Select Committee on International Development Minutes of Evidence


15. Memorandum submitted by Mr David Willers, Overseas Representative, South African Sugar Association

IMPACT OF CURRENT EU REGIME ON SOUTH AFRICA AND NON ACP PRODUCERS

  The CAP continues to supply extremely high levels of support to European farming; this encourages overproduction, thereby distorting world trade in agricultural products, especially sugar.

  Studies show that the importance of the EU to world sugar can be gauged from a calculation that each 10% fall in the intervention price would raise the world price by around 3% and each 10% increase in EU net imports would raise the representative world price by around 0.5%.

  When the US EU and Japanese impact is assessed together the representative world sugar price would be 63% higher with full reform than it is today.

  The current preferential system is also damaging to those countries that benefit from it, such as the ACP's: it encourages a dependency relationship on a single commodity and results in a discriminatory system to the non recipients of those preferences. Granting developing countries preferential access to otherwise protected developed country markets has been seen as a strategy to help their development by increasing the value of their exports, promoting industrialisation, and ultimately accelerating economic growth. The preferences have been used as a form of aid by the European Union for some of their former colonies. But trade preference schemes have had distorting effects on world commodity markets, as well as on the developing countries that they are supposed to assist.

  The current EU regime imposes severe sugar import restrictions on countries like South Africa and by protecting itself with export subsidies and production quotas, is also responsible for EU domestic prices being well above world prices. This encourages surplus production of EU sugars, which are then dumped on the world market, depressing the world market price. This protection is on the rise as the world price of sugar has fallen and is currently some 250% for sugar in the EU, a percentage which is well above other agricultural protection averages in the EU.

  EU agricultural reform would be most beneficial for South Africa and other developing non preferential sugar producers, where agriculture provides a potential to develop their economies and grow themselves out of poverty. Because of the distortions in global export markets caused by EU protectionist policies, this potential has been limited and stifled, and in some cases the livelihoods of small farmers have been decimated. There are many recent case studies that show this. The developing world wants trade not aid. We in the South African sugar industry can speak with some feeling on this issue since we have 50,000 small scale cane growers dependent in part on world sugar prices for their income. It is another good reason why fundamental reforms in the CAP are needed; to remove these distortions and so create a level playing field to enable the potential comparative advantages of developing countries to be achieved.

  The best way to full liberalisation in the EU would be to half the intervention price by 2012. This would have the effect of lowering EU producer prices for refined sugar to the world market price; effectively liberalising the EU sugar market; increase EU consumption by 10% and decrease production by 64%; increase EU net imports to 9.3 million tons a year and increase the world price by an estimated 16%.

WHAT REFORMS WOULD YOU EXPECT AND LIKE?

  We would like to see the elimination of export subsidies on sugar, a substantial improvement in market access with tariffs on sugar being brought into line with tariffs on other goods, and all non tariff barriers to sugar imports being eliminated. We would like to see as well the elimination of all domestic support arrangements. We would like to see the de-coupling of direct payments to farmers in Europe which would break the current link between the receipt of direct payments and production, and so reduce the incentive for farmers in the EU to overproduce certain agricultural products.

  Although the provision of unilateral developing country preferential access arrangements can play a role in supporting growth and development in those developing economies which benefit from them, it is not a permanent viable solution on its own. Multilateral liberalisation is essential to stimulate competitive agricultural sectors in the developing world. Concerns about eroding benefits for existing beneficiaries of preferential access schemes should be addressed by those countries that grant them in other ways eg by providing complementary programmes such as rural infrastructure development, capacity building, poverty alleviation, and implementation of food security and diversification schemes.

  The Nadi Declaration of ACP countries in Fiji, June 2002 (and I quote) "reiterates the need to improve the market access for all agricultural products originating from ACP States by inter alia, addressing export subsidies and domestic support in accordance with the Doha WTO Ministerial Declaration, while preserving existing preferential arrangements". Unquote.

  We believe that all preferences must be seen as a temporary measure while developing countries are in transition to a subsidy free production of sugar. South African sugar is not calling for extension of preferences to all developing countries, rather we are highlighting that existing preferences and domestic support are extensive and damaging to developing economies. We have numerous examples of these single product reliance cases, which reduce world prices to below production costs in most efficient production areas.

  We would also like to see more ambitious proposals for price cuts in the EU in order to bring internal prices of sugar closer to world market prices. The Commission's current CAP reform proposals have short comings in this regard since very high levels of support will be maintained, prices for some major commodities like sugar will remain above world market prices and the sugar regime will once again not have been addressed. CAP reform should also be designed to reduce the current significant negative impact on the development of agriculture in developing countries. As things stand, EU export subsidies by lowering world market prices reduce the prices received by farmers in developing countries, while low price EU exports in receipt of export subsidies directly compete in developing country markets with domestic production. It is also not possible currently to export many products protected by the CAP to the EU. We need the appropriate benefits that multilateral reform of markets can provide and the growth that would result from improved market access.

  EU agriculture should integrate more fully into the multilateral trading system. But there is little sign of this happening; the EU's WTO agriculture negotiating proposal tabled in January this year is deeply disappointing, as it fails to provide a basis for genuine reform of the world agricultural trading system and in our view it fails to live up to the mandate agreed to by all WTO members at Doha in 2001.

  The EU's negotiating proposal is based on the Agenda 2000 reforms and the EU is looking for an outcome that would not require any further reform on the part of the EU. For the negotiations to move forward greater negotiating flexibility is required from the EU.

  The European Parliament and Community can demonstrate their commitment to the Doha Declaration by doing their bit. That is, by doing what needs to be done, namely to ambitiously reform the CAP.

IMPACT OF REFORM

  It is the perception that the EU dumps sugar on the world market that has led Oxfam to bluntly point out that EU consumers and taxpayers are inadvertently destroying the livelihoods of farmers and setting back the prospects of others including in my own country.

  The impact of reform, and there are studies by the World Bank, FAO, Oxfam to demonstrate this, shows that reform that results in better access to markets and better world market prices will be worth more than the perceived benefits from preferences offered to selected poor countries; preferences that are in any event unsustainable. Liberalisation and reform resulting in greater market access could be an effective development strategy for countries that need development assistance.

  The rewards of sugar trade liberalisation will be great for every sugar producer reliant on world prices. There are various studies which show for example that with full liberalisation in the EU, US and Japan by 2012 the world price of sugar would be 63% higher than it is now. However this is a price which will not be sustained since as efficient sugar producers increase production prices will again decline in the medium to long term, but I believe the greatest benefits of reform will be in the poor countries, reducing rural poverty and perhaps even benefiting the ACP sugar producers. After all, existing EU preferential policies have not been successful in increasing growth and exports from these countries. The ACP share of total EU imports actually declined from 7% in 1976 to 2.8% in 2000. Tariff escalations in the EU have also discouraged these countries from shifting into higher value added export products and has restricted their diversification possibilities.

  One study has calculated that most regions of the world except the EU and US and Japan would increase their sugar production as a result of full OECD sugar market liberalisation. Even regions currently receiving preferential access would maintain and even expand production as their industries become more efficient.

ADEQUATE CONSULTATION

  To date we have been very well received by the European Commission and they have always been interested in our views and we in theirs. South African sugar has always taken the view that discussions surrounding the reform of the sugar regime need to be undertaken in a non adversarial climate taking into account the special and differential needs of the ACP countries. This we believe can best be achieved at the level of multilateral negotiations.

WHICH COUNTRIES ARE SASA ALLIES

  Our allies are those sugar producers who are reliant on world market prices and who feel the need to advance the merits of free competition in sugar. Australia, Brazil, Thailand, Chile, Colombia, El Salvador, Guatemala, Honduras, India and Panama, all think as we do. We have banded together in the Global Sugar Alliance in order to seek positive liberal reform of world sugar policies through the WTO process. The Global Sugar Alliance is not a formal organisation; it is a kind of virtual organisation. In its 1999 communique and 2000 Call for Action the GSA identified sugar as a priority area in the WTO agenda. Within the context of the three pillars of Doha, namely export subsidies, market access and domestic supports, we have tried to tailor a sugar specific set of target objectives. Tariffs, tariff rate quotas, tariff differentials, special safeguard mechanisms, export credits, price support subsidies, export competition and so forth are all in our sights where they inhibit free trade.

  I should mention that many of our allies, including ourselves, enjoy some tariff protection and occasional subsidy support. We do not think this inconsistency matters however since we all agree where we would like to be heading and that is in the direction of greater liberalisation. We are all willing to reduce out own protection where it exists as agreements are achieved at the WTO.

RESPONSIBILITY OF WINNERS OF REFORM TO ASSIST LOSERS

  Your true laissez faire economist would say that no such responsibility exists; it all comes down to efficiency of production.

  However we recognise the need to deal with the inescapable fact that the preferential access of many developing countries is bound up in the complex regime of protection in the North, and that dismantling this protection could result in economic losses for these poor countries, requiring a corresponding need for adjustment.

  We do not want any low income developing country, including the preference dependant, vulnerable and small island economies to bear the burden of this reform process in the North. This is why we support the need for a creative set of WTO modalities to take into account the need to protect these benefits and build the capacity of these preference dependent and other vulnerable low-income countries, to enable them to compete in a more competitive environment.

  The question is how to move forward in a way that does not undermine their development, and we are looking at the problem sympathetically.

David Willers

South African Sugar Association

May 2003


 
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