Sweet Deal

25 November 2005



EU Agrees to Cut Sugar Support Prices

Sugar is one of the cash crops the poorer countries of the world can grow at a significant advantage to trade their way to prosperity. So, the fact that the US and European Union protect their domestic sugar industries is not only a needless tax on their consumers, but also it is a roadblock to alleviating global poverty. The announcement yesterday that the EU has agreed among its member nations to cut the support price for domestic sugar growers by 36% over the next 4 years is good news for everyone.

Yes, everyone, including the people who grow sugar beets in Europe. Analysts say that the key ingredient in the deal was getting the beet farmers who choose to give up growing the root “basic compensation equivalent to 64.2 percent of the revenues they lose due to the price cuts.” Just like methadone for heroin addicts, the uneconomic sugar beet growers of Europe are going to be weened off their subsidies while they learn to grow more economically plausible crops.

The European sugar market has been called the most unreformed segment of its entire unlovable agricultural system – itself an affront to sane prices. It has survived attacks since the 1960s to change it, so it should come as no surprise that the latest change was not brought about by a sudden burst of goodwill to the Third World. Instead, the World Trade Organization declared the system illegal after Brazil, Australia and Thailand brought a case against it. The EU had until May 2006 to fix it.

This new policy is well-timed since there will be a meeting in Hong Kong next month under the WTO banner to try to get a new round of global trade talks going. The EU’s new policy means it comes into the meeting with some bargaining chips and moral standing. In addition, the EU taxpayers will feel the burden of the €1.5 billion they pay in sugar subsidies eased.

This is a text book study in how to liberalize trade, something the American government in particular should have learned in its drive for global free-trade. Get rid of the subsidy, open the market and let trade flow are only part of the equation. Subsidies distort the indigenous industry, but by easing the transition for those who are losing out, the entire process goes more smoothly with fewer social disruptions and less political backlash.

© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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