The Dying Industry

Fiji should expect no more than F$120 million for the next three years from the European Union for its sugar readjustment fund, this magazine has learnt.
Farmers relocating... after their land leases are not renewed. Documents made available to FIJI ISLANDS BUSINESS show that Brussels is only offering 60,024,000 Euros for the dying industry. This is far below the 161 million Euros or F$350 million the then administration of Prime Minister Laisenia Qarase had sought from the Europeans. In total, the European Commission (EC) has allocated 667.338 million Euros (F$1.4 billion) for the 18 sugar producing members of the ACP countries for 2007 to 2010. Fiji got the fifth highest allocation, after Mauritius (127.541m Euros), Guyana (84.170m Euros), Jamaica (77.547m Euros) and Swaziland (69.895m Euros). The EC papers said five countries-the Republic of Congo, Ivory Coast, Kenya, Trinidad and Tobago and Zimbabwe-didn't provide a sugar adaptation strategy as was the pre-requisite for accessing the adaptation fund. Whilst monies had been allocated to these countries, the EC said all five would forfeit their allocation if they failed to submit a strategy paper by a new deadline. The EC documents released to this magazine didn't say why Fiji's request was slashed by 100 million Euros. They however, showed the equations the Europeans used, which were based on how much countries like Fiji had earned from exporting their sugar to the EU, as well as the expected drop in earnings as a result of the sugar reforms. "In order to determine those needs, it is appropriate to take into account the proportion of a country's sugar revenue which were obtained from exports to the EC and the estimated variation of revenue on the EC sugar market expected after the completion of the EC sugar reform; as well as the proportion of the national workforce employed in the sugar sector and the weight of the sugar sector in GDP," said the EC decision paper."For the practicality of implementation, it is appropriate to fix a minimum amount for each country's allocation," the paper added.For a sugar protocol country like Fiji to access EC sugar adaptation funding, the Europeans focused on several criterion, the documents showed.They include:• consensus of all stakeholders on the sugar strategy;• its coverage, its quality, its feasibility; • its demonstrated sustainability (in economic, financial, environmental and social terms); • its poverty focus, its consistency with the development policies of the country; and• its complementarity with a diversity of sources of finances.Paragraph 5 of the EC decision paper said: "If the council decides to suspend assistance to a country and if this decision takes place before a given date allowing for the relevant programming of EC assistance to be finalised within the year, provisions should be made for reallocating that country's share of assistance to other eligible countries."The allocation of EC grants was made in Brussels on December 18, about a fortnight after the Fiji military ousted Qarase's government in a coup.Yet diplomatic sources say Fiji's political situation didn't influence the decision, then.The allocation merely reflected how much money a country's sugar industry should have as the Europeans see it, a source said.Even Zimbabwe, the pariah of the international community because of its dictator Robert Mugabe, had been granted 22.137 million Euros.This source said that while the grant had been apportioned, the release of Fiji's share would depend on consultations the European Commission will have with representatives of Fiji's new regime in Brussels later this month (April.) The Fiji delegation is expected to include interim finance minister Mahendra Chaudhry, interim attorney-general Aiyaz Sayed-Khaiyum and interim foreign minister Ratu Epeli Nailatikau. They will be accompanied by foreign adviser, Isikeli Mataitoga."It is in these consultations that the political situation in Fiji will come to bear on the allocation of funds," the source says."Like other international donor communities, the EU will be very much interested in seeing Fiji's roadmap to democratic rule and its human rights record."If the interim regime doesn't impress the Europeans, there's a real possibility the EC will refuse to release the money and that will be the coup de grace of our sugar industry."Because of the World Trade Organisation rules, the EU had been forced to reduce the price of sugar it offered ACP countries. Staggered over four years beginning last year, prices would drop by 36% by 2009.To assist with readjustments, the EU had offered this sugar adaptation grants and for Fiji, its strategy was for the Europeans to assist with the management of a more leaner and meaner sugar industry, as well as help fund programmes for dislocated sugarcane farmers and their families. Among initiatives the Fiji Government had proposed were housing programmes for evicted cane farmers, micro-finance schemes and the production of non-sugar crops.Of the F$350 million sought, $52.7 million was earmarked for cane replanting and another $54.8 million for drainage and farm access roads. Research and extension was estimated at $38.9 million and harvesting and transport works should cost $29.9 million.For farmers exiting the industry, the Qarase Government had wanted to spend $10.5 million on housing, $17 million on land access and $2.4 million on social worker training.Government officials were unable to speak on the record on the EC decision, mainly because those who prepared the sugar adaptation strategy have left the public service. The main author is said to be Paula Uluinaceva, the former chief executive officer at the Ministry of Finance. He is now working as adviser to Nauru's finance minister. It is believed though that the interim regime has been informed of the EC decision, and some of the current officials hold the hope that Brussels could review the 60 million Euro allocation."Much depends on the consultations planned between the two parties in Brussels in April," said an interim government official. EU assistance is in addition to funding the Qarase Government had sought from other sources. This included the F$86 million loan from India's EXIM Bank to upgrade the country's four sugar mills. The Asian Development Bank (ADB) is also funding an alternative livelihood programme for sugarcane farmers with a F$221 million loan. This programme is yet to start as the ADB awaits word from its Manila headquarters on when to proceed."It is an approved project so it will be activated once the conditions like the undertaking of its international obligations and the establishment of an environment that will help the project to be successful is restored," explains Sirpa Jarvenpaa, regional director of the bank's South Pacific Subregional Office, based in Suva."So we are waiting for the interim government to provide us with an assurance that it does in fact respect its international obligations."In its annual economic outlook for 2007 released in late March, the ADB believes the performance of Fiji's sugar industry will help moderate the recession projected for this year."The sugar industry, which accounted for 6% of GDP and 26% of exports in 2005, faces a progressive reduction in preferential prices in the European Union (EC) market of 5% in the two-year period (2006-2007), 12% in 2008 and 19% in 2009, as well as issues of renewal of land leases and declining productivity," said the ADB's Outlook on Fiji."Growth for this industry was predicated on the effective resolution of land lease issues and the implementation of reforms."The EU has announced consultations with Fiji Islands authorities that could result in suspension of new aid, including assistance crucial to restructuring the sugar industry."In fact, reforming the industry would be one of Fiji's biggest developmental challenges, the ADB report said."Sugar had seen a decline in growing and milling productivity due to under-investment; suffered from poor working relationships between the mill management, unions and farmers; and confronted the progressive loss of farmers as land leases ended without renewal."As a result, sugar production fell by nearly half over the decade to 289,000 tons in 2005, after which a phased four-year 36% reduction in the preferential price paid by the EU began."Reform of the sugar industry remains a core challenge as underlined by the fact that the country's unit cost of production is about four times that of best-practice sugar-producing countries."