sugaronline.com

Try as hard as they may to do the right thing, the European Union just can’t seem to get it right. Forget about the whole Eurobonds thing for a minute, stay focused on sugar. Thank you, welcome back. The problem is with Europe’s huge surplus in a world that needs its surplus but wants to keep it reined in as well.

Everyone, most of all the EU, knows that the WTO limited Europe’s sugar exports to 1.35 million metric tonnes. And everyone knows that any time the EU looks to export sugar, Australia and Brazil will be right there counting every crystal that gets loaded onto a ship to make sure the exports don’t go above the WTO limits.

The EU has this huge surplus coming on thanks to a bumper crop, while sugar in some parts of the trade block are paying upwards of a EUR1,000 per tonne of sugar. It makes no sense. So the first thing to do is to take some of the out-of-quota sugar and release it onto the internal market. About 400,000 tonnes should do it. And interestingly, no one seemed to take issue with that plan.

Europe also approved import tenders for raw sugar to make sure that traditional refiners and other sugar producers have enough access to raws. The tender is open to all non-EU origins, so Brazil and Australia and any other raw sugar exporter has the chance to end the otherwise closed market. Basically importers would bid on the duty they wanted to pay, and on what volume, and the EU would award imports to the highest bidders. Though there was no limit put on the imports, similar imports last year came in at about 300,000 tonnes.

Whether or not would-be exporters were happy with the import decision is unknown and at this point immaterial. Where Australia and Brazil took offence was the approval of 700,000 tonnes of out-of-quota sugar beginning Dec. 1. They say that 700,000 tonnes was already approved in April for export between Sept. 1 and the end of 2011, while in March exports of 650,000 tonnes were approved beginning Jan. 1, 2012. The simple math would put that at 2.05 million tonnes, or 65% more exports than the WTO allows.

Had the EU agreed on imports of 700,000 tonnes, perhaps they could argue that these additional exports were really just a form of tolling, rather than offloading what the WTO considers subsidised sugar. But the EU is arguing that the exports approved in April were leftover unused export quota from 2010/11 despite the fact the exports would actually take place in 2011/12.

Perhaps it’s no wonder the EU has so few friends, as they make it very hard to be friendly.

It makes plenty of sense why the EU wants to export so much out-of-quota sugar. Its farmers, who are up in arms about the possibility of losing sugar quotas all together in the next round of reforms, would be hard pressed to come up with the cash to pay to store all of the extra sugarbeet produced this year. It would also mean planting less beet next year to make up for the difference. It will be tricky enough for the sugar factories to slice and process all the beet produced this season as it is, and they’re already holding sugar stocks from previous seasons. That old sugar needs to get into the market so the new sugar can take its place.

But considering that every time the EU makes the decision to allow more exports, the world prices come crashing down and in turn lower the prices for other exporting countries like Brazil and Australia, it’s no wonder they’re fighting mad. These high prices aren’t going to last forever, and Europe mucking around isn’t helping that any, especially when the export announcement comes in the same week that India decides to do the same.

The question now will be if the EU can get away with that interesting accounting rather than the simple math Australia and Brazil are relying upon. The EU already got itself in trouble in 2009/10 when it exported 600,000 tonnes above its WTO limits, not much less than it’s trying to get away with for 2011/12. Last year, Brazil, Australia and Thailand made an official complaint to the WTO about the 2009/10 exports but left it at that. This time they may not be so lucky.

Now that the EU is trying to be sneaky again, it would be foolish to think that Brazil et al would happily lie down and take it without marching right back to Geneva to put an end to these exports. Or at the very least slap some pretty hefty retaliatory tariffs on European goods. As the old saying goes: fool me once, shame on you; fool me twice, shame on me.