Devaluation to cushion sugar revenue drop

October 05, 2009 04:02:06 PM

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As Fiji braces for the full impact of a cumulative 36 percent reduction in preferential prices paid by the European Union for sugar, the 20 percent devaluation of the Fiji dollar is going to cushion the fall.

This has been revealed by the Fiji Sugar Corporation in its 2009 annual report released late last week.

“Following the reform of the EU Sugar Regime the EU sugar price reduced by 14.3 percent during the year. A further 21.7 percent reduction will come into force from 1 October 2009, taking total reductions to 36 percent. This remains one of the main driving forces for the reform of the Fiji Sugar Industry. Fortunately, this will be negated to a large extent, by the 20 percent devaluation of the Fiji Dollar,” said Gautam Ramswarup, chairman of the Fiji Sugar Corporation.
 
The EU’s sugar reform sees it reducing its preferential price tag to €448.8/tonne for raw sugar it buys from the African/Caribbean and Pacific trading bloc, of which Fiji is a part, and this price officially ended last month.

From this month to September 30, 2015, an interim pricing structure (preferential non-reciprocal) will be paid by the EU and which will carry the ACP countries into a new market reality of non preferential pricing, effective from October 2015. 

This will mean ACP countries, including Fiji, will no longer enjoy preferential prices for their sugar from October 2015 and has forced companies like FSC to institute reforms as it expects the market changes to impact upon its revenue stream.

Among other changes, the FSC has embarked on a massive Mill Upgrade Program, which sees it upgrading mill facilities to improve plant reliability, sugar extraction, sugar quality, energy efficiency and environmental control. 

But, according to FSC chief executive officer Deo Saran, ongoing efforts are being put into trying to minimize the impact of these price changes.

“The ACP Sugar Group has made a strong submission to the European Commission underscoring the impact that the reduced sugar prices and rising freight and agricultural input costs were having on the respective countries’ export earnings,” Saran said.

“The Group urged the European Commission to examine all possibilities to find an appropriate sustainable solution, including additional support under the accompanying measures program to allow the ACP suppliers to face these new challenges which were neither foreseen nor factored into the national adaptation plans,” Saran added.

Fiji exported a total of 207,575 tonnes of sugar manufactured for the 2008 season to the United Kingdom, under the preferential trade arrangement with the EU, compared to 187,858 tonnes in 2007.

As an industry, sugar is important to Fiji’s economy as it contributes about 4.1 percent of GDP, generates about 16 percent of total exports with a total foreign earning of $261.8 million in 2008, according to the FSC.

Unlike many other export-oriented industries, most production inputs are domestic and have a high regional impact and cross-sectoral linkages, with some 40,000 people directly employed in the industry and around 200,000 or 20 percent of the population directly or indirectly dependent on it.

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