Monday, August 02, 2004

Sweetness sours for Estonia

If you were able to buy a commodity product with a long shelf-life, for a very low price, and you know that in the near future the price is going to rise to record levels and stay there, what would you do?

That was the question confronting pre-accession Estonians last winter, when the cost of sugar was then 0.4 euros a Kg - as a result of it being able to buy subsidised EU surpluses at knock-down prices - and was expected to triple when the country joined the EU.

The result, as one might expect, was entirely predictable. In a buying-spree reminiscent of the collapse of the Soviet Union in the early 1990s, when food shortages forced people to stock up on everything, Estonians ended up buying three times more sugar in November 2003 than the same month a year before, a record amount of 12,000 tons.

And they kept on buying – not only private individuals but any traders who could find sufficient storage space, and manufacturers who used sugar, to say nothing of beekeepers and "moonshiners", who need it to make illegal vodka.

The late spree brought imports to 101,000 tons in 2003, up from around 65.000 tons the previous year, and more sugar was sucked in right up to May 2004 when Estonia joined the Union.

Now, post-accession, the sugar mountain has attracted the ire of the EU commission, which is set to enforce an agreement made under the accession treaty, that no stocks in excess of normal levels would be kept.

With Estonia still holding excess stocks in the range of around 40,000 tons, the EU is now demanding that the government withdraws the surplus stock from the market, or imposes a swinging tax on it, making it more expensive than sugar imported from other EU countries.

If Estonia fails to do this, it faces a fine equal to the highest level of the export subsidy that would have been paid to the original EU growers, estimated at 31 billion euros.

The reason for the agreement in the first place, of course, was to protect high-price EU growers (mainly French, who have a 350 percent quota), who need the accession countries as an outlet to dump their surplus sugar once they are unable to offload it on the world market. And with Estonia buying up massive stockpiles, this has rather spoiled the game.

By hook or by crook, this sugar must either be taken of the market or rendered unsaleable, so that the (mainly) French farmers can sell their high-priced sugar to the reluctant Estonians.

Thus, while some people still think that the EU is about free trade, the Estonians are finding the hard way that not all is sweetness and light.

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