After more than half a century as a highly regulated sugar policy, with minimum prices and domestic sales’ quotas, the European Union’s Sugar Regime was liberalized from October 1, 2017. From then on, producers would freely decide how much to supply, a large amount of duty-free imports were available and prices were to be determined by supply and demand. “Market forces” would rule. Click here for the full report.
A new report analyzing the impact of sugar policy liberalization in the European Union (EU) should serve as a dire warning to those who would like the United States to follow the EU’s lead and unilaterally eliminate U.S. sugar policy without addressing subsidies on the world stage.
This week marks 13 years since the EU first began tearing down its sugar program after the World Trade Organization found it to be in violation of its 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.
Authored by UK-based sugar policy expert Patrick Chatenay, this report takes a closer look at EU sugar market conditions following the latest chapter in EU’s reform: the end of sales quotas and minimum prices for sugar in October 2017.
“The immediate effects of liberalization have been catastrophic for the EU sugar industry,” Chatenay writes.
Chatenay found that now exposed to the oversupplied and chronically depressed global sugar market, driven by foreign subsidies, 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, according to Chatenay.
“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.”
And 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 5 years, given that about one-fifth of the EU mills are not competitive.”
Europe’s failed experiment over the past decade should serve as a stark warning to critics of U.S. sugar policy, say officials from America’s industry.
“Europe is often held up as a model for sugar reform, but the facts tell a much different story,” said 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 that threaten highly efficient U.S. producers”
A recent report released by Texas Tech University put into perspective the harm that widespread 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 support, tariffs, and subsidies that contribute to an unpredictable market.
Conversely, American sugar farmers do not receive government subsidy checks. U.S. sugar policy is based on the use of loans to store sugar until customers need it and then the loans are repaid with interest. This allows the sugar industry to maintain a reliable and affordable supply of sugar for U.S. manufacturers and consumers alike.
“The EU’s struggle to reform its sugar regime makes it clear that the distorted nature of the global sugar market as it stands will never allow for fair competition,” Weston said. “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.”