David Jessop | The future of Caribbean sugar
In a few days, Caricom's Council for Trade and Economic Development, COTED, will meet. Among the topics that ministers and officials will consider are several recommendations that will determine whether the sugar industry has a future.
This long-overdue discussion will explore whether there are ways in which the region's cane sugar producers, through tariffs and other measures, can redirect output towards meeting the Caricom market's requirements.
Just over a month ago, on October 1, the industry lost the last vestige of its preferential market in the European Union (EU), which abolished, as a long-planned domestic measure, national sugar production quotas in Europe.
The effect, according to industry analysts, is that the price paid for African, Caribbean and Pacific, or ACP, cane sugar will very rapidly reduce and, as Europe becomes self-sufficient in beet sugar and begins to export, cane sugar imports into Europe will fall to zero.
They also suggest that the new European regime will depress world market prices.
Once EU production rises to more than three million tonnes per annum, they say, the price of its sugar will converge with and depress already low world market prices, reducing global demand for cane sugar from high-cost producers in the ACP and the least developed markets by around one million tonnes per annum.
This and the expected return of the global sugar market to surplus next year means that Caricom will, before long, cease to have any significant export market.
Although some industries are developing coping strategies through the introduction of mechanical harvesting, sugar refining and the production of food grade sugar for export, this is unlikely to be enough.
In a belated response to what is an existential threat, the industry in the Caribbean has developed recommendations on the way in which Caricom can now address the issue, preventing the likely crisis that will occur if nothing is done.
Their thinking largely stems from a sugar industry workshop held in Jamaica earlier this year which considered the future for sugar in the four remaining Caricom sugar-exporting countries Barbados, Belize, Guyana and Jamaica.
At the conference, all participants accepted that without some form of remedial action at a regional level, the restructuring of the EU market would eventually result in an end to the production of raw sugar in Caricom, unless almost all of its future production can be sold into the regional market.
As matters stand, some 0.2 million tonnes of the 0.3- million tonne Caricom market for food grade sugars and white sugar is met from external sources. This is despite there being a common external tariff, the CET, which, in theory, is meant to afford a high degree of protection to the single market's sugar producers.
Why the regional market has failed in this way varies from country to country, but generally reflects governments setting aside through tariff waivers and safeguard mechanisms the present CET on imported sugars usually under pressure from domestic food and soft drink producers citing failure of regional supply for the specific sugars they require.
It is true that in the past the sugar industry has not been a reliable supplier to regional industrial users. It chose to prioritise supplying Europe where prices were higher. But that situation has now changed dramatically.
There is a surplus of regional supply available and as one recent unpublished independent study suggests, up to 99 per cent of the refined sugars presently imported into the region could easily be substituted by regionally produced 'plantation white' with no or low-level investment by industrial users.
To protect and give a future to the regional sugar industry and the 0.2 million people who depend on it, the industry is proposing that COTED agree to apply on a uniform basis, a common external tariff. This, it is suggested, should be set at 40 per cent on all imported raw and brown sugar and refined sugar from outside the Caribbean single market. The industry also believes that the time has come for the regional market to be managed and policed rigorously.
However, central to the future success or failure of sugar producers' desire to develop a protected market, will be achieving a wider understanding of the likely price impact on soft drinks, confectionery, sweetened milk, and bakery products, and the consequent reaction of consumers and the industries concerned.
According to sugar industry sources, initial independent studies suggest that although the uniform imposition of higher duties would increase prices to industrial users, this should not affect the market for locally produced soft drinks. This, they say, is because such finished products are already protected against external competition by an existing high tariff wall.
They add that the same studies indicate that the additional cost to consumers would be marginal between US$1 and US$10 per annum, or an additional six cents on a locally produced two litre bottle of Coca-Cola, presently costing US$3. They do however recognise that other users of imported sugar, such as the sweetened milk industry, may need additional tariff protection and technical support.
Those involved in making sugar's case believe that the imposition of a CET on all sugar entering Caricom would mitigate the adverse impact of EU reforms by creating a larger Caribbean market into which industries could sell sugar at a price that is viable. They also suggest that a regional market for sugar would make the industry attractive again to investors.
Balancing the interests of sugar, a large rural employer, with those of much smaller but significant domestic manufacturers is likely to prove challenging.
If what is proposed is to work, it will need the four Caricom countries concerned, the sometimes-fractious sugar industry, and the food and soft drink manufacturers to jointly recognise the benefits that could flow from integration, and the practical steps required to achieve this.
In the long term, if the ideas about to be considered can be made to work, it will confirm that the Caricom Single Market and Economy is rather more than just an interesting idea. In the short term, however, the challenge will be for COTED to determine how best to encourage convergence, while not damaging the interests of any of the parties concerned.
- David Jessop is a consultant to the Caribbean Council.