While all its countries might not have been able to agree on a constitution, the European Union knew how to generate a unified howl of protest from its members when it adopted a proposal to cut back sugar subsidies. Following a successful complaint to the World Trade Organization by Australia, Brazil, and Thailand, the European Commission announced that it will look to cut guaranteed prices to European sugar producers by 39% over two years.
The response was immediate and predictable. British sugar producer Tate & Lyle, which makes the Splenda brand sweetener, said the cuts would reduce annual profits by about $36 million this year and as much as $109 million next year at current exchange rates. Sugar refining operations account for about 30% of Tate & Lyle's earnings. The company's stock fell 3% on the news. Danish sugar giant Danisco also announced a potential 25% to 50% cut in earnings if the reforms go through.
U.S. sugar producers are heavily subsidized as well and are no friends of free-market reforms. For example, the industry opposes the Central American Free Trade Agreement (CAFTA) because it will serve to reduce the price of sugar by allowing more than 100,000 metric tons to be imported annually. The effect CAFTA will have on prices is the subject of much debate, with most estimates ranging from a 10% to a 40% decrease. Privately held U.S. Sugar, a 75-year-old company, is one of the more vocal opponents, calling such free trade agreements a "death by a thousand cuts."
Through a series of programs guaranteeing loans, quotas, and tariffs, the U.S. has protected its sugar industry from the vagaries of free trade. Those programs have resulted in U.S. sugar prices being as much as three times as high as the world average. Candy makers and cereal manufacturers like Kellogg
Yet CAFTA is not as free as its name implies. Under the agreement, sugar imports over current quota levels would still be subject to hefty tariffs. What the treaty would do is allow U.S. exports to enjoy the same duty-free access to the countries that now enjoy such access to our markets.
According to fellow Fool Stephen Simpson, publicly traded Imperial Sugar
Slashing subsidies abroad and adopting free-trade policies here may not endear agriculture ministers to the sugar interests, because companies will undoubtedly feel the effects of losing their government-sanctioned cocoon, but it should be sweet for consumers, who will benefit from lower prices.
Here's a related bit of Foolishness to satisfy your sweet tooth:
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