Urgent action needed to save Australia's sugar industryby Patrick J. ByrneNews Weekly
, April 20, 2002
The Federation of Australian Business and Agriculture (FABA) has told the Federal Government Independent Assessment of the Sugar Industry that the industry is facing a serious crisis. It is worth $2 billion to the economy in a good year.
Deregulation has left the industry trying to compete both in the domestic and international market at very low world market prices (below US 7 cents/lb in the medium term), due to huge government subsidies in the exporting nations. A series of bad season, disease and pest problems have compounded the crisis in Queensland.
The sugar industry is the mainstay industry for cities and towns from northern NSW to far north Queensland.
FABA argued that "maintaining the single selling desk while abolishing the domestic floor price for sugar - when more and more sugar is dumped onto world markets at below the Australian cost of production - means that the single selling desk alone is of little value, when our farmers cannot even sell at a reasonable price into their own domestic market."
The effective US subsidy to farmers is estimated by the US General Accounting Office at US$1.4 bn per year.
The US stockpile of sugar is one million tonnes, growing to 12 million tonnes within a decade - three times Australia's annual sugar production. Eventually, the US will slash imports or dump this sugar on world markets when prices improve, ensuring that the "good years" Australian farmers occasionally experienced will be a thing of the past.
Brazil has quintupled its sugarcane production since 1975 with US$3 billion per year in cane ethanol subsidies, recently becoming the world's leading sugar producer and exporter.European Union
sugar producers are not among the most efficient, but being among the most generously subsidized, they have transformed themselves from the world's second largest sugar importer to the second largest exporter.
So deeply entrenched are US, EU and Brazilian subsidies that last year Jack Roney, Director of the Economic and Public Policy of the American Sugar Alliance commented in a Dow Jones Commodity Service brief, "Governments intervene so intrusively in their own markets that ... prices on the world dump market are half the world average cost of producing sugar."
He said that even though the World Trade Organisation (WTO) has attempted to reduce subsides, "government policies that distort sugar markets will be difficult to unwind. These policies are as deeply embedded in the political and economic cultures of these countries as the roots of the sugar industries, and the desires for affordable sugar they support."
Australia has no option but to look to the domestic market as a means to keep a very large rural industry viable.
A "Sugar Industry Package" is needed, similar to the car, private health insurance, and wool industry packages.
The key to any package is the setting of an effective domestic market floor price for sugar sold into the domestic market, while restricting sugar imports and large volume imports of products that are substantially sugar based, and fixing farm production levels of cane for sugar into domestic market.
As the cost of sugar is only a small percentage of the cost of soft drinks, confectionery, etc, the creation of a domestic floor price would have only a marginal effect on price.
Imports can be restricted by applying the anti-dumping rules to stop sugar being dumped in Australia, or by applying a tariff on imported sugar. While Australia commits itself to a zero tariff regime, it cannot afford to lose this major industry.
Alternatively, under WTO rules, a variety of other assistant packages can be applied to the industry. Annex II of The Uruguay Round Final Act: Agreement on Agriculture
of the Uruguay round WTO agreement is entitled "Domestic Support: the basis for exemption from the reduction of commitments".
It allows for a host of Government environmental, research, advisory and marketing programs; direct payments for various reasons such as farmers suffering low incomes; income insurance and safety-net programs; crop insurance schemes; disaster relief; and structural adjustment programs.
FABA also recommended looking at the proposals of the Cane Tech group that has developed new milling and processing techniques - potentially taking 3-6% of the cane crop - to produce higher value products like organic sweeteners, cane wax, organic high quality animal feed, and specialty paper.
However, the most promising major new alternate product is cane ethanol, a gasoline fuel additive.
Last month the US Senate reached agreement on a measure that would triple the amount of ethanol produced for gasoline to five billion gallons by 2012, in place of MTBE, the fuel additive blamed for fouling waterways.
Also, the European Commission is drafting a proposal that could force member states to require 2% "bio-fuels" in all motor fuels by 2005.