Commodities & Futures: Sugar organisation in danger

Click to follow
MEMBER governments have decided to close down the London-based International Sugar Organisation if its financial crisis, which results from unpaid dues, is not resolved by the end of this month.

But provided firm pledges of cash given at an emergency meeting last week are fulfilled, the 42-nation ISO, which symbolises 50 years of co-operation between exporting and importing countries, will survive, at least in the short term.

Brazil, the biggest debtor, has promised payment of the pounds 211,000 that it owes within days, which would be enough to lift the threat of liquidation from the end of July and keep the ISO afloat for several months.

Of the total pounds 582,000 that is owing, more is expected to come in during the last quarter of the year.

The US, which is the third-biggest defaulter, has promised to clear its debt of pounds 66,000, but Russia's position is less clear. One possibility is that cash-strapped Moscow, which has taken the old Soviet Union's ISO seat and its pounds 123,000 debt, could pay it off in instalments.

The ISO's chief executive, Alfredo Ricart, said: 'Members have supported the organisation and made it clear that they want to continue with it. I don't envisage the worst.'

The ISO, which is established by treaty, carries out invaluable statistical and analytical work, as well as providing a discussion forum for sugar-trading countries. One regular question is whether to negotiate a new International Sugar Agreement with price-control provisions.

When last considered, this option was turned down and the new agreement, which is scheduled to come into force for five years from 1 January, is simply an administrative treaty. This means that, like the present accord, it confers no powers on the ISO to regulate the market, but it gives member governments the political authority to initiate the search for a replacement that does have economic provisions - if this is ever deemed necessary.

The last agreement with price-stabilisation powers expired in 1984. This was followed by sugar's slump in price to its lowest level.

Yet the new accord is not guaranteed to come into force because few governments will renew their ISO membership until the present cash crisis is settled. The pact needs the support of countries holding 60 per cent of the votes allocated at the Geneva negotiating conference for it to take over automatically from 1 January.

Reaching this figure may be difficult, because Washington, which holds 9 per cent, has said it will not join the new pact, because it wanted the ISO transformed into a simple commodity study group, with no political dimension.

There is a fear, says FO Licht, the German sugar analyst, that some Latin American countries that have close sugar-trading relation with the US could follow suit.

So, although the short-term threat to the ISO's survival will be lifted if Brazil pays up this month, a longer-term one remains.

In an attempt to remove it, Mr Ricart is making economies to ensure that Washington's absence will not push up the cost of ISO membership for other countries and so deter them from joining.

He plans to cut the ISO's budget to just over pounds 700,000 next year from pounds 1.1m by making redundancies, reducing the number of meetings and trimming the secretariat's activities, which are mainly collecting statistics, analysing market trends and forecasting production and consumption.

These services are vital in helping the trade to assess likely future price movements and adjust to changes in supply and demand.

The big changes that the ISO has charted over recent years include the fall in imports, the growth in competition from other sweeteners and white sugar's increased share of international trade at the expense of raws.

The most recent ISO research has highlighted Asia's growing importance in the sugar market. Today the region acccounts for 32 per cent of world sugar output (24 per cent 10 years ago) and this widening of the geographical production base has reduced the sugar market's vulnerability to supply disruptions elsewhere.

Production in India, Thailand and China alone is expected to rise by more than 3 million tonnes this season, more than offsetting falls in Cuba and the CIS and keeping the world market oversupplied for the third year running. Another surplus is on the cards for 1992-93.

There is no doubt that understanding the world sugar economy will be more difficult if the ISO disappears. This should not be allowed to happen for the want of a few hundred thousand pounds.