London — Under the aid for trade initiative that came out of the World Trade Organisation in 2005, rich countries agreed to provide money for developing countries to help them adapt to global trade, moving away from the more brutal approach to trade liberalisation of tearing down trade barriers.
One such aid for trade programme is the EU's accompanying measures for sugar protocol (AMSP), following reform of the European sugar regime in 2006 that led the price for sugar to drop by 36%. This affected not only European sugar beet producers, but sugar cane producers in the 18 African, Caribbean and Pacific (ACP) countries with preferential access to the EU, the world's biggest producer of beet sugar and the main importer of raw sugar cane for refining.
AMSP allocated €1.3bn (£1bn) to assist affected ACP countries, including €134m for Swaziland, which was hit particularly hard by the EU changes. In a paper for the European Centre for Development Policy Management, a Brussels thinktank, Ben Richardson, assistant professor at Warwick University, concludes that the experience has been a "bittersweet" success for the small southern African country.
On the face of it, the aid for trade programme for Swaziland was successful in that it brought smallholders - who were given grants - into the industry, away from maize and cotton crops that depend on seasonal rains. Sugar provided a higher income and better livelihoods. However, workers for sugar mills fared less well. Those who lost their jobs, communities that lost access to sugar industry welfare assistance and the existing smallholders who were mired in debt, were left to fend for themselves.
"Thus, put crudely, the AMSP has precipitated an uneven shift in the way wealth is socialised in the industry: from labour and towards land," says Richardson. "This has been based on the loss or outsourcing of 4,400 jobs, on the one hand, and the entry of 1,200 Farm Association 'shareholders' funded through EU grants, on the other."
But even those smallholders who have benefited from aid for trade face a serious threat if the EU presses ahead with liberalisation of its sugar market. Under pressure from the food and drink industry - Coca-Cola, Nestlé, PepsiCo and Unilever - the European commission plans to abandon internal production quotas. The total EU production quota of 13.3m tonnes of sugar is divided between 19 member states. Ending quotas is likely to reduce the price of sugar, which would hit Swazi farmers.
"The attempts by the European commission to integrate the EU sugar regime deeper into the world market as part of its 2013 common agricultural policy (CAP) reform - not to mention prospective liberalisation under the Doha round or an EU-Mercosur (Latin America's trade bloc) - would effectively sacrifice its poverty reduction agenda on the altar of price competitiveness," says Richardson.
As such, this would drive a coach and horses through the EU's vaunted policy coherence for development, as stipulated in the Lisbon treaty. The policy says EU policies must not undercut the aim of poverty eradication.
In Swaziland, aid for trade has not proved well suited to providing the safety nets needed by those who suddenly lose their livelihoods. Richardson argues that this is due to the slow nature of aid disbursement, especially in countries like Swaziland, which cannot be allocated budget support because of a lack of transparency and accountability in government, and the incentives for policymakers and industrialists to use it for commercial ends (competitiveness) rather than as a form of social transfer.
Richardson calls for a change in the relationship between donors and the large companies that benefit from aid for trade funds to help them become more competitive.
"One option that must be considered is to allow companies to spend foreign aid to provide an immediate social safety net in the wake of reform and then to claim this expense back at a later date when its provision has been verified," writes Richardson. He points out that the big sugar companies such as RSCC and Ubombo Sugar can afford social protection measures as they are profitable enterprises.