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FM
Former Member

Guyana’s sugar and the ending of the Sugar Protocol: Was this the final straw?

Posted By Dr Clive Thomas On February 2, 2014 @ 5:06 am In Features,Sunday | No Comments

Introduction

The world sugar prices for the period 1960 to 2013, which I presented last week, were formed in the ‘free market,’ where the sugar bought and sold is not subject to governmental regulation and control. Over the past six decades, however, Guyana’s sugar  exports have been sold elsewhere, in the special regulated markets of the European Community, EC, (about 80 per cent); Caricom (about 15 per cent); and the United States (about 5 per cent).

Modern export to the EC market can be traced to 1951, when Britain established the Commonwealth Sugar Agreement (CSA) in order to secure its sugar supplies from colonial and ex-colonial producers, at a time of feared global commodity shortages. Later, however, after Britain joined the EC, the CSA was subsumed in 1975 into the EC-African, Caribbean and Pacific (ACP) group of countries, Sugar Protocol (SP). Later on, the SP was independently incorporated into the successive LomÉ Conventions (I-IV) between the EC and the ACP, and eventually their successor, the Cotonou Agreement in 2000.

  Sugar Protocol

The SP had several special features, including 1) it was framed as a legal (treaty) obligation of the EC to purchase 1.3 million metric tonnes of sugar from specified ACP member countries through agreed pre-determined quotas; 2) beneficiaries of ACP quotas were obligated to provide the agreed quantities of sugar, subject to exceptional occurrences (force majeure); 3) the arrangement would be of indefinite duration; and 4) the price to be paid for the traded sugar would be negotiated annually by the two parties to the SP (EC and ACP).

guyana and the wider worldTwo salient observations are first, the SP embodied the notion of being very long term; indeed it was of indefinite duration! This meant that the benefits and costs of the arrangement should be evaluated over the very long term. It was in this spirit that the ACP countries agreed to go ahead with the SP at a time when world prices had peaked to 64 US cents per lb in 1974 and the likely SP price for their sugar in 1975 would have been substantially lower than that.

The second observation is that, the SP was implicitly, if not explicitly, tied to the long-term evolution of the EC’s domestic sugar regime and its broader agricultural policy in a steadily liberalising global environment.

As readers know the SP lasted until 2009 when it was publicly denounced by the EC for being incompatible with its WTO obligations to liberalize world trade, its domestic agricultural regime, and its sugar market.

Whilst this has been the EC’s official stance, I believe the underlying motivation to abandon the SP at that time, lay in the fact that its sugar sector had been radically transformed from being a sugar deficit region into the world’s largest beet sugar producer. It also became one of the world’s largest sugar importers (based largely on its SP commitments).

Relatedly, it should be observed that, as the number of EC members grew, there was a need for additional raw sugar to feed the sugar refineries of its new member states. In 1995, therefore, a six-year arrangement was made for the EC to import additional raw sugar under a Special Preferential Sugar (SPS) arrangement. SPS sugar was paid 85 per cent of the SP annual negotiated price. In 2001 the SPS was renewed for a second six-year period to 2006. Over the period, Guyana exported about ten per cent of its sugar to the EC under the SPS arrangement.

The EC denounced the SP with effect from October 2009. Significantly for Guyana, the annual price it has received for sugar sold under the SP has exceeded the annual price for world sugar traded in the free market between 1991 and 2009. There is the additional consideration that the SP price was far more stable than the volatile world market price.

It follows from all this that the SP provided an important buffer for GuySuCo, in the face of its rising costs and declining output. For this reason mainly, many analysts see the EC’s denunciation of the SP as the final nail in the coffin of Guyana’s (as well as Caricom’s) sugar industry. Next week I shall reference the different responses of Guyana and other Caricom sugar exporters to this situation.

Conclusion

After denouncing the SP in October 2009, the EC provided transitional measures designed to remain in place up to 2015, when full liberalisation of the sugar regime is scheduled and price guaranties ended. These transitional measures were of two basic types.

First, financial assistance (termed, “Accompanying Measures&rdquo was afforded to ACP sugar exporters Guyana. This was to invest in those improvements, which were needed to make their sugar industries sustainable on the basis of prevailing world prices. As the data provided last week reveal, fortunately, the world raw sugar market has enjoyed peak prices (over 20 US cents per lb) for 2010-2012.

Second, there have been phased administrative provisions leading up to 2015. Thus for example, 1) the removal of guaranteed prices has been done in stages ‒ 36 per cent over 4 years; 2) sugar quotas afforded to SP beneficiaries have increased; 3) members of the ACP that did not have SP status have been afforded import quotas for the EC market; as well as 4) all least developed countries (LDCs) under the Everything But Arms (EBA) arrangement (2001) have been afforded duty and quota free entry into the EC market.

After 2015 the provisions of the Economic Partnership Agreements (EPA) in each ACP region are expected to kick in and determine their respective sugar trading arrangements. For Guyana this will be the Cariforum-ACP, EPA, which offers non-reciprocal duty free preferential trade without price guarantees. The Cariforum sugar quota has been increased by 60,000 tonnes. This is subject to “safeguard clauses” designed to prevent “serious damage” to the EC’s sugar industry. These safeguards are primarily triggered by prevailing prices, rather than quantities.

Currently, there are strong lobbying efforts aimed at expanding all these transitional provisions beyond 2015 to 2020.

Next week I shall continue from this observation.

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