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700 Members Worldwide
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700 Members Worldwide
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Strasbourg Round-Up |
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Brussels Briefing No. 23
THE EU SUGAR REGIME
What is it?
The EU sugar regime was introduced in 1968 as part of the Common Agricultural Policy (CAP), covering the production and marketing of beet and sugar cane within EU member countries. It is subject to review every 5 years – with the next one due in 2006. While the sugar regime may be the only area of the CAP to remain unchanged since its inception more than 35 years ago, the status quo is no longer an option.
The regime is based on three key elements. Firstly, it guarantees minimum prices to producers. Second, high tariff barriers effectively keep foreign competitors out of the EU marketplace. The regime, though, gives preferential access to certain African Caribbean and Pacific (ACP) countries, Least Developed Countries (LDC) and India. Thirdly, around 2/3 million tonnes of surplus European sugar each year is disposed of on world markets at heavily subsidised prices.
The guaranteed minimum price makes EU sugar three or four times more expensive than world market prices. That is bad news for EU industries that use large volumes of sugar like confectionary. Artificially high prices also actively encourage EU farmers to overproduce. Moreover, the production quota decided by the European Commission is hardly a discentive to farmers, when it is set at around 17 million tonnes a year, 2/3 million tonnes higher than normal EU demand. Add to that a further 2 million tonnes of sugar imported each year under preferential access agreements and the EU is left with a surplus of anything up to 5 million tonnes.
The only way to dispose of this is to dump it on world markets. And that requires big subsidies. Currently, €3.30 is being provided in subsidies for every €1 worth of sugar sold on world markets. If that makes grim reading for Europe’s taxpayers, it is even worse news for farmers in many developing countries. The heavily subsidised surplus EU sugar is flooding world markets and severely depressing prices, undermining farmers in those developing countries, that don’t enjoy preferential status.
Pressure from the World Trade Organisation (WTO)
The WTO is pressing the EU to bring the “Most Favoured Nation” principle into play. This would place all sugar producers on an equal footing, thereby depriving EU and ACP producers of all the benefits they have traditionally gained from guaranteed minimum prices and favourable quotas. This proposal, though, faces considerable opposition. ACP countries are worried that the world’s largest and cheapest sugar producer, Brazil, will come to dominate the market. Moreover, they also fear knock-on effects in other industries, like ethanol manufacture. Oxfam estimates that as many as 32,000 people in Jamaica and 20,000 in Trinidad could lose their jobs.
The European Commission’s proposals
To align the EU with world markets, the Commission has tabled proposals to cut EU sugar prices by 37% over the next 3 years. This would involve a 25% reduction in years one and two, followed by a further 12% reduction in year three. The Commission also wants to reduce EU sugar production quotas, make them transferable between countries and to introduce a compensation package for EU beet producers. To address ACP concerns, the Commission is suggesting that their quota should remain the same. But in return for accepting lower prices, the ACP countries and India would receive compensation in the form of a special development fund and action plan to help ACP countries adapt and improve competitiveness.
Commission proposals under fire
The ACP countries are pressing for a longer transitional period to allow their economies to adjust. In addition, there has been criticism that the proposal to support regional trade in the LDCs overlooks certain key issues. Crucially, the EU would continue to export sugar to Africa, even though the continent is capable of supplying itself. Moreover, there will need to be considerable infrastructure development, if ACP regional trade is to grow in the way envisaged.
Alternative proposals
Oxfam is suggesting incremental cuts in EU quotas from 2006-2013. Meanwhile, farmers want to see nothing more than a small price cut and no quota cuts. For their part, trades unions favour a greater role for ACP countries in the reform process and a longer transitional period. They would also like to guarantee preferential prices and allow quota buy-backs for those countries, where exporting to the EU will be unprofitable. Another suggestion put forward is to delay reforms until after Romania and Bulgaria join the EU in 2008 to allow greater market access. It has also been proposed that the €1.3bn previously used to subsidise sugar exports, should be switched to help finance social adjustment and industrial restructuring in ACP countries.
The British government position
The government strongly supports the reform of the sugar regime. Ideally, it would have preferred greater deregulation of the internal market earlier on. But it realises the importance of introducing trans-national measures to lessen the impact of reforms on the ACP and LDC. Significantly, Britain’s NFU is also broadly supportive of the Commission proposals.
Conclusion
EU and ACP sugar producers are eager to retain their subsidies, and therefore can be expected to campaign hard against the reform plan. Moreover, the reforms are dependant on a successful conclusion to the WTO’s Doha Round of trade talks. This is unlikely to happen before 2006. But on a more positive note, the WTO has recently found the EU in contravention of trade rules, by subsidising sugar outside of its quota limits. That is adding to the pressure for the reform package to proceed, despite all the opposition it faces.
Gary Titley MEP
March 2005
