Category: Sectors

The EU Central Africa EPA Where Cameroon Stands Alone

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Summary
Cameroon is the only Central African country to have an EPA with the EU in place, with this having been under provisional application since July 2014. This unilateral decision to conclude an EPA was taken to ensure continued duty free-quota free access for Cameroonian banana exports to the EU. According to the EC the implementation of the EU-Cameroon agreement ‘has now reached cruising speed’. Brexit related EU/UK trade disruptions in the poultry sector could see the EC looking to enforce EPA provisions on the prohibition of the use of quantitative restrictions on imports from the EU. This could adversely impact the Cameroonian poultry sector. A ‘no-deal’ Brexit could also end Cameroon’s duty free-quota free access to the UK market unless UK specific trade arrangements are set in pace and could increase competition on EU27 markets unless the issue of the future level of TRQ restricted access to EU27 markets is favourably addressed. Brexit could also disrupt EU27/UK cocoa product supply chains in ways which could create opportunities for increased levels of direct exports of value added cocoa products to the UK market, although this will require a careful review of opportunities in this regard by Cameroonian cocoa processing companies. Read more “The EU Central Africa EPA Where Cameroon Stands Alone”

EPA Benefits for Fiji Becoming Marginal as Brexit Threatens Further Disruptions

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Summary
In its analysis of the state of the EU-Fijian EPA implementation the EC skates over the evolution of relations since for large parts of this period political relations and EU development assistance programmes with Fiji were suspended following the military coup. In addition at the economic level, given the direction of EU sugar sector reforms, the value of traditional Fijian trade preferences have been progressively undermined over this period. Given the dominant role sugar plays in EU-Fijian trade this does not bode well for future trade relations. Ironically in the short term the prospect of a ‘no-deal’ Brexit could open up new opportunities for Fijian sugar exports to the UK if the UK imposed standard MFN duties on sugar imports from the EU27 and the Fijian government was able to find a way of rolling over its current duty free-quota free access to the UK market from the 30th March 2019. Read more “EPA Benefits for Fiji Becoming Marginal as Brexit Threatens Further Disruptions”

Impact of EU FTAs in the Agri-Food Sector

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Summary

EU FTAs are of growing importance to the growth of EU agri-food sector exports, with the EU using a variety of policy tools to increasingly open up overseas markets to EU exports. However the EU’s use of trade policy tools to protect EU producers is in distinct contrast to the policy prescriptions the EU seeks to enshrine in its trade agreements with ACP countries when it comes to the use of traditional agri-food sector trade policy tools aimed at managing trade liberalisation processes in sensitive sectors. The structure of EU EPAs does little to address the fundamental structural imbalance in EU-ACP agri-food sector relations. Fundamental policy coherence issues need to be addressed across the broad ambit of EU-ACP agri-food sector relations if the structural imbalance is to be addressed. The challenges faced in this regard are only likely to be exacerbated by recent EU agricultural policy changes and the Brexit process. Read more “Impact of EU FTAs in the Agri-Food Sector”

Putting the Implementation of the SADC-EU EPA in Context Factoring in the Earlier EU-South Africa TDCA

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Summary
The review of the implementation of the EU-SADC EPA in 2017 notes in passing the exceptionally high growth rate in EU agro-food exports to South Africa since the entry into force of the EU reciprocal preferential trade agreement in 2000. Since 2009 this has seen remarkably high rates of expansion in food categories where tariffs have been dismantled and the EU has been exempted from trade measures adopted to curb increases in imports which threaten to undermine domestic production. The experience since 2009 raises serious questions about the effectiveness of the anti-dumping and safeguard provisions included in EU trade agreements. The implementation of safeguard measures and even SPS measures against EU agro-food exports is a fiercely contested area under the EU-SADC EPA. Finally the linking of development assistance provisions to EPA implementation priorities is potentially a double edged sword, since it raises the question of whose priorities are being promoted. This needs to be seen in the context of the acute tensions between African structural economic development objectives and EU export interests in the agro-food sectors which are seen as increasingly central to the European agricultural model. Read more “Putting the Implementation of the SADC-EU EPA in Context Factoring in the Earlier EU-South Africa TDCA”

Tighter Regulation and Improving Knowledge Among Input Suppliers Could be Key to Maintaining Kenyan Access to EU Horticulture Markets

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Summary
The EU import ban on Kenyan exports of sugar snap and mange tout pea varieties has been lifted after 5 years. EFSA pesticide compliance analysis reveals the inclusion of new residue categories can lead to lower compliance levels in the following reporting period, as farm practices take time to adjust. The ‘time lag’ in revising pesticide application practices is most noticeable on imports form non-EU/non-EEA countries. This suggests a strengthening of regulatory requirements for pesticide traders and importers and the establishment of structured dialogues between government, importers, rural traders and farmers could play a role in ensuring EU markets remain open to all Kenyan horticultural exports. Read more “Tighter Regulation and Improving Knowledge Among Input Suppliers Could be Key to Maintaining Kenyan Access to EU Horticulture Markets”

UK Dependence on the EU for ‘Dark’ Meat Exports Potential Source of Concern

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Summary
The UK poultry sector is dependent on exports of ‘dark meat’ to maximise its revenues. Currently 70% of these exports go to EU27 markets. This trade will become increasingly difficult under a ‘no-deal’ Brexit scenario if the EU applies both standard MFN tariffs and its rigorous 3rd country import controls on UK poultry meat. The application of such rigorous controls is made more likely by the probable shortage of veterinarians in the UK post Brexit to carry out the inspections and certification required for imports into the EU to take place. Attaining compliance with standard EU poultry meat import requirements or finding internal markets UK markets for poultry ‘dark meat’ if likely to take some time. This could leave UK exporters seeking alternative overseas markets for their ‘dark meat’ exports from 30th March 2019, in a context where ACP markets already take 42.2% of overall UK extra-EU poultry meat exports. Both African and Caribbean governments who wish to support local poultry sector development will need to consider carefully how they are to manage this likely development. Read more “UK Dependence on the EU for ‘Dark’ Meat Exports Potential Source of Concern”

Will The Trusted Trader Scheme Offer Relief to ACP Agro-Food Exporters Under a No-Deal Brexit

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Summary
Against a background of the technological human and physical infrastructure constraints faced by the UK government in implementing border controls under a ‘no deal’ outcome to the EU/UK Withdrawal negotiations it is recognized UK border controls will be ‘less than optimal’. It is recognized a range of significant issues will need to be addressed if the period of sub-optimal application of border controls is to be minimised. Against this background the UK revenue and customs service ‘plans to increase its use of ‘trusted trader’ schemes (1). This raises the questions: What is this UK Trusted Trader Scheme? How does it operate? Can ACP agro-food exporters benefit from making use of the UK’s Trusted Trader Scheme? This article seeks to explore these issues. Read more “Will The Trusted Trader Scheme Offer Relief to ACP Agro-Food Exporters Under a No-Deal Brexit”

Shortages of Cold Storage Space Linked to Brexit Stockpiling Could Disrupt Some ACP Chilled and Frozen Exports

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Summary
Fears of supply chains disruption arising from a ‘no-deal’ Brexit has seen food manufacturers and retailers stockpiling supplies to such an extent there is now an acute shortage of cold store space in the UK. This could generate serious problems for ACP exporters of chilled and frozen products which have not already contractually locked in access to cold storage capacity. ACP exporters of chilled or frozen products urgently need to review whether they have contractually secure access to cold storage capacity on route to serving their final customers. If not they will need to intensify their search for what limited cold store capacity remains available across the UK. Read more “Shortages of Cold Storage Space Linked to Brexit Stockpiling Could Disrupt Some ACP Chilled and Frozen Exports”

UK National Audit Office Warns of Lack of Border Preparedness for Brexit

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Summary
The NAO report on UK border preparedness for a ‘no-deal’ Brexit makes disturbing reading, confirming many of the concerns raised earlier by private sector bodies and professional associations. For example, it is highly unlikely 11 of the 12 work streams required to ensure effective management of border operations will be in place on time, while recruitment programmes for veterinary staff required to continue to ensure the smooth trade in animal products have not yet got underway, despite their planned launch in April 2018. The prospect of serious failures in UK border control systems under a ‘no-deal’ scenario is seen as high while even a twenty one month transition period would leave the UK government facing serious challenges. ACP agro-food exporters, particularly those serving UK markets via EU27 member states, need to start examining how they can reduce their vulnerability to Brexit related failures in UK border control systems and what they can do to ‘Brexit proof’ their supply chains. They will also need to look at how contracts can be structured to share the burden of possible trade disruptions (leading to high levels of wastage of food products) and whether insurance cover can be secured against such risks. Read more “UK National Audit Office Warns of Lack of Border Preparedness for Brexit”

EAC Sugar Sector Continues to Seek Protection and Effective Management of Sugar Imports

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Summary
With sugar sector reforms again stalled Kenya has once again secured an extension of its COMESA sugar sector safeguards, despite rising sugar imports from non-COMESA sources. Tanzania is also facing problems in effectively managing sugar imports in the interests of domestic production growth. This provides the context for the ongoing expansion of EU sugar exports to sub-Saharan Africa which has been underway since 2014. These expanding EU sugar exports are not only linked to the abolition of EU sugar production quotas and the consequent removal of WTO constraints on exports but also EU systems of agricultural support both decoupled direct aid payments and voluntary coupled supports (VCS). VCS may shortly be reclassified in the WTO as a production and trade distorting form of support. These trade trends could pose challenges to African regional trade integration efforts in the agro-food sector. Challenges which will not only need to be addressed in the implementation of African regional trade integration schemes, but also in the implementation of EU EPAs and the design of future EU-Africa trade, development and economic cooperation arrangements in the context of the post-Cotonou ACP-EU negotiations.

  • Stalled Reforms in Kenya Sees COMESA Safeguard Extended

Kenya has once again successfully sought from COMESA a further two year extension of its sugar safeguard measures, which will now run until February 2021 (1).  Kenya has sought to repeatedly renew these safeguard measures since their introduction in 2004 (1).

The most recent request was made in a context where Kenya had imported sugar from outside of the COMESA region, after the Kenyan government ‘scrapped duty on sugar following a sharp decline in production that saw the price rise to Sh400 per two-kilogram packet’ (2). Against this background COMESA members have insisted on the establishment of a joint committee that will oversee the implementation of the safeguard measures and report back on the progress made in preparation for removing the safeguards (3).

Local Kenyan economists have insisted there is little point in extending the safeguard measures if the Kenyan government continues to avoid addressing the underlying issue of the sugar sectors lack of competitiveness. Efforts by the Kenyan government to privatise its State-owned mills, introduce an early maturing cane variety, and pay farmers based on sucrose content have all stalled (1). This leaves production costs at around $600/tonne, in a context where ‘procuring sugarcane alone accounts for 52 per cent of costs’ (4) (ISO 15 day average global sugar price 24 October 2018 equivalent to $295.02/tonne).

Unfortunately ‘all five State-owned milling firms are operating using obsolete milling machineries that drastically hamper efficiency and production capacities’ (4), making them a less than attractive proposition for private investors. Competition from privately owned mills meanwhile is gobbling up what little locally produced sugar cane is available.  According to analysts ‘perennial delays in payments to farmers for cane delivered, coupled with low producer prices of cane between Sh 3,500 and Sh 4,500 per tonne enormously eroded farmers’ confidence in the crop, as many turned to alternative products’ (4).

The Kenyan sugar sector is further plagued by ‘weak legislation governing the sub-sector’. This has been exploited by sugar importing cartels, with it being reported that by the end of the financial year ‘more than 800,000 tonnes was imported (4).

Following the COMESA decision Kenya’s Trade Principal Secretary Dr. Chris Kiptoo acknowledged ‘it is very unlikely that the sector would have implemented the conditions set by Comesa at the end of the two years because of the structural problems facing the sugar millers’ (3).

  • Import Management Problems in Tanzania

Meanwhile in neighbouring Tanzania pressure is mounting on the government to take stronger action to curb illegal sugar imports, with local producers claiming they are ‘struggling to sell their own stockpiles’ in the face of illegal imports. The Chair of the Tanzanian Sugar Producers Association (TSPA) Ashwin Rana said in the face of accumulated stockpiles of imported sugar local producers ‘will find it difficult to sell the 348,989 tonne sugar harvest scheduled for the 2018/19 season. It was maintained that some traders were exploiting the lower duty for ‘industrial sugar’ to import sugar which was then sold as direct consumption sugar to consumers. Tanzania has a major shortfall in sugar production with a domestic direct consumption demand of 630,000 tonnes and an industrial sugar demand of 145,000 tonnes (4).

This situation in the EAC sugar sector provides the background to expanding levels of EU sugar exports.

  • Expanding EU Sugar Exports to Africa and Beyond

The EC reported that by the 18th September 2018 total extra-EU sugar exports had reached 3,220,000 tonnes, a level above earlier projections with almost two weeks left to run until the end of the 2017/18 season. This increase took EU exports to levels 149% above the 5 year average (6).

This expansion in EU export volumes has occurred despite the almost 50% decline in global sugar prices between October 2016 and August 2018. The EC notes ‘the excess supply has put severe pressure on world prices, which have fallen steadily over the last two years from a peak of EUR 540/t in October 2016 to EUR 274/t in August 2018, the lowest level since 2007’(6). A number of analyst however have noted the unique contribution the EU is making to this situation of excess supply on world markets, given the combined effects of its expansion in export volumes and reduction in import demand on what is a residual market.

Table: EU Sugar Exports to Main Sub-Saharan Africa Destination markets first 9 months 2017/18 Season

Total EU Sugar Exports 9 months 2017/18 season:  2.710,000 tonnes
Country Tonnes Country Tonnes
West Africa Southern & Eastern Africa
Mauritania 109,225.0 South Africa 40,450.9
Ghana 66,913.7 Tanzania 34,342.4
Senegal 50,716,.6 Sudan 36,498.7
Cameroon 48,814.3 –          Sub-Total 111,292
Guinea 37,217.5 Total Main SSA Destinations 465,168
Togo 40,988.9 Total Extra-EU 2,710,000
–     Sub-Total 353,876 % share Main SSA Destinations 17.16%

It is against this background that some 9 African countries were among the top 24 destinations for EU sugar exports in marketing year 2017/18 season, with smaller volume also being exported to other ACP destinations. Nine months into the season these destination were taking around 500,000 tonnes of EU white sugar exports, with exports for the whole of the season likely to be substantially in excess of this level.  In the first 9 months of the 2017/18 season the EU exported 3 times more sugar to sub-Saharan African markets than in the whole of the 2016/17 season.

While West African countries were the main destinations for these EU sugar exports, growing volumes also went to the sugar surplus region of Southern and Eastern Africa (5). The leading origins for these EU sugar exports were Belgium and France which accounted for around 59% of total EU sugar exports in the 2017/18 season, with Poland someway behind with around 16%, followed much further behind by Germany, the Netherlands, Denmark and the United Kingdom. Marginal sugar export volumes also took place from 16 other EU member states (around 3% of the total) (5).

This needs to be seen against the background of the most recent trends in EU sugar exports to these top 9 Sub-Saharan African countries. Between 2013 and 2017 an almost 9-fold increase in EU sugar exports occurred (+319,817 tonnes).

EU sugar exports to top 9 Sub-Saharan African countries 2013-2017 (tonnes)

2013 2014 2015 2016 2017
Mauritania 62 – 1 45 118,330
Ghana 2,178 3,187 4,586 9,192 42,441
Senegal 18,825 9,568 11,690 10,717 22,054
Guinea 1,907 2,668 1,570 1,679 7,649
Togo 2,947 1,940 12,385 5,282 19,070
Cameroon 14,735 26,368 22,292 38,356 54,524
South Africa 249 203 4,480 30,822 15,768
Tanzania 48 – 4,231 3,020 24,184
Sudan 74 4,050 2,383 30,314 56,822
–          Sub-Total 41,025 47,985 63,618 129,428 360,842

Source: EC Market Access Data Base

This forms part of a broader picture of expansion of EU sugar exports across African regions.

Trends in Extra EU Sugar exports to Sub-Saharan Africa by region and total extra-EU Sugar exports (tonnes)

2013 2014 2015 2016 2017 +% 2013-17
Total West Africa 63,853 55,754 54,949 52,842 280,913 +339.9%
Total Central Africa 30,303 35,515 32,090 63,598 64,613 +113.2%
Total Eastern Africa 870 4,862 7,782 35,547 89,144 +10,146%
Total Southern Africa 261 257 4,483 30,823 26,605 10,093.5%
           
Total Sub-Saharan Africa 95,287 96,388 99,304 182,810 461,275 +384%
           
Total Extra-EU 1,411,291 1,523,870 1,322,704 1,369,367 2,178,337 +54.4%
% share Sub-Saharan Africa 6.7% 6.3% 7.5% 13.3% 21.2%  
West Africa: Mauritania, Ghana, Senegal, Sierra Leone, Togo, Benin, Mali, Niger, Guinea, Burkina Faso, Nigeria, Liberia, Gambia, Cape Verde, Ivory Coast, Guinea Bissau
Central Africa: Cameroon, Angola, Equatorial  Guinea, ,Gabon, Chad, DRC, Congo, CAR
Eastern Africa: Sudan, Tanzania, Kenya, Somalia, Uganda, Comoros, Madagascar, Ethiopia, Burundi, Rwanda, Mauritius, Eritrea
Southern Africa: South Africa, Namibia, Mozambique

Source: EC Market Access Data Base

Comment and Analysis
The long standing problems faced in the Kenyan sugar sector highlight the profound problems faced in not only promoting competitive sugar production in sectors which have traditionally been protected but also the problems faced in fostering regional free trade in sensitive agricultural products such as sugar. The issues faced in Kenya are not only technical linked to mill management, cane varieties and payments systems but increasingly political given the geographical distribution of sugar production, the politicisation of ethnicity within the electoral process and subsequent de-centralisation of government decision making to provincial authorities.From a trade policy perspective however what is of most concern is the inability of the Kenyan government to effectively manage its nominal trade policy and harness it to the process of necessary production restructuring. The problem of managing trade in sensitive products such as sugar is also apparent in Tanzania. Without an effective capacity to manage trade flows, structured and managed moves towards regional trade integration are likely to be held back and disrupted. This provides the context in East Africa to the dramatic increase in EU sugar exports which is underway.The almost 9-fold expansion in EU sugar exports to sub-Saharan African countries which occurred between 2013 and 2017 needs to be seen in a context where sub-Saharan Africa is a net sugar surplus continent. This also needs to be seen against the background of the intensification of efforts to create both regional free trade areas and a pan-continental free trade area. The danger exists that the growing volume of EU sugar exports (and high sugar content food products) could complicate this process of regional trade integration in the African sugar sector.

This could get particularly complicated when the global corporate strategies of EU sugar companies, which have invested in sub-Saharan African sugar production since 2004, are taken into account. These strategies seek to position the companies concerned so as to have a diversified source of sugar production to meet rising demand in Asian markets, with value added processing commonly taking place in Europe not at the point of production.

By the end of the 2017/18 season the EU will be once again exporting substantially more sugar to Sub-Saharan Africa as a whole (including destinations outside the top 24 markets) than it imports from Sub-Saharan Africa. While by 18 September in the 2017/2018 season some 521,000 tonnes of sugar had been imported from ACP/EBA countries (excluding South Africa), some 49% of these imports came from non-African ACP countries, namely Belize (27%), Fiji (13%) and Guyana (9%). This rapid expansion of EU sugar export has occurred despite the collapse of global sugar prices and the greater inherent efficiency of production of sugar from sugar cane compared to production of sugar from sugar beet.

In this context it should be recalled EU production levels and trade outcomes cannot be divorced from the deployment of EU agricultural support payments, notably the underlying system of decoupled direct aid payments which makes a major contribution to farm incomes and since the abolition of EU sugar production quotas the maintenance of voluntary coupled support payments for sugar producers in member states where the production of sugar beet is less competitive (see companion epamonitoring.net article ‘The June 2018 CAP Reforms: Part 2 – Importance of CAP Instruments to EU Agriculture and Issues Arising for the ACP’, 13 September 2018). This has led to a situation where production has increased in more efficient sugar production zones of the EU but with no corresponding decline in sugar beet production in the less competitive production zones of the EU. It was this that resulted in record EU sugar production in the 2016/17 season (see companion epamonitoring.net article ‘Sugar Substitution Gaining Pace in EU Amid Falling EU Import Demand’, 5 November 2018).

African governments individually and collectively will need to explore just how they are to manage the trade distortions which arise as a result of EU agricultural support policies in the sugar sector as they seek to promote closer intra-African market integration as part of the AfCFTA process.

A major problem faced in this regard is that these distortions are so deeply entrenched within the EU agricultural production system that they are not commonly mistaken for the simple operation of market forces. This is likely to mean that any African efforts to address the sugar sector trade distortions will meet with strong resistance from the European Commission and EU member states, all of which are looking to use the economic partnership agreements and the post-Cotonou EU agreements with African, Caribbean and Pacific  countries to more effectively promote EU trade and investment interests (for details of recent EU initiatives in this regard, specifically the ‘new Africa-EU alliance for sustainable investment and jobs’ initiative, see companion epamonitoring.net article ‘EU Sees Mauritania’s EPA signature as Stepping Stone to an EU-Africa FTA?’, 25 October 2018).

This is going to throw up complex challenges for African governments not only in their relations with the EU but also in their relations with each other as they seek to operationalise their commitments to the creation of an African Continental Free Trade Area (AfCFTA), not only in the sugar sector but across a multiplicity of sensitive sectors.

Sources
(1) People Daily, ‘Sugar safeguards dilemma’, 17 July 2018
http://www.mediamaxnetwork.co.ke/451555/sugar-safeguards-dilemma/
(2) Business Daily , ‘Kenya seeks fresh Comesa sugar import safeguard’, 13 July 2018
https://www.tralac.org/news/article/13264-kenya-seeks-fresh-comesa-sugar-import-safeguard.html
(3) buisnesdailyafrica.com, ‘Relief for Kenya as Comesa team endorses sugar import safeguard’, 16 July 2018
https://www.businessdailyafrica.com/markets/commodities/Comesa-team-endorses-sugar-import-safeguard-Kenya/3815530-4665714-w7mueo/index.html
(4) IPPmedia, ‘Govt urged to get tougher over illegal sugar imports’ 13 July 2018
https://www.ippmedia.com/en/news/govt-urged-get-tougher-over-illegal-sugar-imports
(5) EC, ‘Sugar Market situation’, AGRI G 4 Committee for the Common Organisation of Agricultural Markets, 27 September 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/market-observatory/sugar/doc/market-situation_en.pdf
(6) EC, ‘Short-term outlook for EU agricultural markets in 2018 and 2019’, Autumn 2018
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/short-term-outlook-autumn-2018_en.pdf