EU politics: Sugar reform - like it or lump it

EU farm ministers have emerged deeply divided on controversial proposals to reform the EU’s sugar industry. As ministers met to debate the European Commission’s plans for the sector on July 18th, around 6,000 beet growers from across the EU gathered outside in protest against the changes that are expected to wipe out sugar production in parts of the EU altogether. However, reforms to the EU's common market organisation for sugar, which has barely changed since the late 1960s, are long-overdue. They are also necessary if the EU is to meet its commitments in the Doha round of trade talks.

To some, the EU’s sugar regime is a shining example of European co-operation, guaranteeing Europe’s self-sufficiency in sugar production and helping to secure hundreds of thousands of jobs in beet farming and related industries in 21 EU countries. For many more, the regime is an anachronism, symbolising the worst excesses of the EU’s common agricultural policy (CAP). The system of high import tariffs, guaranteed prices and subsidised exports is criticised for inflating EU sugar prices to more than three times that in world markets. This results in overproduction and an annual export surplus of around 5m tonnes that is dumped on world markets, depressing prices to the detriment of more efficient producers, many in the developing world.

Cutting prices, production and exports

Bridging the gap between these viewpoints was always going to be a major challenge. The Commission has to balance the interests of European sugar producers, who stand to lose millions of euros in subsidies, against the interests of the European sugar consumers and food and drinks companies, who continue to pay elevated prices. It must also meet the demands of producers outside Europe for fairer access and an end to dumping, while ensuring that producers in former colonies in Africa, the Caribbean and the Pacific (ACP)—which enjoy preferential access to the EU market—are not decimated by cuts in the EU’s internal price. There is also the matter of a recent ruling by the World Trade Organisation (WTO), which will force the EU to cut exports of subsidised sugar by around 4m tonnes a year, and the EU’s pledge to phase out all export subsidies as part of its negotiating stance in the Doha global trade talks.

With the WTO ruling in mind, in June the Commission unveiled revised proposals for overhauling sugar production in the EU. The main element of the reforms is a 39% reduction in the price (to €385.5 per tonne by 2007/08) for white sugar and a 42.6% cut in the price of sugar beet (to €25.05 per tonne). This is expected to result in a sharp reduction in European production from around 19-20m tonnes per year currently to around 12m tones by 2012/13. According to the Commission’s own analysis, it could also entail in the disappearance altogether of sugar production in some parts of the EU, with producers in Greece, Ireland, Portugal and Spain the most vulnerable.

To compensate farmers, the Commission has therefore proposed a system of direct payments of up to 60% of the price cut, which in keeping with the general direction of CAP reform would be de-coupled from production and linked instead to environmental and land management standards. The Commission will also implement a voluntary restructuring scheme, worth hundreds of millions of euros over four years, to encourage less competitive producers to leave the sector.

Externally, the changes would see subsidised EU exports fall dramatically in the coming years—and eradicated altogether by 2012/13. Imports into the EU are also expected to increase, in part as a result of the Everything But Arms (EBA) initiative, which from 2009 will allow quota and duty free access for sugar exports from the 49 least developed countries (LDCs). However, as is the case with the opening of agricultural trade in general, the biggest beneficiaries from the overhaul of the EU’s sugar regime are likely to be large, efficient producers in the richer countries, such as the US, Australia, and Canada, or those in large developing countries such as Brazil and China. By contrast, exporters in ACP countries will be hit hard because any fall in the EU’s internal price will affect the price offered to the ACPs by an equal amount.

Spreading the pain

Most EU member states agree are that the sugar sector is ripe for reform. But given the contradictory interests at stake, it’s not surprising that the Commission’s proposals have had a mixed reception. Crucially, the Commission has received the backing of the three most influential EU member states: France and Germany, home to the biggest and most efficient sugar producers, and the UK. However, according to press reports of the July 18^th agricultural Council, farm ministers from several other EU member states—including Greece, Ireland, Italy, Spain and Portugal—oppose the reforms as they stand. These countries alone do not have enough power to form a blocking minority under the EU's weighted voting system, but with the support of others, such as Poland and Finland, could force less sweeping price cuts when a formal vote on the proposals takes place in November (ahead of the Doha ministerial meeting in Hong Kong in December).

To these voices have been added those of the ACP countries, which not only want a smaller reduction in guaranteed prices, but would like the reforms delayed until 2010 to give them time to diversify. In response, the Commission points out that it has earmarked a budget of €40m for 2006 to be spent on projects aimed at easing the transition (including the production of bio-ethanol, for example), the details of which have already submitted to Brussels. Additional funding could be made available for new proposals. However, only a substantial increase in the level of aid—from this and other sources—would fully compensate these countries for lower prices, which will see revenues fall by €200m to €300m a year. Compared with the Commission’s generous compensation schemes for its own sugar producers, producers in these developing countries would appear to be getting a raw deal—particularly as many will continue to face quota restrictions for sugar until the EBA initiative takes full effect in 2009.

Source: www.viewswire.com