: