Unshackling Europe’s sugar producers


IN A rickety warehouse on the banks of London’s Thames sit mountains of caramel-coloured raw cane-sugar. For centuries the sweet stuff has come across the seas to Tate & Lyle Sugars’ dockside factory, to be refined into the white stuff. Cane accounts for four-fifths of global sugar production, but only one-fifth of Europe’s. Most of the continent’s sugar is made from beet, thanks to a technique developed in the Napoleonic wars, when an English blockade hit French cane-sugar imports.

No surprise, then, that the sugar-beet industry has been well guarded by Europe’s Common Agricultural Policy. But in recent years the EU has reformed its system of quotas and subsidies to lower food prices and enhance its farmers’ competitiveness; production quotas for milk were dismantled in 2015, for example. Now it is sugar’s turn. From October this year, the EU will abolish its minimum price and production quota for beet. Its complex restrictions on sugar imports will remain, however, as will its income support for farmers.

The beet sector has already been restructured in anticipation. EU compensation schemes have facilitated the closure of factories and a decline in the number of beet growers propped up by state support. Thanks to improved seeding technology, beet yields have been rising, says Kona Haque from ED&F Man, a commodities-trading house. This is particularly true of the “beet belt”, which runs through parts of Britain, France and Germany. Ms Haque expects production to rise by over 17% this year, barring unfavourable weather.

The abolition of support for beet also means that the EU may well become a net exporter of sugar for the first time in over ten years. (Once processed, sugar from beet is indistinguishable from white cane-sugar.) A cap on exports was imposed in 2005, when the World Trade Organisation ruled in favour of a complaint from Brazil, Australia and Thailand that EU support gave its exports an unfair advantage. Refined white-sugar exports could nearly double to 2.6m tonnes a year once support is removed, says Claudiu Covrig from S&P Global Platts, a provider of commodity-market information. But they are unlikely to return soon to the peak of 7m tonnes seen before the WTO ruling, since that would require big investment in export infrastructure. European exporters will face more competition, too: former customers in places such as the Middle East and northern Africa set up their own cane-sugar refineries when EU exports dried up.


The Tory and Labour parties fail to face the realities of Brexit

The UK will inevitably become a less attractive home for business after Brexit. The problem can be tackled, but only if politicians face up to reality

FOG in channel: continent cut off is an (alas apocryphal) newspaper headline that points to the innate British sense of superiority. Victory in two world wars and a long history without invasion has given Britain a sense of detachment from its European neighbours. As a result, it was always a reluctant member of the European Union.

Now that Britain is leaving, it must work out its own path to economic prosperity. The task is not impossible. But the superior attitude needs to be dropped. The Conservatives under Theresa May seem also certain to win the forthcoming election, with an 18-point lead on the latest polling average. Mrs May was a lukewarm member of the Remain campaign, and was only brought to power by the sudden demise of the government’s leading duumvirate, David Cameron and George Osborne. It clearly took time for her to decide on her negotiating strategy; the key Article 50 provision was not triggered until nine months after the vote.

One approach that the government could have taken was to agree a Norway-type deal with the EU, in which Britain stayed within the single market and customs union to ensure that economic ties were maintained. The idea was mooted by Leave campaigners before the referendum vote. And there was nothing on the ballot paper to say that Britain should leave either the single market or the customs union; just the EU itself. In political terms, however, Mrs May seems to have decided this was a no-no, since it would involve being subject to the EU’s rules, including free movement of labour, and continued budget payments. By opting for a so-called “hard” Brexit, Mrs May has had great political success; the UKIP vote has collapsed, with many of the party’s voters switching to the Conservatives.
In economic terms, that still raises the issue of the trading relationship between Britain and the EU after departure. Government rhetoric has veered off in several different directions. It has suggested the “best possible” access to the single market (it would hardly try for the “worst possible” deal) but it has insisted that it will not comply with the other rules of membership such as being subject to the rulings of the European Court of Justice. It has also suggested that it will be able to negotiate special deals for certain industries, such as cars. It has championed hopes of a special deal with the US even though the Trump administration has a highly nationalist approach and sees a bilateral trade deficit as a sign of cheating by other countries; Britain has a trade surplus with the US in goods (the measure Trump seems to see as most important) so can hardly expect an easy ride. The UK government seems to think that the EU’s bargaining power will be undermined either because a) the EU has a trade surplus with the UK and will not want to see its producers lose out or b) Britain can “do a Singapore” and become an offshore haven, luring away EU businesses.
The misunderstanding seems to be that the EU will put its mercantilist interest in favour of a bigger trade surplus ahead of its political interest in keeping the rules of the EU intact. Once unpicked, the four freedoms (movement of goods, services, capital and labour) might easily unravel. A favourable special deal for the UK would only store up longer-term problems. Without a special deal, the danger is that multinational fims will no longer find the UK quite so attractive a place. This is a particular problem for financial services where passporting requirements mean they need an EU base; the FT reports that more than a quarter of firms in the sector expect to move workers.
What about the idea of Britain as a globally open economy, even as a tax haven? The latter threat sits oddly with all of Mrs May’s other rhetroic about readjusting capitalism in favour of the “just about managing” families that she is courting for votes. And the whole idea is undermined by Mrs May’s obsession about reducing the net migration target to the tens of thousands. Leave aside the point that Conservatives, who often bang on about the free market, want to intervene in the ability of employers to hire who they want (or rather remember this point the next time they make a free-market argument). Jonathan Portes has done an excellent demolition job on the idea that the UK can exclude “unskilled” workers by imposing a minimum salary of £35,000.

What is political risk?

AFTER the surprise decision of Britain to leave the European Union, and the election of Donald Trump as American president, there is a lot more talk about political risk than there used to be. Investment banks have been poring over the prospects for elections in Britain (which take place today), Germany and Italy to figure out who might take power in each. But what does the term itself mean?

In essence, political risk is the danger that the actions of governments might reduce the cash-flows that investors expect from their investments. Broadly, this can merely mean economic mismanagement, such as allowing inflation to accelerate too rapidly (thereby damaging the real value of fixed-income investments like bonds) or precipitating a recession (which would cause companies to go bust and hurt equities and corporate bonds).

But the term is used more specifically to refer to actions designed to penalise investors or companies. These include nationalisation, higher taxes, extra regulations, barriers to trade and so on. From the 1990s onwards, investors were indifferent as to which party gained power in developed countries. Centre-left politicians such as Tony Blair in Britain, Bill Clinton in America and Gerhard Schröder in Germany were just as friendly to the markets as those on the right. But the rise of populist parties has caused political risk to re-emerge.

That is because populist parties often promote nationalistic, or nativist, policies which seem to discriminate against foreign companies, workers and goods. That is a problem for businesses, which moved in the 1990s and 2000s to a model based on global supply chains, giving them integrated operations in many different countries. Trade barriers would disrupt that model. Donald Trump had a populist appeal but combined it with a traditional Republican emphasis on cutting taxes for companies and the wealthy; that is why stockmarkets have risen since his election. But his nationalism might yet cause problems for them, if it leads to trade wars or actual conflicts. And left-wing parties, like Jeremy Corbyn’s Labour in Britain, would be more openly hostile to investors; markets would be rattled if he looked close to gaining power.

Russia bans agricultural products


Russia bans agricultural products from EU, USA, Australia, Norway, Canada VELLELA CO. LTD > RUSSIA BANS AGRICULTURAL PRODUCTS FROM EU, USA, AUSTRALIA, NORWAY, CANADA

The EU imposed economic sanctions on Russia’s banking, oil and defence sectors over its annexation of Crimea in 2014, and support for eastern Ukrainian separatists. In response, Russia banned a significant number of EU food products from entering its market.

As a result, trade between Russia and the EU dropped by over $180 billion between 2013 and last year. Together with slowing Chinese demand, Russia’s embargo has put enormous pressure on an already struggling EU agricultural markets. A “lose-lose” game The EU-Russia trade war has severely impacted the Russian economy, with food prices increasing, and quality declining.

On the other hand, the pan-European farmers’ association Copa-Cogeca, claims that after the Russian ban. EU farmers and agricultural cooperatives lost their main export market overnight worth €5.5 billion.

The sectors most hit by the Russian ban are the dairy, pork, beef and fruit and vegetable sectors. Pork prices are less than they were 11 years ago and milk prices over 40% below levels seen two years ago. In the meantime, EU ambassadors last week agreed to extend their economic sanctions against Russia to January 2017, due to the lack progress on a peace process to end the fighting in eastern Ukraine. However, EU farmers are urging the European Commission to give an end to the deadlock.Re-open the Russian market Copa-Cogeca, believes that the Commission should make more efforts to find a solution on the issue, either by entering new markets or ending the EU-Russia stalemate. To mitigate the impact of the ban, we urge the EU Commission to step up efforts to open new export markets and also to boost promotion measures,” Copa-Cogeca Secretary-General Pekka Pesonen told euractiv.com.