The Sugar Industry, which includes the growing of sugarcane and manufacture of sugar for exports, has historically had a central place in the economy. The industry still provides the livelihoods of a large part of the population and remains the major earner of foreign exchange. Sugarcane production peaked at 438 million tones in 1996 when it accounted for some 11 per cent of GDP and some 37 per cent of merchandize exports (measured net of re-exports).

As of 2005 the most recent period for which published data is available, sugar accounted for 6 per cent of GDP and some 26per cent of total merchandise exports (again excluding re- exports). Production has been declining over the past decade as leases of land on which the crop has been cultivated have been expiring. While some land owners have been induced into taking up sugarcane farming by government subsidies, many of the farms from which the tenants were displaced remain fallow.

Incidentally, the decline in sugarcane production predates the announcement of price reductions by the European Union but is coincidental with the uncertainty about the loss of leases (Prasad and Narayan 2004).

The interim Government has expressed its commitment to reviving the industry to its former health. The Interim Finance Minister announced in the budget the following investments as part of a sugar industry reform package

• The upgrading of mill facilities - to increase mill capacity and efficiency.
• Improvements to the mills transportation system-to reduce costs of carting cane.
• Modernizing farming methods – to improve farm productivity, and
• Diversification of industry risks into value- adding opportunities such as cogeneration of electricity and ethanol production.

The Minister has since announced a target of raising sugarcane production by 1.3 million tones in three years time. Given the harvest of 3.2 million tones in 2006, the would mean returning production to its peak of 1996. Mills are to be upgrade by 2008 while the Sugar Research Institute has been tasked to ‘educate’ the farmers in order to improve yields.

Returning the industry to its glory days may be difficult given that both domestic and international conditions for sugar have changed markedly (Chand 2005).leased land, on which the bulk of sugarcane has been grown, continues to be vacated as leases expire. Many of the displaced farmers have been swelling the ranks of squatters around urban centers of the two main islands. While Fiji has an abundance of unfarmed land, mobilizing it for development has to date had limited success.

This is in contrast to the success Ratu Sir Lala Sukuna had some 70 years ago (Ward 1995).On the external front, the European Union has announced a price reduction of 36 per cent to be spread over the three years.

Much like garments, external conditions have conspired with deteriorating domestic conditions in weighing down the sugar industry. The solution, once again, is not in reviving the sugar industry per se but facilitating structural adjustments so as to assist the development of an internationally competitive domestic economy. Help with such adjustment has been promised from donors.

The European Union has promised some F$132.6 million over the 2007 to 2010 period in support of such a transition, with a similar amount for the 2011 to 2013 period. Access to these funds hit a snag following the recent, coup, however while some recent progress has been made in securing this support the funds has not reached Fiji at the time of writing this survey. The promised support is crucial to alleviating the pains of adjustments for the labor and capital locked in the declining industries.

Support for adjustment to a subsidy-free environment is justified, particularly when the industry is large and the adjustment is likely to create large dislocations of labor and capital. The same argument cannot be made for trying to save, with tax payer funds, an internationally uncompetitive industry. In this like it is not clear that the current government attempt to save the sugar industry is a wise option. A more neutral regime, with the private sector given the responsibility to make these judgments, is definitely a superior strategy. This principal holds just as true for the garment sector.

A neutral regime with respect to growth of individual industries offers the best chances for the emergence of internationally competitive industries policy makers have a role in ensuring competitive access to basic public goods, including policy stability so that investors can plan with certainty over a long horizon. This requires a competitive interest rate which in turn requires prudent macroeconomic management including a low and stable inflation rate and fiscal sustainability, security for persons and property including low costs of enforcing debt contracts and supporting regulation.