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Canada’s sugar industry – a key export sector

The Canadian sugar industry produces 1.3 million tonnes of refined sugar annually with a value of shipments exceeding $800 million and employs 1 300 Canadians in Quebec, Ontario, Alberta and British Columbia. But sugar producers face increasing import competition.


May 5, 2008
By Canadian Agri-Food Trade Alliance

April 30, 2008

The
Canadian sugar industry is a capital intensive, value-added industry located in
four provinces.  Approximately 1.3 million tonnes of refined sugar is
produced annually with a value of shipments exceeding $800 million.  The
sugar industry directly employs more than 1,300 Canadians at refineries in
Quebec, Ontario,
Alberta and British
Columbia
as well as
hundreds of prairie sugar beet farmers.

Canadian
sugar plays a critical role as an integral and valuable part of
Canada’s
food processing industry.  Over 85 percent of
Canada’s
refined sugar production is used by Canadian food processors.  The
consistent supply of high quality, low-priced sugar translates into prices for
both consumers and food processors that are among the lowest in the world.

Major sugar-using food manufacturers account for over $16
billion in sales and one quarter of all Canadian food manufacturing sales.
Export sales by major sugar users are over $5 billion and account for almost
one third of all exports by Canadian food manufacturers.  Food processing
is now the top manufacturing industry in seven of ten Canadian provinces, and
consumer-oriented food and beverage products represent half of all Canadian
agri-food exports.

Canada’s
cane sugar refining and sugar beet processing industry operates under world
market conditions.  Other than a small import tariff (8%),
Canada
has no price or other forms of domestic sugar support, no subsidies and no
import controls.  Canadian refined sugar faces extremely small quota
opportunities and prohibitive over-quota tariffs in export markets – 150% in
the
US
and 175% in the EU.

Thus far, global (WTO) trade rules have failed to
address agriculture
trade in a
comprehensive way and sugar has been excluded as a “sensitive” commodity. 
As a result, Canadian sugar producers face increasing import competition
without any ability to offset the losses through increased exports – Canadian
exports of refined sugar are a very small share (2%) of total shipments because
of foreign trade barriers.  Regional trade negotiations have added to the
one-way nature of sugar trade for
Canada
because they exclude the highly protected
US
market and do not address sugar trade in a comprehensive way.

Because of
this imbalance, it is essential to the Canadian sugar industry that the WTO
Doha Round delivers clear and meaningful market access improvements for sugar
and other sensitive products.  This includes significant expansion of all
tariff rate quotas and reduction of all tariffs.

Many
sugar-containing food products also face trade barriers in the
US
and other countries. An ambitious WTO deal that improves export market access
for these products will also help sustain an efficient and competitive sugar
industry in
Canada.

In 2007,
CAFTA commissioned an analysis of the potential benefits that would flow to
Canada’s
export sectors through a WTO agreement. The analysis looked at seven primary
commodities – including refined sugar.

The analysis
of impacts of WTO trade liberalization on refined sugar is complicated by the
fact that sugar will be designated as a “sensitive” product by the
US
and many other countries.  The “sensitive” product designation in the WTO
will likely insulate refined sugar and many processed products containing sugar
from real market access improvements.  It is impossible to predict with
any certainty what the
Doha
framework will deliver as countries have yet to agree on the methods and the
extent to which quotas will be determined and access will be increased.

Currently Canada’s
access to the
U.S.
is limited to a small 10,300 tonne quota for Canadian beet sugar – 0.1% of the
US
sugar market.  Over-quota access is prohibited by a $357/tonne
tariff.  Refined cane sugar must compete with all global suppliers for a
share of a remaining 7,090 tonne global quota.  A wide range of
sugar-containing products such as drink mixes, iced tea, cocoa mixes, doughs
and other products face similar restrictions.

Through
“sensitive product” negotiations, US sugar and sugar-containing product quotas
are likely to increase, but current modelling suggests that increases will not
be commercially meaningful.  Unless there is a significant shift towards a
Cairns
group or G-20 model for the treatment of sensitive products, the only prospect
of improvements in
US
market access is through long term reductions in over-quota tariffs.

Under this
scenario, the analysis estimated the competitiveness of Canadian exports to the
US
following an over-quota tariff reduction.  The net effect of the tariff
reduction is that the price spread between US refined sugar and Canadian sugar
landed in the
US
would significantly decrease, bringing Canadian refiners closer to being
competitive in the
US
market.  While this does not secure immediate market access improvements
it is an important step towards the reduction and eventual elimination of of
trade distorting market access barriers in sugar.

Canadian
Refined Sugar Pricing in the
US (model calibrated to 2003-05)

$US /
tonne

 

Pre-Doha

Post Doha

US over-quota tariff

357

233

US
refined sugar price

582

536

Canada refined sugar price

282-322

307-347

Canada landed price in US with tariff

639-679

540-587

Price
spread

57-97

4-51

If the Doha
round modalities can also deliver product-specific expansion of refined sugar
and other tariff rate quotas, the potential benefits to Canadian exporters are
much greater.  Even a modest 100,000 tonne increase in access to the
US
market would bring an additional $70 million in revenue to the Canadian
industry annually.

Securing an
ambitious WTO agreement that includes predictable and significant access
improvements for “sensitive products” will help
Canada’s
sugar industry realize its market potential in a highly competitive
international sugar market.