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A review of the EU sugar-sector action plan

14 February 2005

The European Commission working document on the ‘Action Plan on accompanying measures for Sugar-Protocol countries affected by the reform of the EU Sugar regime’ is broken down into five distinct sections:

  • the functioning of sugar markets;
  • why the EU needs to assist sugar-protocol countries in the context of EU sugar-sector reform;
  • trade aspects of the proposed EU policy response;
  • development-assistance aspects of the proposed EU policy response;
  • the funding of the development-assistance programmes for the sugar sector and arrangements for the implementation of a special programme for sugar-protocol countries.

The introductory section on the functioning of the sugar market highlights:

  • the trend of decreasing world market prices, the residual nature of the world sugar market, Brazil ’s dominant role and the decreasing relative role of EU sugar exports;
  • how the sugar protocol works and its importance to ACP beneficiaries (representing 41% of their exports by volume, and 71% by revenue, ‘due to the higher prices in the EU’);
  • the impact that the sugar protocol has had on investment decisions in ACP countries, both positive (in providing funds for modernisation and even economic diversification) and negative (excessive dependence and ‘low levels of competitiveness in the sugar sector’);
  • the importance of EU price reductions for ACP sugar-protocol countries which ‘may experience a more or less significant disruption of their sugar sector, with related consequences for the different dimensions of their socio-economic development’.

In section 2 the EC ‘recognises that the EU sugar reform may lead to significant adjustment needs in ACP countries signatories to the sugar protocol’ and it commits itself to ‘support ACP countries in their path to poverty reduction and sustainable development’. In this context reference is made to the EU ‘Action plan for agricultural commodities’. A key part of the EU response strategy is to improve the international trading conditions in which ACP sugar-protocol countries find themselves and assist these countries through the provision of development assistance

This section set out a basket of potential measures which could be supported, when ‘integrated into a sustainable, comprehensive strategy’. The starting point however for such assistance is the drawing up of ‘country-specific strategies’ by national governments and stakeholders, with, where the need arises in dialogue with the EU and with assistance from the EU. Such strategies should:

  • to take account of the new market conditions that will be created by EU sugar-sector reform;
  • be drawn in a participatory way by the countries concerned, in dialogue with the EC and with EU financial support where necessary;
  • be comprehensive in coverage;
  • be based on an objective assessment of the viability of the sector;
  • complement national development strategies, be consistent with poverty reduction strategies and the EC country-support strategy;
  • be pro-poor.

The ACP countries eligible for support are specified as ‘Barbados, Belize, Guyana, Jamaica, Trinidad and Tobago, St Kitts and Nevis, Fiji, Republic of Congo, Côte d’Ivoire , Kenya, Madagascar, Malawi, Mauritius, Mozambique, Swaziland, Tanzania, Zambia and Zimbabwe’.

Section 3 of the Commission working document sets out possible trade aspects of an EU policy response to assisting ACP countries in dealing with the consequences of sugar-sector reform. It emphasises the importance of trade policy as a ‘tool to foster economic growth in developing countries’ through their integration into the global economy. In this context the working document expresses the view that ‘further market opening can be an important contribution to the expansion of trade in agricultural products and to sustained and continued economic growth for all countries.’ It emphasises how the August 2004 WTO agreement on agricultural modalities ‘adequately address the special needs and concerns of developing countries and is a good basis to continue the negotiations which should ultimately lead to a more level playing field for all, in particular developing countries striving to integrate into the world economy’ It also highlights the importance of trade facilitation through the WTO.

This section also highlights how ‘EPAs provide an ideal opportunity to support the adjustment process of the sugar sector’, particularly through supporting regional integration amongst ACP countries. The document makes explicit reference to the importance of both free trade and ‘trade preferences for regional production’ in creating ‘additional markets for ACP sugar’. It argues that the ACP sugar sectors which will benefit most from such regional trade arrangements will be ‘those sugar industries with expansion potential, located in deficit regions, as well as the landlocked producers which are disadvantaged by higher transport costs for their overseas exports’.

The document stresses that EPAs will incorporate sugar-protocol access, offer opportunities for other products and establish programmes to tackle supply side constraints, in full compatibility with WTO rules. This it is held will open up new opportunities for sugar-protocol country exporters to balance the decline in EU sugar prices.

Section 4 looks at the development-assistance aspect of the EU policy response. It identifies three axes for EU assistance:

  • enhancing competitiveness of the sector;
  • promoting diversification;
  • addressing broader adjustment needs.

Considerable emphasis is placed on assessing the future prospects of each ACP sugar sector in the context of lower EU sugar prices and the cost structure of the industry. Where ‘directing assistance towards maintaining the sugar industry would not be sustainable in the long term, and would correspond to an inefficient use of financial resources, the EU favours supporting diversification or broader adjustment measures. Where it is felt that improvements in competitiveness are possible to ensure a sustainable future for the industry then it is felt that support can be extended to:

  • improving technology and management in the field;
  • reforming production structures;
  • developing other sugar-cane related products to open up new revenue streams;
  • implementing codes of corporate ‘best practice’;
  • improving environmental management;
  • adapting the policy and institutional context;
  • improving research and extension;
  • developing service infrastructure;
  • improving access to finance;
  • macro-economic support.

Where diversification is seen as more appropriate, emphasis is placed on identifying ‘a pro-poor diversification strategy. This could include:

  • ensuring that ‘the identification of market opportunities’ is the driving force in the diversification strategy;
  • ensuring that a comprehensive sectoral strategy is adopted in developing alternative economic activities, taking into account: ‘(i) all levels of the chain and the diversity of enterprises at a given level; the complementary roles of both the private and public sector; and all factors which influence the diversification potential’;
  • the adoption of measures to reduce market risk in sectors chosen for diversification.
  • ensuring that a long-term perspective is adopted.

Section 4 concludes by setting out the elements of an approach to broader adjustment where this is necessary, for example to address ‘short- to medium-term social impacts’, since this could significantly impact on poverty. National adaptation strategies should definitely address such impacts through ‘well-targeted safety nets’. In addition ‘public provision of social amenities may also need to be expanded or upgraded, in case industry-provided services are affected by the impact of reform’.

The environmental consequences of industry closures should also be taken into account, as should the impact on macro-economic stability, particularly with regard to foreign-exchange reserves, balance of payments or fiscal revenues, where this can compromise the carrying out of ‘core functions’ and the delivery of public services.

On the funding and delivery of assistance to sugar-sector adjustment the Commission working document favours extending assistance to country-specific sugar-adjustment strategies in the form of non-targeted budgetary support or through support to a sector-wide approach. While it does not rule out a project-based approach to restructuring, this is not favoured since it imposes a heavy management burden on the EC services.

The document holds that ‘the specific needs of SMEs, including small farmers, should particularly be accounted for’, possibly through using EIB-administered loan instruments under the Cotonou Agreement’s investment facility. It favours making ‘maximum use of existing instruments, available though EC cooperation ... or through other bilateral donors or international organisations’. No commitment is made concerning the scale of additional funding to be provided through the EU annual budget for ACP sugar-sector programmes. The document does however indicate that within the overall envelope provision will be made for national envelopes and pan-ACP activities. Criteria for determining national allocations will be based on:

  • the impact of reform on the sector;
  • the viability of the sector;
  • the potential wider impact of down-sizing;
  • the national dependency on sugar exports to the EU;
  • data on the situation prior to reform.

The document is not specific on when the special funding will be available, stipulating it will be available a) when the legal basis has been approved and b) when the national adjustment strategies are in place. The Commission does, however, believe that adjustment support measures should run for eight years. In this context adjustment programmes should be subject to regular review and a mid-term evaluation.

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