Sugar Policy Reform

1. Sugar Policy Reform Donald Mitchell Lead Economist The World Bank

2. A Complex Commodity Crop Product Primary Use

3. Sugar • One of the most policy distorted commodities • OECD producer support is $6.35 billion compared to world trade of $11.6 billion • Worst offenders are EU with $2.7 billion of support US with $1.3 billion of support Japan with $.4 billion of support

4. Why is protection so high? • Partly because OECD sugar producers are mostly beet producers and their costs are twice those of cane producers • In the EU, US, and Japan, sugar beets account for 83 percent of production • In the rest of the world beets only account for 10 percent of sugar production

5. Average Production Costs

6. EU and World Sugar Prices

7. US and World Sugar Prices

8. Japan’s Policy • Raw sugar imports are at world market price but restricted to MAFF and resold at higher price to local refiners • Beet and cane producers get government guaranteed prices (beet is 5 x US and cane is 10 x Australia) • Raw sugar target prices was $.53 in 2001 • Retail white sugar is $.89 per pound

9. Imports and Exports of EU-US-Japan

10. Net Imports Decline

11. High support created substitutes • High-Fructose Corn Syrup and Similar Liquid Sugar Products …now account for more than half of US caloric sweeteners consumption …and 40 percent of Japanese consumption • Reduces world imports by 10 million tons (compared to world trade of 40 million)

12. US Sugar and HFCS Consumption

13. Protection causes distortions, protection, and political alliances • HFCS producers in US benefit from high sugar prices • EU and Japan regulate HFCS production • Low sugar prices in Brazil encourage sugar use for ethanol as an automobile fuel • Many countries use tariffs to protect against imports at depressed world prices

14. Many Developing Countries Also Protect Sugar Producers • Domestic prices in China are near US prices • India has producer prices 50 percent above world world market levels • Kenya, Mexico, Poland, Turkey all protect Sugar Producers

15. Nominal Protection Coefficient

16. Kenya Sugar Prices

17. Gains from Liberalization • Multilateral reform gives largest gains • …global welfare gain of $4.7 billion • …world prices would rise 40 percent • …price in Japan would fall 65 percent • …prices in EU would fall 40 percent • …prices in US would fall 25 percent

18. Countries with preferences • Would lose, but not as much as might be expected • …many are now high cost producers • …rise in world market price would offset some of loss • …estimates are that loss would total $.45 billion

19. Prospects for EU Sugar Reform • EBA could increase imports 2.4 million tons and cost $1 billion Euros by 2009 • EU Expansion brings in new sugar producers in 2004 • EPA could sink the sugar program with an additional 6 million tons of imports—but not for many years

20. Prospects for US Sugar Reform • Sweetener production growing by 3.2 percent and consumption by 2.1 percent • Imports are locked by WTO agreements • NAFTA gives Mexico unlimited access in 2009

21. Prospects for Sugar Reform in Japan • Little pressure for reform • Despite higher protection than EU or US

22. How Reforms Are Done Matters • Changes to existing EU and US program would favor current quota holders • Most efficient producers, such as Australia, Brazil, Thailand gain little • Best approach is multilateral reforms which gives largest price increases to offset declines in currently protected markets and allows new efficient exports to expand