Sugar growing countries on edge as EU prepares to scrap quotas
Kenya is increasingly becoming a market for agriculture products from Uganda and Tanzania. According to the 2015 Economic Survey, massive imports of unmilled maize and sugar from the pair boosted their trade with Kenya by 27.2 per cent in 2014 compared with the previous year. FILE PHOTO | NATION MEDIA GROUP
What you need to know:
The EU imports approximately 60 per cent of its demand for cane sugar from the ACP countries.
The EU supports African sugar producing and exporting countries such as Egypt, Mauritius, Zambia, Sudan, South Africa, Malawi, Zimbabwe, Lesotho, Mozambique, Ethiopia and Swaziland.
Africa’s sugar-producing countries will lose a significant portion of their export market in 2017 when the European Union Common Organisation of the Markets ends production quotas for its 19 members.
Currently, EU member states are limited to supply a maximum of 13.5 million tonnes of sugar, leaving the African, Caribbean and Pacific states (ACP) and least developed countries (LDCs) to supply up to 3.5 million tonnes through their quota-free, duty-free access to the EU market.
The EU imports approximately 60 per cent of its demand for cane sugar from the ACP countries.
As the world’s largest sugar market, the EU supports African sugar producing and exporting countries such as Egypt, Mauritius, Zambia, Sudan, South Africa, Malawi, Zimbabwe, Lesotho, Mozambique, Ethiopia and Swaziland.
These countries have duty free, quota free access to the EU for agricultural products, under the “Everything but Arms” regulation and the Economic Partnership Agreements, which end in 2017.
The removal of quotas means that market segmentation (between the markets for quota sugar and non-quota sugar and other products derived from sugar beet) will end, and a single set of prices for sugar beet and processed sugar will apply.
Experts said that with the pressure to speed up the Free Trade Area across the continent, competition for the regional sugar market will be stiffer as surplus sugar enters the African market.
“In Kenya, for instance, we have to come up with a policy of subsidising the farmers,” said Alfred Busolo, managing director of the Agriculture, Fisheries and Food Authority.
“The Free Trade Area for Comesa will reign above countries’ protection of their infant industries,” he said.
Mauritius, the biggest beneficiary of the quota arrangement, is already subsidising its farmers as pressure mounts on EU sugar market prices ahead of 2017. The price per tonne of sugar is down to $465 from $515 per tonne last year.
“Brazil, Russia, India, China and South Africa having an important stock of sugar have thus flooded the world market with their sugar, causing the price to fall. This represents a big danger for our industry, ahead of 2017,” Mauritian Agro-Industry and Food Security Minister Satish Faugoo told Pana Press.
In Mauritius, where the sugar sector contributes six per cent to the economy, about 600,000 tonnes of sugar is produced annually with 530,000 tonnes being exported to the European Union. Domestic consumption is about 40,000 tonnes per year.
A recent study by the European Commission shows that the reform of the EU sugar regime could lead to a 4.2 per cent increase in EU production of beet sugar, while imports of sugar are estimated to decline by 42.6 per cent, mainly due to the replacement of imports from high-cost third countries, like the ACP countries, by domestic production.
“The effects of quota removal on EU domestic production and prices could impact on import flows and possibly on the world sugar market as a whole, as well as on the welfare of countries that depend heavily on the current ‘preference margin’ for sugar export revenue,” reads the EC report.
According to the UK-based Fairtrade Foundation, producers in countries like Mauritius and Malawi who capped beet sugar production to maintain their foothold in the European market could be edged out. Mauritius and Malawi have a 30 per cent and a 5 per cent share of the EU market respectively, according to the EC report.
Address barriers
According to Tralac, an organisation developing trade-related capacity in East and Southern Africa, African countries will have to address tariff and non-tariff barriers to sugar trade prevalent in the region, to become more competitive.
“This could be through the cultivation of disease-resistant varieties and improved infrastructure... They should consider the diversification of sugarcane products, including cellulose and lignin from polymers in the sugarcane, bio-plastic and bio-fertilisers,” said Willemien Viljoen, Tralac researcher.
Ironically, African countries are already putting in place measures that will lock out sugar inflows from the African region as prices experience a slump ahead of 2017.
Egypt’s Trade and Industry Ministry in April imposed a 20 per cent tariff on imported sugar for 200 days, to protect local production from any “threats.”
Comesa countries are currently lobbying to have access to the protected countries like Kenya, which has had its safeguards against sugar imports extended for the third time in a row. Comesa member states are set to divide the 300,000 tonnes deficit among themselves from July as global sugar prices fall.
The EC study also shows that the current demand for sugar from ACP countries could decline significantly when the sugar reforms come into force, due to sugar from competitive sugar producing countries like Brazil.
“African countries need to modernise their domestic sugar industries to become competitive within their region and in the world market,” said Peter Kiguta, the Director General Customs and Trade at the EAC Secretariat.
