Diversify or die
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CTA. 2006. Diversify or die. Spore 122. CTA, Wageningen, The Netherlands.
Permanent link to this item: http://hdl.handle.net/10568/48018
Internet URL: http://spore.cta.int/images/stories/pdf/old/spore122.pdf
EU trade preferences have long been crucial to ACP countries operating on the margins of the world economy. But recent changes in trading rules now threaten the banana and sugar industries, and the small-scale producers who rely on them. Can they find new
EU trade preferences have long been crucial to ACP countries operating on the margins of the world economy. But recent changes in trading rules now threaten the banana and sugar industries, and the small-scale producers who rely on them. Can they find new openings to fill the gap? The writing has been on the wall for some time now, but that does not make it any easier to accept. The erosion of ACP preferential margins for the EU s sugar and banana markets is now a certainty, and with it will come tougher times for many producers. Sugar and banana farmers in the Caribbean and Pacific are expected to be the hardest hit, their problems compounded by the small size of their markets and the vulnerability of their export sectors. Diversification offers the best hope for ACP farmers affected by the changes. But finding new products and new markets is no easy task, and time is not on their side. Under agreements dating back more than 40 years, Sugar and Banana Protocols guaranteed protected export markets to the EU for these two key ACP commodities. Now, under pressure from competitors, those preferences are being drastically cut back. In November 2005, the EU announced that it would slash by 36% over 4 years the price it pays for sugar from ACP regions. Meanwhile, at the 6th World Trade Organization (WTO) Ministerial Conference in Hong Kong in December 2005, the EU confirmed its decision to apply a new import tariff on bananas from January 2006. This tariff of 176/t for Latin America is considered by ACP exporters to be too low to safeguard their own trade position on the EU market. It is the latest round in a 5-year dispute which began when Latin American producers complained that the EU's banana regime was unfair. But will this new tariff regime maintain the benefits of ACP banana producers? Trade preference mechanisms have proved the mainstay of many ACP sugar and banana producing countries over the past 4 decades, creating a dependence which will be painful to sever. For Barbados, Belize, Fiji, Guyana and Swaziland the current income transfer from the Sugar Protocol is equivalent to over US$50 ( 42) per capita. For Mauritius, the figure is US$150 ( 126). In a number of ACP countries, family-run banana farms have traditionally been the backbone of the economy. Who stands to lose According to the Overseas Development Institute (ODI), the heaviest losses will be to Dominica and St. Vincent for bananas, Guyana for sugar, and Belize for both bananas and sugar. But the repercussions will be felt far and wide. Sugar generates 24% of the GDP in Swaziland. In Fiji, 42% of the value of agriculture and 30% of processing comes from sugarcane production. The ACP Sugar Group has estimated that price cuts will lead to annual losses of 400 million, as well as massive unemployment, rural instability and urban migration. One estimate predicts that banana sector employment in the four banana-producing countries of the Organisation of Eastern Caribbean States (OECS) will fall by 84%. Sensing that change was inevitable, some ACP countries have already begun to distance themselves from their time-honoured crops. St. Kitts shut its state-owned sugar industry in July 2005 and the sugar railway now carries tourists. Trinidad closed its state-owned sugar company in 2003. But a gulf divides the two groups of ACP countries affected by the new trade rules those, like Mauritius, which have a stable and sound development base, and others, like Dominica, who put all their hopes in a single commodity. The European Commission has pledged an aid package worth 40 million for 2006, and its draft Action Plan of June 2005 indicated that an annual 100 million may be available to support restructuring and diversification up until 2013. Breaking the dependence upon traditional primary commodities is not easy. But with the right help and support, it can be done, as some ACP producers are already proving with new high value products such as ginger, garlic and chilli peppers, added value items such as sauces and chutneys, and organic and fair trade products. Also of interest is the small but growing niche market for exotic tropical fruits, such as passion fruit, lychees and durian. Sugaring the pill Sugar-related products also offer potential for ACP producers planning to continue sugar production. A study commissioned by the Dutch government on bio-ethanol made from sugar cane found that this could prove an export option for producers hit by falling prices. Other studies noted that co-generation of electricity from bagasse is a viable prospect for Guyana and Swaziland. In addition to a well-established sugarcane by-product sector, Mauritius already has a co-generation sector with 10 power plants producing more than 40% of the island s energy. Said Hans van Klink at the Dutch Sustainable Development Group, When you look to the sugar chain there is much more to optimise than just sugar: you can use material for energy production and extract other useful products, creating added value. Many small-scale Caribbean banana producers have already left the export market. In Jamaica, farmers are producing fruit for the tourist market and for banana chips. In St. Lucia, an Agricultural Diversification Programme is expanding the non-traditional crop sector, with good growth seen in mango, hot pepper and avocado production. Many producers are moving into supplying fresh vegetables and flowers for hotels and cruise ships. Mauritius enjoys healthier prospects than most as it has used sugar revenues to fund diversification into textiles, tourism and finance. It is helped by a well-developed infrastructure and a dynamic private sector. Diversification into non-sugar agricultural sectors has been less successful, with constraints including limited fertile land resources and planting material, though biotechnology is helping to counter this handicap. In Kenya, farmers helped by the Community Rehabilitation and Environmental Programme (CREP) are finding it more profitable to abandon sugarcane production and grow food. Fiji has moved into the production of flowers and exotic fruits and farmers are exporting traditional food crops to the Indo-Fijian communities in Australia and New Zealand. Products targeted for diversification include breadfruit, jack fruit, okra, indigenous nuts, industrial hemp and stevia. In Papua New Guinea, Ramu Sugar Ltd is successfully diversifying into beef cattle, oil palm and peanuts. The use of technology can also provide a competitive edge. Erica s Country-Style in St. Vincent uses the internet to sell pepper sauces and food snacks to US markets. Innovative technologies for in vitro micropropagation of ginger are helping Jamaican producers develop a range of products including essential oils, pesticidal and medicinal preparations. Forest product exports offer some potential, especially for Papua New Guinea and the Solomon Islands. To what extent these new products can help maintain the broader economic and social benefits traditionally derived from the sugar sector remains to be seen. Agriculture and beyond There is also scope for diversification outside agriculture. A World Bank report on the Caribbean suggests new product areas such as adventure tourism and the creation of upscale resorts. Other potential growth sectors include health services, information and communication technology and offshore education. Producers will need technical support as well as funding if they are to make the transition. In many ACP countries, domestic markets are small, but servicing the larger regional markets involves improved methods of preservation and packaging. Regional organisations could do much to help by promoting diversification where there are economies of scale, through regional research programmes and marketing organisations. There is no time to be lost. Diversification must begin before a shift in prices occurs , urges the Commonwealth Secretariat, which has put forward proposals for a Special Fund for Diversification. Easier said than done. Noting the notorious delays involved in accessing EU funds, the European Research Office observes that ACP negotiators would do well to push for the early, timely and effective delivery of assistance to national restructuring and/or diversification programmes.