Global Subsidies Sour Sugar Prices
Sugar prices are in the tank, production efficiency in foreign countries is falling, and the globe’s growing appetite for subsidization is to blame. That was the message delivered loud and clear at this week’s International Sweetener Symposium.
A four-year glut of sugar has depressed prices and cut world prices in half since 2011, Jose Orive, the president of the London-based International Sugar Organization told the group. And the surplus-to-consumption ratio should remain abnormally high at 40 percent for at least another year as foreign producers maintain production levels.
But Jack Roney, an economist with the American Sugar Alliance, said that production is only being maintained thanks to subsidies that insulate foreign producers from low prices. Subsidization rates are quickly climbing, too, which only perpetuates the market woes.
A long-time sugar executive from the European Union, Patrick Chatenay, echoed Roney’s concerns and explained that current world sugar prices are actually far lower than average production costs – something that clearly signals the presence of major subsidization and market manipulation.
“Subsidies are rampant and unequal,” Chatenay said. “Currency fluctuations make a mockery of tariff trade concessions and can damage competitive sugar producers.”
Subsidization is particularly prevalent among the world’s biggest exporters, he explained. Brazil, Thailand, India, and Mexico account for 70 percent of global exports.
Among the most egregious policies singled out by Chatenay: increased preferential loans coupled with debt forgiveness in Brazil; government mandated transition from rice to sugar production in Thailand; Indian export subsidies and price supports; and government ownership by Mexico.
Both Chatenay and Roney believe the best solution is the reduction of global subsidization to bring free-market principles back to sugar. In fact, the American Sugar Alliance has adopted a new policy goal nicknamed the zero-for-zero sugar policy.
That concept would end U.S. sugar policy once other producers do the same. “The subsidy cease-fire,” Roney said, “would ensure that the most efficient producers, not the most subsidized, are rewarded in the marketplace.”
Chatenay acknowledged that such a policy will take a long time to accomplish given the long history of government involvement in sugar, the current lack of progress in multilateral free trade talks, and the need to control currency fluctuations.
“Major foreign producers have grown reliant on subsidies and will be reluctant to promote free trade,” he said.
However, Roney told the group that it is worth a try. Without some kind of worldwide understanding on government supports, he said, efficient growers in the United States will be squeezed out by less efficient foreign growers leaving consumers dependant on unreliable foreign suppliers.
U.S. sugar producers outlined their strategy in a three-minute video released at the industry’s annual meeting.