3.
the relationship between EU and world market prices
Point 3 arises because preference recipients have the opportunity to ‘swap’ imports from the
world market for exports to the EU up to the limit of their domestic production. If, for
example, their domestic consumption is 1 million tonnes and their production 1.5 million
tonnes their strategic choices range between supplying the domestic market wholly with local
supply and exporting 0.5 million tonnes or satisfying domestic demand exclusively from
imports and exporting 1.5 million tonnes.
Because these three factors vary between the ACP and the effective terms of future
preference agreements is uncertain, this section deals with the potential impact in two steps.
The first assesses what is known about the aggregate effect on the volume of ACP sugar
exports. The second sub-section considers how this aggregate effect will affect different ACP
sub-groups according to alternative assumptions about what may happen to the distribution
of any remaining economic rent within the relevant value chains.
Aggregate effect
When in June 2005 the Commission was proposing a cut of 39 percent in the white sugar
guide price it forecast that there would be no fall in imports from the Sugar Protocol states
and an increase in imports under EBA resulting in a net increase in imports of 1.6 million
tonnes to 3.9 million tonnes by 2012/13.11 This assumed that any falls in imports from the
high-cost ACP producers would be replaced by increased exports from the lower-cost
producers, with Malawi, Mozambique, Swaziland, Zambia and Zimbabwe specifically
mentioned as potential beneficiaries. Imports under EBA were forecast to reach 2.2 million
tonnes (as against the level of 3.5 million tonnes that they would have reached without any
price cut).
It is far from clear whether these levels will be attained for three reasons. Partly it is because
the information required to judge is complex (depending as it does on the relativities between
the EU price, the costs of production in each ACP state, and the world price - all three of
which have to be projected into the future). Related to this, it is also partly because there are
only a few, closely guarded, sources of technical expertise on comparative production costs.
Third, the nature of the ACP’s post-2007 preference regime is uncertain; of critical
importance is whether or not there will be any quantitative or price constraints on lower-cost
Protocol beneficiaries taking over (or exceeding) any fall in supplies from high-cost
producers. The effect of these uncertainties may be magnified by their impact on investment
decisions. Sugar production and investment is a typically lumpy activity. With uncertainty
on all these points it is hard to judge whether the new investment foreseen in some LDCs
after EBA was unveiled will actually be forthcoming.
Information available from one industry specialist suggests that the EU figures may be at the
higher end of likely import volumes. It assumed a slightly larger cut in prices than has finally
been agreed with the reference price for raw sugar under the Sugar Protocol being reduced to
€325 per tonne (as against the €335.2 that will apply under the November 2005 agreement).12
It then made two different assumptions about quantitative restrictions under the preferential
regimes. If the current non-LDC preference recipients obtain unlimited access, it forecast an
11 CEC 2005a: 8
12 EU Council 2005: 2.
14