EPAs and Sugar Exports

Pilirani Semu-Banda (IPS)—The proposed economic partnership agreements (EPAs) between African countries and the European Union which are due to come into force beginning next year, may undermine the benefits of another EU trade initiative, called Everything-But-Arms, for the sugar industry.

The EPAs are new bilateral trade accords currently being negotiated between the European Union (EU) and African, Caribbean and Pacific (ACP) countries. In terms of the EU’s EPA proposal to the Southern African Development Community (SADC), sugar will be subjected to a transitional phasing out of duties and quotas until 2015.

The Everything-But-Arms scheme grants duty-free and quota-free access to all products except arms from the 49 least developed countries. This provision will be extended to sugar in July 2009.

Illovo Sugar is the largest sugar producer in Africa with operations in Malawi, Mozambique, Swaziland, Tanzania, South Africa and Zambia. The company has indicated that the EPAs, while presenting an opportunity for more sugar exports to the EU, will also lead to declining sugar prices.

The managing director of Illovo Sugar (Malawi), David Haworth, told the media in Malawi at the company’s 42nd annual general meeting last month that sugar prices are likely to come down in three phases after the EPAs come into effect. This will correspond with the phasing out of duties and quotas, which will start in 2008 and end in 2015.

At the moment, sugar prices are between 400 and 500 euros per metric tonne. Prices are predicted to fall to just 335 euros per metric tonne. The drop may continue even further in 2009 when duty-free access will be extended with safeguards. Quota and duty requirements will only be scrapped in totality in 2015.

Illovo Sugar (Malawi) plans to expand production to take advantage of the market access allowed under the EU’s Everything-But-Arms (EBA) initiative. However, the initiative comes into effect in 2009 when sugar will see a significant revenue drop due to the EPAs.

The Malawian government predicted this in a 2005 study on the impact of the sugar reforms that pointed out that the period when production is due to be escalated to benefit from the EBA coincides with the period when the price effects of the EPAs will be felt.

The drop in prices will make it more difficult to meet the investment requirements for scaling up production to take advantage of unrestricted EU sugar market access afforded by the EBA.

This is compounded by the EU’s decision to cut its minimum guaranteed price for sugar by 36 per cent between 2006 and 2009 to bring the EU price in line with the world sugar price.

The 2005 study, conducted by Malawi’s Ministry of Trade, summarised the outlook for Malawian sugar as uncertain.

“Malawi stands to lose significantly from the erosion of its preferences under the ACP sugar protocol. However, the country will also benefit from improved access to the EU market under the EBA scheme, albeit at lower prices,” said the study.

According to Illovo’s Mr Haworth, he has been “to Brussels for negotiations on the EPAs so that we get the best possible access. Overall, it is good for the Malawi sugar industry because it means more exports to the EU market. But we will have to increase production in order to make a little profit.”

Illovo’s managing director based in South Africa, Don MacLeod, said at the same meeting that despite sugar fetching lower prices, the EPAs will be good for the sugar market across the world.

“The EU is reducing protection of its domestic market and this provides us with additional access. What is important now is to increase tonnage to that market,” said Mr MacLeod.

Mr MacLeod and Mr Haworth’s optimism stems from the acquisition of 51 per cent of Illovo Sugar by Associated British Foods (ABF). ABF, which aims to benefit from duty-free access to the EU from 2009, has supplied support to Illovo’s operations. Their coming on the scene is an advantage to Illovo because they know the EU market better, said Mr MacLeod.

Geoffrey Mkandawire, the commercial manager at Illovo Sugar (Malawi), said the sugar industry in Malawi had anticipated that the economic and trade relations between the ACP and the EU had to eventually become compatible with World Trade Organisation (WTO) rules.

Nonetheless, we would like to see that the preferential benefits of least developed countries are not eroded in the EPAs. The WTO rules allow for the special and differential treatment of least developed countries,” he said.

Malawi has placed sugar among the 102 sensitive products. Mr Mkandawire pointed out that sugar is recognised worldwide as a sensitive product. He says the EU, in its one-page offer to the ACP made in April this year, clearly indicated it as such.

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