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Sugar

SugarSugarINTERNATIONAL POLICIES

AFFECTING MARKET EXPANSION

ABARE Research Report 99.14

AUTHORSTerry Sheales ■ Simon Gordon ■ Ahmed Hafi ■ Chris Toyne

© Commonwealth of Australia 1999

This work is copyright. The Copyright Act 1968 permits fair dealing forstudy, research, news reporting, criticism or review. Selected passages, tablesor diagrams may be reproduced for such purposes provided acknowledg-ment of the source is included. Major extracts or the entire document maynot be reproduced by any process without the written permission of theExecutive Director, ABARE.

ISSN 1037-8286ISBN 0 642 76404 2

Sheales, T., Gordon, S., Hafi, A. and Toyne, C. 1999, Sugar: InternationalPolicies Affecting Market Expansion, ABARE Research Report 99.14,Canberra.

Australian Bureau of Agricultural and Resource EconomicsGPO Box 1563 Canberra 2601

Telephone +61 2 6272 2000 Facsimile +61 2 6272 2001Internet www.abare.gov.au

ABARE is a professionally independent government economic researchagency.

ABARE project 1639

Foreword

This report represents a further step in ABARE’s ongoing research into policyissues affecting world commodity markets and international trade. Comingat the commencement of the new round of WTO negotiations on agriculture,the report provides information designed to facilitate a better understandingof existing policies and their effects, and the potential for beneficial reform.

The world sugar market is characterised by widespread government inter-ventions that distort production, consumption and trade in sugar. These dis-tortions are costly to both consumers and producers in many countries. Thenew round of World Trade Organisation negotiations on agriculture providesan excellent opportunity for the problems of policy related distortions in thesugar market to be addressed.

Results from the study show that a multilateral approach to sugar policyreform would maximise the benefits to the global economy. Significant bene-fits would also flow from unilateral moves to reduce government interven-tion in sugar markets.

BRIAN S. FISHER

Executive Director

November 1999

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Acknowledgments

This study was conducted jointly by ABARE and Sparks Companies of theUnited States.

Terry Sheales of ABARE was responsible for the overall management of thestudy. Other contributors from ABARE were Ahmed Hafi, Simon Gordon,Chris Toyne and Neil Andrews. Contributors from Sparks Companiesincluded Peter Buzzanell, William Motes and JB Penn. The assistance ofJudith Duberal of ABARE in preparing the document for publication is appre-ciated.

Funding for the study was provided by the Australian Department of ForeignAffairs and Trade; Agriculture, Fisheries and Forestry – Australia; the SugarResearch and Development Corporation; and the Queensland Sugar Cor-poration.

iv ABARE research report 99.14

Contents

Summary 1

1 Introduction 5

2 World sugar trade 7Sugar trade influenced by governments 9Sugar import demand 9Sugar export supply 11

3 US sweetener markets and policies 14Production of sugar and sweeteners in the United States 15Consumption of sweeteners in the United States 16US trade in sugar 17Sugar policies in the United States 18Implications of more liberal US sugar policies 23Welfare effects of US sugar policy changes 31

4 Sugar in the European Union 34Sugar production in the European Union 34Sugar consumption in the European Union 35EU trade in sugar 36The EU policy environment 36Implications of policy change 40

5 Sugar in Japan 45Sugar production in Japan 45Consumption of sweeteners in Japan 46Japan’s trade in sugar 47Japanese sugar policies 48Implications of policy change 50

6 Brazil’s evolving sugar industry 52Sugar production in Brazil 53Sugar consumption in Brazil 55

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Brazil’s sugar trade 56Sugar and fuel alcohol policy developments 57Implications of policy change 59

7 Global implications of freer trade in sugar 63Large variations in sugar industry support 63Simulating the effects of less intervention in global sugar trade 66

Effects of global trade liberalisation 66

8 Regional agreements and world sugar 70NAFTA and sugar 70Sugar and the APEC group 74

9 Summary and conclusions 79Sugar trade distorted by government intervention 79Multilateral reform 84Regional reform 85Options for change in world sugar policies 87

AppendixesA SUGABARE 89B Sugar industries of APEC members 92

Australia 93Canada 96Chile 99China 101Chinese Taipei 104Indonesia 106Korea, Republic of 109Malaysia 111Mexico 114Peru 118Philippines 120Russia 123Singapore 126Thailand 127

vi ABARE research report 99.14

Vietnam 130

References 133

Boxes1 Estimating the effects of policy changes 242 Returns to US sugar growers in a free market environment 27

FiguresA Average world sugar trade flows, 1995–98 8B Impact of US sugar policy reform on world raw sugar prices 26C European Union sugar quota arrangements 37D Impact of EU sugar policy reform on world raw sugar prices 41E Sweetener consumption, Japan 47F Japanese and world sugar prices 49G Sugar and fuel alcohol production, Brazil 53H Fuel alcohol production trends, Brazil 55I Proportion of alcohol fueled cars in total car sales, Brazil 58J Sugar production, Brazil 61K Impact of Brazilian policy changes on world raw sugar price 62L OECD sugar producer support estimates – 1998 64M OECD sugar consumer support estimates – 1998 65N Impact of global liberalisation in the world sugar market

on world raw sugar prices 67O Impact of freer APEC sugar trade on world raw sugar prices 78P Classification of countries in SUGABARE 90

Tables1 World imports of raw sugar 102 World imports of white sugar 113 World exports of raw sugar 124 World exports of white sugar 135 US sugar production, consumption and trade 156 Consumption of the principal caloric sweeteners in the

United States 167 US tariffs on nonquota imports of sugar 20

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8 Effects of simulated removal of all sugar support measures in the United States 26

9 Effects of simulated tariff only protection for US sugar 3010 Effects of simulated reduction in US sugar loan rate 3011 Welfare effects of simulated sugar policy changes by the

United States relative to current policies — yearly averages for 2002–05 32

12 EU sugar production, consumption and trade 3513 Impact of simulated sugar policy changes by the European

Union 4214 Sugar production, consumption and trade in Japan 4615 Effects of simulated removal of Japanese restrictions on

sugar imports 5116 Sugar production, consumption and trade in Brazil 5417 Effects on sugar of Brazil reducing alcohol content in

gasoline 6018 Effects of less intervention in the global sugar industry 6819 Effect of increased US imports from Mexico under NAFTA 7220 Estimated effects of reduced trade barriers in APEC 7721 Effects on raw sugar prices of less government intervention 8022 Australia: sugar statistics 9423 Canada: sugar statistics 9724 Chile: sugar statistics 10025 China: sugar statistics 10226 Chinese Taipei: sugar statistics 10527 Indonesia: sugar statistics 10728 South Korea: sugar statistics 11029 Malaysia: sugar statistics 11230 Mexico: sugar statistics 11531 Peru: sugar statistics 11832 Philippines: sugar statistics 12133 Russia: sugar statistics 12434 Russia: tariffs on imported sugar 12535 Singapore: sugar statistics 12636 Thailand: sugar statistics 128

viii ABARE research report 99.14

Summary

International agricultural markets are heavily distorted, with sugar being oneof the worst affected. Distortions in world sugar trade stem largely fromgovernment policies in a small number of countries. The policies pursued inthese countries impose substantial economic costs worldwide.

Correcting the policy induced distortions of the world’s sugar markets wouldincrease global income. Consumers in protected markets would benefit signif-icantly from an effective increase in incomes as a result of having to spendless on their sweetener requirements. Low cost producers, including thosein a number of developing countries, would also benefit from receiving un-distorted market returns for their sugar.

The WTO negotiations on agriculture provide an important opportunity toachieve sugar market reforms that will improve economic welfare of produc-ers and consumers in a range of developed and developing economies.

Analysis supports the case for reformThis report highlights the costs of market distorting policies and examinespossible options for reform of the global sugar market. The significant poten-tial that exists to improve economic welfare through greater trade is revealed.

The analysis was undertaken using an updated version of ABARE’s inter-nationally respected model of the world sugar market, SUGARBARE. To high-light the potential advantages of an early move to reform sugar policies, arelatively short time horizon (to 2005) was used in the analysis.

Producers and consumers both gainReform would bring benefits to producers and consumers alike. The removalof market distorting policies would result in an increase in the world marketprice for sugar of 5–41 per cent depending on the extent of marketliberalisation.

Increased world prices for sugar would benefit producers, particularly thosein lower cost producing countries, many of which are developing economies,

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that currently sell much of their output at artificially low prices because ofmarket distortions. Liberalisation of the US market alone would benefit worldsugar exporters by about US$1.5 billion a year.

Removal of government support measures that maintain domestic sugar pricesabove world market levels would result in lower prices being paid by manyconsumers. In the three major markets— the United States, the EuropeanUnion and Japan — savings to consumers would amount to around US$4.8billion a year.

A global approach to sugar policy reform neededCoordinated global action to reduce government intervention in world sugarmarkets would maximise the benefits from policy reform. The study showsthat a multilateral approach to policy reform would result in world raw sugarprices increasing by over 40 per cent. For the purpose of this study, reformwas assumed to consist of full sugar market liberalisation in the United States;a reduction in the white sugar intervention price in the European Union toaround the world price; and the removal of barriers to sugar imports in Japan,China, Mexico, South Korea and Canada.

Smaller but nevertheless significant benefits would be realised by liberalis-ing markets separately. Cutting the EU intervention price for white sugar toworld levels would increase global prices by an estimated 19 per cent. Reformof the US market would lift world prices by an estimated 17 per cent. Andremoval of barriers to imports in Japan would lead to an estimated 5 per centincrease in world prices.

2 ABARE research report 99.14

Effects on raw sugar prices of less government interventionPercentage change from the baseline of no change in policies

%

10

20

30

40

Japanese importduties removed

USliberalisation

EUintervention

price cut

Globalliberalisation

Americans would be big winners from freer tradein sugarUS government support accounts for around 40 per cent of American sugarproducer revenues, making sugar one of the most heavily supported of USagricultural industries. By maintaining prices well above world market levels,US sugar policies impose costly burdens on consumers and the economy.

Removal of US government support would reduce the domestic price ofsugar, saving US sugar consumers an estimated US$1.6 billion a year (in1998-99 dollar values). The net gain to the US economy as a whole wouldbe an estimated US$456 million a year.

Less market intervention would benefit EuropeansSugar prices in the European Union are maintained well above world marketlevels by a system of import restrictions and export subsidies. EU produc-ers also receive around 40 per cent of revenues from government support —albeit under a different set of industry arrangements.

EU consumers would save an estimated US$2.2 billion a year from anapproximate 40 per cent reduction in the white sugar intervention price by2005. The average annual net gain to the EU economy is estimated to beUS$580 million.

Supports in Japan costly to its consumersA complex set of government policies, comprising producer price supports,surcharges and tariffs, underpins Japan’s sugar industry. Government supportaccounts for around 60 per cent of Japanese sugar producer revenues.

Sugar consumption and imports are declining and some food and drink manu-facturers have moved operations offshore to reduce sugar input costs. Highimport duties on sugar have also encouraged growth in imports of less heav-ily taxed blended products containing sugar.

The elimination of Japan’s import charges alone would generate significantbenefits to the domestic economy. Japanese consumers would gain an aver-age of US$1 billion a year as domestic sugar prices declined to about halftheir current level. Japanese sugar producers would lose an estimated US$80million a year. The extent of the overall gains to the economy could not be

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estimated, however, because of difficulties in isolating the effects on domes-tic high fructose corn syrup producers and sugar refiners.

The WTO round – an opportunity not to be missedA major focus of the new WTO agriculture negotiations on sugar should beon trade measures and the market distortions they cause. But, since trademeasures are closely interwoven with domestic support, it is important thatthey not be dealt with in isolation. Domestic support arrangements also needto be addressed.

Clear beneficiaries from reforms to national sugar policies would be grow-ers in low cost producing countries that would receive improved averageprices for their sugar. Consumers, including processed food manufacturers,in the heavily protected and high priced US, EU and Japanese markets wouldalso be clear winners. Although some producers that currently have prefer-ential access to US and EU markets would experience reduced margins, theagriculture sector as a whole in these countries could be expected to benefitfrom meaningful WTO negotiations.

Sugar market reform would generate significant welfare gains for the world.The more widespread and comprehensive the reforms, the greater the bene-fits. The opportunity presented by the forthcoming WTO negotiations todeliver these benefits should not be missed.


Introduction

The world sugar market has grown considerably during the 1980s and 1990s.Apart from a temporary setback in Asia in 1997 and 1998, strong rises inconsumer incomes, especially in many of the non-OECD economies of Asia,the Middle East, Africa and Latin America, have provided much of the impe-tus for this growth.

Underpinning much of the growth in sugar consumption has been a steadyexpansion of world trade in both raw and refined product. Between 1980-81and 1997-98, consumption grew by 37 per cent to 123 million tonnes (rawsugar equivalent), while the export trade increased by 33 per cent to 38 milliontonnes.

The growth in trade has occurred despite significant policy based impedi-ments in many of the major exporting and importing countries. These impedi-ments comprise a wide range of government policies that directly or indirectlyaffect sugar production, consumption, trade and prices across the globe.

Policies affecting sugar have various objectives, including promotingimproved income for domestic producers, increasing technical efficiency,and stabilising markets in terms of supplies to consumers and prices toproducers and consumers. Apart from the direct effect on the world’s sugarindustry, these policies also affect the attractiveness of sugar compared withother sweeteners used in the beverage and processed food sectors.

There is a wide disparity of policy approaches in the main producing and con-suming countries. Major exporting countries such as Brazil, Australia andThailand export sugar at prevailing world market prices, thus ensuring thattheir domestic producers are in large measure exposed directly to movementsin world prices.

Large producing and consuming countries, such as the United States, Japanand the European Union, shield their producers from world market pricesthrough import protection, high producer support prices and, in the case ofthe European Union, export subsidies. Domestic consumers and competingunsubsidised export suppliers typically bear most of the cost of suchmeasures.

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Given the types of policy induced distortions currently existing in the worldsugar market, producing and consuming countries are likely to reap largeeconomic gains from appropriate reforms to trade and domestic policies.With little in the way of sugar policy reform having come from the UruguayRound of multilateral trade negotiations, the new round of World TradeOrganisation negotiations on agriculture will provide an opportunity to redressthe situation. In view of their significance to world trade, sugar related poli-cies in the United States, the European Union and Japan are likely to beworthy of particular attention.

The basic aim in this study was to examine how prospects for the expansionof the world’s sugar industry are affected by government policies. In address-ing this issue, details of existing national policies affecting world sugar tradeare provided for a number of major producing, consuming and/or tradingcountries and regions.

Sugar policies have been analysed in terms of their effects on domestic andinternational sugar markets, and in terms of their effects on national economicwelfare in several of the major countries. Policy options that would encour-age more economically efficient market expansion, with net welfare gainsto importing and exporting countries, are reported for key markets. The effectsof sugar policy reforms in a global and regional context are also reported.


World sugar trade

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■ Major importers of raw and refined sugar include Russia, the EuropeanUnion, the United States, Japan and South Korea — all of which haveheavily protected domestic markets for sugar.

■ The European Union, Brazil and Australia dominate export trade. How-ever, EU shipments rely significantly on government subsidies, whichcontribute to lower world prices.

■ In the raw sugar trade, long term agreements between exporters andimporting refiners or governments are common. This reflects the need forrefiners to secure consistent supplies to maintain refinery throughput.

Sugar trade: main features

World trade in sugar is distorted by the operation of government policies inmajor producing and consuming countries. Because of the pervasive influenceof government intervention in world markets, the discussion in this chaptercommences with a brief overview of the significance of such distortions inbroad terms.

A feature of the bulk trade in sugar is that it is shipped in both raw and white(refined) forms. Although over half of the sugar imports in recent years havebeen in raw form, nearly all consumption is in the form of white sugar.Imports of raw sugar constitute an important feedstock for refineries in anumber of countries.

There is a significant Atlantic Basin and Pacific Basin dimension to the tradein sugar. The major suppliers in the Atlantic Basin are Brazil and Cuba, whilethe bulk of the trade in the Pacific Basin is sourced from Australia andThailand (figure A).

Given the diverse nature of trade in sugar, including the fact that some coun-tries both import and export sugar, the discussion of trade flows has beendivided between import trade and export supply.


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Sugar trade influenced by governments

The magnitude, form and directions of world trade in sugar are influencedheavily by government policies that significantly inhibit the free movementof product compared with a market determined by supply and demand. Undera more liberal trading arrangement, production of sugar would tend to shiftfrom subsidised, higher cost producing countries to lower cost ones. Policiesthat enable individual countries to produce volumes of sugar consistent withtheir comparative advantage would allow the world’s sugar requirements tobe met with the use of fewer resources.

In an environment of freer trade there are likely to be economic benefitsarising from improved efficiency of resource use in production and fromimproved consumer welfare. Resources saved from moving to lower costproduction of sugar could be used in other economic activities to generateadditional income. Consumers currently paying high domestic prices would,under more liberal trade policies, buy more sugar and also have higher realincomes, which they could spend on other goods.

Under a trading system in which sugar producers can respond directly to theworld price, growers would be likely to base their production plans on antic-ipated growth in consumption and on changing market conditions rather thanon what government support programs provide. Global prices would mostlikely be more stable than at present because supply shortfalls and subse-quent high prices would be less likely to occur, as would excessive increasesin production and periods of very low prices.

Sugar import demandA major influence on the purchase of raw or white sugar by an importingcountry is its refining capacity relative to domestic sugar production.Countries import raw sugar if there is refining capacity in excess of thatrequired to process domestic raw sugar production. Countries with excessrefining capacity and which import raw sugar for value adding by refininginclude the United States, Canada, Japan and Malaysia.

Many countries, particularly those with small domestic sugar growing indus-tries, do not have excess refining capacity and import white sugar. For othercountries, such as India, refining capacity is situated in the sugar producingregions, and away from the ports, thus encouraging imports of mainly whitesugar in times of shortage.

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The majority of the world’s raw sugar imports are by a relatively smallnumber of large importing countries. The European Union, Russia, the UnitedStates, Japan, South Korea, Canada and Malaysia accounted for over 60 percent of world raw sugar imports in 1998-99 (table 1).

Although raw sugar imports have been increasing steadily in recent years,they fell in 1998-99 — by 5 per cent to an estimated 19.9 million tonnes.The major reason for the downturn was a substantial reduction in demandfrom Russia as economic activity in that country fell. Imports of raw sugarwere over 30 per cent greater than imports of white sugar, which were alsodown — by an estimated 4 per cent — in 1998-99.

Import demand for white sugar is more diversified than for raw sugar. Im-porting countries with small or insignificant domestic raw sugar industriestend to be regular and consistent importers of white sugar. There are manysmall importers of white sugar, reflecting the absence of refining capacity inthose countries.

Indonesia, Russia and some African and Middle East countries are the majorimporters of white sugar (table 2). Imports of white sugar have fallen inrecent years, largely because of weaker demand in Russia and Indonesiaresulting from their economic problems.


1 World imports of raw sugar Raw value; September–August years

1994-95 1995-96 1996-97 1997-98 1998-99 s

kt kt kt kt kt

Canada 940 1 059 1 038 1 082 998China 2 601 1 802 1 032 331 439Egypt 396 458 902 962 848European Union a 2 077 1 753 1 748 1 770 1 760Japan 1 772 1 703 1 649 1 602 1 497Malaysia 983 1 059 1 148 974 1 091Morocco 464 484 624 525 486Russia 944 1 834 1 993 4 153 3 517South Korea 1 320 1 351 1 435 1 367 1 420United States 1 535 2 340 2 926 2 162 1 996Other 4 258 5 569 5 682 5 961 5 869

Total 17 290 19 412 20 177 20 889 19 921

a Excludes intra-EU trade. s Estimated.Sources: F.O. Licht (1999); US Department of Agriculture (1999a); ABARE.

Sugar export supplyThe main exporters of sugar in the world are Brazil, Cuba, the EuropeanUnion, Australia and Thailand (tables 3 and 4). Most of the sugar traded bythe major exporters is sold at world market prices. However, governmentinterventions in many markets have tended to lower world prices. Of themajor sugar exporters, only the European Union, which ships mainly whitesugar, does so with the aid of export subsidies.

Because of the different technologies employed in the processing of sugarcane and sugar beets, exports of raw sugar come only from the cane produc-ing regions. Cane is milled into raw sugar, which is then exported either inraw form or as white sugar following refining. Beets, however, are processeddirectly into refined white sugar, thus bypassing the raw sugar stage. TheEuropean Union is the major exporter of sugar derived from beets.

Australia, Brazil, Cuba and Thailand are the largest exporters of raw sugar(table 3). However, the relative importance of exporting countries to worldtrade has been changing. Over the past five years, exports from Brazil, SouthAfrica and Mexico have increased considerably, while exports from Cubaand Thailand have fallen.

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2 World imports of white sugar Raw value; September–August years

1994-95 1995-96 1996-97 1997-98 1998-99 s

kt kt kt kt kt

Algeria 613 642 646 643 643European Union a 60 60 60 59 50India 987 283 53 875 626Indonesia 513 1 285 1 281 446 1 393Iran 970 851 1 091 857 654Iraq 387 426 457 510 551Israel 398 440 470 472 497Nigeria 428 600 634 898 712Russia 1 132 2 095 1 125 887 933Sri Lanka 396 415 608 530 517Other 9 501 10 076 9 132 9 382 8 293

Total 15 385 17 173 15 557 15 559 14 869


Raw sugar trade is heavily influenced by government to government agree-ments and also by the need of refiners to establish secure and consistentsupplies to maintain throughput in refineries. Long term agreements betweenexporters and importing refiners or governments are common. The Australianindustry, for example, has developed long term trading relationships withJapan, South Korea, China, Malaysia, Singapore, New Zealand, Canada andthe United States.

Demand for raw sugar can be affected in various ways. An expansion in beetprocessing capacity and beet sugar production would result in a decline indemand for raw sugar and its price to the point where the raw sugar priceplus transport costs to a given market equal the white sugar price net ofprocessing costs. Alternatively, an expansion in refining capacity relative toproduction could be expected to result in increased demand for raw sugar.

Exporters of white sugar derived from raw cane sugar have the flexibility toswitch between the white and raw sugar trade. These exporters fall into twocategories.

The first are ‘toll refiners’ that export white sugar processed from importedraw sugar. The main countries engaging in this activity are China and SouthKorea. Refiners in these countries operate in a protected domestic market.


3 World exports of raw sugar Raw value; September–August years

1994-95 1995-96 1996-97 1997-98 1998-99 s

kt kt kt kt kt

Australia 3 939 3 706 4 119 4 378 3 647Brazil 1 104 2 600 1 300 4 500 5 750Cuba 2 778 3 798 3 622 2 509 2 424European Union a 3 3 3 3 2Guatemala 570 630 772 780 801Mauritius 555 596 642 645 593Mexico 31 23 0 0 459South Africa 311 597 818 850 955Thailand 2 809 3 240 2 368 1 399 2 255Other 3 740 3 999 4 095 3 492 3 465

Total 15 840 19 192 17 739 18 556 20 351


However, as exporters, they are exposed to world prices. As a result, theirdemand for raw sugar imports and their supply of white (refined) sugar tothe export market may be sensitive to changes in the white–raw sugar pricepremium.

The second category of white sugar exporters are cane sugar producers thatcan change the proportion of raw sugar and white sugar in their overall exportmix according to the white–raw sugar premium. The major exporting coun-tries that switch between exporting raw and white sugar are Brazil, Thailand,Mexico and South Africa.

The European Union and Brazil are the biggest exporters of white sugar.Combined, they accounted for almost half of white sugar exports in 1998-99 (table 4).

In contrast to the trade in raw sugar, where long term supply agreements areimportant to maintaining refinery throughput, imports of white sugar can bemade on a more ad hoc basis. Longer term trading relationships tend to beless important in the white sugar trade, with product being sold by the ex-porter or traders to the highest bidder on a tender basis.

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4 World exports of white sugar Raw value; September–August years

1994-95 1995-96 1996-97 1997-98 1998-99 s

kt kt kt kt kt

Brazil 3 882 3 200 4 500 2 700 2 800China 523 801 420 265 460Colombia 339 175 388 474 479European Union a 5 446 4 626 5 225 6 358 5 298Guatemala 333 252 279 365 394India 22 833 679 528 422Mexico 161 607 731 1 160 110South Korea 256 279 255 365 326Thailand 920 1 610 1 449 1 224 1 172United States 545 432 519 233 148Other 4 677 4 658 5 250 5 438 5 038

Total 17 104 17 475 19 695 19 110 16 647


US sweetener markets and policies

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ABARE research report 99.14

■ The US sugar industry is one of the most heavily supported US agricul-tural activities, with government support accounting for around 40 percent of US sugar producer revenues.

■ US support to sugar producers is poorly targeted, prevents growers fromresponding to movements in world prices, and is costly to consumers andto the overall economy.

■ Removal of US government intervention in the sugar market would resultin significant overall economic gains to the United States and to foreignexporters.

■ Full liberalisation of US sugar trade is estimated to result in:

• a 17 per cent higher world price for raw sugar in 2005

• a net welfare gain to the US economy of US$456 million a year

• an almost US$1.5 billion a year gain to foreign sugar exporters becauseof higher world prices and increased access to the US market

compared with a baseline of no changes in world sugar policies over thestudy period.

US sugar policy reform would bring substantial economic gains

The United States is the largest single consumer of sweeteners in the world.It is also a significant producer of sugar, with well established sugar caneand sugar beet industries. However, domestic sugar production has remainedconsistently below domestic consumption, making the United States one ofthe world’s largest sugar importers.

In attempting to control US sugar production, consumption and imports theUS government supports the domestic sugar price and uses a tariff rate importquota system to manage total supply. While seeking to protect domestic sugarproducers, these policies have given substantial impetus to the developmentand production of alternative sweeteners such as high fructose corn syrup(HFCS).

Production of sugar and sweeteners in the UnitedStatesUS sugar production has expanded significantly during the 1990s, increasingfrom 6.4 million tonnes in 1991-92 to an estimated 7.4 million tonnes in1998-99 (table 5). The expansion in sugar production from beets has beengreater than from cane. Much of the expansion in beet sugar production stemsfrom farmers in some regions switching resources out of grain productionbecause of changes to government support programs for grains. These changeshave resulted in beet sugar becoming relatively more attractive to grow.

Increased sugar production has been achieved through substantial invest-ment in new processing equipment, adoption of new technologies, improvedcrop varieties and acreage expansion. The increase in sugar production,coupled with restrictions on imports, has resulted in the share of the domes-tic market supplied by US sugar producers increasing from 70 per cent inthe early 1990s to over 80 per cent in 1998-99.

High domestic sugar prices in the United States have encouraged the devel-opment and wide use of substitutes, including HFCS and a range of artificialsweeteners. HFCS is a good substitute for sugar in applications such as softdrink manufacture. With substantial gains having been made in reducing thecost of producing HFCS through exploiting economies of scale, its price islower than that of sugar in the US domestic market.

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5 US sugar production, consumption and trade Raw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 6 379 7 106 6 802 7 254 6 698 6 587 7 178 7 447

Consumption a kt 7 993 8 219 8 394 8 506 8 682 8 794 8 978 9 059– per person kg 31.3 31.8 32.2 32.3 32.6 32.7 32.8 32.9

Imports kt 2 105 1 859 1 766 1 617 2 400 3 024 2 229 2 069– raw kt 2 012 1 754 1 660 1 535 2 340 2 926 2 162 1 996– white kt 93 104 106 83 60 98 67 73

Exports kt 510 515 454 571 450 528 240 156– raw kt 12 17 40 26 18 9 7 8– white kt 498 498 414 545 432 519 233 148

a Calculated as production plus imports, less exports and change in stocks. s Estimated.Sources: FO Licht (1999); ABARE.

Consumption of sweeteners in the United StatesConsumption of the principal caloric sweeteners (sugar and HFCS) in theUnited States has been rising gradually in both absolute and per person terms(table 6). Sugar and HFCS consumption per person combined is estimatedto have been a little over 64 kilograms in 1998-99 — well above the worldaverage.

Sugar consumption in the United States rose from 8.0 million tonnes in 1991-92 to an estimated 9.1 million tonnes in 1998-99 (table 5). Sugar’s share ofcombined sugar and HFCS consumption has fallen from around 56 per centin the early 1990s to around 51 per cent more recently.

HFCS producers have gained substantially from higher domestic sugar prices,with consumption increasing from 6.7 million tonnes in 1991-92 to around8.7 million tonnes in 1998-99. Consumption of HFCS has grown because itis competitively priced against sugar in the United States and can be substi-


6 Consumption of the principal caloric sweeteners in the United States aRaw sugar equivalents

Aggregate consumption Per person consumption

ShareSugar HFCS Total of sugar Sugar HFCS Total

Mt Mt Mt % kg kg kg

1985-86 7.2 5.0 12.2 59 29.9 18.3 48.21986-87 7.3 5.2 12.5 58 30.1 18.9 49.01987-88 7.4 5.5 12.9 57 30.2 20.0 50.21988-89 7.5 5.7 13.1 57 30.3 20.6 50.91989-90 7.7 5.6 13.3 58 30.8 20.4 51.21990-91 7.9 6.3 14.2 56 31.3 22.9 54.21991-92 8.0 6.7 14.7 54 31.3 24.3 55.61992-93 8.2 7.0 15.2 54 31.8 25.4 57.21993-94 8.4 7.3 15.7 53 32.2 26.6 58.81994-95 8.5 7.6 16.1 53 32.3 27.6 59.91995-96 8.7 7.9 16.6 52 32.6 28.7 61.31996-97 8.8 8.3 17.1 51 32.7 30.1 62.81997-98 9.0 8.7 17.7 51 32.8 31.5 64.31998-99 s 9.1 8.7 17.8 51 32.9 31.5 64.4

a Caloric sweeteners include sugar, HFCS, glucose syrup, dextrose and honey. The two included inthis table, sugar and HFCS, between them account for around 80–85 per cent of total consumption.s Estimated.Sources: International Sugar Organisation; FO Licht (1999); ABARE.

tuted for sugar in many liquid sweetener uses. As a result, most of the growthin HFCS consumption has occurred in the beverage industry.

For items in which HFCS is a good or perfect substitute for sugar, users cansave costs by substituting the syrup for sugar. It is important to recognise,however, that US prices for HFCS are higher than world prices for sugar.This means that consumers of HFCS syrup are incurring higher costs thanif they had access to sugar at world prices.

Around 70 per cent of US sugar consumption is in the industrial sector —with about two-thirds of this going to the bakery, cereal and confectioneryindustries. High intensity sweeteners (mainly aspartame and saccharin)compete mostly with HFCS in the soft drink market, with diet drinks account-ing for around 20 per cent of the total. HFCS is used in other soft drinks,noncarbonated fruit drinks, iced tea and sports drinks.

US trade in sugarUS sugar imports are the subject of tariff rate quotas and an overall mini-mum access commitment under the WTO Agreement on Agriculture. Thetariff rate quota for raw cane sugar is allocated on a country by country basis,while that for refined sugar is on a global first come, first served basis.

A relatively small additional amount of raw sugar is also imported out ofquota and allowed duty free entry under three programs: the refined sugarre-export program; the sugar-containing products re-export program; and thepolyhydric alcohol program. The first two of these programs provide foraccess to quota exempt sugar (at world prices), so long as the sugar refinedor the product manufactured is subsequently exported. The polyhydric alco-hol program allows for access to world price sugar to use in the manufac-ture of polyhydric alcohol for nonfood industrial purposes.

With increased domestic sugar production, greater use of HFCS and highdomestic sugar support prices, US imports of raw sugar have been relativelystatic — averaging around 2 million tonnes a year during the 1990s. Importsof sugar were over 3.0 million tonnes in 1996-97 but fell to an estimated 2.1million tonnes in 1998-99 (table 5). Although relatively steady at around500 000 tonnes for much of the early to mid-1990s, US exports of refinedsugar have fallen in the past two years. Exports are estimated to have been156 000 tonnes in 1998-99.

17Sugar

The reduction in US imports of raw and refined sugar has been partly offsetby increased imports of products containing sugar. High US domestic pricesof sugar mean that foreign producers of products such as bakery items, choco-late confectionary and canned fruits containing significant amounts of sugarsourced at lower prices have been competitive in the US market. Both devel-oped and developing countries are likely to benefit from increased US importsof products containing sugar by the United States.

Sugar policies in the United StatesThe main aim of US sugar policies is to support returns to domestic produc-ers. The US sugar industry ranks as one of the most heavily supported USagricultural activities. In 1998, around 40 per cent of gross receipts of USsugar growers came from policy induced transfers from consumers andtaxpayers (OECD 1999). Major beneficiaries of the policies, in addition toUS sugar producers, include producers of HFCS and high intensity sweet-eners and, to a small extent, corn producers.

There are two main elements of US sugar policies. These are the provisionof basic price support to sugar producers (the loan rate), and the tariff ratequota system for imports.

There is no direct government support to producers of HFCS and other sweet-eners and sugar substitutes.

The loan rateThe loan rate is the price at which the US government provides loans tomillers and processors to hold sugar for sale at a later date. These loans areobtained from the Commodity Credit Corporation (CCC) and have a repay-ment period of up to nine months. Raw cane sugar and refined beet sugarare used by millers and processors as collateral for the loans.

When the sugar is sold the miller or processor repays the loan to the CCC.In the past, these loans have been of a ‘nonrecourse’ nature, meaning thatrather than repaying the loan, processors could choose to forfeit stocks tothe CCC. They would normally do this if market prices were expected toremain at or around the loan rate. As a result, the loan rate tends to place afloor under the domestic price. Having been guaranteed a minimum domes-tic market price for their sugar, millers and processors are required to payproducers a fixed minimum price for cane and beet.


Under the Federal Agriculture Improvement and Reform (FAIR) Act of 1996,nonrecourse loans will apply if the tariff rate import quotas in any year exceed1.5 million short tons (1.36 million tonnes). When nonrecourse loans apply,processors will pay a US1c/lb penalty on any stocks that are delivered togovernment stores to discharge loans. This could have the effect of reduc-ing domestic prices by up to US1c/lb below the loan rate. However, if importquotas fall below 1.5 million short tons, ‘recourse’ loans will apply. In thiscase, loans must be repaid with cash instead of through forfeiture of stocksto government (CCC) stores and the onus for holding stocks would thus fallon processors.

Under the FAIR Act, loan rates were set at US18c/lb for raw cane sugar andUS22.9c/lb for refined beet sugar. Adjustments to the refined beet sugar loanrate are made each year according to a formula that takes into account changesin the price of refined beet sugar relative to the price of raw cane sugar inthe United States over the past five years plus an allowance for beet proces-sors’ fixed marketing expenses. The internal supported prices for raw sugarfrom cane compare with world market prices for raw sugar that have fluc-tuated between US9c/lb and US14c/lb for most of the 1990s, but which fellto around US6c/lb in mid-1999. The 1996 loan rates for raw cane sugar arefrozen for the period up to 2002.

Tariff rate quotasThe tariff rate quota on imports is the main instrument of protection for theUS sugar industry. Tariff rate quotas are used to limit the supply of sugar tothe domestic market, with the objective being to prevent domestic sugarprices from falling below the loan rate. The tariff rate quota is establishedannually by the US Secretary of Agriculture, subject to the WTO commit-ment on market access (see below). Quota determination takes into accountdomestic production and demand for sugar, as well as the overall supply andstocks required to keep domestic prices above the loan rate — thus discour-aging producers from forfeiting sugar to the CCC.

The WTO commitment on market access provides for US tariff rate quotasugar imports of at least 1.139 million tonnes a year — comprising 1.117million tonnes of raw sugar and 22 000 tonnes of refined sugar. Althoughthe commitment is for global access, imports have been allocated amongsupplying countries in much the same way as under previous arrangements,with most imports continuing to come from Caribbean and Central Americancountries.

19Sugar

The tariff rate quota allocation to supplying countries has been based on theproportion of their average share of US raw sugar imports during the sixyears 1975–81, exclusive of the highest and lowest years. This was a periodwhen US imports of sugar were relatively unrestricted. The world sugarmarket has changed significantly since the tariff rate quota proportions weredetermined. As a consequence, some countries, such as Haiti, Barbados andGabon, have not supplied any of their quota in recent years. Other exporters,such as Australia, Brazil and Thailand, are capable of supplying their currentquota allocation many times over. This suggests that a review of the admin-istration of the tariff rate quota proportions is needed.

The within quota tariff on imports is US0.625c/lb. The beyond quota tariffwas set at US17c/lb in 1995. The latter rate is to be phased down by 15 percent over the six year WTO implementation period to US14.45c/lb in 2000.Duty free status is granted to within quota imports from all quota holdersexcept Argentina, Australia, Brazil, Gabon and Chinese Taipei.

In addition to the within quota and beyond quota tariffs, the United Statesmay also apply a third tier tariff as a safeguard against sugar imports. Thissafeguard is of particular relevance when the world price is low, as it acts asa disincentive to US traders wishing to import sugar outside of the quota.Third tier tariff rates (which do not apply to Mexico and Canada), togetherwith the current WTO out of quota (high tier) tariff, are presented in table 7.With the safeguard in place, world prices would have to be extremely lowbefore imported sugar would be able to compete with domestically producedsugar.


7 US tariffs on nonquota imports of sugar a

Third tier High tier Totaltariff tariff tariff

USc/lb USc/lb USc/lbCif value of foreign sugarless than US2.3c/lb 5.85 15.82 21.67between US2.3c/lb and US4.6c/lb 3.96 15.82 19.78between US4.6c/lb and US6.9c/lb 2.50 15.82 18.32between US6.9c/lb and US9.2c/lb 1.36 15.82 17.18between US9.2c/lb and US11.5c/lb 0.66 15.82 16.48more than US11.5c/lb 0.00 15.82 15.82

a Special provisions apply for Mexico and Canada. The total tariff at all price levels is US13.6c/lb forMexico and US15.82c/lb for Canada.

The volume of US tariff rate quota sugar imports at the commencement ofthe WTO implementation period in 1995 was initially well above the mini-mum global access level. However, increasing domestic production as USsugar growers have responded to high support prices has resulted in substan-tial cuts to tariff rate quota allocations in the past two years.

In US fiscal year 1996 (October 1995 – September 1996), tariff rate quotaimports were 2.09 million tonnes. They fell to 2.06 million tonnes in fiscal1997 and 1.57 million tonnes in fiscal 1998 (US Department of Agriculture1999a). Once allowance is made for the usual shortfalls in some supplyingcountries’ deliveries against quota, tariff rate quota imports in fiscal 1999are estimated to have been close to the WTO minimum of 1.139 milliontonnes. The tariff rate quota for imports of raw and refined sugar in fiscal2000 is 1.17 million tonnes. The US government has applied the within quotatariff (US0.625c/lb) on tariff rate quota imports above the WTO minimum.

The ability of US policy administrators to manage internal supply and demandto keep domestic producer prices at or above the loan rate appears to be indoubt. With tariff rate quota imports currently close to the WTO minimum,there seems to be little scope for the United States to further cut imports aspart of a strategy to achieve internal price outcomes consistent with the loanrate.

Domestic effects of US sugar policiesUS sugar policies are costly to both consumers and to the overall economy.A 1993 report by the General Accounting Office estimated that the sugarprogram cost US consumers US$1.4 billion a year (US General AccountingOffice 1993). Public Voice, an advocacy organisation representing consumerinterests on food and agricultural issues, has suggested that the sugar programacts like a regressive tax on consumers, adding approximately US$1.17 billiona year to the cost of boxed and bagged sugar and processed foods at the retaillevel (Public Voice 1998).

The US International Trade Commission has estimated that the net welfareeffect in 1996 of removing import restraints on sugar and products contain-ing sugar would have been approximately US$986 million (US InternationalTrade Commission 1999). Much of the gain could be expected to comethrough a lowering of costs to manufacturers of foods containing sugar orsweeteners, such as beverages, confectionary and bakery products.

21Sugar

The US General Accounting Office (1999) has found that the current formulabased system used by the US Department of Agriculture to determine quotasize imposes unnecessary costs on US users of about US$400 million a yearThe General Accounting Office’s report was also critical of the US TradeRepresentative’s current process of allocating the US Department of Agri-culture determined sugar import quota between supplying countries. Alloca-tion on the basis of their share of the US market during the six years 1975–81results in some of the quota going unfilled because of changes in suppliercountry capabilities. The allocation base no longer reflects individual coun-tries’ ability to supply their US entitlements.

Within the sugar producing sector, the distribution of benefits from supportedprices are highly skewed toward cane sugar producers. Benefits to produc-ers of sugar cane, who numbered only 1700, averaged US$130 000 per farmin 1991 — a below average year for such transfers (US General AccountingOffice 1993). In that year, the largest cane farm received over $30 million,and the 33 largest cane farms received over US$1 million each in benefitsfrom the program. In the beet industry, 50 per cent of benefits going to beetproducers went to 2000 of the bigger farms (15 per cent of growers).

The decline in world sugar prices since the 1991 study means that the sizeof the transfers to producers would now be much larger.

The economic benefits of the sugar program to corn sweetener producershas been estimated to be comparable to that of sugar producers. It has beenestimated that US sugar producers received only about 40 per cent of theUS$1.4 billion a year in higher user costs for sugar and HFCS arising fromUS sugar support arrangements (US General Accounting Office 1993).Transfers to HFCS producers accounted for a further 40 per cent, with theremainder being directed to foreign sugar suppliers and other sectors of theUS economy. Benefits to the HFCS industry from US sugar policies are heav-ily concentrated, with four HFCS manufacturers receiving an estimated 87per cent of the total industry benefits in 1991. Producers of corn (the prin-cipal raw material input to HFCS production) gain little from the sugarprogram — receiving market prices for corn plus any other payments theymay be entitled to under the FAIR Act.

International effects of current US sugar policiesReduced world prices, resulting from the market distortions created by USsugar policies, result in welfare costs to exporting countries. The effects of


US sugar support policies on individual world sugar exporters depend onhow much access these exporters have to the US market.

Exporters with quotas to the US market benefit from the higher prices thatapply to the proportion of their sales covered by US quotas. However, theymust sell the remainder of their exports in other world markets at prices thatare substantially depressed by the operation of the US sugar program. Ifquota exports to the United States are large relative to the exporting coun-try’s total exports, that country may gain from the US policies.

On the other hand, countries that import sugar, including some high incomecountries such as Japan and Canada, benefit from the lower world pricesflowing from US policies at the expense of exporting countries, which inmost cases are developing countries.

Apart from the effect on overall price levels, existing US sugar policies havealso contributed to greater instability in world prices. By using import quotasto stabilise domestic prices to producers and consumers, most of the adjust-ments in US supply and demand are forced on to producers and consumerselsewhere. This has the effect of increasing the price variations that non-USproducers and consumers face in the international market.

Implications of more liberal US sugar policiesSignificant deficiencies in US sugar policies include the fact that the supportprovided to producers is poorly targeted; that the levels of support are inde-pendent of world prices, thus preventing producers and consumers fromresponding to signals from the global market; that they distort the on-farmallocation of resources between crops; and that they encourage the produc-tion and consumption of substitutes.

Alternative policies, such as decoupled income payments (direct supportpayments unrelated to production or prices) and deficiency payment supports,for example, would better target support for producers without imposingdirect costs on consumers. Of course, such policies impose a cost on tax-payers.

Contributing to the distortion of on-farm resource allocation between cropsis the WTO consistent ‘production flexibility contract payments’ for wheat,feed grains, rice and cotton that were introduced under the 1996 FAIR Act.These payments do not require farmers to be currently producing the subject

23Sugar

crops. As a result, some farmers are able to receive their FAIR Act paymentsand, in response to the high supported prices for sugar relative to alternativecrops, switch land into sugar production.

Whichever sugar policies are adopted by the United States in the future, itis increasingly likely that they will need to be consistent with WTO require-ments. Some of the options available to the United States are likely to include:

• replacing current price support with deficiency payments or decoupledincome payments (direct support payments unrelated to production orprices);

• replacing current tariff rate quotas with tariff only protection, thus allow-ing domestic producers and consumers to be more responsive to move-ments in world prices; and

• expanding tariff quotas and/or reducing above quota tariffs.

To gain an idea of the potential benefits of reduced US protection, the optionsconsidered in the present analysis include complete US liberalisation (removalof all support and protection); replacement of the present tariff-quota arrange-ments with tariff only protection; and the retention of present tariff-quotasbut with a cut in the loan rate. These options and their estimated effects arediscussed below. The underlying approach to estimating the effects of policychanges is explained briefly in box 1.


The first step in assessing the effects of policy changes in the countries andregions considered in this report was to develop a baseline scenario for theworld and relevant national markets. This was done by running ABARE’seconometric model of the world’s raw and refined sugar markets, SUGABARE,with current policies still in place. (A brief description of the SUGABARE

model is in appendix A.) Changes in sugar market variables resulting fromsimulated national policy reforms were measured relative to the baseline.

To gain an understanding of the potential effects of an early move by keycountries to reduce government intervention in their sugar markets, a timehorizon of 2005 was used in the analysis.

For ease of comparison, baseline estimates of production, consumption,prices and imports in the country (or countries) assumed to be making thepolicy changes, as well as world prices and trade of some key exportersand/or importers are presented with the results for each policy option.

Continued ➮

1 Estimating the effects of policy changes

Simulating the effects of reformsIn the first policy option considered, it was assumed that all existing US sugarsupport policies, including barriers to trade in sugar between the UnitedStates and the rest of the world, are removed. US sugar producers wouldtherefore receive, and consumers would pay, the world price (plus trademargins).

The second policy option involved the replacement of existing supportarrangements with tariffs. Two different tariffs on imported sugar were consid-ered: a 50 per cent ad valorem tariff and a 75 per cent ad valorem tariff. Sucha policy approach would mean US producers received world prices plus thetariff protection. In the case of the higher (75 per cent) tariff, this was designedto test the effects of tariff only support, which resulted in domestic pricesclose to those estimated to occur in the ‘no policy change’ situation.

The third policy option consisted of a refinement to existing policies, withthe loan rate for raw sugar assumed to be cut by US3c/lb (in nominal terms)from existing levels. In this scenario, the tariff rate quota was assumed to beretained in its current form.

The estimated effects on world prices of alternative US sugar policies involv-ing either full market liberalisation, a 50 per cent tariff, or a lower loan rateare illustrated in figure B. Details of the results from the policy simulationare discussed in the following pages.

25Sugar

In the baseline simulation, the underlying assumptions on consumer expen-diture or incomes, rates of inflation, exchange rates and population of thecountries and regions included in the model were updated for the period1999–2005. It was assumed that current policies — including implementa-tion of commitments under the WTO Uruguay Round Agreement onAgriculture — will continue in all major producing and consuming coun-tries.

The baseline estimates given in this report do not include possible policychanges in the United States to accommodate the scheduled increase inimports from Mexico under the North American Free Trade Agreement(NAFTA). Details of the NAFTA arrangement and the potential effects onthe sugar market of alternative US policy approaches to the expansion insupply from Mexico are dealt with separately, in chapter 8.

1 Estimating the effects of policy changes Continued

Removal of all US sugar market interventionUnder complete US sugar market liberalisation, world raw sugar prices areestimated to be 17 per cent higher in 2005 than under the baseline (no policychange) situation (table 8). The price increase comes from an estimated 72per cent rise in sugar imports by the United States. Higher US imports wouldresult from increased domestic consumption because of lower internal pricesand reduced US production as farmers adjusted areas planted because of the


8 Effects of simulated removal of all sugar support measures in the UnitedStates

2005

1999 Base No support Change

%

World raw sugar price USc/lb 6.7 10.9 12.8 17

United StatesProduction Mt 7.1 7.7 6.1 –21Consumption Mt 9.2 9.7 9.9 2Consumer price USc/lb 23.2 23.2 15.4 –34Producer price USc/lb 23.2 23.2 15.4 –34Total imports Mt 2.2 2.5 4.3 72

Exports byAustralia Mt 3.9 5.0 5.3 6Brazil Mt 8.6 9.4 10.4 11Thailand Mt 3.3 3.6 3.9 8European Union Mt 5.3 5.8 6.0 3

B Impact of US sugar policy reform on world raw sugar prices

1991 1993 1995 1997 1999 2001 2003 2005

USc/lb

6

8

10

12

14

Reducedloan rate

50 per centtariff

Full liberalisation

Baseline

27Sugar

The benefits of sugar policies to cane and beet growers in individual statesor regions of the United States depend on the unit cost of production and onthe scale of production. Production costs and returns from the production ofsugar vary widely according to region and whether sugar is being producedfrom beet or cane. The lower the level of profitability, the greater the diffi-culty that US growers would face in adjusting to the removal of all sugarsupport measures.

Under current policy arrangements, beet production is relatively more prof-itable than alternative crops in all growing regions. In the 1996 and 1997seasons, gross returns exceeded cash costs by around $225 per hectare inthe Great Lakes growing region and by more than $430 per hectare in theRed River Valley and Southwest growing regions (see table following).

The profitability of beet production would be significantly reduced if exist-ing US support for sugar were removed. Complete removal of US sugar traderestrictions and support measures is estimated to result in a 34 per cent reduc-tion in prices to US beet producers (table 8). Assuming an equivalent percent-age reduction in the farmgate price, this would have a considerable adverseimpact on returns over cash costs in all growing regions. As a result, sugarbeet production in the Great Plains and Southwest growing regions wouldbe unlikely to remain economically viable and beet production in theNorthwest and Great Lakes regions may no longer be competitive with alter-native crops. The major beet producing region, the Red River Valley, couldbe expected to remain profitable.

The economic viability of individual cane growing regions (which accountfor just under half of US sugar production) has been examined previouslyby ABARE (1995). It was found that a 34 per cent reduction in prices to UScane producers resulting from full US trade liberalisation would have signif-icant ramifications for the profitability of growers in all US cane growingregions. In particular, it was suggested that sugar production in Texas andHawaii might be largely eliminated under this scenario.

Continued ➮

2 Returns to US sugar growers in a free market environment

lower returns from sugar. The policy change could also be expected to affectdemand for alternative sweeteners relative to sugar, with some manufacturersmoving to use a greater proportion of sugar in their input mix.

This outcome for the United States may prove to be conservative. The reduc-tion in output would be influenced by the extent to which producers changedsugar production practices and the extent to which they substituted into alter-native crops. One factor that could affect substitution between crops is the


Although the above results are indicative of major changes to the US sugarproducing industry in the event of all government support measures beingremoved, the actual changes may be more modest. The above analysis isbased on regional averages and as such will not be valid for all farms in thesegrowing regions. In addition, the analysis does not take into account the like-lihood that farmers in all growing regions are likely to alter productionsystems to reduce their cash costs and so reduce some of the impact of lowersugar prices.

Efforts to maintain economic viability in an environment of lower prices canbe expected to drive innovations to improve profitability and there will besome substitution into other crops. Capital restructuring in the industry canalso be expected to aid profitability in the longer term. Government supportstend to be capitalised largely into the value of fixed assets such as sugarproducing land. Loss of these supports will result in a reduction in the capi-tal investment required to grow sugar, thus lowering the overall cost struc-ture of the industry to something more in tune with world market prices —hence assisting the remaining producers to be economically viable.

The above types of responses to a loss of support means US sugar produc-ers are likely to fare better in a deregulated market than first appears to bethe case. Nevertheless, there seems to be a significant likelihood of a consid-erable downsizing of beet and cane production in several growing regionsunder full trade liberalisation.

Estimated returns from sugar beet production, by region a

Gross value Returns over cash costsCash of beet Current Full policycosts b production policy liberalisation c

US$/ha US$/ha US$/ha US$/ha

Great Lakes 427 652 225 3Red River Valley 418 850 432 143Great Plains 599 837 238 –47Northwest 798 1 204 406 –3Southwest 939 1 378 439 –30

a Average of 1996 and 1997 seasons. Costs include variable costs plus general farm overhead,taxes, insurance and interest. b Sugar price differences across regions mainly reflect differencesin sugar recovery rates. c Under full liberalisation, the estimated 34 per cent decline in the USraw sugar price was assumed to result in an equivalent percentage reduction in sugar beet price.Sources: US Department of Agriculture (1999a); ABARE.

2 Returns to US sugar growers in a free market environment Continued

previously mentioned ‘production flexibility contract payments’ under theFAIR Act. The current distortions in resource allocation could be reducedby adding sugar to the list of crops covered by such contracts.

In a deregulated sugar market, producer responses to lower sugar prices andreduced profitability are likely to vary substantially between the major USgrowing regions. Variations in regional responses would come, in largemeasure, from significant differences in industry cost structures (see box 2).

In a fully liberalised market it is unlikely that HFCS production would bereduced to the levels that would have applied in the absence of past policyinduced substitution of HFCS for sugar. This assessment reflects the likeli-hood that the costs of producing syrup will have fallen considerably over theyears because of technological change, something that may not have occurredwithout the stimulus to HFCS development and adoption provided by USsugar policies.

Ultimately, the main factor driving changes in US sugar consumption is likelyto be the extent of the movement in US sugar prices relative to HFCS, theprincipal substitute in products such as soft drinks. In 2005, US sugar pricesfor consumers and producers under full market liberalisation are estimatedto be 34 per cent lower than they would have been under current policies.

Tariff only protection for US sugarThe simulation involving an import tariff of 50 per cent revealed that USimports of sugar are likely to be less than under free trade. Consequently theeffect on the world raw sugar price would be less (table 9). With a 50 percent import tariff, the world raw sugar price would be an estimated 5 percent higher in 2005 than in the baseline (no policy change) scenario.

Sugar prices in the United States under a 50 per cent tariff on imports wouldbe an estimated 9 per cent lower than the baseline in 2005. US consumerswould gain because of lower prices and sugar consumption would rise. USproduction of sugar would fall as producers responded to lower prices, whileUS sugar imports would increase by an estimated 22 per cent.

The introduction of a 75 per cent tariff on imports is estimated to have aneglible impact on the world raw sugar price. As anticipated, the resultsobtained from simulating the introduction of a 75 per cent tariff on importedsugar indicate little if any change in the US variables. Production, consump-

29Sugar


9 Effects of simulated tariff only protection for US sugar

2005

50 75per cent per cent

1999 Base tariff Change tariff Change

% %World raw sugar price USc/lb 6.7 10.9 11.4 5 10.8 –0.5

United StatesProduction Mt 7.1 7.7 7.2 –7 7.7 0Consumption Mt 9.2 9.7 9.8 0 9.7 0Consumer price USc/lb 23.2 23.2 21.0 –9 23.4 1Producer price USc/lb 23.2 23.2 21.0 –9 23.4 1Total imports Mt 2.2 2.5 3.0 22 2.5 1

Exports byAustralia Mt 3.9 5.0 5.1 3 5.0 0Brazil Mt 8.6 9.4 9.8 4 9.6 2Thailand Mt 3.3 3.6 3.7 1 3.6 0European Union Mt 5.3 5.8 5.9 2 5.9 2

10 Effects of simulated reduction in US sugar loan rate a b

2005

Reduced1999 Base loan rate Change


United StatesProduction Mt 7.1 7.7 7.1 –9Consumption Mt 9.2 9.7 9.8 1Consumer price USc/lb 23.2 23.2 20.2 –13Producer price USc/lb 23.2 23.2 20.2 –13Total imports Mt 2.2 2.5 3.2 29

Exports byAustralia Mt 3.9 5.0 5.1 3Brazil Mt 8.6 9.4 9.7 3Thailand Mt 3.3 3.6 3.7 3European Union Mt 5.3 5.8 5.9 2

a Reduction of US3c/lb in the raw sugar loan rate. b Estimates based on current US sugar importsunder tariff rate quota of 1.139 million tonnes a year.

tion and trade are estimated to remain similar to the no policy changeoutcomes.

Through the increased exposure to the world market that would come withthe implementation of a percentage (ad valorem) tariff arrangement, USproducers (of sugar beet in particular) and consumers would be better ableto adjust their supply and demand to developments in the world market.Given the large size of the United States in world market terms, the betteralignment of domestic supply and demand with the free market wouldcontribute to reduced volatility in world prices.

Cutting the loan rate for raw sugarWorld raw sugar prices would be an estimated 9 per cent higher in 2005 ifthe current loan rate for raw sugar was cut by US3c/lb (table 10). The USdomestic sugar prices would fall by an estimated 13 per cent by 2005.

A weakness with this policy option is that the existing system of support(import quotas) are assumed to be maintained. Thus, domestic prices wouldremain insulated from world raw sugar prices. This contrasts with the scenar-ios where existing policies are replaced with import tariffs and domesticsugar prices vary with world prices.

Welfare effects of US sugar policy changesUnder fully liberalised US sugar arrangements, economic gains to consumerswould exceed losses to producers, resulting in a net gain to the US economyof an estimated US$456 million a year (table 11). The annual gains to theUS economy would be reduced to an estimated US$427 million with a 50per cent tariff on imports, and to US$372 million with a 75 per cent tariff.In both these cases a substantial part of the gains to the US economy wouldcome from the tariff revenues collected.

Consumer gains associated with full import liberalisation are estimated toaverage US$1642 million a year. These gains would fall to an estimatedUS$654 million if current arrangements were replaced with a 50 per centtariff on imports, and to only US$214 million a year with a 75 per cent tariff.

Foreign exporters as a group would gain by an estimated average US$1482million a year if all US government support were removed. The quota rentforgone on the sugar previously exported to the United States at above world

31Sugar

market prices would be more than offset by gains arising from higher aver-age world prices and higher total exports.

Gains to the rest of the world from US sugar trade liberalisation have beenestimated at an aggregate level. The estimates therefore conceal inequalitiesin the distribution of the gains between exporting countries. The gain or loss


11 Welfare effects of simulated sugar policy changes by the UnitedStates relative to current policies — yearly averages for 2001–05 a

Tariff at Tariff at Lower sugarNo support 50 per cent 75 per cent loan rate

US$m US$m US$m US$mUnited StatesChange inConsumer welfare 1 642 654 214 565Producer welfare –1 182 –499 –166 –432Tariff revenue –4 272 324 6Total welfare effect 456 427 372 139

Foreign exporters bGain from higher world price 1 763 704 290 516Quota rents –281 –113 –39 –94Total welfare effect 1 482 591 251 422

Australia cGain from higher world price 238 91 36 66Quota rents –19 –8 –3 –6Total welfare effect 219 83 33 60

Brazil dGain from higher world price 416 162 66 117Quota rents –34 –14 –5 –11Total welfare effect 382 148 61 106

Thailand eGain from higher world price 178 68 28 49Quota rents –3 –1 –1 –1Total welfare effect 175 67 27 48

European UnionGain from higher world price 263 104 43 76Quota rents 0 0 0 0Total welfare effect 263 104 42 76

a Estimates shown are in 1998-99 dollar values. b Estimates based on current US sugar imports undera tariff rate quota of 1.139 million tonnes a year. c A current US import quota share of 90 000 tonnes ayear was assumed in estimating the effects of policy change. d Estimates based on a current US importquota share of 157 000 tonnes a year. e A current US import quota share of 15 000 tonnes a year wasassumed in the analysis.

to an exporting country from liberalising US sugar trade depends on the shareof its total exports to the United States relative to the rest of the world.Regions such as the European Union, which do not export sugar to the UnitedStates under the tariff rate quota, would benefit from US sugar trade liber-alisation because of higher world prices and the consequent reduction in thecost of its export subsidies. On the other hand, some Caribbean countrieslike the Dominican Republic, which direct a large share of their exports tothe United States under the tariff rate quota, are likely to lose from US sugartrade liberalisation.

For the latter group of countries, WTO negotiations to liberalise trade in awide range of products and activities that will provide benefits in other sectorsof their economies will be important to an overall improvement in economicwelfare. This is a major reason for policy reforms to be pursued in a multi-lateral context and across many areas — not just for sugar.

Exporters with only a small dependence on the US market can expect tobenefit significantly from free access to the United States — Brazil, Australiaand Thailand being good examples. Only about 2 per cent (157 000 tonnes)of Brazil’s exports had tariff rate quota access to the US market in 1998-99.Australia’s tariff rate quota access was also about 2 per cent (90 000 tonnes)of its total 1998-99 exports, and Thailand’s access was around 0.5 per cent(15 000 tonnes) of shipments. Brazil’s sugar exporters would gain an esti-mated US$382 million a year from full US trade liberalisation, Australia’san estimated US$219 million and Thailand’s an estimated US$175 million(table 11). The quota rents forgone on sugar exported to the United Stateswould be more than offset by gains arising from higher world prices andhigher total exports.

In the case of a 75 per cent tariff on imports by the United States, the gainsto Brazil would be reduced to an estimated US$61 million a year. Gains toAustralia would fall to an estimated US$33 million and, in the case ofThailand, to an estimated US$27 million a year. Other, higher cost, exporterswith a share of current US import quotas may be worse off if quantitativerestraints on trade are replaced by a tariff. However, low cost producers thatdo not currently export to the United States may be better off if their produc-tion costs are low enough to overcome the tariff barrier.

The gain to the US economy from reducing the loan rate by US3c/lb is esti-mated to be around US$139 million a year (table 11).

33Sugar

Sugar in the European Union

34

4


■ The European Union has a highly regulated sugar market that providessignificant price support to domestic producers. These sugar policiesdistort world trade patterns and depress global prices.

■ Reduced policy intervention in the EU sugar market would result in signif-icant welfare gains to EU member states and to sugar exporters, with cutsto the intervention price being more effective than reductions in EU sugarproduction quotas.

■ The estimated effects of lowering the European Union’s white sugar inter-vention price to approximate world prices are:• an almost 20 per cent rise in the world raw sugar price• a net welfare gain to the EU economy of US$580 million.

■ A 1.2 million tonne reduction in the amount of EU domestic productioneligible for price support would increase the world raw sugar price by anestimated 4 per cent.

Changes to EU policies would have global benefits

The EU support system for sugar introduces substantial distortions into worldtrade. It does this by encouraging domestic production, discouragingconsumption, and creating surplus stocks. These stocks are then sold in theworld market with the assistance of export subsidies, thus depressing globalsugar prices.

Sugar production in the European UnionThe European Union is one of the world’s largest producers of sugar. Themajority of EU production is of beet sugar, although some cane sugar in theFrench Overseas Departments is also covered by the union’s marketing andsupport arrangements. In 1997-98, almost 19 million tonnes of sugar wereproduced from 2.0 million hectares of sugar beet (table 12). The biggestsugar producers in the European Union are France and Germany (27 per centand 23 per cent of EU production respectively in 1997-98).

The total area under sugar beet in the European Union has been slowly trend-ing downward since the early 1980s, largely as a result of the quota based

support system (a discussion of the quota system is provided later in thischapter). Although the combined ‘A’ and ‘B’ production quota increased by24 per cent between 1980-81 and 1997-98, sugar yield per hectare of beetproduced increased by 47 per cent, thus allowing a 15 per cent fall in beetareas since 1980-81.

The past decade has seen a marked concentration in the EU sugar process-ing industry. In 1987-88 the sector comprised 267 factories, with 40 per centof sugar produced in factories with a daily processing capacity of over 8000tonnes of beet. By 1997-98, there were 161 factories, with 63 per cent ofsugar produced in factories with a daily capacity of over 8000 tonnes.

Sugar consumption in the European UnionPer person sugar consumption in the European Union is approximately thesame as it was in the early 1980s. The positive effects on consumption perperson arising from increased consumer incomes over the years have beencounteracted by rising consumption of alternative sweeteners. Consumptionof alternative sweeteners has been encouraged by sugar policies that main-tain domestic sugar prices substantially above those prevailing in the worldmarket.

Total sugar consumption in the European Union is dominated by membercountries with large populations — Germany, France and the United

35Sugar

12 EU sugar production, consumption and trade aRaw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 16 756 18 029 18 399 16 560 16 973 18 131 18 943 17 594

Consumption b kt 14 049 14 016 13 835 13 869 13 715 13 897 13 936 14 010– per person kg 38.2 37.9 37.2 37.2 36.7 37.0 37.0 37.2


Exports kt 4 974 5 717 6 430 5 449 4 629 5 228 6 361 5 300– raw kt 3 3 3 3 3 3 3 2– white kt 4 971 5 714 6 427 5 446 4 626 5 225 6 358 5 298

a Trade data exclude intra-EU trade. b Calculated as production plus imports, less exports and changein stocks. s Estimated.Source: FO Licht (1999); US Department of Agriculture (1999a); ABARE.

Kingdom. Per person consumption, however, is highest in Denmark andBelgium–Luxembourg, at over 50 kilograms (raw value) a year.

EU trade in sugarExports of sugar from the European Union (excluding intra-EU trade) haveaveraged around 5.5 million tonnes a year raw equivalent during the 1990s— constituting 15 per cent of world exports over the past five years. Althoughsome of these exports are unassisted by subsidies, most is produced underprice support arrangements and is subsidised. Further distorting world marketsand trade are the European Union’s support arrangements that extend to rela-tively large quantities of sugar imported from the former colonies of EUmembers.

EU imports of sugar (excluding intra-EU trade) have averaged almost 2million tonnes a year in the 1990s. Of this amount, around 1.4 million tonnesof raw sugar a year have been imported from African, Caribbean and Pacific(ACP) countries under the Lomé Agreement. The major beneficiaries of theagreement include some former colonies that exported to the United Kingdomat the time of its accession to the European Community in 1973. The mostimportant sugar exporters to the European Union from among this group areMauritius, Fiji, Guyana, Jamaica and Swaziland. The basic Lomé importquota has been stable over the past twenty years, with exporters receivingan EU raw sugar intervention price of around 52 ECU/100 kilograms(US21c/lb) since 1994-95. As the European Union subsidises exports ofdomestic production, raw sugar imported under the Lomé Agreement, oncerefined, adds to the quantity of subsidised white sugar production availablefor export.

The EU policy environmentThe European Union has a highly regulated market system for sugar that isdesigned to provide substantial price support for domestic producers. Aninternal support price, called the intervention price, is kept at levels that aregenerally well above world prices. The intervention price is maintainedprimarily through import restrictions and the subsidisation of exports toprevent excessive stock increases as producers and consumers respond tohigh internal prices by increasing production and reducing consumptionrespectively. Tariffs on imports prevent the intervention price from beingundermined by import competition.


Under the EU sugar regime, the volume of production that receives pricesupport is limited by a quota system. Under this system, a base quantity ofsugar, called the ‘A’ quota, receives the highest price support. A further quan-tity, called the ‘B’ quota receives a lower effective level of price support.Production beyond the combined A and B quotas, called ‘C’ sugar, receivesno price support.

Levies are charged on quota sugar to cover the budget cost of disposal ofsurplus quota sugar. These levies ensure that the EU sugar regime is largelyself-financing. However, additional funding is provided for export subsidiesfor a quantity of sugar equal to the EU’s preferential imports. The annualcost of subsidising exports of a quantity of sugar equivalent to imports fromACP countries is around 600 million ECU (US Department of Agriculture1999a).

In addition to support from the EU sugar regime, beet and cane producersin some member states also receive EU authorised national grants. Italianand Spanish producers are the greatest recipients of national aid although itis also provided to some producers in the United Kingdom and Portugal.

The A quota is by far the largest of the two EU production quotas. It hasbeen set at 11.98 million tonnes white sugar equivalent since 1995-96 forthe group of fifteen countries comprising the European Union. The B quotais much smaller, being set at 2.61 million tonnes (Agra Europe 1998).Production of C sugar, which is exported without support, is not limited. Thebasic elements of the EU sugar quota arrangements are shown in figure C.In the figure, the difference between the world raw sugar price and the

37Sugar

C European Union sugar quota arrangements

‘C’ sugar‘A’ quota ‘B’ quota

Levy on ‘B’ quotaLevy on ‘A’ quota

Price

Intervention price

World raw sugar price

Quantity

intervention price net of A and B quota levies represents the effective levelof price support.

The internal price for quota sugar (both A and B quota sugar) is supportedthrough intervention arrangements designed to provide a floor to the inter-nal price at the administratively set intervention price plus an amount to covera storage levy. The relationship of the intervention price to world prices variesas world prices have fluctuated markedly from year to year, while the inter-vention price has been stable.

However, over time, the intervention price has been approximately twice theworld price. For example, the EU intervention price for raw sugar has been523.7 ECU a tonne since 1995-96. This compares with an average worldsugar price of US10.8c/lb in 1997-98, or approximately 262 ECU a tonne(at an average conversion rate of 1.1 ECU/US$ for 1997-98). With worldraw sugar prices having fallen to around US6c/lb in mid-1999, the discrep-ancy between the intervention price and world prices has grown significantly.

WTO commitmentsWith the implementation of the WTO Agreement on Agriculture, EU sugarimports have been limited by a tariff quota. Under this arrangement, importsof up to 1.3902 million tonnes a year are able to enter with zero or low tariffs.Of this, almost 1.305 million tonnes is through guaranteed access for spec-ified ACP countries covered by the Lomé Convention and India. This sugarreceives the same support price as internally produced EU sugar and entersthe European Union with a zero tariff. In addition, as a result of the 1995enlargement, the European Union took over the WTO import commitmentsof the new members. These include a tariff quota of 85 500 tonnes, mainlyfrom Brazil, with a within quota tariff rate of 98 ECU a tonne. However,access to the European Union beyond these quantities is restricted by highabove quota tariffs. Over the period 1995–2000, the above quota tariff forraw sugar is being reduced from a (very high) base level of 424 ECU a tonneto 339 ECU a tonne.

In addition to the tariff quotas, a special safeguard arrangement was negoti-ated in the WTO Agreement on Agriculture. This measure is only availablefor products where previous nontariff import barriers have been convertedto an ordinary customs duty and the product is noted as being subject to thespecial safeguard provision in the WTO schedules (WTO 1995). Sugar inthe European Union meets these conditions.


Under the special safeguard provisions, additional duties can be charged onimports when import prices fall below specified trigger levels. Under theAgreement on Agriculture, the trigger prices are supposed to be representa-tive import prices in the base period 1986–88. However, the trigger pricesadopted by the European Union for sugar are more consistent with the highprices for imports that were agreed with ACP supplying countries, than withworld market prices in the base period. For example, the trigger price adoptedfor raw cane sugar for refining was 418 ECU a tonne (Agra Europe 1998).This compares with an average cif London price from 1986-87 to 1988-89of 212 ECU a tonne (European Commission 1990).

As a result of the high trigger levels, the operation of the ‘special safeguard’is likely to prevent above tariff quota imports from competing with EU sugarunless world raw sugar prices drop to extremely low levels — possibly aslow as US2c/lb. This price compares with the very low average world rawsugar price of US6.5c/lb for the first seven months of calendar year 1999,and an average of US10.5c/lb from 1990-91 to 1998-99. The special safe-guard therefore effectively makes the WTO negotiated tariff reduction irrel-evant.

The other important outcome for EU sugar from the WTO Agreement onAgriculture was an undertaking to reduce subsidised exports from their1986–90 base level of 1.612 million tonnes a year to 1.274 million tonnesby the year 2000 (Agra Europe 1998). However, these commitments excludesubsidised exports equivalent to approximately 1.3 million tonnes of sugarimported each year from the ACP countries and India. Therefore, at the endof the implementation period, subsidised EU exports of sugar could be upto 1.3 million tonnes greater than the European Union’s formal WTO commit-ment would imply. Leaving aside the issue of the exports that offset importsfrom the ACP countries and India, it is clear that the WTO Agreement onAgriculture will result in little reduction in the volume of subsidised EUsugar exports. The maximum volume of subsidised exports in 2000 has beenestimated to be approximately the same as average actual subsidised exportsfrom 1990 to 1994, excluding the permitted adjustment for imports fromACP countries and India (Roberts et al. 1999).

Each year during the implementation period of the WTO agreement, theEuropean Commission assesses EU supply and demand to determine if thereis potential for subsidised exports to exceed the WTO maximum. If it is foundthat there is likely to be an excess, the amount of quota sugar in excess ofthe maximum is reclassified as C sugar. Provision exists for substantial

39Sugar

amounts of C sugar to be carried over from one season to the next and setagainst the next year’s quota production.

It is apparent that the WTO Agreement on Agriculture has had no impact onimproving access to the EU sugar market, and that by the end of the imple-mentation period subsidised exports from the European Union will have beenreduced only marginally. In effect, virtually nothing has been done to reducethe policy induced production, consumption and trade distortions associatedwith the EU sugar regime.

Implications of policy changeOne test of whether the coming WTO agriculture negotiations contribute tosignificant reductions in policy induced distortions to the world sugar marketwill be whether they result in a substantive cut to the EU intervention pricefor sugar. For the basic elements of the WTO Agreement on Agriculture,this will require an expansion of tariff quota quantities well beyond thevolume of imports from ACP countries and India; a significant reduction inabove quota tariffs; elimination of the special safeguard, or at least a substan-tial reduction, in the tariff penalties that can be applied; and elimination of,or at least a substantial reduction in, the permitted volume of subsidisedexports. Failure to achieve these basic requirements will mean that the EUsugar regime will remain highly distorting and will continue to disadvantageefficient sugar producers and exporters.

When specifying options for liberalising EU sugar policy there are two keyfeatures of the current sugar arrangements that need to be considered. Firstis the highly regulated market system for sugar that is designed to providesubstantial price support for domestic producers. Second is the high volumeof exports that result from the EU price support arrangements, most of whichreceives export subsidies.

In taking into account the above features of EU sugar policies, the policyoptions considered in this study included:

• reducing the white sugar intervention price nearer to the world price, withthe aim of reducing subsidised production and exports;

• reducing EU sugar production and subsidised exports through an assumed1.2 million tonne cut to the amount of quota production receiving pricesupport; and


• a partial (20 per cent) reduction in the white sugar intervention pricecombined with a smaller (700 000 tonne) cut to the amount of quota pro-duction receiving price support, aimed at reducing subsidised exports.

The SUGABARE model was used to estimate the potential effects of the abovepolicy changes. Estimated changes in world sugar prices are illustrated infigure D. The following discussion provides details of the results from eachsimulation.

Reducing the intervention priceIn this policy simulation the white sugar intervention price was assumed tofall from the 63 ECU/100 kilograms (nearly three times the world whitesugar price) existing in 1999, to a figure closer to the baseline estimate ofthe world white sugar price of 36 ECU/100 kilograms in 2005.

For the simulation exercise, it was assumed that the reduction occurs grad-ually, with the white sugar intervention price remaining substantially abovethe world white sugar price in the early years of the simulation period. Forexample, although the white sugar intervention price in the model wasassumed to be reduced to around 54 ECU/100 kilograms by 2002, in thatyear it was still about twice the baseline estimate of the world price of whitesugar.

The gradual reduction in the white sugar intervention price to around thebaseline estimate of the world white sugar price is estimated to result in theworld raw sugar price increasing by close to 20 per cent over the baseline

41Sugar

D Impact of EU sugar policy reform on world raw sugar prices

1991 1993 1995 1997 1999 2001 2003 2005

USc/lb

6

8

10

12

14

Baseline

Combinedreform

Quota cut

Interventionprice cut

level by 2005 (table 13). The price increase is the result of an estimated 36per cent decrease in exports by the European Union.

Net exports would decline because of a combination of increased domesticconsumption and reduced domestic production. EU sugar production wouldfall as beet producer prices fell by an estimated 40 per cent, resulting in lowerreturns from sugar relative to other crops and a reduction in area planted tosugar beet. The model results show that EU sugar consumption increases asthe domestic consumer price of sugar decreases in line with the lower whitesugar intervention price. The consumer gains associated with the lowerdomestic price of sugar are estimated to average US$2190 million a year (in1998-99 dollar values). The overall gain to the EU economy (taking intoaccount losses to producers from lower prices) is estimated to average aboutUS$580 million a year between 2000 and 2005.

Reducing sugar production quotasIn this simulation, it was assumed that the combined A and B productionquota was reduced by around 1.2 million tonnes while the white sugar inter-vention price remained unchanged.


13 Impact of simulated sugar policy changes by the European Union

2005

Inter- Combinedvention Quota price and

1999 Base price cut cut quota cut

World raw sugar price USc/lb 6.7 10.9 13.0 11.3 12.1

European UnionProduction Mt 17.6 18.1 17.2 17.6 17.4Consumption Mt 14.0 14.1 15.3 14.1 14.7Total exports Mt 5.3 5.8 3.7 5.3 4.6Subsidised exports Mt 2.6 2.5 1.3 1.3 1.3Total imports Mt 1.8 1.8 1.8 1.8 1.8A quota Mt 12.0 12.0 12.0 11.0 11.4B quota Mt 2.6 2.6 2.6 2.4 2.5Beet intervention price ECU/tonne 47.7 47.7 27.8 47.7 36.7White sugar

intervention price ECU/100 kg 63.2 63.2 36.3 63.2 48.4A quota producer price ECU/tonne 46.7 46.7 27.3 46.8 36.0B quota producer price ECU/tonne 26.1 25.8 16.1 27.4 21.2White sugar levy ECU/100 kg 45.3 46.0 42.2 42.6 42.4

The reduction in A and B sugar production quotas is estimated to result ina much smaller reduction in EU net exports than with a lower interventionprice (table 13). Consequently the positive effect on the world raw sugarprice in 2005 is considerably less, increasing by only an estimated 4 per centfrom the baseline.

In this instance, total EU sugar production is estimated to decrease by aroundhalf a million tonnes. This decrease is less than in the previous simulation.Despite the reduction in total quota production, the remaining quota produc-tion continues to receive high amounts of support and significantly crosssubsidises nonquota production. This is estimated to combine with themarginal increase in world price to result in an extra 700 000 tonnes of non-quota sugar being produced.

Combining lower intervention prices and smallerproduction quotasThe third policy simulation involved an assumption that the annual combinedA and B production quota was reduced by 700 000 tonnes by 2005, and thatthe white sugar intervention price was reduced by around 20 per cent overthe same period. The intervention price in 2005 would, however, still remainsubstantially above the world price of white sugar.

This combination of policy changes results in an estimated increase in theworld raw sugar price of 11 per cent (table 13). The impacts of the combinedpolicy reform on world price, domestic EU sugar production and consump-tion, and sugar exports lie between the outcomes estimated for the two previ-ous simulations.

A reduction in subsidised EU exports of sugar of around 50 per cent stem-ming from the policy change is the driving force behind the higher estimatedworld raw sugar price. The estimated decline in sugar exports reflects acombination of decreased EU sugar production and increased EU sugarconsumption. However, in this instance the magnitude of these estimatedimpacts are less than when the intervention price is reduced to world levels.

The reduction in EU sugar production in this simulation can be attributed toboth the negative impact that a reduction in the white sugar intervention pricehas on beet producer prices, and hence on returns to growers, and the 700 000tonne decrease in the combined A and B sugar production quota. EU sugar

43Sugar

consumption increases by around 5 per cent in this instance owing to thelower domestic consumer price of sugar.

Potential for increased competition from high fructose syrupAlthough production of high fructose syrup (known as isoglucose in theEuropean Union) is covered in the overall EU sweetener regime, it is notexplicitly represented in the SUGABARE model. As with sugar production,EU production of isoglucose is controlled through an A and B quota system,with annual production currently around 300 000 tonnes a year. In the presentanalysis, it was assumed that EU production of isoglucose would remain atthis level during the model simulation period.

If EU policy on the production of isoglucose changed during the next fewyears, there would undoubtedly be some flow-on effect on sugar. However,in the absence of an isoglucose component in the model, it was not possibleto explore the potential for policy changes in this area to affect the EU sugarmarket. Isoglucose was originally included in the EU sweetener regime inthe 1980s as a result of it capturing an increasing share of the overall sweet-ener market. This suggests that removal of isoglucose production quotas,while retaining A and B production quotas for sugar, would most probablyresult in an increase in isoglucose’s share of EU sweetener production toabove its current level of less than 2 per cent.


45

5

Sugar

Sugar in Japan

Japan has one of the world’s largest and most diverse sugar and sweetenerindustries. The industry is subject to substantial government intervention inthe form of producer price supports, levies, and tariffs on imports. Despitehigh levels of government support, Japanese sugar production (from beetand cane) accounts for only about a third of annual sugar consumption. Thebalance is imported largely in raw form for processing by a large cane sugarrefining industry.

Sugar production in JapanDuring the 1990s, Japan’s sugar production has fluctuated mainly in the rangeof 800 000–1 000 000 tonnes a year (table 14). Production is maintainedonly with the assistance of high levels of Japanese government support.

Beet sugar production, concentrated mainly on the island of Hokkaido,accounts for approximately 80 per cent of total Japanese sugar output. Sugarbeets are grown in rotation with other crops such as potatoes, grains andfodder. The area under sugar beets has remained fairly stable at about 70 000hectares over the past two decades as have yields. Despite some improve-ments in productivity, Japan’s beet sector has remained high cost. The year

■ Japan’s sugar industry is underpinned by complex government policiescomprising producer price supports, surcharges and tariffs that havedistorted both the Japanese sweetener market and the world sugar market.

■ Government support accounts for around 60 per cent of Japanese sugarproducer revenues.

■ Consumers in Japan face one of the highest retail prices for sugar in theworld, thus contributing to declining sugar consumption and imports.

■ Japanese sugar trade liberalisation would benefit domestic consumers byabout US$1 billion a year.

■ Removal of Japan’s composite import charges on sugar would result inworld raw sugar prices rising by an estimated 5 per cent in 2005.

Reform of Japanese policy would increase world sugar prices

to year stability in beet plantings is in large measure a reflection of a longstanding price stabilisation scheme for growers.

Japan’s sugar cane crop is grown exclusively on the smaller southern islands.In recent years, the area planted to sugar cane has fallen gradually. Smallscale farming, high cost labor, and substantial mill operating costs meanJapan is one of the world’s highest cost producers of cane sugar.

In recent years, only about 30 per cent of total raw sugar processed by Japan’s26 refineries has been of domestic origin, with the balance being suppliedby imports. The raw cane sugar refining sector is characterised by signifi-cant underutilisation of capacity as imports of raw sugar have declined follow-ing a contraction in domestic demand for sugar.

Japan’s production of high fructose corn syrup (HFCS), second only to USproduction, provides an alternative caloric sweetener to sugar for the foodand beverage manufacturing industry.

Consumption of sweeteners in JapanJapanese consumption of sugar has been trending down since the late 1970s(figure E). Maintenance of consumer prices that are among the highest inthe world has contributed to this trend. Additional factors in decliningJapanese sugar consumption have been weak economic growth in the 1990s,


14 Sugar production, consumption and trade in JapanRaw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 1 002 906 845 821 900 767 876 932




a Calculated as production plus imports, less exports and change in stocks. s Estimated.Source: FO Licht (1999).

increased use of alternative sweeteners such as HFCS, and dietary changesaway from products containing sugar.

Japanese sugar consumption in 1998-99 is estimated to have been nearly 2.4million tonnes raw value, down from 2.8 million tonnes in the early 1990s(table 14). These figures equate to per person consumption of about 18.9kilograms in 1998-99, compared with 22.5 kilograms in 1991-92. HFCS isthe dominant alternative sweetener, with consumption in 1996-97 estimatedto have been 737 000 tonnes (Mitsui 1999).

Although Japanese wholesale prices of sugar have declined gradually in the1990s, they are still well above world sugar prices. The wholesale price ofHFCS has been about 60 per cent of the sugar price — thus offering a clearincentive for substitution where technically feasible. The retail price forrefined sugar in Tokyo, which was ¥220 a kilogram (US83c/lb) in May 1999,is one of the highest retail prices in the world.

Japan’s trade in sugarJapan is Asia’s largest importer of sugar and the fourth largest importer inthe world behind the European Union, Russia and the United States. Japanesesugar imports are estimated to have been about 1.5 million tonnes in 1998-99, representing a continuation of the downward trend evident throughoutthe 1990s as domestic sugar consumption has contracted. Almost all ofJapan’s imports are raw sugar, with Australia and Thailand accounting foraround 80 per cent of the total.

47Sugar

E Sweetener consumption, Japan

1978-79

1981-82

1984-85

1987-88

1990-91

1993-94

1996-97

Mt

1

2

3 HFCS consumption

Sugar consumption

Not surprisingly, the high internal pricing regime in Japan has contributedto significant distortions in trade. For example, partly as a result of high inputprices for sugar, some food and drink manufacturers have moved offshore,so that finished products containing sugar, attracting lower overall tariffs,now enter Japan rather than the raw sugar ingredient.

Japanese imports of blended products containing sugar have also been increas-ing as importers have responded to avoid the high duties on imported sugar.Blends containing sugar are treated as food ingredients and are not subjectto the sugar price stabilisation laws. Imports of sugar blend products, includ-ing items such as bean paste, cocoa, coffee and milk powder (which cancontain up to 90 per cent sugar), have been growing strongly and are esti-mated to have been around 243 000 tonnes sugar equivalent in 1997(Czarnikow 1999).

Japanese sugar policiesJapanese sugar policies have significantly distorted both the domestic sweet-ener market and the world sugar market. The high sugar support price directlyreduces Japanese sugar consumption and provides an incentive to increasedomestic sugar production above what would have occurred in the absenceof support. The high support price for sugar has also encouraged the devel-opment and expansion of the HFCS industry. As a result, high fructose syrupshave increased their share of total sweetener consumption in Japan sincetheir introduction in 1977 (figure E). At the same time sugar’s share ofJapanese sweetener consumption has decreased.

Administered support prices established under the Sugar Price StabilisationLaw constitute the main element of Japanese sugar policy. High supportprices are reinforced by substantial import protection and heavy regulation.The main objectives of the stabilisation law are to stabilise the domesticsugar price, to protect the domestic sugar market from import competition,and to provide income support for farm households (ABARE 1988).

Japanese sugar growers receive the highest support among the OECD sugarproducing countries — equivalent to around 60 per cent of gross receipts in1998 (OECD 1999). With world prices having fallen significantly in 1999,the support to Japanese producers is likely to have increased since the timeof the OECD analysis. Much of the support is in the form of transfers fromconsumers of sugar who are forced to pay above world market prices.


Japan’s support system for sugar has resulted in the domestic price beingmuch higher than world prices in most years (figure F). The average Japanesedomestic price for white sugar in 1997-98 was ¥146 a kilogram (aroundUS52c/lb), compared with a world white sugar price, fob Europe, of ¥36 akilogram (US13c/lb). The only period in which Japanese domestic priceshave been below world prices was in the early to mid-1970s when worldsugar prices were at record levels.

Under the stabilisation law, import prices are increased to domestic pricelevels through the activities of the Agriculture and Livestock IndustriesCorporation. Each importer is required to sell all imported sugar to the corpo-ration at the average import price current at the time of entry. The corpora-tion simultaneously sells the same sugar back to the importer at a higherprice inclusive of import duties, levies and surcharges. The levies and sur-charges collected are used for producer subsidies to encourage production.

WTO commitmentsUnder the terms of the WTO Agreement on Agriculture, Japan’s key commit-ment on sugar involves a 15 per cent reduction in the combined total of tariffsand levies on imports. For centrifugal raw sugar (polarisation less than 98.5º)the reduction in the combined import charge is from ¥84.5 a kilogram in1995 to a final bound level of ¥71.8 a kilogram in 2000.

Japan reduced the import tariff component of this total from ¥41.5 a kilo-gram to ¥20 a kilogram in 1994 to ¥15 a kilogram in 1997 and to ¥10 a kilo-gram in April 1998. Although these reductions are substantial, the extent to

49Sugar

F Japanese and world sugar prices

1970-71

1973-74

1976-77

1979-80

1982-83

1985-86

1988-89

1991-92

1994-95

1997-98

¥’000/t

50

100

150

World price

Target price

which they have translated into lower domestic prices has been mitigated bychanges to the other surcharges and levies on imported sugar. There is someevidence that, in the face of diminishing world sugar prices since January1998, Japan has increased the surcharges imposed, leaving the high domes-tic prices relatively unchanged.

By directly encouraging increased sugar production and depressing sugarconsumption as well as encouraging the substitution of high fructose syrupfor sugar, Japanese sugar policies have significantly reduced Japanese importdemand for sugar. This has contributed to lower world prices for sugar andlower incomes for sugar producers in exporting countries. As a result, someresources have been forced out of sugar production in low cost sugar export-ing countries. Japanese sugar policies therefore promote a global mis-allocation of resources with its attendant reductions in trade, incomes andemployment worldwide.

Implications of policy changeOne area for policy reform is the import charges on sugar entering theJapanese market. The estimated effects on Japanese and world markets ofan assumed complete removal of these charges (comprising an import duty,a levy, a surcharge and an excise duty) were estimated using the SUGABARE

model, and are reported below.

Simulating the effects of Japanese policy reformsIn the reform simulation undertaken for the Japanese sugar market it wasassumed that the combined import duties on sugar are gradually reducedfrom their current level of around ¥72 a kilogram (US28c/lb) to zero by 2005.Loss of revenues from import duties would reduce funding for producersubsidies. However, with other government support measures assumed tocontinue, Japanese producer prices would remain well above world prices.

The gradual removal of the Japanese import charges on sugar results in worldraw sugar prices rising by an estimated 5 per cent relative to the baseline (nopolicy change) scenario by 2005 (table 15). The price increase is the resultof an estimated 33 per cent increase in Japanese imports of sugar becauseof lower domestic production and higher consumption.

Domestic Japanese producer and consumer prices would fall as the importduty is removed — despite an increase in world sugar prices. Reduced


domestic producer prices would result in Japanese farmers producing an esti-mated 200 000 tonnes less sugar. Given the various producer supports thatremain, the cost to growers would be relatively small — at an estimatedUS$80 million a year through to 2005. At the same time, lower prices tousers (for direct consumption and manufacture) would bring about an esti-mated 300 000 tonne rise in consumption and an estimated US$1 billion ayear gain to Japanese consumers.

In an environment of lower domestic prices for sugar there is likely to besome substitution of sugar for HFCS in a range of end uses — especially inbeverage manufacturing. The degree of substitution will depend on the rela-tive costs of using either sweetener, with some decline in HFCS prices alsolikely as the competition from sugar intensifies. Difficulties in isolating theeffect of lower sugar prices and loss of market share on domestic HFCSproducers and on sugar refiners meant that the overall gains to the Japaneseeconomy could not be estimated.

51Sugar

15 Effects of simulated removal of Japanese restrictions on sugar imports

2005

1999 Base No restrictions Change

%


JapanProduction Mt 0.8 0.9 0.7 –22Consumption Mt 2.5 2.4 2.7 13Total imports Mt 1.6 1.5 2.0 33Beet producer price 16.9 16.4 13.7 –16Consumer price ¥/kg 135.2 140.5 63.5 –55Import duty ¥/kg 72.0 72.0 0.0 –100

Brazil’s evolving sugar industry

52

6


Brazil is one of the world’s leading producers of sugar cane, sugar and fuelalcohol (ethanol), and is a large consumer and exporter of sugar. Sugar repre-sents a particularly important component of Brazil’s economy, with the sugarand fuel alcohol industry contributing 2 per cent to national gross domesticproduct, accounting for 17 per cent of the country’s agricultural product, andemploying over 1 million people nationwide.

Because of past policy initiatives, developments in Brazil’s sugar industryare closely interconnected with what happens in the fuel alcohol industry.About 60 per cent of Brazil’s annual sugar cane output is used to producefuel alcohol; the remaining 40 per cent goes to producing sugar for domes-tic consumption and for export.

The very large sugar cane growing base needed to support both industriesmeans Brazil has the potential to expand sugar exports more rapidly thanany of the major world exporters by diverting more cane into sugar produc-tion. However, this potential is constrained by the country’s need to satisfyits large domestic sugar and fuel alcohol requirements.

■ Brazil is the world’s largest producer and exporter of sugar and has asignificant effect on world sugar prices.

■ Economic liberalisation and deregulation are key factors driving the devel-opment of Brazil’s sugar and fuel alcohol industries at present.

■ Future policy changes affecting the Brazilian sugar and fuel alcohol indus-tries will be important for Brazilian sugar production and for world sugarprices.

■ It is likely that Brazilian sugar exports will continue to grow if govern-ment policies supporting economic liberalisation are pursued.

■ An easing of the government mandated fuel alcohol content in gasoline,which would lead to an estimated 12 per cent reduction in fuel alcoholconsumption in 2005, would result in increased Brazilian sugar produc-tion and exports and an estimated 10 per cent fall in world sugar prices.

Changes to Brazilian policymay depress world sugar prices

The policy environment in which Brazil’s sugar and fuel alcohol industriesoperate will have a major influence on future production trends. Economicliberalisation and deregulation are key factors driving the development ofBrazil’s sugar and alcohol industries, with both factors having the effect offorcing growers and processors to become more efficient.

Sugar production in BrazilAlthough only about 40 per cent of the annual sugar cane harvest is used forsugar production, Brazil is the world’s largest sugar producer. The areadevoted to sugar cane production in Brazil has been growing in response tofavorable returns relative to competing crops; the availability of underusedland that can be planted to cane; and expansion programs by mills to increaseoutput.

Production of both sugar and fuel alcohol expanded rapidly during the secondhalf of the 1990s (figure G). Sugar cane production in Brazil totaled a record339 million tonnes in 1998, up 15 per cent since 1990. The increase reflectsan expansion in the area planted to sugar cane to around 5 million hectaresand some improvement in yields.

Sugar cane is grown in two main regions — the Northeast and Centre–South.The Northeast region is estimated to have accounted for around 13 per centof production in 1998-99, and is characterised by generally low yields andhigh costs because of poor growing conditions. Cane area in the Northeastregion has fallen in recent years. This decline is expected to continue assubsidies to sugar producers in the region are reduced. In contrast to the

53Sugar

Mt

5

10

15

G Sugar and fuel alcohol production, Brazil

1977-78

1980-81

1983-84

1986-87

1989-90

1992-93

1995-96

1998-99

GL

5

10

15

Alcohol production

Sugar production

Northeast, the Centre–South region is characterised by highly productivesoils and an excellent growing environment and is regarded as one of thelowest cost sugar cane growing areas in the world, with considerable poten-tial for expansion.

Raw sugar production in Brazil has increased substantially over the pastdecade, doubling between 1991-92 and 1998-99 (table 16). Brazilian sugarproduction is estimated to have been a record 18.5 million tonnes raw valuein 1998-99.

The fuel alcohol sectorFuel alcohol output in Brazil is estimated to have totaled around 14 billionlitres in 1998-99, down from over 15 billion litres in the previous year. Thedownturn in production stems from large carryover stocks of ethanol thatreduced prices and resulted in more cane being used for sugar production orleft unharvested.

Within the fuel alcohol sector, production and demand for anhydrous alco-hol (for blending with gasoline) is growing (figure H) in response to increas-ing car numbers. Increases in the proportion of alcohol in the blended fuelmix have also contributed to higher demand. In contrast, production ofhydrous alcohol has been declining because of low prices and falling numbersof cars powered solely by hydrous alcohol.


16 Sugar production, consumption and trade in BrazilRaw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 9 250 9 955 9 969 12 606 13 601 14 620 15 975 18 500


Imports kt 115 62 20 24 0 0 0 0– raw kt 74 0 0 0 0 0 0 0– white kt 41 62 20 24 0 0 0 0

Exports kt 1 771 2 837 3 727 4 986 5 800 5 800 7 200 8 550– raw kt 632 799 667 1 104 2 600 1 300 4 500 5 750– white kt 1 138 2 038 3 060 3 882 3 200 4 500 2 700 2 800

a Calculated as production plus imports, less exports and change in stocks. s Estimated.Sources: FO Licht; US Department of Agriculture; Czarnikow; ABARE.

Anhydrous alcohol production and use is expected to continue to expand andrepresent a greater share of Brazil’s total alcohol fuel mix over time. Thisreflects its desirable attributes as an oxygen enriched additive to raise theoctane level of gasoline and to lower emissions of pollutants.

The market share of hydrous alcohol is expected to fall over time. The govern-ment ‘green fleet’ program, aimed at achieving 5 per cent of total car salesfor alcohol cars, and which mandates that replacement vehicles for federal,state and municipal fleets be alcohol powered, may slow the decline.

Sugar consumption in BrazilDomestic sugar consumption has been expanding as a result of risingconsumer incomes, population growth and diets traditionally high in sugar.Consumption growth has been supplemented by an increasing variety ofproducts containing sugar available to the public. At an estimated 9.4 milliontonnes (raw equivalent), domestic consumption was equivalent to about halfof Brazil’s sugar production in 1998-99 and represented a continuation ofthe rapid growth of recent years (table 16).

Sugar demand in Brazil is price inelastic and is driven largely by changes inpopulation and income. With the world’s sixth largest population and a longtradition of high per person sugar consumption (around 56–57 kilogramsraw value in recent years), Brazil is one of the world’s leading sugar consum-ing nations. Per person consumption of sugar grew in the 1990s with in-creased sales of processed foods.

55Sugar

H Fuel alcohol production trends, Brazil

1976-77

1979-80

1982-83

1985-86

1988-89

1991-92

1994-95

1997-98

GL

2

4

6

8

10

Anhydrous alcohol production

Hydrous alcohol production

Industrial uses of sugar — raw material for products containing sugar suchas soft drinks, ice cream and candy — exceed 45 per cent of Brazil’s totaldomestic consumption, with the remainder going to households and institu-tional users (US Department of Agriculture 1998). Industrial use can beexpected to expand at something akin to growth in gross domestic productover the next few years. This contrasts with household use that appears likelyto grow at less than the rate of population growth as consumers substituteprocessed foods for home prepared items.

With Brazil’s domestic sugar prices largely reflecting world market devel-opments, there appears to be little incentive to use alternative caloric sweet-eners such as high fructose corn syrup (HFCS). There is a small growthmarket for diet or ‘light’ products using high intensity sweeteners such asaspartame, but this development is not expected to significantly affect over-all demand for sugar.

Brazil’s sugar tradeExports of sugar from Brazil have risen strongly during the 1990s, from 1.8million tonnes in 1991-92 to an estimated 8.6 million tonnes in 1998-99(table 16). Increased sugar production, the removal in 1998 of a 40 per centtax on exports of sugar beyond a set quota, and the 40 per cent devaluationof the Brazilian currency in January 1999 (which helped offset some of theadverse effects on exporters of low world sugar prices) have all contributedto the growth in shipments.

There are some important regional differences in Brazil’s sourcing of sugarfor export. Although around three-quarters of annual Northeast productionis exported, its share of total national exports is declining relative to that ofthe Centre–South. However, because of the importance of the sugar indus-try to the economically disadvantaged Northeast, the central governmentallocates Brazil’s entire annual premium priced US sugar import quota allo-cation to the Northeast. Conversely, sugar production in the Centre–Southhas traditionally focused on the large sugar requirements for both directconsumption and the manufacture of products containing sugar that is concen-trated in that part of Brazil. However, increasing quantities of sugar are beingexported from this region to non-US markets.

Although refined and ‘crystal’ sugar exports dominate Brazil’s exports, itremains a significant exporter of raw sugar to markets that have refiningcapacity, such as the United States and Canada. Brazil’s refined sugar exports,


second only to the European Union’s in volume, go mainly to destinationsin Africa, with exports to eastern European and Middle Eastern markets upstrongly in recent years. Russia is the single largest export market, taking1.6 million tonnes (close to 20 per cent of total shipments) in calendar 1998(US Department of Agriculture 1999b).

Traditionally, Brazil has not exported large volumes of sugar to South EastAsian markets. However, in 1998 total shipments to South East Asia wereapproximately 850 000 tonnes compared with only 73 000 tonnes in 1997.The largest markets were Indonesia (571 000 tonnes) and Malaysia (78 000tonnes). The big rise in shipments reflects a strong marketing effort byBrazilian exporters coupled with a decline in ocean freight rates associatedwith the substantial downturn in broader economic activity in Asia in 1998.

In looking ahead, flexibility in the government’s administration of the fuelalcohol program could allow sugar production and exports to increasesubstantially in years of high sugar prices — at the expense of fuel alcoholproduction. Policies that involved sustained and substantial reductions ingovernment support for the fuel alcohol program would favor continuedgrowth in sugar exports.

In the short term, with crude oil prices having approximately doubled in thefirst nine months of 1999, it is possible that Brazil’s government may moveto encourage increased use of fuel alcohol in an effort to limit escalatingcosts of oil imports. Such an action could be expected to result in less sugarbeing produced and exported, with a positive effect on world prices.

Sugar and fuel alcohol policy developmentsTraditionally, Brazil’s sugar industry has been characterised by considerablegovernment intervention in the market. This intervention has included produc-tion quotas, production subsidies, price regulation at various points in themarketing chain, export controls, and the management of export terminals.The Northeast region, because of its dependence on sugar and its weak econ-omy, has been given special subsidies and protection.

Sugar policies in Brazil have been substantially influenced by governmentresponses to a perceived need to reduce oil imports following major oil pricerises in the early and late 1970s. Policies promoting the use of sugar cane toproduce fuel alcohol for domestic consumption were introduced at that time,and have had significant effects on production of both sugar cane and sugar.

57Sugar

In response to a rapidly escalating oil import bill during the 1970s, Brazil’sgovernment undertook the National Alcohol Program, known as Proálcool.Its initial aim was to cut the energy import bill by adding anhydrous alco-hol to gasoline. A second phase promoted the use of hydrous alcohol as agasoline substitute, with the first cars running exclusively on hydrous alco-hol being introduced in 1979.

The introduction and uptake of alcohol fueled cars was assisted by tax incen-tives which made their purchase attractive and by the subsidisation of fuelprices. Alcohol fueled cars accounted for more than 90 per cent of total salesbetween 1983 and 1988 (figure I), with the total alcohol powered fleet reach-ing a peak in 1994 of 4.6 million vehicles (Copersucar 1997). As oil pricesdeclined in the late 1980s, the Brazilian government began to reduce subsi-dies, thus discouraging alcohol production. By the late 1990s, sales of alco-hol fueled cars had fallen to less than 1 per cent of total annual car sales.

In contrast to the earlier history of substantial government intervention andregulation, Brazil’s sugar and alcohol sector currently operates in a muchfreer market environment. Production quotas have been lifted, consumerprices freed and export controls eliminated. A parallel privatisation of manypublic services, such as transport, utilities and port facilities, is also contribut-ing to reduced costs for Brazil’s sugar and alcohol producers.

In 1990 the sugar export market was opened to private enterprise and sugarprice controls were terminated. A domestic sugar futures contract was estab-lished in 1995, and the value added tax on exports of raw material agricul-tural products, which favored exports of white sugar over raw sugar, was


I Proportion of alcohol fueled cars in total car sales, Brazil

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997%

20

40

60

80

removed. Government decreed producer prices for sugar cane were elimi-nated in February 1999. The various changes mean that there has beensubstantial economic pressure on the less efficient and highly indebted sugarmills to restructure and consolidate.

Freeing the alcohol market has been slower than for sugar and is not yetcomplete. The monopoly on petroleum exploration and refining in Brazilthat had been held by the government controlled Petrobrás was removed in1997. Petrobrás had previously facilitated the subsidisation of alcohol pricesthrough the maintenance of artificially high prices for gasoline. Prices foranhydrous alcohol were freed in May 1997, but the freeing of hydrous alco-hol prices did not occur until February 1999.

There remains some government subsidisation of the fuel alcohol produc-ing sector. In 1999 the national government has attempted to bolster lowalcohol prices by purchasing stocks through periodic auctions. In addition,Northeast producers receive a subsidy of an extra R$5 a tonne of sugar canedelivered for crushing up to a regional limit of 48 million tonnes; and thereis a R$0.045 a litre subsidy to distilleries producing hydrous alcohol in boththe Northeast and Centre–South — this was previously R$0.127 a litre (USDepartment of Agriculture 1999b).

In the future, there is little doubt that if Brazil’s government significantlyreduced its support for the fuel alcohol program, there would be a downsiz-ing of that industry. If this occurred in an atmosphere of relatively favorableworld sugar prices, sugar production could increase at the expense of fuelalcohol, especially of hydrous alcohol. In this context, it is worth noting thatthe greater dependence of Brazil’s vehicle fleet on anhydrous alcohol (ratherthan hydrous alcohol) would result in more market flexibility for the Braziliansugar industry. For example, the industry could quickly respond to a runupin world sugar prices by reducing the gasohol blend from 24 per cent to aslow as 10 per cent (the limit for octane boosting), thereby making more sugarcane available for sugar production and hence for export.

Implications of policy changeIn considering the potential longer term effects of policy changes in Brazil,it appears likely that sugar exports will continue to grow. Government poli-cies supporting economic liberalisation are likely to stimulate greater sugarproduction and result in increased sugar export availability. Brazilian sugarcan be expected to remain competitive in the world market because of

59Sugar

increased internal efficiencies as Brazil deregulates its industry, modernisesits ports, and reduces its mill to port transport costs. The principal determi-nant of growth in sugar production and exports, however, is likely to begovernment policies affecting the production and use of fuel alcohol. Thesepolicies may be affected by trends in international prices of crude oil, as wellas by Brazil’s approach to environment issues such as air quality.

Continuation of reform of Brazil’s Proálcool programThe increasing market orientation of the domestic alcohol industry in Brazilmeans that supply and demand forces will have an increasing influence inthe determination of alcohol prices in the future. The trend of recent years,in which the Brazilian fuel market has moved increasingly from hydrousalcohol for pure alcohol vehicles to anhydrous alcohol for blending withpetrol, is expected to continue over the longer term. However, there is somerisk of a temporary setback to this trend because of sharply higher crude oilprices in 1999. In an effort to reduce the cost of oil imports, Brazil’s govern-ment could move to encourage greater use of fuel alcohol while oil pricesare high.


17 Effects on sugar of Brazil reducing alcohol content in gasoline a

2005

Base Less alcohol1999 estimate in gasoline

World raw sugar price USc/lb 6.7 10.9 9.8

BrazilProduction Mt 18.5 21.1 21.4Consumption Mt 9.4 11.2 11.3Sugar cane production Mt 322 327 288Proportion of cane

used for sugar % 42 43 50Total exports Mt 8.6 9.4 9.6Ethanol consumption GL 14.4 13.7 12.1Hydrous car fleet’s share

of total vehicle fleet % 23 13 13

Exports byAustralia Mt 3.9 5.0 4.9Thailand Mt 3.3 3.6 3.4European Union Mt 5.2 5.7 5.7

a Consumption of fuel alcohol assumed to be 1.6 billion litres lower as a result of an easing of thegasoline blending requirement.

With government having deregulated fuel alcohol prices, the blending ratioof anhydrous alcohol with gasoline will be increasingly important in deter-mining overall demand for fuel alcohol in Brazil. The fuel blending ratio iscurrently regulated by the Brazilian government and, as a short term measureto stimulate alcohol demand, was set at 24 per cent in 1999.

If the mandatory blending of anhydrous alcohol and gasoline ceased in thefuture, the balance between sugar production and fuel alcohol productionwould be likely to increasingly reflect the relative costs and returns fromproducing either. A near term option for further policy reform in the Braziliansugar and alcohol industries would be to ease the current regulations on fuelblending. This option and its estimated impacts are discussed below.

Simulating the effects of reducing alcohol in gasolineIn the policy simulation undertaken for the Brazilian sugar and alcohol indus-try it was assumed that the blending ratio of anhydrous alcohol in fuel isreduced, resulting in consumption of fuel alcohol being 1.6 billion litreslower than the baseline (no policy change) estimate in 2005. It was assumedthat ethanol production would be reduced by the same amount, and that thecane that was previously used to produce this ethanol would be switched tosugar production. Results from using the SUGABARE model to simulate theassumed policy change are detailed in table 17.

Increased sugar production in Brazil because of the assumed reduction in theproportion of anhydrous alcohol in gasoline would have the effect of lower-ing world sugar prices relative to what they would be with no policy change.

61Sugar

J Sugar production, BrazilRaw value

1999 2000 2001 2002 2003 2004 2005Mt

5

10

15

20

Less alcohol in gasoline simulationBaseline simulation

In the baseline (no policy change) simulation, Brazilian sugar production isestimated to increase to a little over 21 million tonnes by the final year ofthe period examined (figure J). With consumer incomes rising, a significantproportion of the increased production could be expected to go into domes-tic sugar consumption. Brazilian exports of sugar are estimated to rise byabout 0.8 million tonnes (9 per cent) over the period.

Where the proportion of alcohol in gasoline is assumed to be reduced,Brazilian sugar production is estimated to be 21.4 million tonnes in 2005(figure J). Decreased ethanol demand and lower fuel alcohol prices result insugar being relatively more profitable to produce than previously, with theeffect that the proportion of sugar cane used in sugar production rises.

With no changes to policies on the proportion of fuel alcohol in gasoline,world prices of raw sugar are estimated to increase to nearly US11c/lb by2005 (figure K). However, with an assumed reduction in fuel alcohol blend-ing requirements, more Brazilian sugar will be exported and there will be aslower rate of increase in world raw sugar prices. World sugar prices are esti-mated to be 10 per cent lower than otherwise in 2005 as a result of the weakerdemand for fuel alcohol in Brazil.

The policy reforms in Brazil would also have a significant effect on the restof the world. Lower world raw sugar prices could be expected to result inreduced sugar production and exports by the major producing countries. Forexample, Thai and Australian sugar exports are estimated to be around 6 percent and 2 per cent lower respectively than in the baseline case by 2005(table 17).


K Impact of Brazilian policy changes on world raw sugar prices

1991 1993 1995 1997 1999 2001 2003 2005

USc/lb

6

9

12

Brazilian reform

Baseline

Global implications of freer trade insugar

63

7

Sugar

The results presented in the preceding chapters provide clear evidence of thesubstantial economic gains (domestic and global) to be had from unilateralaction to reform sugar industry policies. Reduced government interventionin the sugar industries of the major producing and/or consuming countriesof the United States, the European Union and Japan would be of particularvalue.

Multilateral actions to reform global sugar policies, which can be undertakenin the context of the new WTO round of negotiations on agriculture, havethe potential to greatly magnify the benefits from freer trade in sugar. In thischapter, several of the individual country policy options previously exam-ined are considered in combination. The results provide a global perspectiveon what might be achieved from taking a broad approach to sugar trade liber-alisation and domestic sugar policy reform.

Large variations in sugar industry supportWhen comparing the sugar industries of individual countries, it is clear thatthere are wide variations in the margins between domestic producer andconsumer prices and prevailing world prices. Such differences are indicative

■ Multilateral action to reduce government intervention in world sugarmarkets has considerable potential to magnify the benefits that can beexpected to flow from unilateral approaches to reducing policy interven-tions.

■ World raw sugar prices would be an estimated 41 per cent higher in 2005if market intervention were reduced in key countries. Increased US sugarimports and reduced EU sugar exports would be the main contributingfactors.

■ A reduction in sugar market distortions arising from government policieswould result in production gravitating toward lower cost, efficient produc-ers and, at the same time, result in lower prices to consumers in majormarkets.

Freer global trade in sugar would benefit producers and consumers

of significant variations in the magnitude of policy based assistance fromcountry to country.

Because of the different types of industry support and protection in place inthe various sugar producing, consuming and trading countries, there is noeasy way to compare levels of assistance. However, in the case of a numberof the OECD countries (the United States, Japan, Mexico and Australia)comparable measures of producer assistance and consumer support are avail-able.

The measurement of assistance to agriculture using the ‘producer and con-sumer support estimate’ (formerly termed ‘producer and consumer subsidyequivalent’) was developed by the OECD in 1982 to determine the level andcomposition of support to agriculture within OECD nations. The producersupport estimate is an indicator of the ‘annual monetary value of gross trans-fers from consumers and taxpayers to agricultural producers, measured atthe farm gate, arising from policy measures which support agriculture’(OECD 1999). The consumer support estimate is similar and measures themonetary value of gross transfers to (or from) consumers as a result of policymeasures.

In figure L the producer support estimates for the sugar industry in 1998,expressed as a ratio of the estimate to the value of gross sugar receipts atworld market prices without budgetary support, are provided for severalOECD countries. Consumer support estimates, expressed as a ratio of theestimate to the value of sugar consumption expenditure valued at world


L OECD sugar producer support estimates – 1998

United StatesMexicoJapanEuropean UnionAustralia%

10

20

30

40

50

60

market prices without budgetary support to consumers, are presented infigure M.

It is clear from figures L and M that sugar producers in the European Union,Japan, the United States and Mexico receive substantial assistance by wayof government policies. The OECD estimates also show that much of thisassistance is funded by consumers who are forced to pay prices that are wellin excess of world market prices for sugar. With world prices having fallensignificantly since the time of the OECD analysis, the support to producersand transfers from consumers are likely to have increased.

Japanese sugar producers received the highest amount of support among theOECD countries, at around 60 per cent of gross receipts in 1998. Producersupport in Mexico, the United States and the European Union was also highat around 35 per cent, 40 per cent and 40 per cent respectively. In contrast,producer support in Australia was small, reflecting the significant reductionsin policy intervention (including the abolition of import tariffs) that haveoccurred in Australia in recent years.

The results shown in figure M confirm that transfers from consumers in theEuropean Union, Japan, Mexico and the United States provide much of thesupport to their respective sugar industries. The transfers evident from theconsumer support estimates are a reflection of the policies in these countriesthat increase their domestic sugar prices above the world sugar price. At theother extreme is Australia, where the OECD found that there were no trans-fers from consumers to producers — reflecting the fact that Australianconsumers have access to sugar at world market prices.

65Sugar

M OECD sugar consumer support estimates – 1998

–80

–60

–40

–20

%

United StatesMexicoJapanEuropean UnionAustralia

Simulating the effects of less intervention in globalsugar tradeThe potential effects on the world sugar market of reduced government inter-vention were analysed using the SUGABARE model. Two global policy scenar-ios were examined. Both policy options considered are consistent with thoseexamined earlier for individual countries.

In the first simulation of global trade liberalisation, the following assump-tions were made:

• the white sugar intervention price in the European Union is reduced grad-ually so that it is close to world market levels by 2005;

• all existing US sugar support policies, including barriers to trade in sugarbetween the United States and rest of the world, are removed, with theresult that US sugar producers and consumers are exposed directly toworld prices (plus trade margins); and

• import tariffs in Japan, China, Mexico, South Korea and Canada arereduced to zero by 2005.

In the second simulation, the above assumptions were maintained and afurther assumption on continued policy reforms in the Brazilian fuel alco-hol market was added. The blending ratio of anhydrous alcohol in Braziliangasoline was assumed to be reduced to bring about a drop in consumptionof fuel alcohol of 1.6 billion litres relative to the baseline (no policy changeestimate) by 2005. It was assumed that ethanol production would be reducedby this amount and that the cane that was previously used in its productionwould be switched to sugar.

Effects of global trade liberalisationThe effects on world sugar prices of the two policy options considered areillustrated in figure N. The assumed simultaneous reductions in governmentintervention in the sugar markets of the United States, the European Union,Japan, China, Mexico, South Korea and Canada result in an estimated 41per cent rise in world sugar prices.

When these changes are coupled with a reduction in the proportion of fuelalcohol in gasoline in Brazil, world sugar prices are estimated to be 28 percent higher than the baseline estimate in 2005. The difference between the


two simulated outcomes reflects the effect of an estimated increase in sugarproduction and exports from Brazil in the second scenario.

The large estimated changes in US and EU sugar trade are the main factorscontributing to higher world prices. Under the first policy option, there is anestimated 44 per cent increase in US sugar imports and a 34 per cent fall inEU sugar exports as a result of more liberal trade and domestic industry poli-cies (table 18).

Both US and EU production of sugar would be lower because the pricesreceived by their producers would fall from previous high (governmentsupported) levels. At the same time, consumption of sugar in both wouldrise because prices faced by consumers would now be lower than before.

The world’s major low cost sugar producing countries would increasevolumes shipped in response to the large rise in world raw sugar prices.Exports from Brazil are estimated to rise by 23 per cent, from Australia by16 per cent, and from Thailand by 22 per cent. Production in these countrieswould rise as growers responded to the improved returns from sugar relativeto alternative crops. Domestic consumption of sugar is likely to be slightlylower because of the higher prices.

In the case where there is a policy induced reduction in alcohol consump-tion and production in Brazil, there would be an increase in the proportionof cane crushed for sugar as opposed to alcohol. Brazilian sugar productionis estimated to be 8 per cent higher than in the previous case in 2005, and20 per cent greater than in the baseline (no policy change) outcome. Brazil’s

67Sugar

N Impact of global liberalisation in the world sugar marketon world raw sugar prices

1991 1993 1995 19991997 20032001 2005

USc/lb

10

5

15

Baseline

Global liberalisationplus Brazilian reform

Global liberalisation

exports of sugar are estimated to be 16 per cent and 43 per cent higher respec-tively when the blending requirement for gasoline is eased.

Sugar production and exports in other major producing countries would belower as a result of the increased Brazilian presence in the global market.For example, Australian exports are estimated to be down about 5 per cent


18 Effects of less intervention in the global sugar industry

2005

Reduced Less alcohol in1999 Base intervention a Brazil’s gasoline b

World raw sugar price USc/lb 6.7 10.9 15.4 13.9

Major marketsUnited StatesProduction Mt 7.1 7.7 6.7 6.2Consumption Mt 9.2 9.7 9.9 9.9Total imports Mt 2.2 2.5 3.6 4.2

European UnionProduction Mt 17.6 18.1 17.5 17.4Consumption Mt 14.0 14.1 15.5 15.5Total imports Mt 5.3 5.8 3.8 3.7

JapanProduction Mt 0.8 0.9 0.7 0.7Consumption Mt 2.5 2.4 2.7 2.7Total imports Mt 1.6 1.5 2.0 2.0

Major exportersBrazilProduction Mt 18.5 21.1 23.4 25.3Consumption Mt 9.4 11.2 11.2 11.2Total exports Mt 8.6 9.4 11.6 13.4

AustraliaProduction Mt 4.9 6.1 7.1 6.8Consumption Mt 1.0 1.1 1.0 1.0Total exports Mt 3.9 5.0 5.8 5.5

ThailandProduction Mt 5.4 5.9 6.9 6.5Consumption Mt 1.9 2.2 2.2 2.2Total exports Mt 3.3 3.6 4.4 4.1

a Assumes reduced policy interventions in the sugar markets of the United States, European Union,Japan, China, Mexico, South Korea and Canada. b Assumes the same policy changes as for ‘a’, plus apolicy induced reduction in Brazil’s consumption of fuel alcohol.

relative to what they would be in the absence of the assumed policy changesin Brazil, but still 10 per cent higher than in the baseline case in 2005.Similarly, Thai exports are estimated to be 7 per cent lower than would bethe case with no Brazilian policy changes, but remain 14 per cent higher thanin the baseline scenario.

69Sugar

Regional agreements and world sugar

As demonstrated in the previous chapter, there can be substantial benefitsfrom reducing industry support and trade restrictions on a multilateral basis.However, agreements between regional groups of countries to coordinatetrade and domestic policies — often involving the removal of border measuresrestricting trade between members— can sometimes have significant adverseimplications for nonmembers.

An example of a regional arrangement that has had adverse economic effectsis the European Union and its Common Agricultural Policy. EU policieshave resulted in high internal prices to producers and consumers of mostagricultural products. At the same time they have contributed to lower worldprices as EU exports have been subsidised in order to manage or reduce theinternal commodity surpluses generated by inappropriate pricing.

In the context of the new round of World Trade Organisation (WTO) nego-tiations it is worth examining two other regional arrangements with actualor likely potential significance to the world market. These are the NorthAmerican Free Trade Agreement (NAFTA) and the Asia Pacific EconomicCooperation (APEC) grouping of economies. Each is discussed below in thecontext of the global sugar market.

NAFTA and sugarAs a regional trading bloc under the North American Free Trade Agreement(NAFTA), North America represents one of the world’s largest trading groups.Moreover, North America represents one of the world’s most diverse sweet-ener markets. There is a large internal production capacity for sugar, highfructose sweeteners and high intensity noncaloric sweeteners, together witha large and growing demand for sweeteners. Any change in sugar policywithin NAFTA is likely to have significant ramifications for the world sugarmarket.

Under NAFTA, trade barriers between Canada, the United States and Mexicoare being phased out over a specified period. Sugar trade among the coun-tries of North America is currently relatively small, but this is expected tochange. Of particular importance for world sugar are the bilateral provisions

70

8


on sugar trade between the United States and Mexico, which came into effectin 1994.

Under the NAFTA arrangements between Mexico and the United States,Mexico is defined as a surplus sugar producer if its sugar production is greaterthan the combined total of sugar and HFCS consumption. If this is the case,Mexico’s duty free access to the US sugar market is 25 000 tonnes a year.This access will rise to an annual 250 000 tonnes from the start of US fiscalyear 2000-01 (October–September). If Mexico is defined as a deficit producerits access is held at 7258 tonnes. From the beginning of US fiscal year 2008-09 all restrictions on sugar trade between the two countries will be removed.

Simulating the effects of NAFTA on sugarThe SUGABARE model was used to estimate the effects of NAFTA on NorthAmerican and world sugar production, trade and prices. For the purposes ofthe analysis, it was assumed that during the period to 2005 Mexico willremain a surplus producer as increases in sugar production outpace increasedsugar and HFCS consumption.

71Sugar

■ With NAFTA being one of the world’s largest and most diverse sweet-ener markets, changes to sugar policies within the group are likely to havesignificant ramifications for the world sugar market.

■ Alternative approaches to the way NAFTA mandated increases in Mexicansugar exports to the United States are managed are likely to have varyingimpacts on the world market.

■ A 225 000 tonne increase in Mexico’s annual share of the US market atthe expense of other tariff rate quota suppliers is estimated to reduce theworld sugar price by 2 per cent in 2005 — with foreign exporters esti-mated to lose an average of almost $250 million a year in earnings.

■ Increased Mexican access to the US sugar market could be accommo-dated without cuts to existing tariff rate quotas by making a slight down-ward adjustment to administered US prices to reduce domestic sugarproduction.

• The effect on world prices would be minimal, but tariff rate quotasuppliers to the United States would lose an estimated $24 millionbecause of slightly lower prices in the US market.

NAFTA likely to be importantto the world sugar market

Two possible US policy responses were simulated, and are reported below.The actual US approach to accommodating increased imports from Mexicois yet to be determined. Therefore, in the baseline (no policy change) scenario,duty free imports of Mexican sugar are assumed to be held at their currentlevel of 25 000 tonnes a year. In analysing the two policy options, Mexico’sduty free sugar exports to the United States were set at 250 000 tonnes a yearfrom 2000-01 onwards. As the results demonstrate, the way in which theUnited States chooses to manage the increased imports of Mexican sugar islikely to have significantly different effects on the world market.

Increased imports of Mexican sugar with a smaller tariff rate quotaIn this simulation, it was assumed that in order to accommodate the rise inMexico’s shipments from 25 000 tonnes to 250 000 tonnes, the US admin-istration would reduce the overall tariff rate quota by 225 000 tonnes in orderto maintain internal sugar prices. This action would effectively reduce thetotal tariff rate quota for imports from other sources to around 1.1 milliontonnes a year. Countries supplying quota sugar to the United States wereassumed to maintain the same percentage share of the remaining total tariffrate quota as previously. As there is no change to the overall sugar balancein the US market, US producer and consumer prices for sugar are unchangedfrom the baseline estimates.


19 Effect of increased US imports from Mexico under NAFTA

2005

Reduced TRQ1999 Base TRQ a maintained b

World raw sugar price USc/lb 6.7 10.9 10.7 11.0

United StatesProduction Mt 7.1 7.7 7.7 7.5Consumption Mt 9.2 9.7 9.7 9.8Consumer price USc/lb 23.2 23.2 23.2 22.2Producer price USc/lb 23.2 23.2 23.2 22.2Imports from Mexico Mt 0.03 0.03 0.25 0.25Imports from rest of world Mt 2.20 2.25 2.03 2.25

a Tariff rate quota reduced by 225 000 tonnes to accommodate increased imports from Mexicowithout change to overall imports. b Tariff rate quota maintained at current levels, with a net 225 000tonne increase in total imports because of higher shipments from Mexico.

World raw sugar prices in 2005 are estimated to be 2 per cent lower than inthe base (no policy change) level (table 19). The price decrease is caused bythe 225 000 tonne decline in US sugar imports from the rest of the world asthe NAFTA mandated increase in imports from Mexico occur at otherexporters’ expense. Total shipments of sugar from Mexico are likely to in-crease as growers respond to the slightly better average prices flowing froma greater proportion of their exports being sold on the premium priced USmarket. Mexican shipments to non-US markets are therefore maintained atprevious levels. US producer and consumer prices, and hence US sugarproduction and consumption, remain unchanged.

With domestic prices remaining unchanged from the base level, consumerand producer welfare in the United States is not affected. However, foreignexporters are estimated to lose US$247 million through a combination oflower world prices, lower exports and forgone quota rent on sugar exportedto the United States. The majority of the loss (US$193 million) reflects thelower world prices received by exporters on the world market. A further loss(US$54 million) results from the reduction in the size of the quota entitle-ment for non-NAFTA countries exporting sugar to the United States.

In addition to this option imposing substantial costs on foreign producersand exporters, it may also be inconsistent with US obligations on sugar underthe WTO. As noted previously, US imports of raw and refined sugar in 1998-99 are estimated to have been close to the United States’ WTO commitmenton market access of at least 1.139 million tonnes of tariff rate quota sugar ayear. Any move to reduce tariff rate quota imports below this figure wouldprobably be challenged by existing quota suppliers using the WTO disputesmechanism.

Increased imports of Mexican sugar with the tariff ratequota unchangedIn this simulation, the United States was assumed to increase its sugar importsfrom Mexico under the NAFTA agreement to 250 000 tonnes a year, withthe tariff rate quota for imports sourced from all other countries kept at 1998-99 levels. To reduce the possibility of an unintended rise in sugar stocks flow-ing from the net increase in total imports, the US administration would (inthe absence of other policy changes) need to cut producer prices.

In moving to administratively reduce domestic prices, it was assumed thatthe US government would attempt to ‘fine tune’ the adjustment. It may choose

73Sugar

to do this by reducing producer prices by the amount needed to achieve acut in domestic sugar production equivalent to the 225 000 tonne rise inimports from Mexico. The objective would be to minimise the price effecton US producers of the larger amount of imported sugar expected to be avail-able in the domestic market. To achieve such an outcome, it was estimatedthat US domestic prices would need to fall by about US1c/lb relative to thebaseline.

Less Mexican sugar on the world market would have a slight positive effecton global prices. World raw sugar prices are estimated to be around 1 percent higher in 2005 relative to the baseline (no policy change) result (table19). With US producer and consumer prices having been reduced adminis-tratively by US1c/lb, domestic production is estimated to fall by around200 000 tonnes as farmers adjust areas planted to sugar beet and cane becauseof the now lower returns from sugar relative to other crops. The lower domes-tic prices are also expected to benefit sugar consumption, which is estimatedto be 100 000 tonnes higher than in the baseline in 2005.

The US1c/lb reduction in US domestic prices would benefit the US econ-omy by an estimated average of US$40 million a year. Gains to US con-sumers would significantly exceed the losses to US producers. Foreignexporters are estimated to lose about US$24 million a year on average inquota rents during the period 2002–05. The loss stems from the lower pricesreceived for exports to the United States.

Sugar and the APEC groupThe Asia Pacific Economic Cooperation (APEC) group was established in1989 in recognition of the growing interdependence in trade in the AsiaPacific region. The original membership of 12 economies has grown to 21,including Australia, Brunei, Canada, Chile, China, Hong Kong China,Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, PapuaNew Guinea, Peru, the Philippines, Russia, Singapore, Chinese Taipei,Thailand, the United States and Vietnam. APEC economies account foraround 45 per cent of global merchandise trade.

At the 1994 Bogor Summit in Indonesia, APEC leaders made a commitmentto pursue free and open trade and investment within the APEC region by2020 for developing economies and by 2010 for industrialised economies(APEC 1994). Achievement of this goal would have important implicationsfor the sugar industries of APEC members.


Under the Osaka Action Agenda agreed in 1995, the APEC economies under-took to implement the Bogor goals. The Action Agenda commits APECmembers to progressively reduce both tariff and nontariff barriers. There isalso a commitment to reduce and eventually abolish export subsidies.However, reductions in domestic support arrangements were not addressedin the Osaka Action Agenda. If all impediments to achieving free and opentrade are to be addressed, it will also be necessary to reduce domestic supportarrangements.

Sugar an element in the APEC commitment on tradeSugar consumption has been growing in most parts of the Asia Pacific region,reflecting rising populations and consumer incomes. The growth in consump-tion has been met by a combination of increasing domestic production andimports. The sugar industries of APEC members are subject to a range ofpolicy interventions that reduce overall economic welfare both within membereconomies and within the region as a whole. Brief details of the sugar sectorsof most of the APEC economies (excluding the United States and Japan,which are covered separately in chapters 3 and 5 respectively) are providedin appendix B.

One of the challenges for APEC members on the eve of a new round of WTOnegotiations on agriculture will be to ensure that the Bogor commitments to

75Sugar

■ APEC leaders have committed to a goal of free and open trade and invest-ment within the APEC region by 2010 for industrialised economymembers and by 2020 for developing economy members.

■ Since the APEC economies include several of the world’s largest sugarexporters and importers, inclusion of sugar in the free trade commitmentis likely to have broad benefits.

■ Substantial early liberalisation of sugar trade in key APEC economieswould result in world sugar prices being an estimated 25 per cent higherin 2005 than in the absence of such policy changes. The increase wouldcome primarily from increased US and Japanese imports of sugar.

■ These higher world sugar prices are estimated to stimulate sugar produc-tion in most major sugar producing and exporting countries, with substan-tial economic gains to low cost sugar exporters.

APEC sugar trade liberalisationwould have global benefits

free trade include steps to liberalise sugar markets. The commitment of APECmembers to free trade, and their efforts to reduce policy based distortions tothe operation of sugar markets within their own economies and within theregion, could provide an important impetus to the achievement of more liberaltrade and industry policies in a global context.

Analysing APEC sugar trade liberalisationGiven the commitment of APEC leaders to progressive reductions in bothtariff and nontariff barriers to trade, the complete removal of import dutiesfor APEC members remains an option for early reform. Some insight to thepotential effects of such a move can be obtained from analysing the effectsof removing import duties in the key APEC economies of China, Canada,Mexico, South Korea and Japan, and the full liberalisation of the US sugarmarket.

To gain an understanding of the potential effects of an early move by APECmembers to freer trade in sugar, a time horizon to 2005 was used in the analy-sis. It was assumed that import tariffs in Japan, China, Mexico, South Koreaand Canada are reduced from current levels to zero, and that all existing USsugar support policies, including barriers to trade in sugar between the UnitedStates and rest of the world, are removed. As a consequence, producers wouldreceive, and consumers pay, the world price for sugar (plus trade margins)in these APEC countries. All other APEC members were assumed to main-tain their current sugar trade policies.

Estimated effects of freer APEC sugar tradeUnder the assumed change to APEC sugar policies, world sugar prices areestimated to be around 26 per cent higher in 2005 than in the base case(figure O). This would be caused primarily by a large increase in sugar importdemand from the United States and Japan. The downturn in prices evidentfor the final year of the simulation period reflects the effects of a supplyresponse to higher prices and the subsequent availability of more sugar inthe world market.

Lower domestic consumer and producer sugar prices in the United Statesand Japan are estimated to result in less sugar produced domestically,increased consumption and hence greater amounts of sugar imported (table20). In 2005, US imports of sugar are estimated to be 1.4 million tonneshigher than for the no policy change situation, and Japanese imports of sugar


77Sugar

20 Estimated effects of reduced trade barriers in APEC

2005

Freer1999 Base APEC trade Change

%


APEC exportersAustraliaProduction Mt 4.9 6.1 6.9 13Consumption Mt 1.0 1.1 1.0 –9Total exports Mt 3.9 5.0 5.5 10

ThailandProduction Mt 5.4 5.9 6.7 14Consumption Mt 1.9 2.2 2.2 0Total exports Mt 3.3 3.6 4.2 17

APEC importersUnited StatesProduction Mt 7.1 7.7 6.4 –17Consumption Mt 9.2 9.7 9.9 2Total imports Mt 2.2 2.5 3.9 56

JapanProduction Mt 0.8 0.9 0.7 –22Consumption Mt 2.5 2.4 2.7 13Total imports Mt 1.6 1.5 2.0 33

Non-APEC countriesEuropean UnionProduction Mt 17.6 18.1 18.4 2Consumption Mt 14.0 14.1 14.1 0Total exports Mt 5.3 5.8 6.1 5

BrazilProduction Mt 18.5 21.1 23.0 9Consumption Mt 9.4 11.2 11.2 0Total exports Mt 8.6 9.4 11.2 19

about half a million tonnes higher. In both cases, the policy changes couldbe expected to affect demand for alternative sweeteners relative to sugar,with some switching by manufacturers toward the greater use of sugar.

A higher world price of sugar as a result of APEC trade liberalisation wouldstimulate sugar production in the low cost sugar producing and exporting

countries. Sugar production would be significantly higher than if currentpolicies were to continue — by an estimated 13 per cent in Australia, 9 percent in Brazil and 14 per cent in Thailand. Exports from these three coun-tries would also be substantially higher, rising by an estimated 10 per cent,19 per cent and 17 per cent respectively.


O Impact of freer APEC sugar trade on world raw sugar prices

1991 1993 1995 19991997 20032001 2005

USc/lb

10

5

15

Baseline

APEC liberalisation

Summary and conclusions

The new round of WTO multilateral negotiations on agriculture commenc-ing in late 1999 provides an ideal opportunity for the many policy relateddistortions in the global sugar market to be addressed. The extent and formof sugar market interventions by governments vary widely. They range fromsituations where producers are shielded from the world market by high importduties and quotas while being paid well above world prices, to others whereproducers and consumers are exposed directly to the global market.

This study examined how prospects for expansion in the world’s sugar indus-try are affected by government policies. The results highlight the extent ofcurrent policy induced distortions to domestic and international sugar markets.They also draw attention to the potential for appropriate policy reforms toimprove economic welfare through greater trade. As a consequence, thisreport provides a basis for affected countries to engage on sugar policy issuesin the new round of WTO negotiations.

Estimates of the effects of policy changes were obtained using ABARE’smodel of the world sugar market, SUGABARE. A relatively short time hori-zon of 1999 to 2005 used in the analysis serves to highlight the potential forsubstantial gains from moving relatively quickly to reduce government inter-ventions in the sugar market. The estimated price effects of a number ofunilateral and multilateral actions to reform sugar policies are summarisedin table 21.

Sugar trade distorted by government interventionPatterns of world sugar trade are heavily influenced by government policiesthat restrict the movement of product in response to market determined supplyand demand. Policies that encourage production consistent with compara-tive advantage would free productive resources for other higher returningactivities. At the same time, consumers would benefit from an effectiveincrease in incomes as a result of having to spend less on their sugar require-ments.

Major importers of raw and refined sugar include Russia, the European Union,the United States, Japan and South Korea — all of which have heavily

79

9

Sugar

protected domestic markets for sugar. The European Union, Brazil andAustralia dominate export trade — with EU shipments being substantiallyreliant on government subsidies that contribute to lower world prices andhence distort production elsewhere and trade.

Americans would gain from US sugar policy reformSugar is one of the most heavily supported agricultural industries in theUnited States, with government support accounting for around 40 per cent


21 Effects on raw sugar prices of less government intervention

Estimated change inworld raw sugar prices

%Unilateral policy changeUnited StatesFull liberalisation 1750 per cent ad valorem tariff 5Cut to loan rate a 9

European UnionIntervention price cut b 19Reduced production quotas c 4

JapanImport duties removed 5

Multilateral policy changeReduced trade barriers in selected countries d 41– including change in Brazilian fuel alcohol policy e 28

Regional policy changeNAFTA fTariff rate quota reduced –2Tariff rate quota not reduced 1

APECReduced trade barriers in selected economies g 26

a Loan rate for raw sugar reduced by US3c/lb. b Intervention price assumed to be approximately equalto estimated ‘no policy change’ world price. c Combined A and B production quota reduced byapproximately 1.2 million tonnes. d Assuming full sugar market liberalisation in the United States;EU white sugar intervention prices reduced to world market levels; and the removal of tariffs on sugarimports in Japan, China, Mexico, South Korea and Canada. e Assuming reduced consumption of fuelalcohol because of an easing in government mandated blending with gasoline. f Possible alternativeUS policy responses to accommodate NAFTA mandated increase in sugar imports from Mexico fromthe commencement of US fiscal year 2000-01. g Same assumptions as for the multilateral policychange (footnote ‘d’), but with current EU sugar policies maintained.

of producer revenues. Support is poorly targeted, with some individualproducers having benefited by more than US$1 million a year in the past,and the prices they receive bear little relationship to world prices.

An even more telling outcome of US sugar policies is that they have under-written the establishment of a large domestic high fructose corn syrup (HFCS)industry. HFCS is now replacing large amounts of potential sugar consump-tion, especially in beverage manufacture.

In addition to causing a substantial misallocation of productive resources,US sugar policies are costly to consumers and to the overall economy. VariousUS government reports have highlighted these costs — with one recent reportestimating a net cost to the economy of close to US$1 billion in 1996. Anotherrecent US government report has suggested that the approach used to deter-mine and administer annual import quotas for sugar impose unnecessarycosts on US users of about US$400 million a year.

The analysis undertaken in this study confirms that the removal of US govern-ment intervention in the sugar market would result in large economic gainsto the United States. US sugar consumers would save an estimated US$1.6billion a year (in 1998-99 dollar values) on their sugar purchases and therewould be a net welfare gain to the US economy as a whole of an estimatedUS$456 million a year from removal of government intervention.

There would also be substantial benefits globally from US sugar policyreform. Full liberalisation of US sugar trade is estimated to result in a 17 percent increase in the world raw sugar price by 2005. The better world pricesand increased access to the US market would translate into an estimatedUS$1.5 billion a year gain to foreign exporters of sugar.

Europeans would also benefit from less interventionistdomestic policiesThe European Union has a highly regulated sugar market designed to providesubstantial price support to domestic producers, but which distorts worldtrade patterns and depresses global prices. The internal support price forsugar, the ‘intervention price’, is maintained well above world market pricesby restricting imports. Artificially high domestic prices result in increasedoutput and reduced consumption. The resulting surpluses of EU sugar arereduced by subsidising exports.

81Sugar

Reduced policy intervention in the EU sugar market would result in signif-icant welfare gains to the economies of EU member states and to sugarexporters in other parts of the world. Lowering the EU intervention price forsugar would be more effective in reducing market distortions than cuts toEU sugar production quotas.

EU sugar consumers would benefit by an estimated US$2.2 billion a yearfrom reducing the white sugar intervention price to world levels by 2005.The EU economy as a whole would gain by an estimated US$580 million ayear over this period.

Reducing the European Union’s white sugar intervention price to around theworld price would give a substantial boost to the global market. The worldraw sugar price would be an estimated 19 per cent higher in 2005 (table 21).An alternative policy approach, of reducing the amount of EU domesticproduction eligible for price support in order to reduce output and hence thevolume of subsidised exports, would result in an estimated 4 per cent increasein the world raw sugar price.

Support of Japanese producers is costly to allA complex set of government policies, comprising producer price supports,surcharges and tariffs, underpins Japan’s sugar industry. These policies havedistorted both the Japanese sweetener market and the world sugar market.Japanese sugar production from beet and cane accounts for only about a thirdof annual consumption — despite government support which provides around60 per cent of Japanese sugar producer revenues.

With Japan’s consumers facing one of the highest retail prices for sugar inthe world (US83c/lb in May 1999), sugar consumption and imports havebeen declining. High import duties have encouraged some food and drinkmanufacturers to move operations offshore to reduce sugar input costs. Theyhave also encouraged growth in imports of less heavily taxed blended prod-ucts containing sugar, such as bean paste, cocoa and milk powders.

Removal of Japanese import charges on sugar would result in higher worldprices for raw sugar. For this analysis, it was assumed that Japan’s WTOcommitment to reduce combined import tariffs and levies to ¥71.8 a kilo-gram in 2000 would be followed by further reductions. If all Japanese importcharges were eliminated by 2005, world raw sugar prices would increase byan estimated 5 per cent.


Elimination of barriers to imports of sugar would result in significant welfaregains to the Japanese economy and to the world’s sugar exporters. Pricespaid by Japanese consumers of sugar would fall by about half and importswould increase by a third, to around 2 million tonnes, by 2005. Savings toconsumers would be an estimated US$1 billion a year. These would be partlyoffset by an estimated US$80 million a year decline in returns to Japaneseproducers.

World market will be sensitive to policy directions in BrazilAlthough policy reforms in the United States, the European Union and Japanwould lead to increased world prices, the extent of the gains would be sig-nificantly affected by what happens in Brazil. As Brazil is the world’s largestproducer and exporter of sugar, developments in that country can be expectedto significantly affect world sugar prices and trade. Because of their closeinterrelationship, policy changes affecting both of Brazil’s sugar and fuelalcohol industries will be of key importance to the global sugar market.

Government policies favoring general economic liberalisation and deregu-lation across Brazil’s economy are having direct and indirect effects on thecountry’s sugar and fuel alcohol production, consumption and trade. Brazil’ssugar exports, which have grown from less than 2 million tonnes a year atthe start of the 1990s to over 8 million tonnes in 1998-99, are likely to growfurther as government policies supporting economic liberalisation are pursued.

From the perspective of other major exporting countries, policy relateddevelopments in Brazil are likely to have a negative effect on the world sugarmarket. Brazil’s general policy thrust toward less regulation in the domesticeconomy is assumed to continue and be reflected in policies affecting theuse of fuel alcohol. It is important to recognise, however, that there is somerisk of a temporary setback to the trend of reduced regulation in Brazil’s fuelalcohol sector. Sharply higher crude oil prices in 1999 could result in thegovernment moving to encourage greater use of fuel alcohol over the shortterm.

A longer term easing in the mandated blending of fuel alcohol in gasolinewould result in a higher proportion of Brazil’s cane crop being used for sugarproduction. A policy related 12 per cent drop in fuel alcohol consumptionin Brazil, for example, would result in more sugar being produced andexported. World sugar prices would be an estimated 10 per cent lower thanin the baseline (no policy change) situation in 2005.

83Sugar

Multilateral reform

A multilateral approach to sugar policy reform of greatestbenefitIt would be in individual countries’ interests to reduce policy interventionsin their sugar markets. But these benefits would be magnified by coordinatedglobal action. Comparative advantage in production and trade suggests thelikelihood of additional benefits from adopting a multilateral approach topolicy reform.

In the case of sugar (and other agricultural commodities), the new WTOnegotiations on agriculture will provide an excellent base for a broad multi-country approach to policy reform. The results from the multilateral sugarpolicy reform segment of the study give an insight into the potential effectsof a global approach to the issue.

The policy options considered in the global analysis comprised a selectionof the individual country options examined. It was assumed that there wouldbe full sugar market liberalisation in the United States; that the white sugarintervention price in the European Union would be reduced to around theworld price; and that barriers to sugar imports in Japan, China, Mexico, SouthKorea and Canada would be removed. The effect of policy changes in Brazil,leading to reduced use of fuel alcohol in that country, were also considered.

World raw sugar prices would be an estimated 41 per cent higher in 2005(relative to the baseline ‘no policy change’ situation) as a result of reducedmarket intervention in key countries. Increased US sugar imports and reducedEU sugar exports would be the main contributors to the higher prices. USand EU production of sugar would be lower because prices to growers wouldfall from their previous government supported highs. Consumption of sugarwould rise in both countries as consumers responded to lower domestic prices.

An easing of the fuel alcohol blending requirement for gasoline in Brazilwould have a dampening effect on the price gains that would otherwise occurfrom freer global trade. Despite this, world raw sugar prices would still bean estimated 28 per cent higher in 2005 than if there were no policy changeselsewhere in the world. The estimated smaller rise in world sugar pricesunder this scenario reflects the likelihood that with a greater proportion ofBrazil’s cane crop available for sugar production, its exports would be signif-icantly higher than before.


Regional reform

Regional sugar policy reform can also be beneficial – if well managedAlthough developments in the WTO multilateral trade negotiations are likelyto attract the most attention over the next few years, the potential for bene-ficial trade and policy reforms in regional trade forums should not be ignored.The more narrowly based approaches to freer trade embodied in regionaltrade arrangements could deliver substantial economic benefits. However,they also contain significant inherent risks relative to the more broadly basedWTO approach to reform.

The risks in regional trading arrangements include the possibility that thebenefits from removing barriers to trade between members could come partlyat the expense of reduced trade opportunities for nonmembers if barriersagainst imports from third countries were maintained. Producers in membercountries could also fail to realise the full benefit of their own comparativeadvantage in production if, for example, they were unable to source inputsfrom least cost suppliers outside the group. Similarly, consumers in membercountries would be adversely affected if trade barriers mean they were unableto obtain their requirements at lowest cost.

The European Union’s Common Agricultural Policy provides a good exam-ple of how a trading bloc can deliver less than optimum domestic economicwelfare and adversely affect nonmembers. At the other extreme is the APECgroup of economies, which have agreed that measures to improve access totheir markets will apply to both members and nonmembers alike. The impor-tance of policy management and administration to the achievement of gainsfrom reducing trade barriers within a regional trade group has been illus-trated using the North American Free Trade Agreement (NAFTA) arrange-ments for Mexican exports of sugar to the United States.

Effects of increased Mexican sugar exports under NAFTAare policy dependentWith NAFTA constituting one of the world’s largest and most diverse sweet-ener markets, changes to internal sugar policies and their administration arelikely to have significant ramifications for the world market. In this context,the US approach to managing the NAFTA mandated increases in Mexicansugar exports to the United States will be important.

85Sugar

Provided Mexico’s sugar production exceeds its combined consumption ofsugar and HFCS, its duty free exports of sugar to the US market will risefrom the present 25 000 tonnes a year to 250 000 tonnes from the beginningof US fiscal year 2000-01. Two possible US approaches to accommodatingthe rise in duty free imports have been considered in this study. One involvedan assumption that the quota access of other suppliers to the US sugar marketwould be cut by the equivalent of the net increase in imports from Mexico.The other assumed an expansion in total quota controlled access to the USmarket to accommodate the increased imports of Mexican sugar.

Cutting other suppliers’ access to the US sugar market would have an adverseeffect on world sugar prices. By 2005, prices would be an estimated 2 percent lower than if there were no increase in imports from Mexico. Adoptionof this policy option by the United States would result in foreign exporterslosing an estimated average of almost $250 million a year in earnings.

Increased Mexican shipments of sugar to the US market could be accom-modated without changes to the existing tariff rate quotas of other exportersby making an estimated US1c/lb reduction in US domestic prices. Underthis option, there would be little effect on world sugar prices. Lower domes-tic sugar prices would result in an estimated US$40 million welfare gain tothe US economy. However, foreign exporters of sugar would lose an esti-mated US$24 million a year in quota rents because of the lower US price.

There are clear benefits from freer APEC trade in sugarAPEC leaders have committed to a goal of free and open trade and invest-ment within the APEC region by 2010 for industrialised economy membersand by 2020 for developing economy members. With the APEC economiesincluding several of the world’s largest sugar exporters and importers, theinclusion of sugar in the free trade commitment would have widespread bene-fits.

In analysing the potential effects of APEC policy changes, it was assumedthat there would be substantial early liberalisation of sugar trade in severalkey APEC economies. These were the United States, Japan, China, Mexico,South Korea and Canada. Reduced market intervention in these economieswould result in world sugar prices being an estimated 26 per cent higher in2005 than in the absence of policy change. The increase in world sugar priceswould come primarily from larger US and Japanese imports of sugar as theirdomestic production fell and consumption increased.


Higher world sugar prices resulting from reduced trade barriers in APECcould be expected to stimulate sugar production in most major producingand exporting countries. Substantial economic gains would be likely in thelow cost sugar exporting countries of Brazil, Australia and Thailand as theirproducers moved to take advantage of improved market opportunities.

Options for change in world sugar policiesDespite the clear benefits to major players in the world sugar market, govern-ment intervention in their domestic sugar industries and trade remainscommon and is far reaching in its effects. This study reveals that there arelikely to be substantial benefits from multilateral as well as unilateral actionsby governments to reform policies affecting sugar.

The reduction and removal of market distorting measures embodied in bothtrade and industry policies is an important area for continuing reform.Although a major focus of the new WTO round will be on trade measuresand the market distortions that they cause, such measures are usually closelyinterwoven with domestic support measures for industry. This means that anintegrated approach will need to be taken to sugar policy reform. That is,broader economic reforms covering agriculture as a whole and the infra-structure supporting the sector will need to be factored into negotiations.

As with all reshaping of policies that have operated to distort markets to theadvantage of a few, there will be winners and losers from reforms to nationalsugar policies. Clear winners would be producers in low cost producing coun-tries who would receive improved prices for their sugar and be able to raiseoutput to their economic benefit. Although consumers in these countrieswould pay higher prices for sugar, they would be likely, in most cases, toexperience net benefits from the improved economic activity flowing fromthe producing sector and the spinoff effects on suppliers of inputs (goodsand services) to the sector.

At the very least, it will be important that significant progress is made onreducing policy induced market distortions in the new round of WTO nego-tiations on agriculture. This will require reforms that result in productionbeing reoriented from countries with high levels of producer support towardcountries with low support. Given the very high levels of support for sugarproducers in Japan, the European Union and the United States, it is criticalthat, as a minimum, there be fundamental reforms to their sugar sectors aspart of the negotiations. Care will be needed to ensure that sugar policy

87Sugar

reforms in these countries are consistent with any broader negotiated reformson agriculture in both their spirit and their application.

The challenge for countries with lightly supported and low cost sugar produc-ing industries will be to engender support for policy reform among the largermarket players. Regardless of the success of such a strategy for change, thesubstantial benefits from unilateral reforms means that progress on reduc-ing policy induced distortions to the world’s sugar markets should not dependon the outcome of the WTO negotiations.


SUGABARE

ABARE’s economic model of the world white and raw sugar markets,SUGABARE, was developed in 1989. The model is designed to quantify theeffects of the changing structure of world sugar trade and policies on worldraw and white sugar prices.

A brief description of the model and the improvements that have been madeas part of this project are provided in this appendix. Detailed descriptions ofthe SUGABARE model may be found in Wong, Sturgiss and Borrel (1989) andHafi, Connell and Sturgiss (1993). The current version of SUGABARE has beenprovided to the OECD to use in analysing world sugar policies.

The basic modelThe main use of SUGABARE is in measuring the effects of alternative policyreforms on international trade and world sugar prices. The model currentlyconsists of 22 regions or countries representing large exporters (Australia,Brazil, Cuba, the European Union, South Africa and Thailand); largeimporters (Canada, eastern Europe, countries of the former Soviet Union,Japan, Republic of Korea, Malaysia, Singapore and the United States); anda number of other trading or consuming countries or regions (China, India,North Africa, Persian Gulf, non-EU western Europe, other Asia and Pacificcountries, other western hemisphere countries, and Sub-Saharan Africa).Groupings of these countries and regions according to their predominantsugar market activity are shown in figure P.

For each of the countries and regions in the SUGABARE model, behavioralequations are specified for production, consumption, stocks, some policyvariables, the share of white sugar in both total imports and exports, andexport equations where a region both exports and imports sugar. Exportsfrom the pure exporters or importers of sugar are given as a residual of eachindividual sector.

Data used in the model were sourced mainly from Licht (1999). Behavioralequations were estimated using ordinary least squares. The general form ofthe model was retained for the estimated equations as far as possible. Thefinal specification of the individual equations was decided on the basis of

89

A

Sugar

Appendix

selecting variables and signs of parameters conforming to prior expectationsof behavior.

World prices of raw sugar and white sugar are not estimated directly, but aresolved through simulation of the entire model. Prices flow from the closingidentities which equate the traded quantities demanded and supplied for rawsugar and white sugar. Raw sugar trade flows from some regions to theEuropean Union and to the United Sates are directly specified. The total levelof trade, apart from trade within regions, is accounted for within the model.


P Classification of countries in SUGABARE

Cane sugarexporters

AustraliaThailand

BrazilSouth Africa

CubaOther Asia Pacific

Other western hemisphereSub-Saharan Africa

White sugarimporters

Western Europe✝North Africa ✝Persian Gulf ✝

Other Asia Pacific ✝Other western hemisphere ✝

Sub-Saharan Africa ✝

White sugarexporters

IndiaEuropean CommunityOther western EuropeOther eastern Europe

Toll refinersSouth Korea Malaysia

Singapore* China*United States

Canada*

Raw sugarimporters

JapanFormer Soviet Union*

Other eastern Europe*European Community

Predominantly raw sugarPredominantly white sugar

*✝

Improvements to the model

For this study, several improvements were made to the SUGABARE modeldescribed in Hafi, Connell and Sturgiss (1993). The most important of thesewere:

• All data in the model were updated to 1998. Model parameters were thenre-estimated using data from 1970 to 1998, though data availability dictatedshorter estimation periods in some cases.

• Policy equations and equations for sugar production, consumption, exportsand imports were updated and in some cases the specification was changedto reflect structural and policy changes that have occurred during the 1990s.Because of their importance in the world sugar market, particular focuswas given to the country or regional modules in the model dealing withthe European Union, the United States, Japan, countries of the formerSoviet Union, Cuba and Brazil.

• The Brazilian fuel alcohol sector was added into the Brazil module of theSUGABARE model. As a result, it is now possible to estimate Brazilian fuelalcohol consumption and the share of sugar cane production that is usedfor sugar and fuel alcohol.

• Adjustments were made to several APEC member components ofSUGABARE (Mexico, Canada, Japan, South Korea, China and Malaysia)to facilitate policy experiments aimed at estimating the effects of tradeliberalisation.

• Performance of the revised model was checked against that of the 1993version and found to give results consistent with both it and with observedsugar market behavior.

91Sugar

Sugar industries of APEC members

The Asia Pacific Economic Cooperation (APEC) group was established in1989 in recognition of the growing interdependence of trade in the AsiaPacific region. The original membership of 12 economies has grown to 21,including Australia, Brunei, Canada, Chile, China, Hong Kong China,Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, PapuaNew Guinea, Peru, the Philippines, Russia, Singapore, Chinese Taipei,Thailand, the United States and Vietnam. APEC economies account foraround 45 per cent of global merchandise trade.

The sugar industries of the APEC group of economies, and policies affect-ing those industries, are very diverse. Sugar growing occurs in temperateclimate zones (such as in Canada and the northern United States, Russia,China and Japan), as well as in tropical and semitropical climates (the south-ern United States, Japan and China, and most of the remaining APEC coun-tries). Sugar policies range from those with high producer support prices andtight control of sugar imports, to little or no government intervention inproduction or trade.

The material presented here gives a brief overview of the sugar industriesand associated sugar policies of most of the APEC member economies.Principal exceptions are the United States and Japan, for which industryoverviews are presented in chapters 3 and 5 respectively. Brunei, Hong KongChina, New Zealand and Papua New Guinea have also been excluded fromthe discussion, either because of their relatively small (or nonexistent) sugarproducing sectors or because of difficulty in obtaining data relevant to thestudy.

The discussion is based on material drawn from a range of sources —academic papers, trade journals, industry organisations, consultants work-ing in the industry, and governments. Among the more significant of sourcesof information and data were: the United Nations’ Food and AgricultureOrganisation (FAO); F.O. Licht (various publications); the International SugarOrganisation (ISO); the World Bank; and the US Department of Agriculture’sForeign Agriculture Service.

92

B


Appendix

Although considerable care has been taken in collecting and assessing thematerial, it does not purport to provide an exhaustive discussion for eachmember. To ensure consistency of the information presented in the tables, acommon source has been used for most of the production, consumption andtrade data.

The consumption estimates should be treated with caution. For economieswhere there are significant exports of products containing sugar, the esti-mates are likely to overstate domestic consumption. An absence of specificconsumption data means that consumption had to be estimated as the resid-ual of production plus imports, less exports and change in stocks. Some ofthe upward bias in the consumption estimates is likely to be offset by thenon inclusion (because of lack of data) of imports of products containingsugar.

AUSTRALIAThe Australian sugar industry has expanded considerably over the pastdecade, with much of the increase in output being sold on the world marketand the balance being consumed domestically. Underlying much of thegrowth in output has been a substantial reduction in government regulationsaffecting the industry. Of particular note has been the relaxation of centralcontrols on areas planted and the removal of import tariffs on sugar.

Good infrastructure and low production costs have enabled the industry toperform well in the relative absence of policy intervention. Given the exportoriented nature of most of the Australian sugar sector, better market accessto global sugar markets through the upcoming WTO trade round would haveimportant implications for the long term viability of the Australian industry.

ProductionAustralia’s cane based sugar industry has expanded significantly since theearly 1990s (table 22). In the five years to 1997-98 annual sugar productionrose by 35 per cent to 5.6 million tonnes. Increased production has comefrom expanding areas of cane and from improvements in cane yields. Sugarcane is grown predominantly along 2100 kilometres of north eastern Aus-tralia, from northern New South Wales to north Queensland. Most farms arewithin 50 kilometres of the coast. Approximately 95 per cent of Australia’ssugar cane is grown in the state of Queensland. There is also a small amountgrown in the north of Western Australia.

93Sugar

A relaxation of the previously centralised land assignment system in the late1980s has facilitated a large expansion in the area of cane harvested inAustralia. Production and cane area decisions are now made by individualgrowers in consultation with their local mill and reflect land availability andcommercial considerations. As a consequence, the area assigned to cane inthe main growing state of Queensland rose by over 40 per cent between 1989and 1998 — to around 508 000 hectares. The total area planted to cane inAustralia in 1998 was over 525 000 hectares.

Cane yields in Australia have increased from 81 tonnes per hectare in 1998-99 to an estimated 97 tonnes per hectare in 1988-89.

Although the number of sugar mills in Australia fell from thirty-three tothirty between 1980 and 1998 (five mills were closed and two were opened),the average quantity of cane crushed per mill increased — from 750 000tonnes a year in 1980 to 1.42 million tonnes in 1998. Of the thirty millscurrently operating, sixteen are owned by public companies, one by a privatecompany, and thirteen are grower owned cooperatives.

There is currently one dextrose and one high fructose syrup manufacturingplant operating in Australia. The major source of starch is wheat, as Aus-tralian corn production is limited and the grain is often more expensive thanwheat.


22 Australia: sugar statisticsRaw value; July–June years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 3 016 4 133 4 234 4 931 4 837 5 301 5 567 4 874

Consumption a kt 854 829 897 948 903 1 025 999 996– per person kg 49.1 47.2 50.6 52.8 49.6 55.6 53.6 52.9


Exports kt 2 276 3 127 3 456 4 112 3 980 4 309 4 489 3 760– raw kt 2249 3 108 3 414 3 939 3 706 4 119 4 378 3 647– white kt 27 19 42 173 274 190 111 113

a Calculated as production plus imports, less exports and change in stocks. s Estimated.Sources: FO Licht; ABARE.

ConsumptionPer person consumption of sugar in Australia is currently over 50 kilogramsa year (table 22). Over 70 per cent of sugar consumed is in manufacturedfood containing sugar.

Alternative sweeteners have had difficulty increasing market share since thelow cost structure of the Australian sugar producing and refining industrymeans that it is able to offer very competitive prices to domestic manufac-turers.

TradeAustralia is the leading exporter of raw sugar in the world. Total Australianexports are estimated to have been almost 3.8 million tonnes in 1998-99(July–June). Virtually all of the sugar shipped from Australia (97 per centin 1998-99) is in raw form.

Australian raw sugar is shipped globally. However, Asia (especially Japan,China, Malaysia and South Korea) and Canada are the principal export desti-nations. New markets are opening in Asia and further afield in the MiddleEast and eastern Europe.

There are no restrictions on sugar imports to Australia. Despite the openborders for sugar trade, a competitively priced domestic market means thatimports are limited to only a few thousand tonnes of (mostly specialty) sugareach year.

PolicyBeginning with the removal of the embargo on sugar imports in 1989, therehas been a substantial liberalisation of Australian sugar industry policy. TheAustralian industry receives no price support or export subsidies from govern-ment.

Previously, Queensland state government regulations had effectively con-trolled the number of cane growers, the area of cane planted, the location ofplantings, the quantity of sugar produced, and the number and size of mills(ABARE 1991). In addition, production was allocated to two differentiallypriced pools, thus ensuring new entrants to the industry received a lowerreturn than already established sugar cane growers.

95Sugar

The (Queensland) Sugar Industry Act 1991 introduced significant regulatoryreforms, including a more flexible land assignment system and a require-ment that the land under cane be increased by at least 2.5 per cent a year forthe next five years. Implementation of these changes included devolution ofannual expansion decisions to local agreements between growers and millers,which reflect commercial considerations of land availability and mill crush-ing capacity. With this more flexible approach, industry growth (driven bylocal requirements) has exceeded the legislative minimum in all but one year.

More recently, the differential pool pricing system has been removed anddecision making in general has been decentralised to the local mill level. In1997, the import tariff of A$55 a tonne on raw and refined sugar was abol-ished.

In Queensland, proceeds from the sale of sugar are pooled for paymentpurposes. The Queensland Sugar Corporation acquires all raw sugar producedin that state and sells it to domestic refineries and to export markets. Therevenue from this marketing arrangement is distributed back to mills andgrowers after being adjusted for various marketing costs incurred by thecorporation. With the pooling of sales proceeds, producers receive an aver-age of prices received from sales during the course of the year.

CANADACanada has only a small domestic sugar production base. The bulk of thecountry’s annual sugar consumption is met by raw sugar imports that areprocessed by Canada’s refineries. Canada–US border trade in sugar, cornsweeteners and products containing sugar is relatively small in volume butimportant to the industries in both countries. This trade has not always gonesmoothly and there have been a number of recent bilateral trade disputes.Trade is also influenced by the Canada–US Free Trade Agreement signed in1989 and the North American Free Trade Agreement signed in 1994.

ProductionProduction in Canada has varied considerably during the 1990s, from an esti-mated low of 104 000 tonnes in 1998-99 to a high of 182 000 tonnes in 1994-95 (table 23).

Canada’s domestic sugar production is based on sugar beets, traditionallyplanted in the provinces of Alberta, Manitoba and Ontario. The Canadian


sugar industry consists of one beet sugar factory and four cane sugar refin-ers, with ownership in the hands of two companies.

ConsumptionSugar consumption in Canada is estimated to be around 1.2 million tonnesin 1998-99, with domestically produced sugar accounting for 8 per cent ofthe total. Over recent years, sugar consumption has grown little. Per personconsumption of sugar is estimated to average around 40 kilograms a year,nearly double the world average.

Demand for refined sugar in Canada can be divided into three submarkets:industrial users, largely comprised of food and beverage manufacturers; aresellers’ market which sells refined sugar products for final consumption;and a direct sales market for the hotel restaurant and institutional trade. About80 per cent of the Canadian market for refined sugar is accounted for byindustrial users.

Soft drink manufacturers represent the single largest industrial market forrefined sugar. Canada has domestically produced and imported high fruc-tose corn syrup (HFCS) available as a substitute for sugar. High intensitysweeteners, such as saccharin, cyclamate, aspartame, and acesulfame-k arereadily available to industrial users and are also consumed directly by retailpurchasers.

97Sugar

23 Canada: sugar statisticsRaw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 152 122 124 182 163 156 105 104


Imports kt 1 000 1 107 1 155 1 091 1 099 1 054 1 107 1 081– raw kt 877 959 1 010 940 1 059 1 038 1 082 998– white kt 124 148 145 151 40 16 25 83



TradeWith domestic production accounting for only a small proportion of annualconsumption, Canada depends heavily on imports. The bulk of these importsenter in the form of raw sugar and are processed into refined products. Whiteor refined sugar imports have been supplied principally from the UnitedStates and the European Union.

The bulk of raw sugar imported by Canada is from Australia. Over half ofthe imports of 1.1 million tonnes in 1997-98 came from Australia. Cuba hastraditionally been the other major supplier. Imports of sugar from Brazil andseveral Central American countries have expanded in recent years, largelyas a result of duties having been reduced to zero under the general prefer-ential tariff.

PolicyOver the past decade, the Canadian government has supported sugar beetfarmers through a system of direct income payments. The National TripartiteStabilisation Program for sugar formerly paid beet farmers a form of defi-ciency payment funded equally by producers, the federal government andthe governments of Alberta and Manitoba. The program ended in Manitobain 1996 and in Alberta in 1995. To assist with the transition from this program,the federal government, the Alberta provincial government and producers inAlberta established a C$1.4 million industry development fund — to be spentby 2001. Priorities for research include sugar beet storage and new products,improved access to foreign markets and the development of new markets.

Canadian government policies on sugar imports are aimed at protecting thecountry’s domestic raw cane sugar refining industry. Consistent with thisapproach, Canadian tariffs on raw sugar imports are lower than on refinedsugar. Imports of refined sugar from most favoured nation (MFN) countriesincur a duty of C3.09c/kg, whereas raw sugar imported from MFN countriesis subject to a duty of between C2.21c/kg and C2.56c/kg, depending on thepolarisation of the sugar. Developing countries and countries that have tradeagreements with Canada generally face a zero duty for raw sugar.

Australian sugar is duty exempt under a bilateral agreement, and sugar frommost other western hemisphere suppliers, including Cuba, is exempt undera variety of other preferential arrangements.


The US–Canada Free Trade Agreement, which became effective in 1989,resulted in tariffs on sugar and HFCS trade between the two countries beingphased out in 1998. In the mid-1990s, two Canadian sugar companies filedantidumping charges against several countries in the European Union as wellas the United States and South Korea. This action resulted in countervailingduties being imposed on imports of refined sugar from the European Unionand the United States. Imports from these sources subsequently fell sharply— in the case of refined sugar imports from the United States, from an aver-age of about 113 000 tonnes in the three years to 1994-95 to about 29 000tonnes in 1995-96.

More recently, Canada has agreed to accept imports from the United Statessourced from the latter’s re-export program for products containing sugar.In return, Canada has been guaranteed access to the US market for a mini-mum of 10 300 tonnes of refined sugar and 59 250 tonnes of products contain-ing sugar (such as dry crystal mixes, iced tea and similar products) under thetariff rate quota for edible preparations.

CHILEChile’s domestic sugar industry is based solely on sugar beet production.The area planted to sugar beets has been expanding and production of beetsugar has been trending up. However, sugar consumption has been expand-ing at an even faster pace, reflecting Chile’s robust economy and a rapidlygrowing food processing sector that includes rising exports of productscontaining sugar.

ProductionChile’s domestic sugar production is dependent on sugar beet cultivation. Inrecent years, the sole sugar company in Chile has expanded its capacity toprocess output from around 55 000 hectares of sugar beets a year. With thisexpansion in processing capacity, growers have been encouraged to plantmore sugar beet. As a result, the area of sugar beets has increased by 15–25per cent since the early 1990s.

For the marketing year 1998-99 (September–August) beet sugar productionis estimated to have been 504 000 tonnes, raw value (table 24). This produc-tion is likely to have met a little over 70 per cent of Chile’s projected sugaruse in that year.

99Sugar

ConsumptionSugar consumption continues to trend upward in Chile, reflecting popula-tion growth and, more importantly, the strong expansion in the economy thathas had a positive effect on consumer incomes and investments in foodprocessing capacity. Consumption is estimated to have been 703 000 tonnesin 1998-99, representing a continuation of the solid upward trend evidentthroughout the 1990s. Since 1991-92, consumption is estimated to have risenby 25 per cent.

Per person sugar use in Chile is estimated at close to 47 kilograms in 1997-98, among the highest in the world. However, these figures overestimateactual domestic consumption, since a growing share of the sugar used byChile’s food processing industry is not consumed domestically but exportedin products containing sugar, such as canned fruit.

TradeChile imports almost exclusively refined sugar, and these imports have beentrending upwards in recent years. With its long land border with Chile,Argentina has been a leading supplier along with Guatemala. In calendaryear 1997, Argentina supplied 27 per cent of Chile’s total imports andGuatemala 35 per cent. Other important suppliers are Colombia and Brazil.Imports in 1998-99 amounted to 213 000 tonnes, accounting for 30 per centof domestic use.


24 Chile: sugar statisticsRaw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 474 512 556 498 520 440 503 504

Consumption a kt 564 595 610 641 665 686 699 703– per person kg 42.0 43.6 43.9 45.5 46.5 47.2 47.5 47.1




PolicyChile maintains a price stabilisation system for a number of food commodi-ties, including refined sugar. A price band system of floor and ceiling pricesis used to protect the domestic sugar market from world price volatility.

When international landed prices of refined sugar are below the bottom ofthe price band the government imposes a specific tax that is added to thecurrent ad valorem duty (currently 10 per cent) in order to raise the landedprice to the price band floor. When international prices are above the top ofthe band, a rebate is deducted from the import duty in order to lower thelanded price to the price band ceiling.

The price band for refined sugar in effect from 1 April 1999 until 31 March2000 has a floor import price of US$440 a tonne (US20c/lb) and a ceilingprice of US$495 a tonne (US22.5c/lb). For 2000-01, the band will be lowered.Given world prices in recent years, the price band has clearly had an inhibit-ing effect on imports of refined sugar. Chile imports only very small amountsof raw sugar, which are exempt from the price band.

CHINAChina’s sugar industry has large domestic cane and beet sugar producingsectors. Sugar production has been responsive to government price incen-tives to producers in much of the 1990s aimed at lifting domestic output inorder to reduce imports and to achieve greater self-sufficiency.

ProductionSugar production in China in 1998-99 is estimated to have been 9.3 milliontonnes (table 25), up 6 per cent from 1997-98 owing to an increase in sugarcane area and yields. Of total projected production, approximately 80 percent is expected to come from the processing of sugar cane.

Currently, there are an estimated 1.4 million hectares planted to sugar canein China, up from around 1.0 million hectares a decade ago. Sugar cane agri-culture is concentrated in the south China provinces, particularly Guangxi,Yunnan and Guangdong. Sugar beet area currently is estimated at around535 000 hectares, but has fluctuated considerably over the past decade —ranging from a high of 785 000 hectares to a low of 500 000 hectares. Sugarbeet production is concentrated in the north east provinces of Heilongjiang

101Sugar

and Jilin. Sugar beet farmers in these areas generally rotate beets with graincrops, and in any given year the area under different crops tends to reflectrelative profitability.

China has nearly 500 sugar factories, of which 411 are cane sugar factories.The sugar making capacity of the industry ranges from 7.0 to 8.0 milliontonnes for cane sugar and 1.5 to 2.0 million tonnes for beet sugar, depend-ing on the length of the season. Recently, high cane and beet procurementprices have combined with low internal sugar selling prices to leave manysugar factories in financial difficulty.

ConsumptionChina’s sugar consumption for 1998-99 is estimated to have been 8.7 milliontonnes, a 3 per cent rise on the previous year, and well up on the 7.6 milliontonnes recorded in 1991-92 (table 25). The upturn in consumption is largelyattributed to population growth. China’s population in 1999 is estimated at1.29 billion, a rise of over 120 million in the past decade.

Per person sugar consumption in China has been relatively unchanged overthe past decade, at a low 6–7 kilograms a year. The relative stagnation inChinese sugar consumption per person can be attributed largely to the exten-sive use of saccharin in food and nonfood products. Use of saccharin iscurrently estimated at around 13 000 tonnes a year — equivalent to around5 million tonnes of sugar, raw value (saccharin is 375 times as sweet as sugar).


25 China: sugar statisticsRaw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 8 578 8 402 6 547 5 901 6 770 7 339 8 745 9 300


Imports kt 1 193 561 1 331 2 907 1 945 1 094 410 540– raw kt 1 162 541 1 285 2 601 1 802 1 032 331 439– white kt 30 20 46 307 143 63 80 101

Exports kt 1 154 2 320 1 102 540 830 432 277 470– raw kt 44 75 46 17 29 12 13 10– white kt 1 110 2 246 1 056 523 801 420 265 460


Currently in China saccharin is considerably cheaper than sugar (equivalentto less than US1c/lb) and increasingly food processing industries have beenswitching from sugar to reduce their production costs. Direct consumptionof saccharine may be highest in rural areas where incomes are lower. Totalsaccharine production is presently around 25 000 tonnes a year, about halfof which is exported.

TradeTo fill the gap between domestic sugar production and consumption, Chinahas used its large strategic stocks built up over the years as well as imports.Although China has become a regular but relatively small net importer inrecent years, most of these imports are for re-export either as refined sugaror in processed food and beverage products. Imports in 1998-99 are esti-mated to have been 540 000 tonnes and exports around 470 000 tonnes.Smuggling complicates the analysis of China’s trade. Significant volumesof sugar have been smuggled into the country in recent years, thus avoidingimport taxes and import restrictions.

China regularly exports toll refined sugar from its coastal refineries. Themajor markets for Chinese refined sugar exports are Saudi Arabia, Pakistanand Hong Kong China. Exports from such refineries may be noncompetitivein the current environment of low world prices, a situation which couldprompt the government to subsidise exports in order to keep domestic refiner-ies in operation.

PoliciesPrices for sugar cane and sugar beets are determined mainly by market forces,although each year the government provides a ‘guidance price’ for sugarrefineries to use in procuring sugar cane and sugar beets from farmers.Wholesale and retail prices move with market forces. As a consequence ofrecord sugar production in 1998-99, the government has reduced the guid-ance price for sugar cane and encouraged farmers to plant other cash crops.

The government is also implementing new regulations that will restrictsaccharine production. A number of saccharine production facilities will beclosed and no new investments in new saccharine producing facilities willbe allowed. The Chinese government is apparently considering imposing aspecial tax on saccharine used as a food additive and, from the beginning of2000, the modification of food labels to state that the sweetener is being used.

103Sugar

China has tightened controls on imports and procedures have been put intoplace to ensure that raw sugar imported for tolling is re-exported. A key prob-lem in this area is that substantial amounts of foreign sugar, imported dutyfree for use in the manufacture of processed foods for subsequent re-export,have been diverted to the domestic market, thus depressing internal prices.

The export of sugar is controlled through a system of licences. When Chinahas an exportable surplus, exports are freely permitted. In order to encour-age greater exports, a new policy initiative has involved refunding a portionof domestic sales taxes on sugar that is exported. By providing an economicincentive to export more sugar, this latter initiative can be expected to putdownward pressure on world prices because of the additional supply enter-ing the global market.

CHINESE TAIPEISugar production and trade in Chinese Taipei are monopolised by the govern-ment owned Taiwan Sugar Corporation. Until the mid-1980s Chinese Taipeiwas a significant exporter of sugar, but the area devoted to cane growing hasbeen in decline since then as land has been increasingly diverted to otheruses. This trend has continued, with an expanding proportion of domesticconsumption being met from imports of raw sugar.

ProductionThe area planted to sugar cane in Chinese Taipei has contracted from over100 000 hectares twenty years ago to 55 000 hectares a decade ago and alittle over 40 000 hectares more recently. Production of raw sugar from thedomestic crop has fallen from 518 000 tonnes in 1991-92 to an estimated303 000 tonnes in 1998-99 (table 26).

The decline in sugar production has occurred as the Taiwan Sugar Corporationhas reduced supports to sugar farmers and provided compensation to shiftto other crops or to leave agriculture. In addition, the corporation has closednine sugar mills since 1980 and will close another three to leave fourteenmills in operation by 2001. The decline in domestic output is expected tocontinue in 1999-2000, with only 290 000 tonnes of sugar, raw value, fore-cast to be produced from domestic sources.


ConsumptionSugar consumption in Chinese Taipei has been relatively stable in recentyears, averaging around 536 000 tonnes a year in the seven years to 1997-98. Consumption in 1998-99 is estimated to have been around 550 000 tonnes,and per person consumption about 25 kilograms. The lack of growth in sugarconsumption reflects, in part, the ready availability of competitively pricedsweetener substitutes, high fructose syrup (HFCS). Annual HFCS consump-tion, mainly concentrated in the beverage industry, is currently estimated ataround 150 000 tonnes a year.

Also influencing sugar consumption is the high internal cost of sugar inChinese Taipei. A consequence of the high domestic sugar price is that localusers of sugar, such as manufacturers of confectionery and other productscontaining sugar, cannot compete effectively in world markets.

TradeWith the contraction in the domestic sugar production base and fairly stableconsumption, Chinese Taipei’s imports of sugar have risen from zero in the1980s to an estimated 266 000 tonnes in 1998-99. The main sources ofimports have been Australia, Thailand and South Korea, with Australia domi-nating the trade in recent years.

Chinese Taipei’s exports of sugar have fallen dramatically from over 175 000tonnes a year before the mid-1980s to average around 20 000 tonnes a year

105Sugar

26 Chinese Taipei: sugar statistics Raw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 518 427 509 444 426 378 339 303





during the seven years to 1997-98. In recent years the principal destinationof exports has been the United States, reflecting the premium prices receivedfor within quota exports to that market.

PolicyGovernment policy in Chinese Taipei is aimed at reducing unprofitable sugarproduction; at the eventual privatisation of the Taiwan Sugar Corporation;and at the lowering of import tariffs in the process of gaining accession tothe WTO. Government policies are being implemented through the stateowned Taiwan Sugar Corporation. Current activities of the corporation arebased on its Five Year Sugar Policy Program, which runs from 1996 to 2001.Under the program, preference is being given to imports of raw sugar fordomestic refining. The key policy instrument used to effect this is the tariffrate regime, with the rate on imported raw sugar currently set at 25 per cent,while that for refined sugar is set at 35 per cent.

INDONESIAIndonesia has a long history of sugar production. At its peak in the early1930s, Indonesia’s annual production reached nearly 3.0 million tonnes andthe country was a net exporter of sugar. However, since the late 1960s,Indonesia has been a net importer as domestic consumption has grown fasterthan production. Rising land and labor costs and rapidly rising consumptionhave made difficult the achievement of the Indonesian government’s longsought after goal of sugar self-sufficiency.

ProductionIn recent years, Indonesian sugar cane growers have harvested between375 000 and 400 000 hectares a year for sugar production. Almost three-quarters of the national sugar cane area is concentrated on the island of Java.Other important growing areas are on the islands of Sumatra, Kalimantanand Sulawesi. About 70 per cent of the sugar cane areas are cultivated byfarmers on small to medium sized holdings and the remainder, both on Javaand the other islands, on large holdings operated as sugar factory plantations.

Sugar cane yields have improved little during the 1990s, fluctuating between72 and 79 tonnes a hectare, compared with an average of 73 tonnes a hectarein the 1980s and 83 tonnes a hectare in the late 1970s. One factor that hashurt yields in recent years is the reduction of high yielding irrigated cane


land on Java, where land use has been shifting to more profitable crops suchas rice and corn, and to livestock production.

In the six years to 1997-98, Indonesia’s annual sugar production averaged2.3 million tonnes (table 27). However, there was a substantial downturn inproduction in 1997-98, to 1.8 million tonnes, because of a disrupted plant-ing schedule caused by drought and a scarcity of fertiliser caused by thecountry’s economic problems.

At present there are 69 sugar mills in Indonesia, more than half of which arelocated in east Java. Most mills are small by international standards — onlyeight have capacity above 4000 tonnes. The efficiency of the small mills,particularly in terms of their sugar extraction rates, is generally low. At presentabout 90 per cent of the mills are publicly owned.

Until 1997, most Indonesian food and beverage manufacturers requiringhighly refined sugar depended on imports. The first refinery, located in westJava, began operations in mid-1997 with an installed capacity to produce150 000 tonnes of refined sugar a year.

ConsumptionPrior to the economic upheavals in 1997-98, Indonesian consumption ofsugar had consistently risen through the 1990s. Consumption peaked at 3.3million tonnes in 1996-97 (table 27). Per person consumption of sugar peaked

107Sugar

27 Indonesia: sugar statisticsRaw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 2 401 2 484 2 475 2 346 2 157 2 159 1 784 2 000


Imports kt 417 378 198 513 1 355 1 499 685 1 535– raw kt 32 13 0 0 69 218 239 142– white kt 385 364 198 513 1 285 1 281 446 1 393



at nearly 17 kilograms in 1995-96, but declined to below 13 kilograms in1998-99.

A rapidly growing population has been an important factor in the growth insugar consumption. The country’s population grew from 151 million in thelate 1970s to an estimated 216 million in 1999, a 43 per cent increase. Stronggrowth in per person disposable incomes has also been a major factor in thegrowing direct consumption of sugar and rising consumption in productscontaining sugar. A sharp contraction in consumer purchasing power sincethe economic downturn in 1997 has been the main reason for the decline inIndonesian sugar consumption in the past two years.

TradeIndonesia has been a net importer of sugar since the 1960s. Imports rosesharply in 1995-96 and 1996-97, averaging 1.4 million tonnes a year, as thegrowth in sugar demand exceeded the availability of domestically producedsugar. There was a very substantial (54 per cent) drop in imports in 1997-98as a result of the large devaluation of the Indonesian rupiah and accompa-nying economic problems. Thailand and Australia are the major suppliersof imported sugar to Indonesia.

PoliciesDeregulation of the sugar industry, in part spurred by the economic upheavalssince mid-1997 and subsequent conditions imposed by the InternationalMonetary Fund in return for financial assistance, is likely to reshape thesector in the years ahead. Government sugar policy now seeks to encouragegrowth in production through the modernisation of selected factories and theestablishment of new factories and producing areas outside Java where theindustry has been historically concentrated.

Previously, the Indonesian government had been very interventionist in thedomestic economy, including the sugar sector. For example, the NationalLogistics Agency (Bulog) had monopoly control of sugar imports, domes-tic distribution, and stock holding. Several private Indonesian firms and afew international trading companies contracted with Bulog to handle actualimports.

The import system is now very different from the earlier arrangement.Beginning in July 1997, the Indonesian government issued a decree dereg-


ulating imports of raw sugar by allowing sugar mills with refining capacityto import raw sugar directly. Other liberalisation measures that followedincluded changes in the sugar distribution system and in price controls.

In the area of pricing, the government has traditionally set annual sugarproducer prices at parity with competitive crops, primarily rice. Farmers arepaid on the basis of the average sugar content of delivered cane, with qual-ity premiums and discounts. Currently, domestic prices are declining follow-ing the end of Bulog controls on prices and record imports. This has had asignificant impact on Indonesian sugar producer prices and production. Asa consequence, the Indonesian government is planning to purchase around700 000 tonnes of sugar from growers at more than 30 per cent above thedomestic market price in an effort to stimulate sugar production in 1999-2000. The government has taken a liberal trade policy position and no importtariffs are imposed.

KOREA, REPUBLIC OFThe sugar industry in the Republic of Korea (South Korea) is based entirelyon the refining of imported raw sugar to satisfy domestic consumption andfor the re-export of refined (white) sugar. South Korean refiners are protectedby a regulated domestic price.

ProductionWith no raw sugar growing sector, the entire sugar production industry inSouth Korea pivots on the activities of the country’s three refining compa-nies. Being the only ones permitted to import and export, these companiesdominate the Korean sugar sector. Their combined refining capacity is 4300tonnes a day.

ConsumptionPrior to the economic upheavals of 1997-98, consumption of sugar in SouthKorea had been increasing steadily (table 28). Annual sugar consumptionincreased from 859 000 tonnes a year in 1991-92 to a record 1.15 milliontonnes in 1996-97. This growth was spurred by the popularity of westernstyle fast food restaurants, the catalyst for the expansion being consumptionof soft drinks, bread and many confectioneries. Per person consumptionpeaked at a little over 25 kilograms in 1996-97.

109Sugar

In response to the economic downturn in 1997, sugar use fell slightly to anestimated 1.1 million tonnes in 1997-98 and 1998-99. With the South Koreaneconomy currently showing signs of recovery, demand for food and drinkproducts containing sugar are improving, with the prospect that sugarconsumption will return to trend growth.

Like Japan, South Korea has a substantial high fructose corn syrup (HFCS)industry that provides a substitute sweetener to the food and drink industry.Per person use of HFCS in 1996 and 1997 was around 5.0 kilograms.

TradeSouth Korea’s raw sugar imports have been fairly stable, ranging from 1.2million tonnes in 1991-92 to 1.4 million tonnes in 1998-99. Australia,Thailand and South Africa have been the dominant suppliers of raw sugar.In calendar year 1998, Australia supplied 58 per cent of total imports, SouthAfrica 16 per cent and Thailand 11 per cent.

Exports of refined sugar have ranged between 242 000 tonnes in 1991-92and 365 000 tonnes in 1997-98. While South Korea’s refiners ship to a numberof very small markets in the region, China (including Hong Kong China)and Indonesia usually account for more than 90 per cent of the total exportmarket.


28 South Korea: sugar statisticsRaw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 0 0 0 0 0 0 0 0

Consumption a kt 859 890 939 1 039 1 098 1 153 1 108 1 143– per person kg 19.8 20.3 21.2 23.3 24.3 25.2 24.0 24.7




PolicySugar refiners in South Korea are protected from import competition by aregulated domestic price set in consultation with the industry. Part of thepricing criteria takes into account the landed values of imports. The policyensures that the refiners can import raw sugar and sell the refined productprofitably in the domestic market. At the same time the regulation allows therefiners to price their tolling operations close to marginal cost.

The South Korean government imposes a temporary (WTO legal) importtariff of 3 per cent on raw sugar and 50 per cent on refined sugar. The hightariff on white sugar effectively eliminates potential competition fromimported refined product. The three South Korean refineries are allowed toimport raw sugar for domestic use under the import licence system approvedby the Korean Sugar Manufacturers Association. There is no limitation onquantity.

The wholesale price for refined sugar is controlled by the government. SinceNovember 1997, wholesale prices have been adjusted several times inresponse to changes in foreign exchange rate relatives. In mid-1999, thewholesale price was around 814 won a kilogram (US30c/lb).

MALAYSIAMalaysia’s sugar industry is characterised by upward trending consumptionspurred by a rapidly growing food processing industry and a small domes-tic sugar cane based production sector that is unlikely to expand. To servicethe growth in demand, Malaysia has been increasing its imports of sugar.With excess refining capacity, some of the imports of raw cane sugar arerefined and re-exported to regional markets. The government controls importsthrough quota restrictions controlled by licence. Tariffs on imports have beeneliminated.

ProductionMalaysian sugar production from the domestic crop peaked at 108 000 tonnesin 1997-98 (table 29). Sugar production is estimated to have declined toaround 103 000 tonnes in 1998-99. Production is concentrated in the northwest corner of peninsular Malaysia in the states of Perlis and Kedah. Mostof the cane area is under the management of three sugar cane plantations.Small scale independent growers contribute only about 15 per cent of the

111Sugar

total annual sugar cane output. The lack of growth in cane area largely reflectsthe higher remuneration received by farmers for other crops that grow wellin the region, especially oil palm.

ConsumptionDomestic sugar consumption in Malaysia had been on a strong upwardgrowth path, peaking at 1.1 million tonnes in 1996-97, before declining inthe following year. The recent contraction in the growth in sugar consump-tion reflects the economic downturn in much of Asia (Malaysia included)since mid-1997, and a consequent fall in consumers’ disposable incomes.Sugar consumption is expected to recover as economic growth improves.

One of the main forces affecting sugar consumption over the past decade hasbeen the government’s sugar pricing policies. Malaysia’s retail prices forrefined sugar are controlled by the Supplies Regulation Act and were fixedat 1.20 ringgit a kilogram from November 1989 to February 1998 when theywere raised 21 per cent to 1.45 ringgit (US$0.38) a kilogram. Despite thesharp downturn in world prices over the past year, the Malaysian govern-ment has not reduced the internal price for refined sugar, denying consumersthe opportunity of benefiting from developments in the global market.

Per person sugar consumption in Malaysia is estimated to be around 45 kilo-grams in 1998-99, down substantially from the 52 kilograms per personrecorded in 1996-97 prior to the Asian economic upheavals.


29 Malaysia: sugar statisticsRaw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 101 105 111 106 105 108 103 103


Imports kt 842 873 956 983 1 059 1 148 974 1 100– raw kt 842 873 956 983 1 059 1 148 974 1 091– white kt 0 0 0 0 0 0 0 8



The recent consumption decline notwithstanding, Malaysia’s strong econ-omy coupled with government policy of holding sugar prices firm has led toparticularly strong growth in the food processing industry and an accompa-nying upturn in the industrial use of sugar during the past decade.

Substitute sweeteners such as high fructose corn syrup (HFCS) have notmade a big impact on sugar demand since Malaysia has only one smallproduction facility. This plant produces only HFCS-42, which is used mainlyin the manufacture of sauces. The market for non-nutritive sweeteners is verysmall and their use is mainly concentrated in dietary foods.

TradeMalaysia is a large net importer of sugar, with total imports estimated to havebeen 1.1 million tonnes in 1998-99. With little change in domestic produc-tion, rising domestic demand for sugar has been met by an increase in importsthroughout most of the 1990s.

The principal suppliers of raw sugar imports to Malaysia have been Australia,Thailand and Fiji. In recent years imports from Brazil and South Africa havebeen at record levels, reflecting increased exportable supplies from thosecountries and a decrease in ocean freight rates to the Asian region resultingfrom the economic recession and lower ship fuel costs.

Reflecting the industry’s excess refining capacity, a substantial amount ofrefined sugar is exported each year. Refined sugar exports have ranged froma low of 99 000 tonnes in 1996-97 to 237 000 tonnes in 1991-92. Shipmentsin 1998-99 are estimated to have been 181 000 tonnes. Markets for this sugarare concentrated in South East Asia.

PolicyEach year the Malaysian government estimates domestic consumptionrequirements and sets a quota allocation for refiners and millers to supplythe domestic market. These calculations, and those for domestic sugar produc-tion, are used to forecast import requirements. These estimates are adjustedperiodically according to the progress of the crop.

Importers must apply to the Ministry of Trade and Industry for licences thatare used to regulate the volume of sugar entering the country for domesticconsumption. Raw sugar imported for refining and re-export is also covered

113Sugar

by this licensing system. Currently, there is no tariff on raw and refined sugarimported under licence. Any sugar coming into the country above the licencequota amount is subject to a 5 per cent ad valorem duty plus a fixed tariff of426.7 ringgit (US$172) a tonne. Under its WTO commitments, Malaysia —with developing country status — instituted a tariff rate quota for 3 per centof its base consumption, which will increase to 5 per cent by 2005.

For a number of years, Malaysia has maintained long term raw sugar supplyagreements with Australia and Fiji. Shipments under the agreement withAustralia account for between 40 and 60 per cent of annual import require-ments which runs to year 2000.

As a general policy to stabilise domestic prices, the government permitsdomestic refiners to make additional profits when raw sugar import pricesare low in order to compensate them for when prices are high and refiningmargins contract.

MEXICOSugar cane production is one of Mexico’s largest agricultural industries,employing some 150 000 cane growers and over 35 000 mill workers. Themilling sector, spread across 15 of the 32 states, consists of 60 facilitiesproducing both standard and refined sugar.

Over the past decade, the once largely government owned milling sector hasbeen privatised and the industry deregulated as the government ended itsdomestic and foreign marketing monopoly and the setting of internal sugarprices. Mexico’s participation in the North American Free Trade Agreementsince 1994 has been, and will be, important to the future development of itssweetener industries — especially sugar.

ProductionSugar cane is one of Mexico’s most widely grown crops, but two-thirds ofproduction is concentrated in central Mexico. The state of Veracruz, locatedon the central Gulf of Mexico coast, alone accounts for 40 per cent of annualnational output.

Sugar production has risen strongly during the 1990s, increasing by overhalf to 5.5 million tonnes in the six years to 1997-98 (table 30). Productivityvaries greatly across the country owing to significant differences in soil fertil-


ity and rainfall patterns. Only about a third of sugar producing areas haveaccess to irrigation water to offset shortfalls in rainfall.

Production units are small, with 80 per cent of cane growers working unitsof less than 6 hectares. Mill groups have historically been prohibited fromowning cane land. While dominated by small field production units, totalnational harvested sugar cane area has been trending up in recent years inresponse to the improved grower returns from sugar cane relative to alter-native crops.

Mexico currently has 60 sugar mills in operation, of which 22 are in Veracruz,with a daily grinding capacity of 333 000 tonnes. Privatisation has broughtnew investment in plants and equipment and greater production efficiency.Although some mills have closed during the 1990s, there appears to be agreat reluctance on the part of interest groups and the government to closemills owing to the social impact the loss of jobs will have on rural commu-nities.

Improved field and factory yields, along with generally good growing condi-tions over the past several years, have contributed to the rising trend in produc-tion. Nonetheless, the small scale of most farm units tends to limit theindustry’s ability to increase farm level efficiency. In addition, the millingsector, heavily in debt since its initial privatisation, remains characterised bymany small mills that are high cost operations.

115Sugar

30 Mexico: sugar statisticsRaw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 3577 4430 4011 4650 4667 4840 5492 5049





ConsumptionMexico’s annual consumption of sugar is currently around 4.3 million tonnes,raw value (table 30). Per person consumption of sugar has declined throughthe 1990s and in 1998-99 was around 44 kilograms, still more than doublethe world average.

In recent years domestic consumption of sugar has been relatively flat becauseof a weaker Mexican economy. Other factors dampening demand have beenan increase in domestic sugar prices and the growth in the substitution ofhigh fructose corn syrup (HFCS) for sugar in the soft drink market. Domesticsugar prices in Mexico are well above the current world price, but somewhatbelow those prevailing in the United States.

Prior to privatisation, the government marketed sugar in Mexico at one fixedprice. With the reduction in direct government intervention in the economy,the privatised milling sector now markets sugar at free market prices, whilestill paying a high annual fixed cost for cane. Caught in a cost–price squeeze,and with growing competition from HFCS, this arrangement may well putthe long term financial viability of even the most efficient mills under threat.

Sugar consumption, once evenly split between household and industrial use,is now trending toward the latter, reflecting the growing industrial use ofsweeteners for processed food and beverage manufacturing, including thesoft drink sector. Mexico’s soft drink bottling industry, second in size onlyto the United States, has accounted for 25 to 30 per cent of total annual sugaruse. In recent years, competitively priced and technically attractive HFCS,produced in Mexico from imported US yellow corn and/or imported directlyfrom the United States, has been taking market share from sugar in the softdrink market. An antidumping investigation during 1998 has resulted in highduties on HFCS imports from the United States.

TradeOver the years the Mexican sugar industry has oscillated between periodsof surpluses and deficits. As recently as the early 1990s, there was a signif-icant sugar deficit as the largely government run industry failed to keep pacewith the rise in demand caused by the rapidly growing economy. As a result,imports reached a record 1.6 million tonnes in 1990-91. More recently, theprivatised industry has been producing a sugar surplus. Since 1994-95,


Mexico has been a significant exporter of sugar, with shipments of 1.2 milliontonnes in 1997-98.

Mexican sugar is exported by private traders acting for the milling sector,but under regulations set by the government’s Temporary Export Program.In years when there is a production/consumption deficit, the program allowsexporters exemptions from export taxes if they pledge to import an amountof sugar equivalent to what they export. Such imports are duty free, whereasimports outside the program face a significant duty. When there are highstocks in the country (the case in recent years), most of the exports aredeclared as ‘final’ by the government, thus releasing sugar mills from theobligation to import matching amounts of sugar for the domestic market.

The Mexican government also allows imports for re-export. This program,known as PITEX, allows the duty free import of raw sugar at world pricesfor refining and subsequent re-export in products containing sugar. Whilethe volumes are small, food and beverage processors, especially tequilaproducers, have actively used the program.

PolicyThe Mexican government has greatly reduced its intervention in the coun-try’s sugar sector in recent years. But it still plays a key role in the domes-tic sugar economy and in setting trade policies. For example, the governmentannually works with producer and mill ownership groups in setting the sugarcane price. The government has also recently intervened in rescheduling thelarge debts of segments of the sugar milling sector.

The Mexican government’s trade agency negotiates trade agreements, workson bilateral trade disputes such as investigating dumping charges against USHFCS producers, and publishes the country’s tariff schedules. Of majorsignificance is the North American Free Trade Agreement (NAFTA) and thebilateral US–Mexican provisions on sugar that went into effect in 1994.

Under the bilateral arrangements with the United States, Mexico can ship25 000 tonnes of raw or refined sugar a year duty free into the United States,an amount that increases to 250 000 tonnes in fiscal 2000-01. After fiscal2007-08, the entire surplus of Mexican sugar is eligible for shipment. Alsounder NAFTA, there is a reduced US tariff on overquota imports of sugarfrom Mexico, thus giving it a competitive advantage over third countrieswishing to ship overquota, high duty sugar to the United States.

117Sugar

PERUPeru’s sugar industry has experienced considerable change over the past threedecades. By the early 1990s, Peru, which was once a regular exporter to theworld market, had become the largest sugar importer in South America.

The deterioration in the sugar sector may be attributed largely to govern-mental experimentation with nationalisation and a worker owned coopera-tive system. However, with the advent of a more free market orientedgovernment and the implementation of a privatisation program, domesticsugar production has risen in recent years.

ProductionDomestic production of sugar in the 1990s has varied considerably since thelow point of 432 000 tonnes in 1992-93 (table 31). Output in 1998-99 is esti-mated to have been around 581 000 tonnes. During the 1990s, domesticproduction accounted for around 70 per cent of total consumption.

The nationalisation programs, in place since the 1960s, left the milling sectorundercapitalised. This led to inefficient operations and high production costs.In addition, poor returns to farmers resulted in low use of fertilisers and otherinputs, in the extension of ratoon cropping over multiple seasons, and tolower yields.


31 Peru: sugar statisticsRaw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 508 432 498 612 648 697 482 581





Over the past decade there has been a slow expansion in sugar cane area,concentrated in the rich valleys of the north coast. Plantings are estimatedto reach a record 70 000 hectares in 1999, compared with 45 000 hectares adecade ago. After a year when excessive wet weather and delays in harvest-ing resulted in low sucrose yields, a significant recovery in yields and outputare in prospect for 1999. The improvement in output is expected to resultfrom favorable weather conditions and continuing investment in the revital-isation of plantations and mills.

Peru’s twelve cane crushing mills have a combined processing capacity of42 450 tonnes a day. Peru has six refineries with a combined daily sugarproduction capacity of 2500 tonnes of refined product.

ConsumptionSugar consumption has been increasing during the 1990s, reaching an esti-mated 929 000 tonnes in 1998-99. A substantial part of the rise in consump-tion can be attributed to strong population growth. Peru’s population hasincreased by 20 per cent over the past decade, to an estimated 25.8 millionin 1999. Rising consumer incomes have also been a factor, with per personsugar consumption currently estimated to be about 37 kilograms a year.

As Peru’s economy grows, domestic consumption of sugar can be expectedto expand, especially as a component of beverages, sugar bases and confec-tionery products.

TradePeru has been a net importer of sugar throughout the 1990s. Imports in 1998-99 are estimated to have been 335 000 tonnes. The major supplier to the Perumarket is Colombia, with Brazil and Guatemala also important.

Peru has also maintained its position as a small exporter, with exports esti-mated to be 52 000 tonnes in 1998-99, compared with an average of 72 000tonnes a year for the preceding five year period. The primary market is theUnited States, where Peru has a quota allocation based on historical ship-ments during the 1975–81 base period used by the US government to deter-mine country shares. For the 1998-99 US fiscal year (October–September),Peru’s quota allocation into the US market was 44 415 tonnes. Peru’s Ministryof Agriculture has usually distributed the US quota among the sugar mills,but this may change as the privatisation process proceeds.

119Sugar

PolicySince 1996, Peru’s government has been encouraging a move from workercooperative organisation of large plantations to greater ownership by privateinvestors.

One difficulty in the privatisation process is that it involves about 35 000workers/owners in twelve sugar states. Nevertheless, there has been substan-tial progress. Of the country’s eleven cooperatives that existed before 1996,seven have been privatised, one is going through the analysis stage, and threeremain in the hands of the workers.

In order to stabilise prices to the domestic industry, the government imposesimport duties and a price band system similar to that of Chile. Currently,there is an ad valorem import duty of 12 per cent, and a 5 per cent ‘tempo-rary’ duty is also imposed.

PHILIPPINESOver the past two decades, the Philippine sugar industry has ranged frombeing a major exporter of sugar to a net importer. Falling sugar productionand rising consumption are the major reasons for this change. For much ofthe current decade the industry has been characterised by periods of lowinternal stocks and high prices followed by substantial imports and pricedepressing stock buildups. In general terms, government regulatory policyhas sought to bring more stability to the internal supply, demand and pricesituation.

ProductionSugar cane farming has a long history in the Philippines, and is currentlygrown in seventeen provinces that are widely distributed from the northern-most island of Luzon to the southernmost island of Mindanao. The island ofNegros, in the central islands of the country, remains the primary cane grow-ing region, accounting for about 55 per cent of the nearly 400 000 hectaresplanted to sugar cane in the entire country.

Sugar production amounted to almost 1.9 million tonnes in 1997-98 but isestimated to have dropped to 1.6 million tonnes, raw value, in 1998-99because of drought early in the season and excessive rain during harvest,which affected recovery rates (table 32). This would be the lowest output


since the late 1980s, and 30 per cent below average annual production in thelate 1970s.

The long term downturn in Philippine sugar production has been caused bya number of factors including loss of cane area through urbanisation and aseries of natural disasters. There has also been a general decline in farmproduction unit efficiency caused by the impact of the ComprehensiveAgrarian Reform Program. Under this program, sugar cane plantations inexcess of 25 hectares have been redistributed to workers and beneficiaries.

As a result of the reform program, the average size of sugar cane farms shrankfrom 14 hectares in the 1970s to 9 hectares in the early 1990s, a size that hasrendered most sugar farms uneconomic. Currently, about 80 per cent of thecountry’s 41 000 cane farmers cultivate holdings of 10 hectares or less. Thesechanges have led to a falloff in yields and reductions in area harvested assmall scale cane farmers switch to more economically attractive crops.

There are 41 operational sugar mills in the Philippines, with a total crush-ing capacity of 182 000 tonnes a day. There are also sixteen refiners, fifteenof which are annexed to raw sugar mills. Average refining capacity is about4000 tonnes a day.

121Sugar

32 Philippines: sugar statisticsRaw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 2 061 2 131 1 873 1 705 1 853 1 883 1 866 1 604





ConsumptionSugar consumption in the Philippines has risen substantially over the pasttwenty years from 1.1 million tonnes in the late 1970s to an estimated 2.0million tonnes in 1998-99. The main reason for the growth in domestic sugaruse has been the increase in the population from 51 million in 1980 to a littleover 74 million in 1999.

Per person sugar consumption in the Philippines is estimated to have beenover 26 kilograms in 1998-99, double the regional average for Asia. As inother developing countries, there has been a growing trend to consume sugarin the form of manufactured food and beverage products. Studies commis-sioned by the Philippine sugar industry indicate that since the 1970s house-hold sugar consumption has been expanding by about 3.5 per cent a yearwhile industrial use has been expanding at 4.6 per cent a year.

TradeThroughout the early 1980s, the Philippines ranked among the world’s lead-ing sugar exporters, shipping between 1.0 and 2.0 million tonnes a year.However, in the seven years to 1997-98, exports averaged only 215 000tonnes, as consumption increased faster than production. Most of the 189 000tonnes shipped in 1997-98 went to the premium priced US quota market.

Since the United States allocates import quotas on a historical base period(1975–81), the Philippines, a major supplier of sugar to the US during thatera, receives the second largest annual quota (13 per cent of the total) amongthe forty supplying nations. These exports to the United States, while earn-ing premium prices, have attracted some criticism from Philippine sugar users— especially when domestic prices have been high because of tight supplies.

Imports of sugar have grown in recent years, from very low amounts in theearly 1990s, to an estimated 650 000 tonnes in 1998-99. Around 70 per centof imports were in the form of raw sugar, with the dominant suppliers beingThailand and Australia. South Korea has been the major supplier of refinedsugar.

PolicyThe central sugar policy marketing organisation in the Philippines is theSugar Regulatory Authority. The authority was established in 1985 follow-


ing the dismantling of the government monopoly institution existing at thattime and the privatisation of formerly nationalised sugar mills and refiner-ies. Its major mandates have been to rebuild the industry and to regulateinventory levels. An important part of the latter responsibility involves theallocation of sugar production quotas to supply the domestic market and tofill the Philippine export quota to the United States. The Sugar RegulatoryAuthority cannot buy, own or market sugar. Sugar is marketed through asystem of warehouse receipts, with product being withdrawn from ware-houses only on presentation of the receipts and a release order from theauthority.

General sugar pricing policy pivots on allocations of sugar into several cate-gories. ‘A’ sugar garners a relatively stable price from the US quota. Pricesin the domestic market depend on the allocated volume for ‘B’ sugar forinternal requirements. ‘C’ sugar is sugar in the country’s strategic reserveand its price is lower than the price of ‘B’ sugar. ‘D’ sugar receives the worldmarket price. Growers and millers get the composite price of all these allo-cations. Historically, prices of sugar in the local market have been lower thanUS market prices but higher than world prices.

The Sugar Regulatory Authority controls purchases and releases of the coun-try’s strategic stocks of sugar. In 1999, these stocks amounted to about300 000 tonnes (two months supply), with releases likely to be aimed atmaintaining prices between 800 and 900 pesos per 50 kilogram bag.

One of the challenges for the Sugar Regulatory Authority is how to manageimports in a way that does not undermine the domestic industry when worldprices are low. It does this through a system of annual designated quotas withdifferent tariff rates for within quota and overquota imports. Since July 1999,the tariff on raw sugar imported within the designated quota set by the author-ity has been 50 per cent, whereas there is a 65 per cent duty on overquotaimports. Under the WTO Agreement on Agriculture, the Philippines is boundto a uniform 50 per cent tariff rate by 2004.

RUSSIAThe Russian Federation has traditionally been one of the world’s largestproducers and consumers of sugar. With the economic disruptions follow-ing the breakup of the former Soviet Union, domestic sugar production andconsumption have fallen. But imports remain high in order to service directconsumption and industrial requirements. Government policy is now focused

123Sugar

on the seasonal imposition of a high protective tariff on sugar imports, partic-ularly refined sugar, as a means to protect the struggling domestic sugarindustry.

ProductionThe Russian sugar producing industry consists of 5000 sugar beet farms in23 regions and 93 refineries with a total capacity to process 273 000 tonnesof beets a day. Sugar beets have traditionally been grown in the western partof the Russian Federation — in competition with wheat, peas, barley andsunflowers.

The Russian sugar beet industry has been in a contraction phase for a numberof years. The area planted to sugar beets has fallen from 1.5 million hectaresin the late 1980s to around 920 000 hectares more recently. Beet sugarproduction, which averaged 3.2 million tonnes in the late 1980s, is estimatedto have been only 1.4 million tonnes in 1998-99 (table 33). Much of thisdecline can be attributed to a significant reduction in the level of governmentsubsidies provided to the Russian sugar industry. Apart from the decline insugar beet plantings, poor crop yields and a lower sugar content of processedbeets have also contributed to the fall in production. Lack of working capi-tal for the purchase of inputs such as fertiliser and machinery has also beena factor in the production decline, as some farmers have been unable to plantcrop on time or achieve good yields.


33 Russia: sugar statistics Raw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 2 230 2 538 2 714 1 798 2 237 1 863 1 453 1 383


Imports kt 3 901 4 350 3 350 2 077 3 929 3 118 5 040 4 450– raw kt 2 212 1 667 1 424 944 1 834 1 993 4 153 3 517– white kt 1 689 2 683 1 926 1 132 2 095 1 125 887 933



ConsumptionConsumption of sugar has declined in Russia in recent years, largely becauseof the major deterioration in the economy and sharply lower consumer dispos-able incomes. However, Russians have a high propensity to consume sugar,as per person sugar consumption has held up at over 40 kilograms a yearover virtually all of the 1990s.

The traditional high level of sugar consumption in Russia can be attributedto several factors including industrial use for confectionery production, cannedfruit production, and the production of home made alcoholic beverages.

TradeRussia has traditionally been the world’s largest importer of sugar and hasmaintained this position despite the very substantial contraction of its econ-omy in the 1990s. Imports are estimated to have been nearly 4.5 milliontonnes in 1998-99 (table 33), with the sharp fall in world prices during theyear likely to have contributed to the maintenance of trade volumes.

Russia annually imports large quantities of both refined and raw sugar. TheUkraine has been the traditional supplier of refined beet sugar and Cubacontinues to be the key supplier of raw cane sugar although imports fromBrazil have been expanding. But recent tariff measures aimed at protectingthe domestic processing industry are cutting the flow of refined sugar sharply.Imports of refined beet sugar from the Ukraine, which had been running atwell over 1.0 million tonnes a year, have dropped to under 100 000 ton nesa year over the past two years following the imposition of high tariffs.

PoliciesA central feature of current Russiansugar policy is the imposition ofhigh seasonal import tariffsdesigned to protect the domesticprocessing industry. New decreessetting forth the tariff schedules forraw and refined sugar were issuedin June 1999 (table 34).

While the Russian government hassought to stimulate sugar beet

125Sugar

34 Russia: tariffs on importedsugar a

Tariff rate

Raw Refinedsugar sugar

% %

23 April – 31 July 1 251 August – 17 October 46 7018 October – 30 November 50 751 December – 22 April 5 30 b

a Seasonal tariffs introduced in June 1999. b Butnot less than 0.12 euro a kilogram

production, the industry continues to contract. A major problem for the indus-try is the lack of investment capital to maintain and upgrade the industry —both on-farm and off-farm. Indicative of the lack of investment in infra-structure, for example, is the persistence of high postharvest losses owing toa lack of adequate transport and storage facilities for sugar beets.

SINGAPOREWith no sugar crops being grown in Singapore, annual consumption —currently estimated at around 260 000 tonnes — is wholly dependent onimports. During the 1990s, imports have ranged between 252 000 tonnes in1992-93 and an estimated 324 000 tonnes in 1998-99 (table 35).

Singapore imports the bulk of its supply as raw sugar. Australia is tradi-tionally the main supplier of raw sugar, and Brazil shipped record quantitiesto Singapore in 1998. There is one refinery to process imported raw sugar.Some refined sugar is imported from Malaysia and Thailand.

Small amounts of refined sugar are exported each year to regional destina-tions. The bulk of refined sugar production is consumed directly or is usedin food and beverage processing for domestic consumption. However, theapparent very high per person consumption of sugar in Singapore (table 35)is indicative of substantial use of sugar in the manufacture of products contain-ing sugar for export. (The consumption data do not take into account exports


35 Singapore: sugar statistics Raw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 0 0 0 0 0 0 0 0





or imports of products containing sugar.) Japan is the largest market forexports of products containing sugar.

Singapore operates a free market regime for sugar, with no duties on importsof raw or refined sugar. Domestic prices are free from intervention andimported refined sugar competes freely with domestically produced refinedsugar.

THAILANDDuring the past two decades the Thai sugar industry has been one of the mostdynamic in the world. With relatively small internal demand for sugar andlow shipping costs, especially to growing regional markets, Thailand hasbecome one of the world’s leading exporters.

Government policies have maintained high domestic sugar prices that havedampened the growth in domestic use while encouraging increased produc-tion and exports. However, with the economic upheavals that began in 1997,Thailand’s sugar industry and government are having to adapt to a signifi-cantly different economic environment, including substantially reduced earn-ings from sugar exports in the wake of low world prices.

ProductionWith encouragement from government and financiers, the area devoted tosugar cane in Thailand grew from 650 000 hectares in the late 1980s to965 000 hectares in 1996-97. The availability of precrop financing of canegrowers by the milling and banking sector was a key mechanism by whichthis expansion was fostered.

In 1996-97 over 50 million tonnes of cane was processed and 6.1 milliontonnes of sugar, raw value, produced (table 36). In the past two seasons,however, there has been a substantial drop in output as the area under canehas fallen following the financial difficulties affecting the country and aconsequent reduction in the ability of mills and banks to prefinance canegrowers. During 1997-98, severe drought cut yields, and sugar productiondipped to 4.3 million tonnes. In 1998-99, production is estimated to haverecovered to 5.5 million tonnes as rains boosted the cane crop in the Centralregion.

127Sugar

Thailand also has a small high fructose syrup (HFCS) industry that producesabout 50 000 tonnes of product a year. Production from the country’s onlyplant goes mainly to the soft drink and alcohol brewing industries.

ConsumptionIn 1998-99, Thai domestic sugar consumption is estimated to have been arecord of almost 1.9 million tonnes, continuing the steady growth experi-enced over the past decade. The increase in sugar consumption over the pastdecade can be explained by population growth, a strongly growing economy(until recently), and increased consumption of products containing sugarsuch as soft drinks. The Thai population is currently estimated to be around61 million, compared with 54.3 million a decade ago. Per person consump-tion of sugar, which has traditionally been low, has grown by around 10 kilo-grams over the past decade and currently exceeds 30 kilograms.

TradeThailand is estimated to have exported 3.4 million tonnes of raw and refinedsugar in 1998-99 — over half of total expected production. Of this amount,around 2.3 million tonnes was raw sugar. For the five years to 1997-98, Thaiexports of sugar averaged 3.6 million tonnes a year. Owing to Thailand’scane processing season, the bulk of Thai exports are in the January–Juneperiod. However, greater storage capacity has increased the industry’s ship-ping flexibility in recent years.


36 Thailand: sugar statistics Raw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 5 106 3 792 4 009 5 513 6 323 6 098 4 325 5 480



Exports kt 3 270 2 464 3 036 3 729 4 850 3 816 2 623 3 427– raw kt 2 195 1 630 2 278 2 809 3 240 2 368 1 399 2 255– white kt 1 075 834 758 920 1 610 1 449 1 224 1 172


Reflecting an advantage in shipping costs, Thai sugar exports are tradition-ally concentrated in other Asian markets. Japan, South Korea, China,Malaysia and the Philippines are the major buyers of Thai raw sugar, whileIndonesia is the leading purchaser of refined sugar. The only non-Asianexports were small shipments to Middle East markets such as Saudi Arabiaand Russia, and quota shipments to the US market.

PoliciesEach season the Thai government estimates production, internal needs, andexport commitments and divides domestically produced supplies into an ‘A’quota for domestic use, a ‘B’ quota to cover long term contracts and a ‘C’quota consisting of a large annual volume of residual sugar production avail-able for unrestricted sale overseas.

Sugar for unrestricted export (‘C’ quota) is usually sold six months prior tothe start of the crushing season by a number of private trading companies.Nearly 1 million tonnes of ‘B’ quota sugar, designated for long term contracts,is marketed each year by the Thai Cane and Sugar Corporation (an organi-sation comprising millers and producers) in conjunction with the govern-ment.

The Thai government for many years has maintained a high internal price forsugar. The policy is aimed at keeping domestic prices high but stable whileallowing the government to set relatively attractive farm prices for cane tospur production. In early 1999, in response to pressure from the sugar indus-try, the Thai government lifted the domestic sugar price for the first time inseventeen years to help offset the impact of sharply lower world prices.

Guaranteed grower prices are set a year through negotiations with the privatesector and traditionally have provided growers with subsidised productioncredit. Individual mill companies face specified production quotas and arerequired to allocate set proportions of their output to the domestic and exportmarkets. The Thai government operates a credit program in which farmerscan borrow at below market rates. The government has also assisted sugarexports by waiving normal business taxes and the Bank of Thailand hasprovided discount rate financing to millers and exporters to allow them tooffer credit terms to potential foreign buyers.

The Thai government also regulates the sugar sector by restricting importsthrough quota and import duties. The current sugar import quota, required

129Sugar

under the WTO Agreement on Agriculture, is 13 696 tonnes. For 1999, thetariff rate for imports within the quota is 65 per cent and the tariff rate outsidethe quota is 99 per cent. The outside quota tariff rate has declined 1 per centa year since 1995.

VIETNAMThe Socialist Republic of Vietnam’s sugar industry is in transition. In recentyears, sugar consumption growth has outpaced expansion of domestic produc-tion. To fill the gap in the short term, Vietnam’s government has authorisedincreasing amounts of imports. For the longer term, the government is pursu-ing policies that would lead to sugar self-sufficiency and eventually toVietnam becoming an exporter of sugar.

ProductionVietnam’s domestic sugar industry is based on the production of sugar canethat is widely grown throughout the country, especially in the south. Thearea of sugar cane has been trending up from about 145 000 hectares in theearly 1990s to 165 000 hectares in 1994-95. The national planning goal isto reach about 250 000 hectares by 2000, with the resulting output to beserviced by an expansion of existing milling facilities and the opening ofnew ones. Production of raw sugar in 1998-99 is estimated to have beenaround 580 000 tonnes (table 37).

Cane is generally grown in dryland regions, or with irrigation in the Mekongand Red River delta areas. Cane yields have averaged between 40 and 45tonnes per hectare, but a goal of the government is to lift yields to 60 tonnes


37 Vietnam: sugar statistics Raw value; September–August years

1991 1992 1993 1994 1995 1996 1997 1998-92 -93 -94 -95 -96 -97 -98 -99 s

Production kt 500 485 430 450 535 550 600 580


Imports kt 35 35 120 160 140 130 110 125

Exports kt 0 0 0 0 0 0 0 0

a Calculated as production plus imports, less exports and change in stocks. s Estimated.Source: Sparks Companies Inc.

per hectare by using higher yielding varieties and increasing the use of inputs.Most of the cane is grown on small holdings of 0.3–1.0 hectare, but in someareas of the country the average is 10–15 hectares. The state owns all of theland in Vietnam, but the 1988 Land Lease Law provides rights to the longterm use of land.

The Vietnam government, which owns and operates the country’s millingsector, has been seeking to increase the commercial processing of sugar cane.In the early 1990s only about 30 per cent of the annual crop was beingprocessed at commercial scale cane mills, with the balance going to ‘hand-icraft’ mills with a capacity of less than 100 tonnes of cane a day. As part ofits modernisation strategy, capacity at several of the government mills hasbeen expanded. Vietnam is also in the process of building several commercialmills with crushing capacities ranging from 4000 to 8000 tonnes a day.Recently, this effort has involved several joint venture projects using Viet-namese and foreign investment capital.

ConsumptionVietnam’s sugar consumption has been trending upwards in recent years,and is estimated to have been over 700 000 tonnes in 1998-99, an increaseof 40 per cent since 1991-92. This upward trend reflects population growth,some income growth (albeit from a low level), and the increasing availabil-ity of processed food and beverages containing sugar. Currently, annual perperson consumption of sugar is estimated at around 9 kilograms, well underthe world average of 20 kilograms. With a current population of 77 million,there is potential for substantial expansion in the total volume of sugarconsumption as incomes rise. The manufacture of foods containing sugarcan be expected to continue growing as the population becomes more attunedto consuming such products.

TradeWith domestic consumption in excess of production, Vietnam has been asizable importer of sugar during most of the 1990s. For 1998-99, sugarimports are estimated to be around 125 000 tonnes. After peaking aroundthe middle of the decade, imports appear to be declining as production growsfaster than consumption. Imports averaged a little over 130 000 tonnes a yearin the five years to 1997-98. Annual imports are a mix of raw and refinedsugar. The main suppliers to Vietnam in recent years have been Thailand andAustralia.

131Sugar

PoliciesSince Vietnam is a centrally planned economy, the government is very activein all sectors of the sugar market as well as in longer term planning for thesector. For example, the government’s National Price Commission a yearsets a minimum price for sugar cane which growers receive from mills, aswell as the maximum price for sugar in the domestic market.

The level of imports, which are controlled by licences, is determined eachyear by a government committee. The current duty on raw sugar is 25 percent of the c&f price, and the duty on refined or white sugar is 35 per cent.

Following Vietnam’s entry into ASEAN in 1995, it is committed to theremoval of import duties on sugar imported from other ASEAN countriesby 2003. Implementation of this commitment will mean that sugar importedfrom other ASEAN members, such as Thailand, will have a price advantagerelative to that from other suppliers such as Australia.


References

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—— 1991, Impacts of Regulatory Changes on Sugar Cane Growers, ABAREDiscussion Paper 91.10, AGPS, Canberra.

—— 1995, The 1995 Farm Bill and US Sugar Policies, ABARE Report tothe Queensland Sugar Corporation and Sugar Research and DevelopmentCorporation, Canberra, March.

Agra Europe 1998, CAP Monitor, Agra Europe (London) Ltd.

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Copersucar 1997, Center for Sugar and Alcohol Technology Annual Report,Sao Paulo State, Brazil.

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—— 1999, Sugar Program: Changing the method for setting import quotascould reduce cost to users, Report to Congressional requesters, GAO/RCED-99-209,Washington DC, July.

US International Trade Commission 1999, The Economic Effects ofSignificant US Import Restraints: Second Update 1999, Investigationno. 332–325, Publication 3201, Washington DC, May.

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Young, E. 1994, Uruguay Round Outcomes: Agriculture, Agriculture Branch,Trade Negotiations and Organisations Division, Department of ForeignAffairs and Trade, Canberra.


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