What is in this article?:
- Sugar industry fighting a distorted commodity market
- Price effect
- Sugar is the most distorted commodity market in the world because of subsidies and other policies that manipulate the market.
The common perception is that Brazil achieved its international sugar market dominance through a lucky mix of natural resources and sweat equity. Well, time to reconsider that perception with the release of a new report that looks at Brazilian government subsidies – both direct and indirect – that the nation’s sugar industry enjoys.
“Sugar is the most distorted commodity market in the world because of subsidies and other policies that manipulate the market,” said Jack Roney, policy director for the American Sugar Alliance, which commissioned the report. “In fact, every country that produces sugar – more than 100 in total – has some form of government intervention.
“The United States has long advocated for a world sugar market free of subsidies. Because of our efficiency, U.S. producers would thrive under a free market approach. That’s why we push for a ‘zero for zero’ strategy in the WTO, where we’d get rid of U.S. sugar policy if other countries would agree to get rid of all market-distorting policies.
“Before we can get to that point, it’s important to know what these global policies are. This can be a challenge because most countries have a myriad of nontransparent policies and poor data reporting.”
Read the report here.
Brazil currently controls, roughly, 50 percent of global sugar exports. To put that into perspective, Saudi Arabia controls about 19 percent of the crude oil exports, said Roney, who spoke during an April 17 press conference.
“Understanding global sugar subsidies is particularly important as Congress debates (a new) farm bill and the future of U.S. sugar policy. Some are urging to gut U.S. sugar policy, essentially disarming unilaterally and outsourcing our market and sugar jobs to Brazil and other subsidized foreign players.”
Report author Patrick Chatenay, a UK-based sugar and ethanol expert with ProSunergy,said in the United States, as in Europe and elsewhere, “many see Brazil as a free market player that became an agricultural powerhouse thanks mainly favorable natural resources and shrewd private operators. Brazil itself has actively promoted this view and used it to demand that other countries open up trade to its agricultural exports, including sugar.
“That view isn’t entirely correct – and certainly not for sugar. Brazil’s sugar industry owes most of its growth and immense influence to years of strong government intervention which continues to this day.”
Even conservative estimates, said Chatenay, show Brazilian sugar producers receive no less than $2.5 billion annually in direct and indirect government programs. “These subsidies include direct payments, alleviation of pension taxes, usage mandates, lower tax rates, special interest rates on government loans and on tax liabilities. Actual subsidies could be much higher than $2.5 billion because they are unreported debt restructuring and tax write-offs. All told, Brazil would need at least a 15 percent increase in the sugar price to compensate for losing those subsidies.”