transactions some LDCs might decide that they could gain by selling more sugar than can be
accommodated at the administered price. If they were to start selling to beet refineries it
might be difficult to police a system of voluntary export restraint in return for set prices. A
free rider problem, familiar to students of commodity agreements, could emerge. It is
conceivable that, as a result, the price could become one that is negotiated between actors in
the value chain, with the proportion accruing to exporters determined by supply and demand.
This would have consequences that are taken up below.
Thus far, EBA sugar has been accommodated in the EU market largely by cutting SPS
supplies in order not to alter substantially the pre-existing supply-demand relationship. The
possible knock-on effect of increased LDC supplies on the prices received by EU producers
is a major reason why the EBA prices are administered in the way that they are. If increases
in EBA imports began to exceed cuts in SPS or reductions in Protocol imports it is also
possible that the EU market price might move towards an ‘undistorted’ level. It would be
unlikely to reach this level unless sufficient LDCs develop a capacity to supply a large part of
the market at prices similar to those of, say, Brazil. None the less, to the extent that EU prices
move down there will be a weakening to condition 2 as well as to condition 3.
The refiners
Because production and trade involve a small number of large players, it has been easier to
administer the supply and price controls for sugar (and ensure that a significant proportion of
the final price remains in the producing country) than would have been the case with a good
that has the characteristics of, say, horticulture. One EU processor/distributor, Tate and Lyle,
is substantially dependent for its supplies on preferential sugar imports and, in turn, is the
monopoly buyer of developing country preferential exports to the EU. It is a relationship of
mutual dependence.
As a cane sugar refiner, the company needs access to imports since domestic European sugar
production is of beet. And, because of the high EU tariff, the financial viability of its
operations depends upon the continuation of supplies from preferred sources. Although the
Caribbean is not the only source of preferential sugar (and others, such as Southern Africa,
are cheaper) the country-specific quotas under the Sugar Protocol constrain severely its
ability to switch.
At the same time, as the owner of the main cane sugar refineries in Europe, Tate and Lyle is
the only feasible ‘full time’ purchaser of African and Caribbean exports to the EU. Since the
option of exporting already refined sugar to the EU is not considered to be commercially
viable on a substantial scale, the only alternative would be to sell outside the European
harvesting season to EU beet refineries. But the beet and cane industries are in competition
for market share.
The buyer, producers, and exporting governments therefore have a certain overlap of
interests. Tate and Lyle, for instance, have persisted in buying from the Caribbean despite a
history of production problems. Both the company and the preferred states lobby vigorously
to protect their overlapping (but not identical) interests. And, from time to time, they are
joined by the EU sugar beet lobby. But the relationship is a vulnerable one that could easily
be upset by change. And change is occurring on three fronts.