AGRICULTURE: by Patrick J. ByrneNews Weekly
Sugar industry report: a mixed bag
, July 13, 2002
The Hilderbrand Report on the sugar industry has some worthwhile suggestions, but remains fundamentally flawed in its response to the serious problems threatening the industry following deregulation, the slashing of tariffs, the loss of a guaranteed price into the domestic market, and the flooding of the world sugar market by Brazil. World subsidies are so high that the world price for raw sugar is half the world average cost of production.
The Report believes improved efficiencies and cost savings are the industry's salvation. Some recommendations are worth considering. For instance, that smaller farmers form local co-operatives to spread their capital costs. However, suggestions that the industry move towards larger producers may only compound problems. It is the smaller farmers who carry no farm debt, while it is the larger farmers who carry considerable proportion of the industry debt.
Important also was the recommendation that the Australian Government move towards a mandated ethanol additive in motor vehicle fuel. This need to be pursued quickly, as the proposal is 20 years old and nothing has been done. It would save many famers, allowing them to diversify into other crops more suitable for ethanol and cheaper to produce than sugar cane.
However the Report remains fundamentally flawed, and perhaps inadvertently admits this. Its executive summary says in part, "Notwithstanding any efficiencies that are gained within
the industry's current operations, the largest potential impact on future price (and therefore on the profitability of the industry) lies in a reduction of the protectionist policies of the USA, Europe and Japan. Government and the industry should therefore intensify efforts for more trade reform, although significant reform is unlikely in the short-medium term."
This is a vain hope. US President Bush this year declared agriculture a national security matter, and his economic adviser recently told the Australian Financial Review
that the US refused to cut its levels of protection and commit the "equivalent of unilateral disarmament". Further, under NAFTA, Mexico is the only country automatically entitled to increase sugar exports into the US market.
The US also wants to bring the rest of Latin America into a EU style trade area, and Brazil is the biggest economy in Latin America and has the world's fifth largest population. After Mexico, it will get preference over Australia if there are to be any further sugar imports into the US.
Europe, another major sugar competitor, has built the whole European Union around agricultural subsidies. To think that they will wind back such a policy to please Australia and risk political and economic stability is sheer fantasy.
The report also demonstrates little understanding of what can and cannot be done domestically for Australian farmers either directly, or via market support schemes, or even by tariffs.
All are dismissed in a few paragraphs with not a single reference to the all important sections of the World Trade Organisation Uruguay Round agreement on agriculture, which leaves it wide open to governments to apply an enormous range of policies to defend their rural industries from corrupt world markets.