News Release
Franz Fischler
No. 112/04
July 14, 2004
SUGAR: EU COMMISSION PROPOSES MORE MARKET- CONSUMER, AND
TRADE-FRIENDLY REGIME
Today, the European Commission has brought to the table a radical overhaul
of the EU sugar
regime. The current system has come under fierce criticism for misallocating
resources, hampering competition, harming developing countries and giving consumers,
taxpayers and the environment a raw deal. The Commission proposes to cut back
sugar exports and export refunds substantially, abolish intervention, reduce EU
production and the internal sugar price and grant a de-coupled payment to sugar
beet farmers. The reform process shall start in July 2005. To give all parties
time to adjust, the changes should be implemented over 4 years. In view of the
uncertainties in the international field, a review is foreseen in 2008.
Franz
Fischler, EU Agriculture
Commissioner said: This reform gives the EU sugar sector and developing countries
a realistic perspective. Our consumers will see much more market orientation,
developing countries much less trade distortions.
Impact of the reform
The reform will lead to the continuation of sugar production in the EU - at
a sustainable and competitive level. With the decoupled income payment, EU sugar
beet farmers will be partially compensated for the income loss in the form of
a fully decoupled payment. EU consumers and the sugar consuming industry will
see lower prices. This reform will also tackle certain environmental problems
caused by intensive production.
Job aspects
The existing sugar regime does not safeguard jobs. Over the last decade the
sector has shed around 17,000 industry-related jobs. While there were 240 sugar
mills in the EU in 1990, just 135 were left in 2001. This trend will continue.
The reform will also lead to restructuring, but with the difference that the
remaining production will be competitive and the jobs sustainable. The reform
will give the industry time to adapt. To cushion the social and economic effects
of restructuring, the Commission proposes a conversion scheme for sugar factories
which are no longer economically viable.
New Member States
Considering that the new Member States
(NMS) have already been fully benefiting from the existing sugar regime, the Commission
proposes to grant full compensation. These payments will be subject to financial
discipline.
ACP action plan
The EU fully stands by its commitments to ACP
countries and India.
With the reform, they will get a clear perspective, keep their import preferences
and retain an attractive export market. The EU will initiate a dialogue with the
affected countries on the basis of an action to be proposed before the end of
2004 to define appropriate trade and development measures. The Commission will
propose to provide tailor-made programs to help them adapt to the new market conditions
to improve the competitiveness of sugar production where viable or to support
diversification.
The 49 poorest countries will be able to export more sugar duty free to the
EU.
Main changes
Reduction of the institutional support price from 632/ton to 421 in 2
steps over 3 years;
Reduction of the minimum price for sugar beet from 43.6/ton to 27.4 in 2 steps
over 3
years;
Abolishing public intervention, replaced by a private storage scheme;
Reduction of EU production quota by 2.8 million tons (from 17.4 million tons
to 14.6 million
tons) over 4 years;
Reduction of subsidized exports by 2 million tons (from 2.4 million tons to
0.4 million tons);
New, decoupled payment for sugar beet farmers to compensate (60%) income
losses partially;
Quotas transferable between operators of different Member States;
Conversion scheme of 250/ton for factories leaving the sector.
MEMO
EU sugar sector: Facts and figures
Today, the European Commission brought to the table a radical overhaul
of the EU sugar regime This note lays out who this complex sector functions.
How the current sugar system works
The common market organization (CMO) in the sugar sector was set up in 1968
aiming to ensure a fair income to European Union (EU) producers and self supply
of the EU market. Since then it has received very few modifications and it is
the only sector that has so far stayed out of the 1992 Common
Agriculture Policy (CAP) reform process, which essentially involves increase
of competitiveness by compensating institutional price cuts with direct income
payments.
At present the CMO for sugar is governed by Council
Regulation (EC) No 1260/2001. Its essential features are price arrangements,
production quotas, arrangements for trade with third countries and self-financing.
Its primary provisions are applicable only up to 30 June 2006.
In the existing regime, EU support for the sector is provided and income safeguarded
by certain market management tools, namely intervention and minimum
price for sugar beet, as well as production related instruments namely sugar
production quotas, declassification mechanism, carry-over mechanism
and other tools relevant to sugar used in alcohol and yeast production, isoglucose
quota and inuline syrup quota.
Intervention is conceived as a "safety net" guaranteeing
a minimum price for sugar and is a mechanism available to the industry all year
round. The intervention price at which intervention agencies are obliged
to buy-in eligible sugar offered to them has been frozen since 1993/94 at 631.90
per ton for white sugar and 523.70 per ton for raw sugar. Import duties and restriction
of available quantities, which are the other tools of the CMO, keep market prices
above the level of intervention. This tool was only used at the early years of
the CMO and since then the need for its application has not risen.
The minimum price for sugar beet is the price at which sugar manufacturers
are required to buy beet from growers. It is set by the Council at 46.72 per
ton for the A-beet used to produce A-quota sugar and 32.42 per ton for the B-beet
used to produce B-quota sugar. The present prices, unchanged since the 1993/94
marketing year, are in force up to the end of 2005/2006. The EU prices are guaranteed
only for production within quota.
The notion of quota was introduced for the first time in a CMO framework
as a production-related instrument. There are 2 types of quotas: A and B. The
major difference between A and B quota sugar is the level of the levies. Production
quotas (A and B) were set to distribute the production of sugar amongst the
Member States (MS) and keep the overall production within certain limits. They
were fixed at the level of MS and referred only to the maximum quantity of sugar
eligible for price support (intervention purchases). MS were free to produce more,
but that surplus production had to be sold outside the EU. Thus the purpose of
the quota system was 3-fold, namely: i) to limit the total quantity of sugar that
could potentially be brought in the EU sugar market; ii) to limit the potential
costs of intervention purchases; and iii) to guarantee each MS a certain share
of the EU sugar market. The price guarantee applies only to specific quantities
(quotas) of sugar per EU Member State.
The total quota amount is 17.4 million tons for EU-25 and is divided into
A-quota (82%) and B-quota (18%) set per Member State. These A and
B quotas correspond in principle to the demand on the internal market and to the
export of excess quota sugar with export refunds, respectively. For sugar produced
outside the quota there is no support, nor can it be freely marketed within the
EU. This sugar is declassified and considered C-sugar and must be exported
without refund in the expense of the sugar industry and beet producers.
To soften up the impact of declassification, the carry-over mechanism
is available, which involves storage of the surplus production for a minimum period
of 12 months, for the sugar plant that produced beyond its quota. After this period
this surplus is treated as A-sugar produced by the plant as part of that year's
production. The extra quantities must be "carried over" to the next
marketing year or exported as they are without refund. Additionally, quotas were
set for Isoglucose (0.5 million tons) and inulin syrup (0.3 million
tons).
The CMO provides additional aids to the sugar industry namely "refining
aid," which is granted to the refining industry and covers certain costs
of raw sugar, and "production refunds" granted for sugar used
by the pharmaceutical and chemical industries, allowing them to buy sugar at world
market prices to which shipping costs are added.
In terms of management of external trade the current CMO provides 2 instruments,
namely "border protection" and "export refunds."
Border protection is in the form of a combination of 2 duties, 1 fixed
and another resulting from the application of the special safeguard clause justified
by the volatility of the world market price for sugar. Protection for sugar (CN
1701) comprises a fixed duty of 419 per ton, except in the case of raw
sugar for refining to which a duty of only 339 per ton applies. On average the
additional duty was 115 /Ton in 2003 (87/Ton in 2002).
Export refunds are intended to cover the difference between the EU
price and the world price for sugar, allowing it to be sold on the world market.
The average export price for white EU sugar was 280 per ton for the 2001/2002
marketing year and 223 per ton for 2002/03. Refunds are paid for sugar obtained
from beet or cane harvested in the EU and sugar imported under the ACP Protocol/Agreement
with India. For the marketing year 2001/02 refunds were 443 per ton and for 2002/03
485 per ton.
EU sugar production
The EU-25 sugar production fluctuates between about 19 to 20 million tons.
Sugar is produced in almost all Member States of the EU-25 with the exception
of Luxembourg, Estonia, Cyprus and Malta. However, the productivity of sugar production
varies significantly across Member States. Germany and France account for half
of the EU-25 sugar production, followed by Poland, Italy and the United Kingdom.
There are more than 230,000 farms growing sugar beet in the EU-15. Germany, Italy
and France account for more than half of the holdings in the EU-15. In percentage
terms, Germany accounts for around 21% (48.3 thousand holdings), Italy for 20%
(46.4 thousand holdings) and France for 14% (31.8 holdings).
In general, holdings with sugar beet are larger than average and they achieve
a better income. In the EU-15, there are 135 sugar processing plants and 6 refineries.
With enlargement around 100 more sugar processing plants (notably around 70 in
Poland and 30 in the other 6 sugar producing NMS) have been added to the EU sugar
sector. Among the 10 NMS, 7 are manufacturing sugar for a total of about 3 million
tons and have a quota of 2.95 million tons. Poland alone with more than 100,000
beet producers accounts for 1.65 million tons (56% of the NMS sugar quota.) With
accession to the EU, the agricultural sectors of the NMS are going through a restructuring
phase and the figures are subject to change in the near future.
Employment in the sector
In the EU-15 a trend towards rationalization and job reduction in the sugar
sector can be detected over the last years. This is the result of our increased
productivity in sugar beet production and processing. For instance, there were
374 sugar mills in the EU-15 in 1968/69, around 240 in 1990 and just 135 in 2001.
Similarly for jobs: in the 10 years from 1992/93 to 2001/02 job numbers have fallen
from 37,161 to 20,559. And the prospects for the future are not exactly rosy.
Even if the sugar regime remained unchanged, it is estimated that there would
be around 15,000 fewer jobs by 2012, a loss of more than 75%.
Imports and Exports
The EU-25 both imports and exports sugar, but in net terms it is an
exporter. On average for the marketing years 2000/01 to 2002/03, exports
amounted to 5.3 million tons versus 1.9 million tons for imports. The EU is a
key player on world sugar markets but remains far behind Brazil which now dominates
exports. The EU-25's share of the world market amounts to: 14% for production,
13% for consumption, 12% for exports and 5% for imports. Its share in world production,
consumption and exports has declined, whereas Southern Hemisphere countries have
steadily gained importance. International prices for sugar are of significant
importance and are extremely volatile, following an erratic path. Since 1995,
prices have been on a downward trend mainly attributed to an overall excess of
production over consumption.
Sugar and the world markets
The EU sugar regime has often been singled out as the major culprit for depressed
world market prices and negative effects on developing countries. While the Commission
acknowledges that the trade-distorting effects of EU export refunds have to be
tackled in this reform, the reality is more complex.
Graph 1 shows that in sugar the dramatic increase of the exportable surplus in
Brazil almost exclusively explains the decline in world market prices.
The EU is not alone with its artificially high domestic sugar prices. In fact,
almost all exporters except Brazil, from Australia to the US and Sudan are selling
sugar at world market prices and hence at a lower price than their domestic prices.
Budget expenditure
For the budgetary year 2004, the budget foreseen for the sugar sector is 1
721 million.
This budget is distributed as follows:
- export refunds (75% of the total): 1.285 million, including 802 million for
the equivalent of
1.6 million tons of ACP sugar;
- production refunds (chemical industry): 194 million;
- refining aid (cane sugar): 41 million;
- export refunds for non-Annex I products : 183 million;
- aid for the disposal of raw sugar (overseas department sugar): 18 million.
Since 2000, the EU expenditure in the sugar sector was:
- 2000: 2 100.6;
- 2001: 1 676.9;
- 2002: 1 585.9;
- 2003: 1 436.9.
Relation between production and industry
Since it began the CMO has incorporated framework provisions on contractual
relationships between beet growers and sugar manufacturers aimed at ensuring an
equitable balance between the 2 sets of partners and encouraging inter-trade agreements
of benefit to the entire sector and the competitiveness of EU production. Thus
the basic Regulation defines standard sugar and beet qualities and sets purchase
terms for beet and rules on quota transfers between enterprises.
SUGAR REFORM
KEY MESSAGES
The status quo is not an option. To leave sugar outside unreformed would
be illogical. The EU would continue a support system which is almost 4 decades
old, has misallocated resources, hampered competition and given the consumers,
taxpayers, the environment a raw deal. Furthermore, the subsidized EU sugar exports
have come under fierce criticism for harming developing countries.
Full liberalization is not an option. Not only would full liberalization
wipe out sugar production in the EU and with it thousands of jobs, it would also
not benefit the weaker developing countries. They would not be able to compete
with Brazil and export to Europe and selling at world market price level would
not be attractive neither.
Therefore the only feasible option is to balance production, consumption,
imports and exports in such a way as to take account of the different interests.
This is why we opt for cutting back quotas, prices and exports and export refunds
to decouple payments for EU sugar beet farmers and open a dialogue with affected
ACP countries to provide tailor-made and specific assistance for their adaptation
to the new market conditions.
THE EFFECTS OF THE REFORM
The reform will achieve a sustainable long-term perspective for the EU sugar sector,
improved competitiveness, simplification, more market orientation and less trade
distortion, especially for developing countries.
EU consumers and taxpayers: Consumers will benefit from a reduction of sugar
prices. EU taxpayers will get more value for their money - a more competitive,
market-oriented sugar sector which produces in tune with the environment.
EU sugar beet farmers: Sugar production will continue in Europe. Beet farmers
will get the benefits of the decoupled aid. This will enable those farmers who
want to switch to other crops to do so.
EU sugar industry: The EU sugar industry will be given a period of adjustment
during which businesses can either restructure and prepare for a more competitive
environment or else they can decide to leave the sector under a EU funded conversion
scheme. The reform will enable the industry to maintain a better competitive position
and level of production.
EU sugar consuming industry: They will get sugar at lower prices which
makes them more competitive.
The environment: This reform will tackle environmental problems caused
by intensive sugar beet production by including the obligation of cross-compliance.
International trade and developing countries: By slashing export subsidies
and de-linking aid from sugar beet production, poorer countries will see an open
EU market, a marked reduction in sugar exports and much less trade distortions.
The 49 poorest countries will continue to get completely free market access
at attractive prices. They will be able to export more sugar duty-free to the
EU. Unlike in a liberalization scenario, the new system ensures that they are
not out competed by strong exporters such as Brazil.
ACP countries get a clear perspective. They will retain an attractive export
market by maintaining their import preferences. The EU will open a dialogue with
the affected ACP countries to provide tailor-made and specific assistance for
their adaptation to the new market conditions. Rather than perpetuating an unsustainable
dependency on a completely artificial EU system, we want to help ACPs to make
their domestic sugar production more effective or assist restructuring and find
other income sources.
The more competitive developing countries such as Brazil or Thailand: With
the reform the EU will export much less sugar than at present. The more efficient
third-country producers such as Brazil will be able to fill this gap on the world
market.
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Press Contacts:
|
Anthony Gooch
202-862-9523
|
Maeve O'Beirne
202-862-9549
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