Global Sugar Policy Reform
John Beghin and Amani El-Obeid
Economics and CARD
Iowa State University
Silverado Symposium on Agricultural Policy Reform
University of California
Agricultural Issues Center
January 19-20 2004
Outline
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3.
4.
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8.
Introduction
Structure of US sweetener industries
Impact of global liberalization
Political economy of sugar policy
US trade & domestic policy challenges
EU trade & domestic policy challenges
Possible domestic solutions
Conclusions
2
Introduction -Background

High OECD support ($5-6 billion) fosters
protection and support in the rest of world. US,
EU, Japan, Mexico, Turkey with significant to
prohibitive protection
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80% of production & 60% of trade at prices higher
than the world price. Preferential regimes affect
trade patterns
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Production mostly characterized by large farmers
(except in Mexico) hence concentrated interest
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Complex political economy of interest across
agriculture, sweetener production, environmental
and consumers interests
3
Introduction -OECD support
region/country
Producer support
million US$
producer nominal assistance
coefficient
(99-01)
Support from Border
Protection (%)
6351
2.11
Australia
51
1.11
0
Czech Republic
16
1.25
47.6
2713
2.11
91.7
12
1.2
41.5
Japan
437
2.17
88.7
Mexico
713
2.1
83.9
Poland
176
2.28
92.9
Slovak Rep.
16
1.94
54.7
Switzerland
86
4.36
73
Turkey
749
3.02
95.8
U.S.A.
1302
2.37
84.3
OECD
E.U.
Hungary
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Structure of US sweetener industries
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Beet sugar production vertically integrated and
concentrated (3 major processing co-ops). Higher
cost than cane production
Sugarcane production and raw sugar production
extremely concentrated. Could survive with freetrade prices
Cane sugar refiners penalized in the net (higher
prices for raw and refined sugar)
Efficient large-scale HFCS production helped by corn
subsidies and sugar prices, penalized by NAFTA.
About 50% of US sweetener use. HFCS uses 7.3% of
corn output
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Impact of global liberalization

Consensus view: inelastic markets imply world
price increases by 40+% in unfettered markets

Domestic and trade interventions entangled and
contributors to distortion effects

Removing all distortions would raise welfare by
$4-5 billion
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Impact of global liberalization

Substantial relocation of production (Japan,
most of EU & US beet production zapped)

Gainers: Brazil, Australia, South Africa,
Thailand(?), other LAC; food-processors,
consumers & taxpayers in protected markets

Losers: Protected OECD producers, preferential
trade partners in LDCs
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Political economy of US sugar policy
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Domestic interests: cane and beet growerprocessors & corn-HFCS pro status quo; HFCS and
NAFTA, food processors, consumers, environmental
groups & independent refiners pro free trade.

Mexican interests: HFCS producers pro status quo;
cane farmers & cane processors pro NAFTA but not
free trade; consumers & food processors pro free
trade
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Political economy of US sugar policy

CAIRNS mercantilist interests want free trade

CAFTA, FTAA, Australia-US FTA sugar interests
overlap with CAIRNS (except Mexico)

Preferential trade partners other than CAIRNS,
especially non-competitive ones oppose trade
reform
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US trade & domestic policy challenges
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2005 FTAA involves both trade and domestic policy
reforms. Could flood the US sugar market (14-16
mmt export potential)

2004 CAFTA. Preferential imports up by 85,000 mt
& 2%-growth for 15 years.
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NAFTA. Increased out-of-quota imports & free trade
in 2008 (out-of-quota tariff=0 and 5 mmt
production potential). HFCS & side-letter disputes
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US trade & domestic policy challenges
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Australia-US FTA. Only border protection. Could
flood US market as well (4-5 mmt export potential)
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New WTO commitments? Current import
commitment=1.38 mt. Reductions in market price
supports an out-of-quota tariff?
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Allotments vanish if imports exceed 1.53 mt to
make the program collapse. Farm bill expires 2007
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EU trade & domestic policy challenges
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EBA: 48 LDCs get free access in 2009 (2.7 mmt
potential)
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EPAs for 77 ACP countries (3.5-6 mmt export
potential to EU by 2007)
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Enlargement 2004: higher output, no change in trade
commitments
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2004 review of current CAP (A+B quota sugar, C
sugar exports, export subsidies)
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EU trade & domestic policy challenges
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Preferential TAs and re-export subsidies under attack
(Brazil, Australia, Thailand) (1.6 mmt export
reduction)
HFCS imports are also restricted
WTO commitments: export subsidies (volume and
value), import quotas of 1.39 + 0.45 mmt
New WTO commitments? 45% reduction in export
subsidies (0.5 to 1 mmt reduction)
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Compatible domestic (US) solutions
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Program buyout? It works (peanuts and tobacco
in the US, wine/grapes in the EU)
With vertical integration, buyout based on PDV of
profit loss of integrated asset
2002 crop programs extended to beet and cane
(decoupled payments + CCP + LDP). Current
sugar envelope in the amber box ($1+ billion)
Fiscal concerns. New payments=outlays
Compensation for preferential trade partners via
slow phase out of higher prices and accelerated
access. A larger issue than just sugar policy
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Conclusions
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The writing on the wall
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A EU-US (fat) bone to the CAIRNS group?
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Issue of preferential trade compensation
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Budgetary pressures in EU and US will influence
the domestic policy reforms
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Would Japan and other OECD countries go along?
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