Bridges Trade BioRes • Volume 4 • Number 14 • 23rd July 2004

CONTROVERSIAL EU SUGAR REFORM EVOKES STRONG REACTIONS

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CONTROVERSIAL EU SUGAR REFORM EVOKES STRONG REACTIONS

On 14 July, the EC released an anticipated outline for reform of the heavily subsidised EU sugar regime. Though the details of the reform had been leaked at the end of June (see BRIDGES Weekly, 30 June 2004), the official release was met by strong reactions. Among other changes, the reform will reduce the EU’s intervention price for sugar by 33 percent and the minimum price for sugar beet by 37 percent over three years. Other elements of the reform include reducing the European production quota for sugar by 2.8 million tons over four years and merging two national production quotas. The reforms will begin in January 2005, and will be implemented over four years.

The proposal will have far reaching impacts on the domestic producers. Non-competitive sugar-growing areas in Europe will likely see production disappear under a reformed sugar regime. The government will offer aid packages to lessen the impact of these changes, including new decoupled payments to sugar beet farmers to partially compensate for lost income and a EUR 250 per tonne conversion scheme for factories leaving the sector. This proposal, which has been in the works for months, is part of an overall reform of the EU’s Common Agricultural Policy (CAP) and comes a year after the original CAP reforms were announced (see BRIDGES Weekly, 10 March 2004). This set of reforms is the first major change to the sugar regime in Europe since it was launched in the 1960s.

Reform plans met with criticism

The EC proposal faced heavy criticism from many fronts. Within Europe, farmers in uncompetitive EU regions, such as Ireland and the Nordic countries, questioned a reform they said would kill off their sugar production, provide no benefits to the poorest developing countries, while mainly opening the market to countries such as Brazil "where social and environmental conditions of sugar farming are to say the least, questionable".

African, Caribbean and Pacific (ACP) sugar supplying countries also expressed serious concern over the reform. These countries criticised the unilateral decision to reform the ACP-EU Sugar Protocol, which has provided certain developing country farmers with preferred access to European markets since 1975. Even though the EU will maintain preferential access for producers in ACP countries, the reform will eventually reduce the price these producers receive by more than one-third. By 2008, this will result in a loss of US$ 90 million a year for these countries. Under the current proposal, EU sugar producers will be compensated for 60 percent of the price reduction, but ACP producers will not receive the same support.

Civil society groups also spoke out against the reform. Oxfam and WWF International released a joint statement describing the reform as a "half-hearted effort". They noted that the new system would "allow continued export dumping on developing countries, thereby undermining poor farmers’ livelihoods".

Pressure for sugar reforms grows

The changes come at a time when the EU is facing unprecedented pressure to reform its sugar regime, which is currently being challenged by Brazil, Thailand and Australia in a WTO panel. The complainants argue that EC subsidies have driven world prices below production costs. A provisional ruling in this case is expected in early September (see BRIDGES Weekly, 17 July 2003). Some experts also believe the recent WTO panel decision against US cotton subsidies has increased pressure on the EU to reform its sugar sector. Eduardo Carvalho, president of the Sao Paulo Sugarcane Agroindustry Union, said that the recent US cotton decision strengthened the case for reform because "it showed for the first time that internal supports spilled over into external trade and broke international trade rules".

In addition to the legal challenge, the EU faces continuing pressure from aid groups who argue that the high levels of subsidies are impeding the ability of developing countries to compete. Currently, European farmers are paid prices more than three times above the world market and Oxfam International has claimed that for every one euro worth of sugar exports the EU is spending EUR 3.30 in such subsidies. Brazil estimates its sugar industry loses US$ 900 million annually due to Europe’s sugar export subsidies. Brazil is the world’s largest sugar producer and exporter, followed by the EC.

Environmental impacts of the current EU sugar regime

The current levels of sugar beet production in the EU, made possible through the subsidies, are taking a toll on the environment. Herbicide application in sugar beet is among the highest compared to other crops, with an average of four to five herbicide applications per growing season. Until recently, a commonly used type of herbicide, glyphosate, was thought to break down in the soil, but residues have been found in groundwater. The high levels of irrigation associated with sugar production in Europe are another environmental concern. The subsidised sugar regime has enticed farmers into growing sugar beet even in parts of Europe where the climate is not suitable for sugar production. Without irrigation, it would be impossible to grow sugar in countries such as Greece, Portugal, and southern Italy, Spain and France. Yet because of the high guaranteed minimum price for sugar, these are large sugar-producing countries. The irrigation puts a strain on rivers and wetlands, threatening the habitat of many species. Another negative impact of sugar beet production is soil loss, with up to twenty percent of the total weight of the harvested beet being soil.

Additional Resources

Oxfam Briefing Paper 61 "Dumping on the World: How EU Sugar Policies Hurt Poor Countries".

"European Commission’s Sugar Plan will not end Destructive Regime," OXFAM AND WWF RELEASE, 14 July 2004; "Caribbean Bitter at EU Sugar Reform," TERRAVIVA, 18 July 2004; "EU Commission Proposes Sweeping Sugar Reform," REUTERS, 23 June 2004; "EU Sugar Plan to Help Trade Talks, Hit Industry," REUTERS, 24 June 2004; "Environmental Impacts of Sugar Beet Production," WWF, July 2004.