In recent times the weighted average cost of producing sugar in Caricom has been over 29 US cents per lb. The range in the cost of production is large - from about 16 US cents per lb in Belize the lowest-cost producer, to Trinidad and Tobago where it is about 55 US cents per lb. As we saw last week, contrary to local impression, Guyana's cost of producing sugar is not the lowest; it is of the order of 21 US cents per lb. And, even when these figures are averaged over a six-year period there is no significant change to the data reported here. In particular the cost of production in Guyana is still above that of Belize and remains at 16 US cents per lb. There is no change also for Belize at 16 US cents per lb.
Because the weighted average cost of producing sugar in the region is more than four times the world market price for sugar, it is self-evident that the survival of the industry is not dependent on sugar sales to that market. It is in fact dependent on sales to the preferential protected markets of the European Union (EU), the USA, and Caricom itself. Of these markets, the EU's is by far the most lucrative. As we saw a few weeks ago that market accounts for over three-quarters of the region's export sales. This market will be the next focus of our discussion.
Two segments
There are two segments to the sugar market in the EU, namely, the major market which is called the Sugar Protocol market and which accounts for about 92 per cent of the volume of sugar sales to the EU, and the Special Preferential Sugar (SPS) market, which accounts for the remaining 8 per cent. In recent times the price of Protocol sugar has been just under 525 euros per tonne, while the SPS sugar has been just under 500 euros per tonne. Translated to US dollars this has varied considerably, as in recent years the US - euro exchange rate has fluctuated noticeably. As is the pattern followed in this series, assessing the EU marketing arrangement intelligently and fairly requires that we become familiar with certain of its features.
Imperial imposition
Although the point has been made many times before, there is little public recognition of the fact that the origin of the present sugar arrangements with Europe lies in initiatives taken by Britain to protect its supply of sugar, at a time when war threatened to disrupt it. During World War II (1939-45) Britain had pressured its colonies to supply its food needs as part of the broader 'British Empire war effort.' To secure this, for the duration of the war Britain had agreed to purchase through guarantee, all the exportable raw sugar from the region at a negotiated price. This sugar was processed in Britain. At the end of World War II fearing a threat to these assured wartime supplies for its sugar refineries, Britain decided in 1948 to provide quota and price guarantees once again to its colonial suppliers. This arrangement later became formalized in the Commonwealth Sugar Agreement (CSA) of 1951. Under the CSA, Britain undertook to import an irreducible amount of 1.7 million long tons of sugar per annum, of which 745,000 were initially allocated to its West Indian possessions at uniform prices to be 'negotiated' annually. The West Indian share of the quota represented at the time about 70-80 per cent of its total sugar exports.
This observation about the origin of the Sugar Protocol is important, since in a flagrant re-writing of history the Sugar Protocol is now presented as a gift, or a unilateral handout from Europe to its former possessions. In fact, the Protocol originated as yet another imperial imposition designed to protect the interests of the 'mother country.' The sad irony of this is that in the Caricom region this circumstance is not recognized, and in our legitimate anxiety to deal with the sugar problem, we have made the proverbial mistake of 'throwing the baby out with the bathwater.'
The CSA lasted until 1974 when Britain (along with Ireland and Denmark) joined the European Economic Community (EC), expanding its membership to nine. As part of the conditions for entry into the EC, the CSA was renegotiated into a Sugar Protocol (1975) between the EC and most of the former sugar exporting colonies of continental Europe, which subsequently became known as the African-Caribbean-Pacific group (ACP) of countries.
Importantly, the Sugar Protocol was simultaneously a part of, and separate from, the more comprehensive trade and aid package of the Lome Convention signed between the same two parties, and which also came into force in 1975. It was separate, in that it is an indefinitely binding legal government-to-government agreement covering specific matters pertaining to volumes of raw cane sugar, which the ACP undertook to supply the EC with and the pricing arrangements for this volume of sugar. Provisions were even made for its continuance in event the Lome Convention came to an end.
Thus Article I states: "The [European] Community undertakes for an indefinite period to purchase and import, at guaranteed prices, specific quantities of sugar, raw or white, which originate in the ACP states and which these States undertake to deliver to it." Article 3 (2) also states: "Subject to Article 7, these quantities may not be reduced without the consent of the individual states concerned." Article 8 (2) further states: "In the event of the Convention ceasing to be operative, the sugar supplying states... shall adopt the appropriate institutional provisions to ensure the continued application of the provisions of this Protocol [...]."
Defining elements of the Sugar Protocol
There are four defining elements to the Sugar Protocol. One is the principle of a mutual purchasing/supply commitment for an indefinite period. In other words the Sugar Protocol is not a time-bound agreement. A second is that the quantities to be supplied (quotas) are to be agreed and this amount is an obligatory commitment for the supplier. Only factors beyond the control of the sugar firms (force majeure) are accepted as explanations for failure to supply the agreed quantities. Any failure outside this ambit, results in a reduction of a country's quota. Third, the price is guaranteed and negotiated annually. And, finally the Protocol is a legally binding government-to-government agreement referring to specific multilateral contractual arrangements.
There is also a smaller category of sugar sales to the EU, which is made under what is known as the Special Preferential Sugar Arrangements (SPS), which came into force in 1995. This became possible because Portugal and Spain having joined the EU in 1986, it was found that there was a raw sugar supply deficit based on the increased demand of the Portuguese refineries. The SPS arrangement was initially fixed for six years (July 1, 1995 to June 30, 2001), but it was subsequently extended. The supplies under this programme have been reducing, as initially it was 111,269 tonnes. The price as we saw is also lower. In effect therefore it is a preferential market supplementation to the main EU Sugar Protocol market for Caricom.
Next week we shall continue this discussion of the EU market, along with recent EU actions and developments at the WTO.
T he observation I made last week to the effect that, the highly controversialSugar Protocol between the Euro-pean Union (EU) and the African- Caribbean-Pacific (ACP) Group of countries had originated as a World War II (1939-1945) 'imposition' by Britain on its colonial possessions has far reaching significance for the conundrum, which presently faces the region. That 'imposition' sought to ensure the continued flow of sugar supplies to Britain's refiners (principally Tate and Lyle) as part of the war-time effort against the Nazi axis-of-evil. As I had indicated, that war-time arrangement was later formalized in the Commonwealth Sugar Agreement (CSA) of 1951. Before that, however, in 1948 the British government had already taken interim steps to 'regularise' the war-time sugar trading arrangements with its colonies in the new post-war period.
Making sugar reasonably efficient
The establishment of the CSA was in recognition of the fact that the disruptions caused by World War II had resulted in a serious decline in the capacity and efficiency of the colonial sugar cane industries. Starved of capital and attractive prices, all the colonial sugar export industries were, after the war, in need of funds for rehabilitation and modernization. The CSA therefore, not only provided price and quota guarantees as I indicated last week, but it also made legislative, institutional and financial provisions to put the industries in the various colonies on a reasonably efficient standing. At the same time the refineries in Britain, which were also adversely impacted by war-time disruptions, were re-financed and rebuilt on the expectation of the rapid resumption of sugar supplies from traditional colonial sources. To most policy-makers at that time, the shortages and inflation, which had occurred after the First World War (1914-1918) were what was dreaded most. The uppermost desire in their view was to avoid a repetition of that situation, which many believed contributed directly to the Second World War.
When Britain was negotiating its entry to the European Economic Community (EEC) as it was called then, the resolution of its on-going sugar commitment to its former colonies was a major pre-condition for final settlement. In the event the Sugar Protocol that followed after entry into the EEC in 1973, extended the existing CSA arrangement to the other sugar-producing colonies and ex-colonies of the other EEC members, hence the creation of the ACP Group of Countries.
Two other features
If the origins of the present Sugar Protocol were all, it would be enough to challenge the legal and moral foundations of any European attempt to dispense with it in a unilateral way. But two other features of the arrangement make the situation far more compelling than it might at first appear. One is the legal status of the Sugar Protocol. As I have indicated time and again, the Protocol is an intergovernmental multilateral contract of indefinite duration.
Furthermore, it has been from the very outset legally separate from the Lome Convention, which was the comprehensive negotiated trade-aid- development package between the EU and the ACP Group of Countries. After the termination of the fourth Lome Convention and its replacement with the Cotonou Agreement (2000), the Sugar Protocol was not legally affected.
The second consideration is that at the time of negotiation of the Sugar Protocol the global commodity boom of the early 1970s had generated widespread fears of permanent long-term commodity shortfalls and with these sustained high prices for all commodities. Some readers would be aware that this was the period of the first oil crisis. In this period the world sugar price peaked at 64 cents/lb in October 1974. It averaged 30 cts/lb during that year and 20 cts/lb in 1975. Five years later in October 1978 the price reached 47 cts/lb and averaged 29 cts/lb during that year. The agreement that was eventually signed, however, was based on a price of only 147 British pounds per ton. At the time, the world price was more that 21/2 times higher and had peaked at more than four times the regular negotiated price under the agreement.
In assessing this outcome, it is important to recall that colonial and ex-colonial sugar producers were at that time major suppliers in world markets. Thus in 1955, the British West Indian territories ranked as the second largest sugar exporter. This was a period where as much as 59 per cent of the world sugar market was accounted for by special preferential marketing arrangements. Indeed, the region as a whole remained among the top ten largest sugar producers right up to the mid 1990s.
Convergence
An important consideration for the future of the Sugar Protocol is that for most, if not all of its existence, there was a convergence between the sugar interests of the colonial and ex-colonial producers, the British and European refineries, and the European beet sugar farmers. As we shall see next week, the key to this is the pricing arrangement for sugar under the protocol, which is linked to the domestic price paid to European farmers. Over the years these farmers have consistently clamoured for greater protection and the maintenance of farm output and incomes (by subsidy if necessary), in order to secure the survival of the rural way of life and its values in Europe in the face of the relentless spread of industrialization and urbanization.
From this perspective, it is to be deeply regretted that the EU Sugar Protocol is portrayed as a 'hand-out' to the ACP states. It is even more deeply regretted that this view has gained such wide acceptance in our own region, even among its decision-makers and policy analysts. Although late, there is need for a public relations offensive to correct it.
The historical record to my mind is clear. From the outset, the concern behind the Sugar Protocol was at best to promote the mutual economic advantage of all parties over the long term, but more likely to protect European sugar interests. In so far as the former applied it meant that for both Europe and the ACP an emphasis needed to be placed on assured supplies and long-term stability in earnings, both of which elements are embodied in the Sugar Protocol.
Next week we shall take this discussion further and examine the anatomy of the recent challenges to the Sugar Protocol.