WASHINGTON—A complex web of Brazilian government programs provides nearly $2.5 billion per year in sugar subsidies, giving Brazil a leg up on its competitors and distorting global prices, according to a new report released today.
“This report underscores the importance of maintaining the current U.S. sugar policy, which was designed to shield consumers from foreign market manipulation and ensure an affordable, homegrown supply of a food staple,” said Jack Roney of the American Sugar Alliance.
“U.S. sugar producers are highly efficient, but to disarm unilaterally while foreign subsidies run rampant would lead to job loss and leave us dependent on unreliable, subsidized foreign sugar,” he explained.
Brazil’s subsidization has helped the country gain a nearly 50 percent market share of global sugar exports, but pinpointing these policies has always been a challenge because of poor data reporting and a myriad of non-transparent Brazilian programs. “Now, Brazil’s subsidies have been exposed,” Roney said.
Patrick Chatenay, a sugar and ethanol expert from the UK-based company ProSunergy, spent months unearthing the subsidies, and today made his report available to U.S. lawmakers.
“The immense power of Brazil’s sugar industry is founded upon many years of strong government intervention in its sugar and ethanol sectors,” explained Chatenay. “The government policies that built this magnificent and powerful industry date back to the 1970s … today still, the industry benefits from at least US$2.5 billion per year of direct and indirect government incentives.”
The sugar and ethanol subsidies detailed in Chatenay’s study include direct payments, debt forgiveness, usage mandates, lower tax rates for sugar producers, and special interest rates on government loans. Actual subsidization amounts could be much higher than $2.5 billion because of unreported debt restructuring, noted Chatenay, who worked for years in the Brazilian industry.
But what Chatenay knows for certain is that Brazil’s policies have a profound effect on global sugar prices. Brazil would need a 15 percent increase in sugar prices to replace the government supports, he estimated.
Policies in Brazil and other countries make sugar one of the world’s most distorted commodity markets, according to Chatenay. “The world market price is a ‘dump’ price … [it] should never be used as a yardstick to measure what benefits or costs may accrue from free trade in sugar.”
The American Sugar Alliance believes Chatenay’s work will help educate lawmakers about the distorted dump sugar market and the consequences of becoming more dependent on it by weakening current U.S. sugar policy. A previous report by Chatenay, released in 2012, examined those consequences in detail and used Europe as a case study.
The European Union weakened its sugar policy in 2006 to become more dependent on foreign suppliers. As production fell, Chatenay found that Europe lost 120,000 sugar related jobs, and when foreign supplies dried up, consumers paid more for sugar and sweetened products.
“At considerable cost to stakeholders and without any measurable benefit to the consumer, the European Union has thus put at risk the safety of its supply of sugar,” said Chatenay. “Surely, there are lessons to be pondered here as American policymakers look to decide on the future of the U.S. sugar policy.”
For more information about the American Sugar Alliance and U.S. sugar policy, visit www.sugaralliance.org