Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Sunday, March 27, 2005

Sugar Protection

A little over a decade ago, I was in Lithuania, presenting some seminars and attending some meetings. At one of the meetings, one political advisor said they could probably get someone from the West to buy up the old sugar production plant and start operating it again, thus also helping the sugar beet farmers, if only the gubmnt would guarantee that the output from the plant would have protection against cheap foreign imports.

I nearly screamed. Instead I wrote them a long treatise on the dangers of offering trade protection to an industry that was unable to compete internationally. I have no idea whether the Lithuanian gubmnt implemented protection. I hope not. Otherwise, the country might face this fate:

St. Kitt's is closing down its sugar production now that it no longer has protection.
[h/t to BF]

St. Kitts sugar is exported to the European Union, which has pledged to conform to World Trade Organization regulations and cut the price support it gives to Caribbean sugar production.

Next year, the price St. Kitts receives for its sugar will drop by 37 per cent and further cuts are planned in 2007, Agriculture Minister Cedric Liburd said Sunday."It is unfortunate that after having a sugar industry for some 300 years we have to depart from it," Liburd said....

Rising production costs and falling revenues have left the state-owned St. Kitts Sugar Manufacturing Corp. owing local banks about $117
million US.

"The sugar industry has become like a cancer. If the cancer remains, it spreads; and then it is too late to cure, and the person dies ... I will perform surgery," Prime Minister Denzil Douglas said Tuesday.

All too often, sugar is both protected and subsidized. Here is a recent piece from Kick-Aas about sugar subsidies, and the comment notes the problems of trade barriers.

What have the Queen of England, Prince Charles and Tate and Lyle, the sugar company, got in common? Answer: they have all been milking subsidies from Europe’s Common Agriculture policy. The Queen and Prince Charles received £1 million during the past two years but Tate and Lyle hit the jackpot – with receipts of £233m over the same period.

It may have something to do with the 300% export subsidy that sugar attracts. We know all this only because The Guardian used the new Freedom of Information Act to get the full figures out of the government . The Guardian also wrote an editorial about it asking two questions: why has it taken so long to reveal details of where the taxpayer’s money has been going and, more important, why on earth are these subsidies being paid out in the first place? They are overwhelmingly going to big farmers and wealthy landowners, not small ones. The net effect is to make it almost impossible for developing countries to compete on a level playing field even for crops where they have a climatic advantage - such as sugar.

In America for some years it has been possible to access this web site to
get details of where all the US the subsidies have been going.

I wrote earlier that I expect sugar subsidies and protection will be changed, but only slowly and gradually.

Postscript: It appears my treatise had little effect on the Lithuanian sugar industry.
In Lithuania sugar imports are dutiable which to a certain extent limits sugar imports. The import duty is 87 per cent. The duty is based on a minimum price of LTL 2.20/kg (approx DKK 3.74). This rate of duty will apply until Lithuania joins the World Trade Organisation, and a new rate of duty will be stipulated in the agreement with the WTO.

And see here, too.

LITHUANIAN SUGAR SALES RISE 2 % IN 2003 Lithuania's sugar refineries reported aggregate sales of 81,800 tons of sugar for the year 2003, up by 2 % from 80,200 tons in 2002. Lithuania's sugar stocks reached 150,000 tons at the start of 2004, of which 30,000 tons were over-quota sugar. All surplus sugar would have to be shipped out of the country by May 2005, under the EU's new regulations. Lithuania should export around 60,000 tons of sugar in 2004. The Government is expected to allot around LTL 50 million (€ 14.49 m) to compensate producers for losses due to sugar exports. The Government has not yet set a sugar production quota for 2004. Lithuania has secured an annual quota of 103,010 tons for sugar production from the EU.

Wonderful. More EU agriculture policy at work. Ugh.
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