Government Intervention
To aid sugar producers in exporting surplus sugar, the country long provided large export subsidies in the form of tax rebates. Because of budget constraints, these subsidies were suspended in 2002, but not until millions of tons of unneeded sugar had already helped depress world prices.
Indirect subsidies—such as mandated ethanol requirements, a Sugar Price Stabilization Fund that helps producers make up losses incurred when dumping sugar on the world market, and an industry-controlled monopoly that directs all exporting decisions—also aid Colombian producers.
To help keep domestic prices high, Colombia can block foreign sugar with a WTO-allowed import tariff rate of 117%.
The Colombian government recently blocked sugar imports by excluding them from trade agreements between the Andean and Mercosur countries.
Colombia , like other Andean countries, operates a price band system that provides an additional source of protection for domestic sugar prices. This system levies a surcharge on top of import tariffs to artificially increase prices.
Production and Price
Over the last 20 years, Colombian sugar production has more than doubled, growing from 1.2 million metric tons to 2.6 million tons of sugar a year.
The domestic market cannot absorb this increased production so Colombian sugar producers dump nearly half of this sugar onto the already distorted world market.
Like almost all sugar producers, Colombia cannot survive on dump market sugar prices, which are barely half the world average cost of production.
Wholesale sugar prices in Colombia were 17 cents per pound last year, 70% above world dump prices.
Trade with America
Colombia is one of the 41 countries from which the United States imports sugar. The United States is forced to accept this sugar whether the market needs it or not.
The U.S. market is already oversupplied with subsidized foreign sugar, which drives down prices, forces sugar facilities to close, and threatens 146,000 U.S. jobs. Efficient U.S. sugar farmers cannot afford to trade away more of their market to Colombia.
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