May 05, 2008

TORONTO – The House Standing Committee on International Trade has been holding a series of hearings with industry representatives to discuss the ongoing free trade negotiations between Canada and Colombia.

Sandra Marsden, President of the Canadian Sugar Institute was scheduled to appear before the committee on May 5, 2008 to discuss the Canadian sugar industry’s views on these trade talks. Although the hearing was cancelled, Ms. Marsden submitted the industry’s views in writing prior to the scheduled appearance.

CANADIAN SUGAR INSTITUTE VIEWS ON CANADA-COLOMBIA FREE TRADE NEGOTIATIONS

Submission to the
Standing Committee on International Trade
May 5, 2008

The Canadian Sugar Institute is the national trade association representing Canada’s refined sugar producers – Lantic Sugar, Redpath Sugar and Rogers Sugar. We are a value-added industry in Canada, established before confederation. The industry produces over 1.3 million tonnes of refined sugar at capital intensive refining operations at major ports and from sugar beets grown in Alberta.

The Canadian sugar industry has very significant concerns about the Colombia trade negotiations and has appeared before the International Trade Committee many times in relation to similar negotiations with Costa Rica and the CA4. Our message is the same – these agreements pose substantially more of a threat than an opportunity to our industry.

The sugar sector is one of the most politicized and subsidized worldwide. With few exceptions, almost all governments intervene in their sugar sectors to support prices above international levels, protect producers from import competition, particularly value-added refined sugar competition, and many countries combine this with export subsidies and other export incentives. In contrast, sugar beet producers, processors and cane sugar refiners in Canada operate on the world market, without subsidies and prohibitive tariff walls. We have had to adjust dramatically to the distorted regional and global sugar economy through rationalization and plant closures. We have been reduced to 3 sugar refining operations and one sugar beet processing plant in Canada with no room to adjust to further distortions in our market.

The only request we have in advance of multilateral (WTO) liberalization of sugar trade is that the Canadian government protect the small refined tariff that helps buffer the effects of regional and global sugar distortions. Canada has already led the way in opening its sugar market with a $0 tariff on all imports of raw sugar from developing economies like Colombia and a $30.86 per tonne tariff, about 8%, on refined sugar. That 8% tariff is extremely small in relation to other tariffs in the region – the US and Mexican tariffs are about 150% and the Colombia applied tariff is 20% or more on all sugar imports.We have been strong advocates for sugar trade liberalization as active members of the Global Sugar Alliance. That activity is focused on the multilateral negotiations recognizing that this represents the only real opportunity to reform sugar trade in a comprehensive way. Bilateral trade agreements are much more limited in their scope. They strive for reciprocal gains in market access yet do not in any way address underlying domestic subsidies and export incentives. This paves the way for additional inequity in our sector because we cannot offset any further inroads into our market through further cost reductions or meaningful exports.

Our logical export market is the United States, yet we are confined to a minimal 10,300 tonne quota, just 0.1% of the US 10 million tonne market. There is no prospect of increasing this quota in advance of WTO trade liberalization. Even proposed rules for “sensitive products” in the current Doha round will significantly limit our potential to increase exports to the US and other countries.

In the Colombia context, it is logical that Canadian negotiators would aim to achieve reciprocity in sugar market access – tonne for tonne. The problem is that we are not operating on a level playing field. Colombia’s access into Canada is supported by subsidized credit for production and government programs that support exports. Colombian sugar exporters can receive additional payments from a “price stabilization fund”. In Canada, our producers and exporters do not benefit from such supports.

Colombia is already actively exporting refined sugar to Canada. They do not need the additional incentive of $30 per tonne to be competitive in Canada. Exports to Canada are but a fraction of Colombia’s total exports, which are over 1 million tonnes. All exports are channelled through CIAMSA, the Colombian sugar industry’s only channel of international commercialization that also acts as a regulator of the internal market.

As stated by CIAMSA, the “Colombian sugar industry is one of the four most efficient in the world, including beet sugar production.” This reflects what it describes as a “privileged condition” in the Cauca River valley in the south western part of the country where climatic conditions permit the harvesting and milling of cane all year round. CIAMSA further states, “As a consequence, the fixed charges of investment in the mill, field equipment and capital assets per ton of sugar cane produced are half and even a third of those existing in the average of the sugar cane zones of the world.”

This combination of high efficiencies, consolidated marketing and exports as well as government financial support creates a competitive advantage for Colombian producers at home and in most export markets. The most logical export markets for Colombian refined sugar are other nearby Latin American countries. The sizeable and developed US market is also an attractive outlet for refined sugar production, though Colombia is confined to a small quota for raw and refined sugar with a prohibitive over quota tariff of 150%. Colombia has the prospect of a 50,000 tonne increase under the proposed US agreement but this is unlikely to be ratified in the near term. Even a tenth of this volume to Canada would have a substantial negative impact on our industry and producers.

Unlike its quota restrictions in the US market, Colombia already benefits from full unfettered access to the Canadian raw sugar market which is a win win for Colombia and Canadian refined sugar producers. Colombia also has full access to Canada’s refined sugar market with only the small tariff. An additional $30 per tonne incentive, across even a small volume, would enable Colombia to more actively target the Canadian market at a substantial cost to our industry. These costs have been well documented.

Imports from Colombia and other more distant suppliers tend to target the more profitable retail and small industrial market which in Canada is only 150,000 tonnes. Small volume losses in this market represent a significant impact on our overall profitability. The Costa Rica FTA demonstrates this impact. That agreement provided the economic incentive for Costa Rica to establish in the Canadian market, starting in British Colombia and expanding into eastern Canada. Although imports reached only 5,500 tonnes, Rogers Sugar reported over $5 million in lost earnings tied to this new competition. Canadian refined sugar producers have had no success in accessing the Costa Rican market given other trade barriers.

The government’s own studies on the economic impacts of a similar agreement with the Central American countries (CA-4) also document the threat to our industry. The studies concluded that the loss to our industry would exceed $30 million in the short to medium term and threaten the closure of at least one sugar plant, most probably in western Canada. Colombia is a more significant threat given its much bigger investment in refined sugar production. Colombia exports about 700,000 tonnes refined sugar a year compared to 300,000 tonnes from the CA-4.

The $30 per tonne tariff is not a barrier to entry to Canada’s refined sugar market. Since 2003, Colombian exports to Canada have ranged from 4,500 tonnes to 17,000 tonnes at a value of $2 – 8 million and representing up to 10% of Canada’s retail sugar market. Colombia is the second most active competitor in Canada after the United States. Colombia is more competitive than Costa Rica which has a 6,000 tonne duty-free quota.

The Canadian sugar industry is efficient and cost competitive in the North American context and actively competing with refined sugar imports. We depend on the Canadian market given extremely limited export opportunities in the US and other logical export markets. Colombia is not a logical export market. A new bilateral agreement with Colombia will not create new export opportunity to offset more competitive imports from Colombia.

We are urging the Canadian government to preserve Canada’s refined sugar tariff, which is very small in the regional context yet very important to our industry. The threat to our industry has been well documented. The threat to our operations is also a significant threat to Canadian food processors, such as confectionery manufacturers, who have located in Canada to benefit from our low sugar prices and who rely on a just-in-time supply of high quality refined sugar from our plants. For all of these reasons, we are urging the Canadian government to resist demands to reduce this tariff and not sign an agreement with sugar provisions that will compromise the viability of a long standing and important Canadian sector.