Mercosur: sweeten the deal

Géraldine Kutas — posted 07/11/2017

The EU-Mercosur trade deal is close to the finishing line and the final breakthrough might still come by the end of the year. This trade agreement between the EU and the four Mercosur Members – Argentina, Brazil, Paraguay and Uruguay – would be the largest bilateral trade deal the EU has ever brokered. The deal would indeed be unprecedented in many respects: It would be the first time that the economies of Mercosur open up to a major trading block and also by far the largest deal between the EU and emerging economies.

Now is a unique window of opportunity and there is strong political will on the side of the Mercosur countries to get the deal finalised. This would not only open up a huge market for EU products and services, but also send another strong signal, after the successful trade negotiations with Japan earlier this year, that the EU is seizing its role as the world’s foremost trading power.

However, there still remain some stumbling blocks that could put the deal at risk. Not surprisingly, the agriculture sector is the main point of contention as the Mercosur countries are very competitive in products such as sugar and ethanol, in which the EU has major defensive interests.

But trade is not a zero sum game and its benefits cannot be measured by the increase of exports alone. Increased access to Brazilian sugarcane products through the Mercosur deal is an example where the benefits for EU industry go far beyond what the trade balance indicates. Indeed, as René Van Sloten, Executive Director Industrial Policy at Cefic, the European Chemical Industry Council, said: “including sugar and ethanol into the Mercosur trade deal would offer the possibility for a win-win outcome for both sides.”

So how could EU industry benefit from increased access to raw sugarcane products?

Sugar and ethanol are important sustainable feedstocks for the European chemical industry. Products such as plastics, paint and coatings all require feedstock which today is mainly sourced from fossil fuels, but that could be replaced by ethanol. Also sugar is a key ingredient for the bio-industry, being indispensable for biotechnological processes. Further, sugarcane ethanol has tremendous potential to decarbonise the transportation sector, which currently account for almost a quarter of EU GHG emissions. Including sugar and ethanol into the deal would help EU industry getting the right quality at a fair price. According to René van Sloten, EU industry has to endure 40-60% extra costs for ethanol because of import tariffs, in contrast fossil fuel ethanol can enter the EU without any tariff.

Consequently the EU chemical industry could produce at lower costs which would make it more competitive. This would also have a domino effect down the supply chain, making products cheaper for business and consumers.

Brazilian sugarcane is also among the most sustainable renewable feedstocks with the highest greenhouse gas (GHG) saving potential. Gaining access to this feedstock would not only help European industry to lower its GHG emissions but also to boost the bio-based industry. This industry has an enormous potential to contribute to the circular economy with new products and solutions. Gaining better access to renewable feedstock would help industry to increase its investments in bio-based production plants in Europe, which in turn would increase demand for bioethanol also to the benefit of European producers.

Europe should take these benefits into account that the inclusion of sugarcane products into the trade deal can bring and not only look at the defensive interests of the EU agriculture sector.

The EU-Mercosur trade deal is a once in a generation opportunity, don’t let it slip away. Sweeten the deal!

Don’t derail the decarbonisation of transport

Géraldine Kutas — posted 20/10/2017

If Europe wants to get anywhere close to hitting its target of a 40% Greenhouse Gas (GHG) reduction by 2030, it will need to tackle transport emissions, which account for about 25% of total EU GHG emissions. To further complicate the issue, road transport is set to grow 30% by 2030. We need available solutions that are deployable now if we are to mitigate global warming. Sustainable biofuels are one of the few available solutions that can help today to reduce carbon emissions in transport. In Brazil for example, the use of bioethanol led to a decrease of 370m tonnes in carbon emissions in just 13 years, which is more than Spain emitted in 2015. The average life span of a car is 10 years and the existing fleet runs primarily on fossil fuel. In fact, only 2.8% of the existing EU fleet is comprised of alternative energy vehicles. This means that in the short and possibly mid-term, introducing a higher ethanol blend is one of the only realistic options to lower GHG emissions in transport. Sustainable sugarcane ethanol results in at least 70% fewer GHG emissions than petrol, and is available now!

Despite these facts, the Environment Committee in the European Parliament risks torpedoing this solution by confirming the phase out of crop-based biofuels. This would not only kill this sector in Europe but also any prospect of producing advanced biofuels, which often depends on the same companies and feedstocks for production. Not to mention, of course, any real shot at decarbonizing the transport sector in the short-term. This extreme policy change, only two years after a framework for biofuels was agreed upon and before the effect of the policy can be properly assessed, will discourage investment in the EU. The key arguments for this policy change, namely Indirect Land-Use Change (ILUC) and concerns that biofuels lead to higher food prices are based on non-verifiable assumptions that should not form the basis for the phase out of a whole industry. Not all first generation biofuels are created equal and sugarcane ethanol is one of the most sustainable biofuels available.

In order to ensure that the EU can make a real contribution to the decarbonisation of transport, the Environment Committee should:

– Set a renewables target in transport to at least 20%;
– Keep the current cap of 7% for highly sustainable biofuels, which is essential to the decarbonisation of European transportation;
– Evaluate first-generation biofuels based on their GHG savings and sustainability criteria;
– Not include ILUC estimates when calculating the GHG emission savings of crop-based biofuels, as long as a predictable methodology based on verified data and sound review process is in place.

Climate change does not wait for the roll out of new technologies – we need to use every tool that is at our disposal today.

Is the EU serious about sugar reform?

Géraldine Kutas — posted 02/10/2017

There is hardly a single sector in the EU that is as protected as much as sugar. For decades the EU sugar beet industry benefited, together with other measures, of minimum prices and extremely high import tariffs. At a current international price for raw sugar of €255 per tonne, the import tariff stands at a whopping €339 a tonne, meaning that world global sugar producers are effectively locked out of the European market.

The fact that the EU allows imports from a number of countries – such as least developed countries, African, Caribbean and Pacific (ACP) countries, and countries with which the EU has a trade agreement – does not make much difference. For a start, these countries are generally less competitive than Brazil. But importantly, those agreements are causing trade distortions rather than encouraging a level playing field.

It is worthwhile to remind ourselves of the true costs of the protectionism of the sugar sector:

– it makes raw materials for EU industries more expensive, in times of increasing global demand. This includes of course the food industry, but also other industries critical to European competitiveness, such as the chemical and pharmaceutical industries that need sugar as raw material;

– it damages EU importers and refiners of sugar cane, leading the famous British sugar refiner Tate & Lyle to become one of the only companies to advocate for Brexit;

– it damages the EU’s reputation as a supporter of global and fair trade;

– it prevents European sugar industry from becoming truly competitive, and lastly,

– EU consumers are paying a much higher price for sugar than they would if the trade in sugar were free.

Last Saturday marked a milestone in changing the EU sugar regime. Lifting the European sugar quota is an important step towards a more competitive European sugar industry. This measure will however remain incomplete if the sector continues to be protected from international markets. In fact, lifting the sugar quota alone will turn the EU sugar industry into a mercantilist model: without any limits on sugar production and no serious competition, European sugar producers may be tempted to dump surplus sugar out onto world markets.

The Mercosur trade deal is an opportunity to make a further step towards a competitive and fair sugar regime that does not only work in favour of the European sugar sector but also the consumer and downstream industry. The EU should use this opportunity now that it can shape the conditions together with a strong trading partner.

Sugar – the sweet spot of an EU-Mercosur trade deal

Géraldine Kutas — posted 05/09/2017

EU trade policy is on a roll. After the conclusions of a deal with Japan, the largest bilateral Free Trade Agreement yet, the EU has set its eyes on a deal with Mercosur. Such a deal offers huge potential for EU industry: it would greatly improve access to emerging markets of 250m+ consumers and many of Europe’s key sectors –automotive, machinery, chemicals and pharmaceuticals, but also agricultural and food producers such as garlic, olive oil, wine and pears – are set to benefit. Since this would be the first trade deal that Mercosur closes with another major trading block, the EU would have a first mover advantage, allowing EU businesses and products to establish themselves in the Mercosur markets before other competitors can move in. Altogether it would strengthen the EU’s role as a trading power and create jobs and growth.

Negotiations have historically been slow, but the Mercosur countries are showing unprecedented political will and strong alignment to get a deal done. This year talks progressed on many issues such as sustainable development, technical barriers to trade and public procurement. A measure of Mercosur’s willingness can be seen in opening up its procurement markets to European business – the first time ever it has opened these up to third parties.

However, some so-called ‘sensitive’ areas have not yet been included in the negotiations, in particular sugarcane products – sugar and ethanol. For Brazil this is critical. The sector is highly competitive and provides more than one million jobs. Brazil is the world’s largest producer and exporter of sugar but accounts for only 4% of all EU sugar imports, so there is clear room for growth with little to fear. In comparison, Mauritius alone accounts for 28% of EU sugar imports and EPA/EBA countries for 54%. Increasing sugar imports from Brazil will promote social and economic development. Brazilian legislation stipulates that sugar exports from Brazil to Europe be sourced in the Northeast region of the country, one of most vulnerable regions of the country. The GDP per capita of this region was US$5,834 in 2015 (US$ 8,757 for Brazil). Compare that with the US$9,252 GDP of Mauritius in the same period[1]. In a recent intervention in Brussels, Brazil’s chief negotiator Ambassador Ronaldo Costa made very clear that he “could not return home without sugarcane on the table”.

Also European industry would gain from imports of Brazil’s sugarcane products. Ethanol is an important feedstock for the chemical industry and today the high tariffs on bioethanol puts the European bioindustry at a disadvantage. In contrast there are practically no import duties on fossil inputs. The same is true for sugar which is a key raw material for the European food and drink industry, but also for the chemical sector.

So far the European sugar industry is rejecting any concessions to Brazilian sugarcane, claiming the industry is highly subsidised. In particular, they confuse and miss-label the high economic efficiency, industrial integration and product diversification of Brazilian sugar mills as cross-subsidisation. In its 2013-14 WTO notification Brazil reported a total aggregate measurement of support (AMS) for sugarcane of 0.24% of the value of its sugar production. The EU reported an AMS of 0.48%, or double, in the same period. OECD measurements of producer single commodity transfer show that over the past five years (2012-2016) support granted to sugar producers in Europe was 22 times higher than that granted in Brazil[2].

Successful trade agreements require give and take, and Mercosur countries are prepared to grant important advantages to EU industries, more than they have ever offered before. If the EU really wants to increase its access to the major growth markets of Mercosur and reap the benefits of a close partnership in South America it needs to also be open to concessions in the areas that are of critical importance for Brazil and other Mercosur countries. The EU cannot have its sugar-coated cake and eat it.

The original text of this blogpost was published in the Parliament Magazine website on September 5, 2017.

[1] World Bank and IBGE
[2] average 16.89%of the value of production in the EU compared to 0.74% in Brazil

UNICA Proud to Sponsor Platts Conference on Global Sugar Markets

Leticia Phillips — posted 24/07/2017

Brazil may be the world’s largest producer of sugar, but the nation’s sugarcane harvests aren’t just winding up in your cup of coffee. They’re flowing into gas tanks as low-emission sugarcane ethanol, generating clean electricity from biomass to help fight climate change, and creating the future of clean renewable fuel through next-generation biofuels.

As the world’s sugar industry gathers at the 4th annual Platts Kingsman Miami Sugar Conference, it’s worth considering the modest but important role Brazilian sugarcane ethanol exports play in meeting not only the U.S. Environmental Protection Agency’s (EPA) Renewable Fuel Standard (RFS) and California Low Carbon Fuel Standard (LCFS) targets, but the world’s biofuel needs.

Platts’ conference will examine major trends facing the global sugar industry, and representatives of Brazilian sugarcane industry will share insights on topics like ethanol fuel supplies, sugar production and exports, and industry sustainability efforts – all reasons why we’re proud to be official conference sponsors.

REGIONAL SUGAR MARKETS AND CHALLENGES OF OVER-SUPPLY

Brazil sent nearly 630 million tons of sugarcane to crush in 2016-2017, producing nearly 34 million tons of sugar, and exporting nearly 27 million tons. As the top global producer, Brazil helps demonstrate how sugar supplies can be brought to market and avoid oversupply challenges.

Sugarcane ethanol has proven to be an extremely effective outlet for Brazil’s sugar output. Brazil currently produces more than 7 billion gallons of sugarcane ethanol per year, and typically makes between 400-800 million gallons of its production available for other countries to import. Over the past five years, nearly 1.2 billion gallons of sugarcane ethanol imported from Brazil flowed into American vehicles, providing nearly one-tenth of all advanced fuels consumed by Americans, with at least 61 percent fewer emissions than gasoline.

Those numbers are significant, but they pale in comparison to Brazil’s domestic consumption. Ethanol and bioenergy produced from sugarcane already constitutes 15.7 percent of Brazil’s energy mix, replacing more than 40 percent of gasoline demand and avoiding 600 million tons of carbon dioxide emissions since the ethanol program began in the 1970s – all while using less than 1.5 percent of the country’s arable land.

UPDATES ON ETHANOL PROGRAMS AND COGENERATION

Even with existing sugarcane ethanol successes, Brazil is advancing technology further into the future. Increased production efficiencies mean even more sugarcane ethanol flows from fields to fuel tanks.

Indeed, Brazil has the potential to replace 14 percent of global transportation fuel demand without altering current sugar production – a big boost in the fight to cut emissions. By 2050, global energy needs could double, increasing emissions up to 80% unless we pursue low-carbon fuel options.

Sugarcane ethanol producers are also pushing the envelope on cogeneration using leftover stalks (bagasse). Self-sufficient sugarcane mills use bagasse to power their operations instead of fossil fuels, often producing enough power to sell clean electricity back to the grid. In 2016, Brazil produced 15 million megawatt-hours of bioelectricity from cogeneration, and technology improvements could help this technology supply more than 20 percent of domestic electricity demand by 2023.

BRAZIL’S RECIPE FOR A SWEETER SUGAR(CANE) FUTURE

Add it all together, and the “Brazilian experience” of using sugarcane to power a renewable energy future is a recipe for success on how stable policy and investment in new technologies can fuel a green economy while cutting emissions and dependence on foreign oil.

This is an important point. The World Energy Council reports fossil fuels generate 63 percent of total global emissions, with transportation fuel generating 28 percent of U.S. emissions and 17 percent of Brazilian emissions.

So when it comes to creating a sweeter future for sugar and biofuels, follow the leader – Brazil.

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MORE ABOUT THE PLATTS KINGSMAN MIAMI SUGAR CONFERENCE

Leticia Phillips, North American Representative, The Brazilian Sugarcane Industry Association (UNICA) will participate in a session titled, Sustainability for the Sugar Industry on Tuesday, September 12, at 4:45 p.m. The session will address:

– Changes in the expectations of sugar buyers
– A new outlook in the next few years
– How are sugar producers planning to meet the requirements of buyers?
– Examples from Brazil and other countries

To register to attend the conference, please click here.