E.U. Policies Keep the Poor Poor

By Farah Khan

“They are rich and they could give us a chance to live,” a sugar-cane harvester in Mozambique told Oxfam researchers who have put together an explosive report on the impact of agricultural sugar subsidies in Africa.

The report, released at the World Summit on Sustainable Development underway in Johannesburg, has found that price-fixing and subsidisation in Europe are preventing the take-off of a potential sugar boom in Southern Africa, forcing the world's poorest producers out of lucrative export markets and keeping prices artificially low.

"This means that an agricultural commodity that could play a real part in poverty alleviation in southern Africa does not do so," says Oxfam, which has called on the
European Union to institute a 25 percent cut in quota production. This would prevent dumping and improve market access for African sugar producers.

The sugar report presents a stark picture of how consumers in Europe are paying to fund underdevelopment in Africa. "European consumers are paying to destroy livelihoods in some of the world's poorest countries," says Oxfam.

Trade is emerging as a key area of contention in Johannesburg, as the EU and the United States come in for a barrage of criticism for the 1-billion-dollar a day they pay in subsidies.

Despite its problems with drought, southern Africa has a competitive edge in sugar production. South Africa, Malawi, Swaziland and Zambia are all low-cost producers, with growing potential to tap important export markets in North Africa and the Middle East. Instead, those markets are being captured by European and British companies who can land their sugar at prices far lower than even the lowest-cost producers in Africa.

Why is this? Oxfam sugar report author Kate Raworth explains that European subsidies work to keep its sugar prices high on the continent.

"Farmers are guaranteed a high price for their sugar beet and sugar processors," she told TerraViva, adding that, "to make this possible, E.U. consumers are made to pay two to three times the world market price for their sugar".

Peter Staude, the chief executive of Tongaat-Hulett, says that in South Africa sugar costs 12 US cents per pound, compared with 30 cents per pound in the E.U. and 26 cents per pound in the United States. But prices are set only in those countries, and northern farmers can land their sugar at below real cost in third markets.

Oxfam and the industry representative, the South African Sugar Association, have calculated the opportunity cost at 150 million U.S. dollars a year. This is because South Africa produces 1.4 million tons a year for export, but cannot compete with sugar "dumped" in potential export markets.

The other impact of the subsidies is that world prices are depressed, because Europe will match the difference between its own high prices and low world prices. In South Africa, this falls squarely on the shoulders of some 55, 000, largely female small farmers who grow between one and two hectares each.

"This undermines their ability to get out of poverty," Raworth said.

Workers are also feeling the pinch because local confectioners have had to retrench workers because their sweets and chocolates cannot compete against imports from Europe. Beacon, one of the largest confectioners in the country, laid off 1,000 workers between 1997 and 1999.

Competition is stiff because subsidies are also paid for the sugar used in processed goods. A number of favourite chocolate lines in South Africa have been discontinued as consumers go for the cheaper imports. Local trade unions have attempted to start consumer boycotts of imported clothing and chocolates to highlight the uneven playing field, but these have not taken off.

Oxfam, in the meantime, questions whether European consumers know how their tax money is being used. In effect, the subsidies are one factor which ensures developing countries do not become developed because their economies do not diversify into value-added goods, which add to gross domestic product.

Swaziland, Malawi, Mozambique and Zambia all intend to increase sugar production as a way to grow their economies, and sugar is their most competitive resource. "However, the depression of world sugar prices due to the E.U. sugar regime erodes the profitability and sustainability of sugar production in these countries," says Oxfam.

"If fair trade were practiced universally across the sugar industry in southern Africa, the potential for increased production, exports, profitability and above all poverty alleviation would be vast," the report adds.