Warning Signals

Published online: Aug 04, 2019 Feature Phillip Hayes, ASA
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This article appears in the August/September 2019 issue of Sugar Producer. 

Thirteen years ago, the European Union (EU) was forced to begin tearing down its powerful sugar program after the World Trade Organization found it to be in violation of Europe’s international trade commitments. Since that time, Europe’s sugar industry has faced an uncertain future—83 sugar mills closed and 120,000 jobs were lost—and subsidies remain prevalent as prices plummet below the cost of production.

A new report released earlier this year examined the alarming impact of these reforms on the EU’s sugar industry. It should serve as a dire warning to those who would like the U.S. to follow Europe’s lead and unilaterally eliminate U.S. sugar policy without addressing subsidies on the world stage.

Authored by UK-based sugar policy expert Patrick Chatenay, this report took a closer look at EU sugar market conditions following the latest chapter in its reform: the end of sales quotas and minimum prices for sugar beginning in October 2017.

“The immediate effects of liberalization have been catastrophic for the EU sugar industry,” Chatenay wrote. 

Chatenay found that, now that they are exposed to the global sugar market and are susceptible to price fluctuations driven by foreign intervention, sugar farmers have seen an approximately 20 percent drop in prices while large industrial sugar buyers have pocketed $3.4 billion “with no discernable advantage to the final consumer.”

This transfer of wealth from farmers to food processors has necessitated additional taxpayer subsidies to help prop up Europe’s farmers. Totaling nearly $700 million a year, EU subsidies have further distorted Europe’s sugar market and driven prices even lower.

“EU sugar now operates with fluctuating, distorted, and most often depressed world market prices, influenced by widespread government interventions,” the report states. “Not only must its most efficient producers compete with foreign subsidized sugar, but they also face competition from subsidies directed to [less efficient] EU beet areas.”

This unfair competition is further threatening efficient EU producers and forcing them to cut costs by shuttering factories. Chatenay quoted one official as saying that “10 to 20 sugar [EU] factories will close within five years, given that about one-fifth of the EU mills are not competitive.”

Europe is often held up as a model for sugar reform, but the facts tell a much different story,” says American Sugar Alliance chairman Ryan Weston. “European taxpayers continue to spend millions propping up the sugar industry while farmers face bankruptcy. Simply put, unilateral disarmament doesn’t work. A free sugar market will only be realized when every nation agrees to put an end to unfair subsidies.”

Another study released by Texas Tech University put into perspective the harm that government intervention has had on the global sugar market. The report profiled 22 foreign countries, accounting for 80 percent of global sugar production, and documented the widespread use of government supports, tariffs and subsidies that contribute to an unpredictable market.

“The EU’s struggle to reform their sugar regime makes it clear that the distorted nature of the global sugar market as it stands will never allow for fair competition,” says Weston. “That is why America’s sugar producers are asking Congress to call a global cease-fire on sugar subsidies by passing Congressman Ted Yoho’s ‘zero-for-zero’ resolution. We look forward to the creation of a truly level playing field.”

Until all foreign subsidies are eliminated, America’s no-cost sugar policy will continue to allow U.S. sugar producers to maintain a reliable and affordable supply of high-quality homegrown sugar for U.S. manufacturers and consumers alike.