Bridges Weekly Trade News Digest • Volume 9 • Number 23 • 29th June 2005
EU Releases Reform Plan For Sugar
On 22 June, the EU’s executive European Commission released a new market reform plan for the sugar sector, which is set to significantly change asystem that has been in place for 40 years. The proposal includes a two-step, 39 percent cut in the guaranteed price of white sugar; compensation to EU farmers for 60 percent of the price-cut in the form of a decoupled subsidy linked to environmental and land management standards; and a restructuring scheme encouraging less competitive producers to move out of sugar farming as well as supporting factory closure. The reform also offers assistance to the African, Caribbean and Pacific (ACP) countries that currently enjoy preferential access to the EU sugar market.
The reform plan is an updated version of a scheme released a year ago (see BRIDGES Weekly, 21 July 2004), and comes in the wake of a successful challenge to the European sugar subsidies at the WTO by Australia, Brazil and Thailand (see BRIDGES Weekly, 4 May 2005). Beet-based sugar production in temperate countries is less efficient and more costly than cane-based production in the tropics.
At the release of the reform plan, EU Agriculture Commissioner Mariann Fischer Boel said "I am convinced that EU sugar producers have a competitive future, but only if we act now and act decisively to prepare them for the challenges ahead. We are offering a long term, stable planning horizon with a generous restructuring fund to encourage less competitive producers to leave the sector and to cope with the impacts of the restructuring process."The proposed cuts have come up against strong criticism from sugar producers in Europe and key ACP sugar producing countries, which would see the prices they get for their sugar dramatically decrease. Australia, Brazil and Thailand have, on the other hand, welcomed the reform. The European Commission hopes for political agreement on the proposal at the EU Agriculture Council in November 2005, a month before the WTO’s Hong Kong Ministerial Conference.
Effects on ACP, LDC countries
A number of ACP countries have been exporting to the EU market at guaranteed prices under the Cotonou Sugar Protocol, and will be hard-hit by the reform. These countries have vulnerable economies, and are much less competitive than major producers such as Brazil. In addition, least-developed countries (LDCs) have been guaranteed duty-free access, to be fully phased in by 2009, under the 2001 Everything But Arms (EBA) initiative. The majority of EU imports have been from Mauritius, which has been exporting 14 times more sugar to the EU than Brazil has. The ACP countries, India and LDCs would continue to be able export at the new EU "reference price," which replaces the intervention price. The EU price will still be higher than the world price.
As part of the reform package, the EU will offer EUR40 million in adjustment assistance to ACP countries in 2006, and continue to support this process for another eight years. According to the EU, trade measures under EU-ACP Economic Partnership Agreements (EPAs) will also serve to assist the ACP countries in the adjustment process. According to Louis Michel, the EU’s Development Commissioner, "We must stop telling some countries that will never manage to be competitive in sugar that they can continue to be. I’m not far from thinking that we have not been sufficiently honest with some countries by maintaining a system that has made them quasi-dependent on some industries and made them shy away from diversifying."
The ACP and LDC countries have, however, called for a slower phase-in of the reform, as well as more assistance. Clement Rohee, Minister of Foreign Trade of Guyana and Ministerial spokesperson on sugar for the Caribbean Community (CARICOM), stressed that "It is impossible to overstate the devastating impact the price cuts and timescale proposed by the Commission will have on ACP countries. As far as the ACP is concerned, the proposed reform is too fast, too deep, and too soon. Under these conditions the sugar industries in many countries will be simply unable to survive, while in other producing countries the so-called reform will inevitably lead to severe cutbacks with disastrous socio-economic consequences." The LDC Sugar Group, for its part, highlighted the special constraints these fragile countries faced, including mounting transport costs.
Duncan Green, head of research at international charity Oxfam, pointed out that "smaller vulnerable countries from the Caribbean and Africa are getting the short end of the stick," and that their interests needed to be balanced with those of large, efficient producers such as Brazil. Oxfam also called for a more gradual reform and substantial adjustment assistance to the affected developing countries.
Effects on EU countries
The reforms will lead to a seven million tonne decrease in European sugar production by 2014 — from 19.7 million today to 12 million — implying that 40 percent of EU production will cease. Production is projected to end in Greece, Ireland, Italy and Portugal, while it will decrease significantly in Denmark, Finland, Spain, the Czech Republic and Hungary. A number of affected EU countries have already voiced their opposition to the reform plan. The effects will extend beyond farmers to sugar refineries, plants and related services, including transport.
The reform is expected to lead to greater concentration in the sugar sector, which has raised concerns that powerful multinationals, such as Südzucker of Germany, would be able to control prices and thus capture an even higher proportion of revenue. Commissioner Fischer Boel has said, however, that if a price cartel were to emerge, she would fight it by imposing temporary tariff rate quotas — which would allow a certain quantity of sugar to be imported at a low tariff rate — to let in additional low-cost sugar.
Reacting to the reform proposal, European sugar lobby Comite Europeen des Fabricants de Sucre (CEPS), said that as it is implemented, checks and balances must be in place to ensure that imported sugar under ongoing preference schemes actually originates from these countries, not Brazilian traders. CEPS also stressed that sugar should be designated a sensitive agricultural product in the Doha Round agriculture negotiations, meaning tariff cuts would be moderate, and that an existing agricultural safeguard protecting the sector from import surges should be maintained.
Biofuels in the sugar reform
The sugar reform plan ensures that the production of biofuels — clean-burning, carbon-neutral fuels derived from agricultural crops that can be used to partially replace liquid petroleum products — will not be adversely affected. Sugar beet will be eligible for EU energy crop aid, in line with its policies on biofuels, worth EUR45 per hectare. Sugar used for the production of ethanol, as well as by the chemical and pharmaceutical industries, will be excluded from the sugar quota. In addition, when beet is grown for non-food purposes, it qualifies for ’set-aside’ payments — grants received by EU farmers for leaving fields uncultivated.
Certain ACP countries have also said they plan to diversify into ethanol production. For example, Jamaica has plans to start producing ethanol, aswell as using sugarcane residues, known as bagasse, for electricity generation.
Details of the Commission proposal are available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/05/776&format=HTML&aged=0&language=EN&guiLanguage=en.
"Sugar Reform Will Offer EU Producers Long-term Competitive Future," EC RELEASE, 22 June 2005; "Caribbean shocked as EU plans to end sugar regime," FINANCIAL TIMES, 23 June 2005; "Sugar firms sour on subsidy cut", BBC NEWS, Thursday 23 June 2005; "EU sugar reform splits exporters" BBC NEWS, 22 June 2005; "A requiem for preferential sugar," THE JAMAICA OBSERVER, 21 June 2005; "EU Could Open Up Sugar Market," FINANCIAL TIMES, 22 June 2005; "European Commission plan on sugar: a sour deal for worlds poorest, says Oxfam," OXFAM RELEASE, 22 June 2005; "EU sugar reform proposed price cuts severe and unnecessary," LDC SUGAR GROUP RELEASE, 22 June 2005; CEFS RELEASE, 22 June 2005; ACP RELEASE, 22 June 2005.