Oxfam and sugar – disconnected thinking.

Oxfam is a tax subsidised lobbying business based in the UK and is the recipient of large sums of UK government money both for aid projects and to conduct research and studies in a range of areas. It chooses to operate in the high cost UK while presenting itself as a representative of 3rd world countries, however its concern doesn't extend to actually basing itself in one of the lower cost locations of the world. Funny that. Do as I do not as I say is a well practiced left wing doctrine.

Oxfam are currently sloganising about the EU sugar regime. This is a protective mechanism for EU farmers to grow sugar beet to meet the continent's needs while insulating them from the highly volatile world sugar market which is a surplus dumping market where companies sell off their overproduction. Most countries in the world insulate their domestic industry from world prices, including exporters like South Africa. A few countries, notably Brazil and Australia, seek to export sugar to the world market as a strategy but only Brazil seems capable of sustaining this output at times of low prices. It is debatable whether Brazil has any inherent advantages in efficiency or climate or whether low labour rates, cheap land, lax safety & environmental standards, a much devalued currency and cross subsidy from an alcohol fuel programme are behind the massive increase in output from 1m tonnes in 1990 to ~13m tonnes in 2004.

Oxfam point out that the EU sugar price is a lot higher than the current world price, about 3 times higher for white sugar. [Most of the sugar traded in the world is raw sugar not ready for human consumption, this requires refining into food grade (white) refined sugar.] They believe this “harms poor farmers” although they seem unable to notice that EU exports have been modest and declining for 20 years whereas Brazil have mounted an aggressive export campaign. The thing that hurts the small farmers in some countries seeking to export sugar is the low world price, which is due to the excess of supply over production which is almost entirely doe to the actions of one country – Brazil.

So the answer is clearly to wind down the sugar production in the EU by dismantling the EU sugar regime.

It suits Oxfam's business to point out the profit made by white people in the EU and to require our consciences to favour the brown people in the southern hemisphere, so Brazil's exports are presumably a no-go area for Oxfam scrutiny and the EU farmers must be punished.

The EU regime is complex and involves production quotas for beet sugar in each country. In the UK the quota is about half our consumption, in Germany and France it is well in excess of consumption so they export their surplus to the world market. This surplus receives a subsidy payment to cover the difference between EU and world prices, this subsidy is collected from all of the beet sugar production in th EU as a levy, and paid out to exporters as a subsidy. The system is mandated to be self financing and UK beet farmers and the sole processor British Sugar pay significant levies without benefiting from the subsidy as they don't export quota beet sugar.

Sugar beet, unlikely many crops and livestock, does not receive an EU subsidy in the form of a payout per tonne or per hectare, it benefits from the artificial market but pays its own way. In effect the subsidy comes from the elevated market prices, although retail prices in many countries are also high despite the low level of the “world price” for surplus sugar and Brazilian exports.

The EU also has a long standing agreement to import sugar from ACP countries like Guyana, Mauritius, Fiji etc. These are former colonies in the African, Carribean and Pacific regions who are given the right to sell a specified quantity of raw sugar into the EU at a guaranteed price based on the EU market price. These countries therefore get a stable and higher price for their output than they would from the world market, many of them would not be able to compete at current world prices so this support is valuable and seen by some as a form of foreign aid. Because the EU is in surplus from beet sugar production the ACP sugar is effectively exported back out onto the world market, adding to the surplus. Actual exports of ACP origin sugar from the EU attract export subsidies as described above however in this case the EU taxpayer foots the bill as the levies on beet sugar do not cover ACP cane sugar exports.

A more recent agreement “Everything but Arms” (EBA) gives tariff free access to sugar from many of the world's least developed countries. They can in fact export to the high priced EU sugar that they have produced and replace that sugar with imports from the world market. The quantity that can be imported is limited and increases over coming years. The LDCs regard this as a valuable trade agreement and very much wish to continue with access to the premium market.

So what do Oxfam want ? Reform, obviously, but with what objective. If the objective is to increase the world price of sugar by reducing overproduction then one questions why the EU sugar industry should be asked to commit voluntary euthanasia while Brazil's greed goes unmentioned. If reducing exports is the objective then perhaps reducing the sugar quota of any EU country where quota exceeds consumption would be a good start. This would reduce or eliminate quota exports and with it reduce or eliminate the levy charged to all growers and producers. As the survivors would see an increase in revenue from the reduction in levy it should be practical to reduce the internal market price to compensate, giving consumers some benefit. France, Germany and the low countries would take most of the pain, with the UK and Scandinavia largely unaffected.

If Oxfam want to create a demand for world sugar to offset Brazilian production then they would want to further cut EU production. As this is only going to benefit Brazil it is unclear what the motivation is. One way to create some world demand would be to scrap the ACP sugar imports, saving the tax subsidy on exports and allowing ACP countries to compete on the world market. This would be another EU distortion removed from the market, but Oxfam seem to have forgotten this one.

Another unmentionable would be to reduce EU internal prices. Sugar beet is a lucrative arable crop and British Sugar make juicy margins on sales so there is room for price reductions within the existing system. These price reductions will also impact ACP countries and the EBA sugar from LDCs, so again Oxfam won't propose price cuts despite sloganising about the cost to EU consumers. It appears high cost is good if paid to people in the southern hemisphere but bad if paid to EU farmers and processors.

So what do Oxfam propose ? To “ban” the export of non-quota or “C” sugar. This is sugar produced outside the EU regime where farmers get paid for their beet based on the world price of sugar. If there was no EU regime then it would all be C sugar. So what do Oxfam propose we do with the +/- 10% variability in crop output from sugar beet – should we tip it in the sea if there is a good summer with high yields ? Again it appears to be alright to sugar from the world market to make up for production deficits but exports of production surpluses are to be banned. Asymmetric fairness of trade again.

It was interesting to hear the Soil Association on the radio condemning supermarkets for importing organic produce from across the world when it is grown in the UK. This single issue pressure group want to see sustainable agriculture in the UK but Oxfam wants to shut it down.

One is left with the conclusion that Oxfam's sole objection to the EU sugar regime is that it favours growers and processors in the EU. As this group of people must be penalised or punished in order to favour Oxfam's customers in the 3rd world / southern hemisphere / LDCs then we end up with a set of half baked proposals to achieve an unstated objective. In reality Oxfam simply want to replace one unfair system with another, taking money out of the EU sugar industry and giving it to other sugar producers. We shouldn't expect anything else from an unelected unaccountable body pursuing a single issue goal.