What is in this article?:
- Brazil sugar industry receives massive government subsidies
- Effect on prices
- Are Brazil's subsidies to its sugar industry illegal under WTO rules?
- New report looks at consequences of the subsidies.
- U.S. sugar producers facing sagging market prices.
Effect on prices
Because of Brazil’s sugar market dominance, its subsidies “certainly have an effect on international prices,” said Chatenay. “The world sugar world price is essentially a ‘dump’ price that should never be used as a yardstick to measure what benefits or costs may accrue from true free trade.”
Considering all that, Chatenay cautioned the United States against “outsourcing its sugar production to subsidize foreign producers like Brazil.”
The report will now be sent to Capitol Hill, the USDA and to the U.S. Trade Representative (USTR) to ensure all are “aware of the extent to which foreign subsidies distort the world sugar market,” said Roney. “The U.S. farmers aren’t operating on a level playing field. Our cost of production is below the world average but we can’t compete with foreign government subsidies.”
At the same time, reports are that Agriculture Secretary Tom Vilsack is considering buying U.S. sugar to help with depressed prices.
Roney said Vilsack is “looking at a number of options to deal with the fact that U.S. sugar prices have dropped more than 50 percent in the last two years.
“We’re not clear – and I don’t believe (Vilsack) is clear yet – on what actions he’ll take, if any. But they are monitoring the situation and are aware that prices are at historically low levels. They’re aware that the 2008 farm bill gives them a number of tools to deal with the price disaster we’re facing.”
While he stepped right up to the line, Roney would not commit on whether the Brazilian sugar subsidies are against WTO rules. “We’ve had many conversations with USTR over the years about (this). We’ve supplied USTR with information in the past. … This is the most in-depth look we’ve had at any one country. And Brazil merits that look because it has such a dominate role in the world sugar market.
“We’ll leave it to USTR to decide which of these subsidies violate WTO rules. That’s more their area than ours.”
Chatenay added that the legal framework at WTO, “doesn’t necessarily capture all grants and subsidies and help and support that are given by governments. There are strict definitions. From a company point of view, from a business point of view, all support plays a role.”
Since 1995/1997, Brazil has presented itself in sugar terms as a perfect free trader having built its competitiveness on free market principles, said Chatenay. “That’s the image they project and some people have doubted that.
“But this study brings into perspective is the fact that there are two elements that are often forgotten. One is the history of the industry. You have to go back to 1972 to see how government support really built the whole thing on ethanol. Second, ethanol is half the industry and that means it is half the sugarcane and practically half the mills. In a capital intensive industry the economies of scale play a great role. If you’ve doubled your size thanks to government intervention, you’re gaining an advantage on all your products.”
The study “shows that more clearly than what people usually have in mind,” Chatenay continued. “There is a ‘hidden’ part of the industry, which is ethanol and basically domestic. That ‘hidden’ part of the industry impacts considerably the competitiveness of the (sugar) side. … The study shows that well and may change the feeling people have towards Brazil when it claims to be a free trade players and on that basis asks other nations to open their borders.”