Infopack: The European sugar sector - Le Hub · PDF fileTHE EUROPEAN SUGAR SECTOR Its...

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European Commission

I n d e x t a b l e

Preface

1. The different uses for sugar

2. A sustainable future for the EU sugar regime

3. European sugar in figures

4. Sugar: EU and developing countries

5. World trade in sugar

6. Restructuring the EU sugar sector

7. Questions and answers about reforming the EU sugar regime

June 2005

European Commission

T H E E U R O P E A N S U G A R S E C T O R

I t s i m p o r t a n c e a n d i t s f u t u r e

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specific review clause. Our reforms must bolster the

competitiveness of the EU sugar industry, improve its

market orientation and produce a sustainable market

balance in line with the EU’s international commitments

to both third countries and the World Trade Orga-

nisation.

We must also pay attention to the needs of developing

African, Caribbean and Pacific countries for which

Europe has traditionally been a crucial market.

Europe will remain an attractive market place for these

developing countries. And for those affected by our

internal reforms, we will provide tailored financial as-

sistance to help them modernise their sugar sector or

look for other sources of income.

With all these objectives in mind, the path we must fol-

low is clear. Our reform must be based on the combined

elements of a significant price cut - with ‘decoupled’

compensation payments to farmers - the abolition of

intervention, and the reduction of quotas.

The Commission’s impact assessments back up this

approach. We have consulted widely with all interested

parties before finalising our plans.

I am absolutely convinced that there is a bright future for

sugar production in the European Union. But this must

be based on competitiveness.

P r e f a c e

Our reforms of 2003 and 2004 mark the most significant

shift in European Union farm policy since the common

agricultural policy was first introduced more than four

decades ago.

The reforms break the link between direct payments to

farmers and what they produce. This will move European

agriculture closer to the market and allow farmers to

produce what the consumer wants, rather than basing

decisions on the level of subsidy.

To build on that success, the time has now come to bring

the sugar sector - largely unchanged for 40 years - into

line with the approach adopted in 2003 and 2004.

The easy option for me would be to just sit on my hands and

do nothing. But to do so would be irresponsible and result in

the slow and painful death of the EU sugar industry.

Even our most competitive producers would be held

back by the structures of the current regime, while com-

petition from abroad would inevitably and inexorably

increase.

Our reform must take proper account of farmers’ in-

comes, consumers’ interests and the situation of the pro-

cessing industry.

That is why we are proposing a generous restructuring

fund to provide incentives to encourage less competitive

producers to leave the industry over a four-year transi-

tional period.

We need a stronger industry with long-term certainty

about the rules it must follow. That is why we need a

meaningful reform now and why I am not proposing a

Mariann Fischer Boel, Commissioner for Agriculture and Rural Development

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European Commission

Different types of sugar

There are many different types of sugar, for example:

• granulated standard white sugar for domesticuse

• caster sugar produced by screening fine whitecrystals and used in special applica-tions, such as cake mixtures, puddings and powdered drinkbases

• manufacturers’ for use in the food industrysugar

• cube sugar mainly for table use• icing sugar for cakes and confectionery• brown sugar the colour derives from sugar cane

molasses. Brown sugar is used toadd special flavour to food prepara-tions

• jam sugar contains special elements to aid set-ting processes

• golden syrup/ syrups with the flavour of molasses,treacle for use in baking, prepared foods

and domestically• organic sugar produced from organically-grown

sugar beet/cane

Sugar is not a staple food, yet it has seized the imagina-tion of politicians and people around the world. It caused a sensation when European explorers first brought it home from their overseas adventures duringthe early modern era. It then counted heavily in manygovernments’ foreign policies during the age of empire –until Europeans went to great lengths to start producingit at home at the end of the nineteenth century, initiallyin northern France.

Sugar beet growing was introduced in order to breakdependence on sugar cane from the colonies, the solesource of sugar at the time, which made it a rare and pre-cious commodity. The crop gradually spread throughoutEurope. From the 1920s on, with the development ofmaritime transport, sugar beet production faced compe-tition from cane sugar and has survived largely as theresult of tariff protection.

1. W hat is sugar

Sugar (the proper term is sucrose, which breaks downinto two components - glucose and fructose), is the mostplentiful and economic sweetener. Sucrose can be foundin many natural foods (e.g. fruits and vegetables) but canonly be extracted economically from sugar beet andsugar cane. Sucrose is an important source of energy.

More to sugar than meets the eyeSugar is often thought of as a single product – a granu-lated foodstuff to sweeten tea and coffee. Of course,most people realise that sugar is present in many otherfoods, in many different forms. But many overlook justhow diverse the uses of sugar can be. Furthermore, thereare other sweeteners in everyday use in our lives, andnot just in foods. Several of these alternative productsare covered by the EU sugar regime.

European Commission

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T h e d i f f e r e n t u s e s f o r s u g a r

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2. Uses for sugar

Sugar as sugar

The different uses for sugar as sugar can be summarized as:

• a sweetener• a preservative• a flavour enhancer• a bulking agent in other foods• a food for yeast to aid fermentation in baking and

brewing• a means to raise boiling or lower freezing points

(e.g. in ice cream)• an enhancer of the texture and shelf-life of certain

foods (sugar absorbs moisture and provides a‘crunchy’ feel

Sugar in other walks of lifeSugar can be used in a variety of ways in medicine. Forexample, it can be used to assist in healing certainwounds; and chemical manufacturers use it to growpenicillin.

Sugar can be processed into alcohol, including fuelethanol or rum or to produce yeasts, amino acids andproteins (for example lysine).

Sugar can be added to concrete, to aid the setting pro-cess. It helps prolong the longevity of cut flowers. It haseven been used in the film industry as a substitute forglass in on-screen stunts.

By-products of sugarLeftovers from sugar production, molasses and sugarbeet pulp, can be used for such diverse purposes as: ani-mal feed use, paper, yeast and animo acid production ,generation of alcohol including ethanol, and as a soilconditioner.

3. Sugar as a biofuel

Of particular interest is the potential for sugar to be usedas a fuel, not just as a supplementary fuel at sugar pro-cessing factories but as a real alternative to simple fossilfuels.

Sugar from beet and cane can be fermented to makealcohol. This is then combined with petrol and may beused as a transport fuel. In several European cities busesrun on fuel derived from wheat and sugar beet. Thepractice is more widespread in Brazil where cars run onfuel originating from fermented cane.

The problem with fuel derived from sugar is that theproduction process is still relatively expensive. On theother hand, this type of fuel tends to create less air pol-lution than pure diesel or petrol. Another spin-off bene-fit is that the use of sugar as fuel would help farmers tofind new and profitable outlets for their crops.

30 % 21 %

7 %

15 %

12 %6 %

7 %

2 %

Use of sugar – % market share in EU-15

Source: European Commission, DG Agriculture and Rural Development

direct consumption

drinks

confectionery

biscuits

dairy products

various preparations

other foodstuffs

non-food


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4. EU support for biofuels

The EU has initiated several schemes to give an incentivefor the production of more biofuels. Tax incentives are theprerogative of Member States but targets have been setat EU level for the desired percentage of Member States’fuel needs that should be met by biofuels.

In a strictly agricultural policy context there are incenti-ves for biofuel production. The 2003 CAP reform offersfarmers two systems for the encouragement of energycrops, via the new energy crops aid and through the set-aside scheme (allowing growing of crops on set-asideland for many non-food uses, one of which is energy pro-duction).

An aid of EUR 45 per hectare is already available to far-mers who produce energy crops (applying on a maxi-mum guaranteed area in the whole EU, of 1 500 000 hec-tares). Sugar beet will qualify for such assistance if theCommission’s sugar reform is adopted. The energy cropsaid is additional to the direct payments received by far-mers following the CAP reform.

Farmers may process crops receiving energy aid them-selves. They may use their crops:• as fuel for heating their agricultural holding• for the production on the holding of power or biofuels• to process into biogas on their holdings

By 31 December 2006, the Commission must submit areport to the Council on the implementation of the ener-gy crops aid scheme, in light of the implementation ofthe EU biofuels initiative.

5. Other sweeteners

Sweeteners fall into two categories: natural sweetenerscontaining calories that are extracted from plants, suchas sugar itself, and 'artificial' sweeteners with zero calo-ries.

IsoglucoseIsoglucose is a syrup obtained by isomerisation of gluco-se in fructose under the action of particular enzymes.The raw material is wheat or maize, from which starch is

extracted. The basic industrial product is glucose, obtai-ned from starch through hydrolysis, and used particular-ly in the food industry for its nutritional and structuralqualities. Liquid in form, it is used as a sugar substitutemainly in production of drinks.

Isoglucose has rapidly become a strong competitor tosugar and was added to the sugar regime in 1977. Itsproduction has been limited to a quota of 0.3 milliontonnes (0.5 million tonnes for EU-25). This quota repre-sents only a marginal activity for the starch industry,which produces about 10 million tonnes of starch. Themain provisions laid down for sugar also apply to isoglu-cose. In other developed countries with high sugar pri-ces isoglucose has taken a significant market share. It ison a par with sugar in the USA and amounts to a third ofsugar consumption in Canada, Japan and Korea.

Inulin syrupInulin syrup has a very high fructose content (80 %)obtained by hydrolysis of an inulin extracted from chi-cory roots. Inulin production began in the 1980s whenappropriate industrial hydrolysis and extraction proces-ses were developed. The food industry uses inulin pow-der and its oligofructose derivatives for their nutritionaland dietary qualities rather than as a sweetener. Two-thirds of inulin production is processed by full hydrolysisinto inulin syrup, which has a very high sweeteningpower. It is used by the food industry in drinks in parti-cular, either on its own or mixed with glucose. Inulinsyrup was taken into the sugar regime in 1994 on thesame lines as isoglucose. The quota is 0.3 million tonnes,shared between three Member States.

Artificial sweetenersThere are artificial sweeteners – not covered by the sugarregime – that have a sweetening power of tens or evenhundreds of times that of sugar, no calories, and noimpact on blood glucose levels. The best known of theseinclude saccharin, aspartame, cyclamates and the ‘alco-hol sugars’ such as sorbitol. They enjoy an estimatedmarket share of 15%. This market share is restricted fortwo reasons, one health-related and the other technical(use in the food industry).


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European Commission

per tonne for raw sugar. Current prices are unchanged

since 1993/94.

Sugar importsThe EU has several international trade agreements with

third countries and groups of third countries, allowing

preferential access (i.e. at low or zero tariffs for quantities

subject to quotas) to the high-priced EU sugar market.

These are longstanding and enshrined in multi-lateral

trade agreements.

2. Four reasons to reform the sugar regime

The sugar sector maintains artificially high pricesCurrent EU price levels are three times higher than world

market prices – this has been a constant point of criti-

cism inside and outside the EU. The restructuring of our

sugar industry is unavoidable: sugar must be brought in

line with today’s economic realities.

The EU lost a World Trade Organisation (WTO) sugar ‘panel’The recent ruling of the WTO Appellate Body (‘panel’) in

a case brought by Australia, Brazil and Thailand against

aspects of the EU sugar regime obliges the EU to alter

the regime. The ruling found that ‘C sugar’ exports bene-

fit from export subsidies by being cross-subsidised with

revenues from production under A and B quotas.

Secondly, the WTO ruled that the EU exceeds its export

subsidy commitments due to its subsidised export of

sugar equivalent to imports from the Africa Caribbean

and Pacific (ACP) countries and India. Measures must be

taken to comply with the ruling.

The current sugar regime expires on the 30 June 2006Without a new regime all price provisions, all quota

arrangements and the public storage (‘intervention’)

system would cease to apply; this could lead to serious

market disturbances and threaten the organised restruc-

turing of the European sugar sector.

The common market organisation in the sugar sector

(the sugar ‘regime’) was established in 1968 aiming to

ensure fair incomes and self-sufficiency among EU pro-

ducers. It has been modified, but not fundamentally

changed, despite reforms in other areas of the common

agricultural policy (CAP) which have increased competi-

tiveness in the agricultural sector by reducing support

prices, compensating farmers with direct income

payments and breaking the link between subsidies and

production.

1. The current support system

How the current sugar regime worksThe essential features of the current sugar regime are

support prices (a minimum price to growers of sugar

beet, and a guaranteed price to support the market),

production quotas to limit over-production, tariffs and

quotas on imports from third countries, and subsidies to

export surplus production out of the EU.

Sugar quotasThere are two types of quota: A quota (initially deter-

mined in accordance with domestic consumption) and B

quota (additional amount to fulfill export potential).

Production quotas were set to distribute production of

sugar amongst the Member States and to keep overall

production within certain limits. They represent the

maximum quantity of sugar eligible for price support.

The total quota for the EU-25 is 17.4 million tonnes (A-

quota: 82 %; B-quota: 18 %); Member States may produ-

ce more but that over-quota production (‘C sugar’) has

to be sold outside the EU without subsidy.

Support pricesThe minimum price for sugar beet is the minimum price

at which sugar manufacturers are required to buy beet

from growers for the production of quota sugar. It is cur-

rently EUR 46.72 per tonne for beet used to produce A-

quota sugar and EUR 32.42 per tonne for beet used to

produce B-quota sugar. ‘Intervention’ (market support)

prices are EUR 631.9 per tonne for white and EUR 523.7

European Commission

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A s u s t a i n a b l e f u t u r e f o r t h e E U s u g a r r e g i m e

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4. Key elements of the reform

The Commission’s proposal has been made after discus-

sion with stakeholders in the sector. The main elements

are:

Significant price reductionTo be more competitive and market-oriented the reform

introduces price cuts. Those who cannot compete within

the new framework will be given incentives to give up

their quotas. Thus:

• prices should revert to their true role as the determi-

ning factor in the allocation of resources and invest-

ment decisions;

• EU-funded buying into stores (‘intervention’) will be

abolished and the intervention price replaced by a

‘reference’ price;

• the support price for white sugar will be cut in stages;

• minimum prices for beet will be cut by a corresponding

amount;

• the new price system will remain for a period so as to

provide stability.

Partial compensation for farmersDirect payments for sugar beet growers will be paid

(covering 60 % of the revenue loss from the price cuts).

Payments are calculated in the same way for all 25

Member States. Direct payments will be decoupled and

become part of the Single Payment Scheme; payment is

therefore conditional on the fulfilment of ‘Cross

Compliance’ requirements whereby farmers receive pay-

ments provided they comply with environmental, health

and welfare standards.

Quota reduction There will be no compulsory quota cuts in an initial

phase to ensure competitive producers will not be weak-

ened. The hope is that voluntary restructuring will lead

to sufficient quota reduction. A restructuring fund will

offer a clear incentive to leave sugar production for

those whose production is not viable. Restructuring

funds could be used in three ways:

• Industry: contributing to costs of factory closing/

reconversion of sites

• Farmers: compensating for full price cuts in year one

Prolongation of the current system is not an optionThe EU has to adapt to its international obligations. The

status quo is unsustainable - it would lead to a scenario

dominated by attrition:

• countries benefiting from the EU’s Everything But

Arms (EBA) agreement with Least Developed Countries

(LDCs), allowing free access to the EU sugar market,

could send all their production (around 3.5 million

tonnes) to the EU

• EU production quotas would then have to be reduced

automatically by the imported quantities in order to

achieve market balance

• the sugar industry, even in the most competitive EU

regions, would be damaged. Non-competitive regions

will suffer gradual decline without the incentive to seek

economic alternatives

At least 60 factories would close and 5 000 agricultural

jobs, 25 000 jobs in industry and 50 000 indirect jobs

would be lost.

3. Objectives of the reform

The main objectives are to:

• guarantee a regular supply of sugar while protecting

the European market from extreme price fluctuations;

• make the sugar sector more competitive, able to with-

stand international competition;

• move towards more market orientation while

restructuring the sector;

• provide a fair standard of living for farmers and

maintain rural communities;

• maintain preferential access for ACP and LDC producers

to the high value EU market;

• simplify the regime and make it more transparent;

• limit budget costs.

Reaching these objectives would provide the sector with

a long-term policy framework.

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• Most affected regions: financing of diversification

measures

The fund would be financed via a levy on quota in the

first years. This scheme is explained in more detail in a

separate section.

At the end of the four-year restructuring period flat-rate

quota cuts will be introduced, across all Member States,

but only if required by the market situation.

Current quota arrangements will be simplified by merg-

ing A and B quotas into one quota; the quota system will

be extended. To maintain production levels in Member

States currently producing C sugar additional quota will

be made available against a one-off payment. Further-

more, isoglucose quotas will be increased.

Market BalanceTools to ensure market balance in each marketing year

will be retained, e.g.:

• Carry forward mechanism: sugar factories may carry

forward an overshoot of quota to the following year

• Withdrawal mechanism: the Commission may deal

with a market imbalance by compulsory storage of

sugar

• Private storage scheme: triggered once the market

price falls below the reference price

Enlarging alternative outlets for out of quota sugarWe aim to improve incentives for the industrial uses of

sugar:

• biofuel, chemical and pharmaceutical industries will

have access to out of quota sugar which should guar-

antee them reasonable raw material prices

• processing of biofuel from sugar beet will be promoted

- sugar beet will become eligible for energy crop aid to

the sum of EUR 45/hectare (provided under the 2003

CAP reform) and will qualify for set-aside payments

Budget neutralityThe reform will be budget neutral as the costs of new

measures, notably the compensation of the sugar beet

farmers, will be off-set mainly by savings resulting from a

substantial reduction in export subsidies.

5. Impact of the reform on EU Member States

Variable impact across the EUThe impact of sugar reform varies according to Member

States’ possibilities for sustainable production. Areas

with specific advantages, such as Austria, Belgium,

France, Germany, the Netherlands, Poland, Sweden and

the UK should be least affected.

Compensation for negative impactsNegative impacts can be offset by:

• new outlets for out of quota production (ethanol and

industrial use);

• refining of cane sugar in sugar beet factories to achieve

economies of scale;

• increases in isoglucose quotas;

• moving to alternative crops (notably to wheat or maize)

• the restructuring fund.

6. Assisting LDC and ACP countries

The situation of LDCs and ACP states is examined in a

separate sheet – “Suger: EU and developing countries”.

A lower price on the EU sugar market will affect those

countries exporting to the EU on preferential terms.

However, EU sugar prices post-reform will still be higher

than world prices generally, and the EU is designing a

package of assistance measures for less developed coun-

tries.

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European Commission

2. The importance of the EU’s sugar economy

Sugar beet covers 1.8 million hectares throughout theEU-15, accounting for 1.4 % of the agricultural area andproviding 1.6 % to 1.8 % of the value of EU agriculturaloutput.

Sugar beet growersThere are more than 325 000 farmers growing sugar beetin the EU (230 000 in EU-15; 95 000 in the new MemberStates). Germany accounts for around 48 300 holdings,Italy for 46 400 and France for 31 800, the three Statesmaking up more than half of the holdings in the EU-15.Sugar beet is usually grown along with other arablecrops such as cereals. Generally, holdings with sugarbeet are larger than average in terms of both area and

There is a wealth of misinformation about Europeansugar production, consumption and trade. Some factsabout the EU and sugar are shown here.

1. European production

EU-25 sugar production varies between approximately19-20 million tonnes per year. Sugar is produced in allMember States of the EU-25 except Cyprus, Estonia,Luxembourg and Malta. France, Germany and Poland arethe largest producers, accounting for half of EU-25 sugarproduction, followed by Italy and the UK. The efficiencyof sugar production varies significantly across MemberStates.

European Commission

Production under quota Total Production Yield Share in

Quota A Quota B Total Quota 2004/2005 2004/2005 Production

EU 25 14.723.213 2.717.321 17.440.535 19.998.055 9,14 100,0%

France 2.970.359 798.632 3.768.991 4.515.176 12,23 22,6%Germany 2.612.913 803.982 3.416.896 4.305.959 9,83 21,5%Poland 1.580.000 91.926 1.671.926 2.001.412 6,72 10,0%United Kingdom 1.035.115 103.512 1.138.627 1.390.000 10,22 7,0%Italy 1.310.904 246.539 1.557.445 1.158.163 6,43 5,8%Spain 957.082 39.879 996.961 1.078.176 9,80 5,4%Netherlands 684.112 180.447 864.560 1.036.762 10,47 5,2%Belgium 674.906 144.906 819.812 991.666 10,89 5,0%Czech Republic 441.209 13.653 454.862 553.960 7,96 2,8%Hungary 400.454 1.230 401.684 487.725 7,30 2,4%Danmark 325.000 95.746 420.746 471.518 9,81 2,4%Austria 314.029 73.298 387.326 458.137 10,24 2,3%Sweden 334.784 33.478 368.262 371.632 7,80 1,9%Greece 288.638 28.864 317.502 259.301 7,91 1,3%Slovakia 189.760 17.627 207.432 233.005 6,75 1,2%Ireland 181.145 18.115 199.260 223.745 7,22 1,1%Finland 132.806 13.280 146.087 148.583 4,79 0,7%Lithuania 103.010 0 103.010 132.857 5,24 0,7%Portugal 132.806 13.280 146.087 148.583 4,79 0,7%Latvia 66.400 105 66.505 67.111 4,94 0,3%Slovenia 48.157 4.816 52.973 37.994 6,23 0,24%


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E u r o p e a n s u g a r i n f i g u r e s


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Sugar beet factories belong to 43 commercial entities.Some of them are owned by the same parent company,therefore it is estimated that sugar production is in thehands of 30 companies (EU-15 only).

Employment in the sectorIn the EU-15 there has been a trend towards rationalisa-tion and job reduction in the sugar sector over recentyears. This results from increased productivity in sugarbeet production and processing. For instance, therewere 374 sugar mills in the EU-15 in 1968/69, around 240in 1990 and just 126 in 2003. In the period 1992/93 to2003/04 job numbers in the processing sector fell from58 546 to 31 862. If the sugar regime remains un-changed, it is estimated that there would be around 15000 fewer jobs by 2012.

3. EU production in a global context

Areas covered by sugar beet and sugar cane throughoutthe world amount to about 25 million hectares, 75 %

economic indicators. The overall agricultural area for hol-dings with sugar beet (70 hectares, of which eight arededicated to sugar beet) is larger than the average for allfarms (20 hectares). In general, holdings with sugar beethave above average incomes.

Only about 8 000 holdings in the EU-15 are specialised insugar beet, corresponding to 3.4 % of the total numberof sugar beet farms. As sugar beet is one crop amongothers in rotation, the number of specialised farms islimited.

Sugar processorsThere are 126 factories processing beet in the EU-15 andsix cane sugar refineries in four Member States (Finland,France, Portugal, UK). Following enlargement, around 90more sugar processing plants have been added to theEU sugar sector (approximately 60 in Poland and 30among the other sugar producers). Poland alone (withmore than 100 000 beet producers) accounts for 2 mil-lion tonnes of production (2004/05 figure).

Number of companies, fac tories and workers : EU-15

Sugar and refinery Sugar factories Staff employed duringcompanies campain

1992/1993 2003/2004 1992/1993 2003/2004 1992/1993 2003/2004

Austria 1 1 3 3 1 621 1 067Belgium 9 2 9 8 2 380 970Denmark 1 1 4 3 1 571 858Finland 1 2 3 2 460 184France 30 16 48 32 13 377 7 963Germany 14 7 52 27 9 509 6 778Greece 1 1 5 5 3 495 1 875Ireland 1 1 2 2 964 650Italy 12 5 25 19 9 600 4 550Netherland 2 2 6 5 2 589 1 492Portugal 2 1 - 1 970 283Spain 5 3 22 11 6 500 3 100Sweden 1 1 5 2 2 029 840United Kingdom 2 2 10 6 3 481 1 252

EU-15 82 45 194 126 58 546 31 862Reduction (%) 45% 35% 46%

Source: CEFS, Comité Européen des Fabricants de Sucre


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World- Sugar B eet and Cane, Compared developments in har vested areas, 1961-2002

World Top -10, Developments in sugar produc tion, 1961-2002

25 000

20 000

15 000

10 000

5 000

0

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1987

1989

1991

1993

1995

1997

1999

200119

85

6 92

68

912

6 13

719

734

Sugar Cane

(000 Ha)

(000 Mt)

Trend Sugar Cane (Linear)

Sugar Beets

Trend Sugar Beet (Poly.)

Data source: FAOSTAT, Agricultural Production Crops Primary

25 000

20 000

15 000

10 000

5 000

0

Pakistan

Cuba

Australia

Mexico

Thailand

USAChin

a

Europea

Unio

n (15)* In

diaBra

zil

Data source: FAOSTAT, Agricultural Production Crops Primary

* EU 15 figures includeFrance DOM’s


25 000

20 000

15 000

10 000

5 000

0

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1987

1989

1991

1993

1995

1997

1999

1985

4

planted with sugar cane and the rest with sugar beet.While areas covered by sugar beet have been decliningsince the mid-1970s, those under sugar cane have stea-dily increased since the 1960s. Areas under cane havemore than doubled in forty years.

Sugar production has more than doubled since the1960s. Average world sugar production for 2002/03 was135 million tonnes. Over the last ten years, productionhas soared (+120 %) in Brazil and in India (+ 50 %).

The EU-25's share of the world market is divided up as fol-lows: 14 % of production, 12 % of consumption, 12 % ofexports and 5 % of imports. Its share in world production,consumption and exports has declined, whereas southernhemisphere countries have steadily gained importance.

EU Imports and ExportsThe EU-25 both imports and exports sugar, but in netterms is an exporter. On average in the period 2000/01 to2002/03, exports amounted to 4.7 million tonnes withimports at 1.9 million tonnes. The EU is a key player onworld sugar markets but remains far behind Brazil whichnow dominates exports.

4. Sugar consumption

In 2000, food uses of sugar amounted globally to 113million tonnes (123 million tonnes in raw equivalent).Seven of the top ten sugar using regions are also amongthe top ten producers. FAO1 data illustrate steady growthin sugar supply and use at world level. Consumption(based mainly on figures for the use of sugar as food) has

EU-15 - Produc tion, uses and trade, 1961-2000

Imports Exports Domestic Supply Food Production

1Food & Agricultural Organisation of the United Nations


1 000 tonnes


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grown by 1.7 million tonnes (refined) a year over the last40 years. This represents a 3.8 % increase compared tothe early 1960s and a 1.6 % increase compared to theaverage for the years 1991 to 2000.

5. Sugar policy impact

Sugar policies have a significant impact on productionand trade, and therefore on prices. Several key sugar pro-ducers tend to supply their domestic market first, whereprices are generally higher than on world markets.Leading producers are also among the main users, whichexplains why white sugar has been traded less. Thistrend has, however, been shifting.

World- Top -5 sugar using countr ies, 1961-2000

18 000

14 000

10 000

6 000

2 000

0

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1987

1989

1991

1993

1995

1997

1999

1985

16 000

12 000

8 000

4 000

000 MT

EU-15 India Brazil ChinaUnited States of America

Data source: FAOSTAT, Commodities Balance


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European Commission

preferential raw cane sugar each year, corresponding totheir “presumed maximum needs”. If refineries cannotsource sufficient quantities via the Protocol and othersources such as the outermost regions, a tariff quota atzero duty for raw cane sugar for refining, known asSpecial Preferential Sugar (SPS), is opened. This quota(usually around 150 000 tonnes, decreasing with theincrease of EBA sugar imports) is opened each year forthe ACP Sugar Protocol states and India.

Renewed termsThe terms of the initial Sugar Protocol of 1975 wereunchanged when it was renewed in Cotonou in June2000. The guaranteed price is fixed each year (amoun-ting to EUR 523.70 per tonne for raw sugar – the EU inter-vention price, and EUR 645.50 per tonne for white sugar).The difference between the guaranteed price and theworld price, or the price on their own market, encoura-ges some of the Sugar Protocol countries to export asmuch of their production as possible to the EU, even ifthat means supplying their own consumption needs bypurchasing white sugar on the world market.

2. Everything But Arms (EBA)

Signed in 2001, the ‘Everything but Arms’agreement sus-pends almost all tariffs for products imported into the EUfrom 50 least-developed countries (LDC), including six ofthe ACP Sugar Protocol signatories. Special provisionswere adopted for sugar. Until 2006, the suspension oftariffs is limited to a tariff quota of raw cane sugar for refi-ning. The quota of 74 185 tonnes in 2001/02 increases by15 % each year, to reach 129 751 tonnes in 2005/06, 149213 tonnes in 2006/07, 171 594 tonnes in 2007/08 and197 334 tonnes in 2008/09. These growing imports of“EBA”sugar are included in the supply needs of refineriesand the SPS quota for ACP countries is reduced by thesame amount. The average import price is equivalent tothe guaranteed price in the Sugar Protocol. Between2006/07 and 2008/09 tariffs will be gradually reduced forsugar exported by LDC countries out of the quota. Tariffswill be completely suspended from 1 July 2009 onwards.

The EU sugar regime, with its high guaranteed prices togrowers and processors, has been able to function part-ly due to the tariff structure that ensures competitionfrom imported sugar is controlled. Import duties havebeen maintained at levels designed to deter non-prefe-rential imports. Nevertheless, the EU has provided signi-ficant access to its market for sugar imported from lessdeveloped economies. The EU is still the world’s biggestimporter of farm products from developing countries,buying as much as the US, Japan, Canada, Australia andNew Zealand combined. Sugar is a good example of theEU’s commitment to the developing world.

1. The EU’s sugar trade relation with the developingworld

From UK accession onwards, a specific trade regimefor some ACP countries…The UK’s accession to the EC in 1973 brought to the EUBritain’s strong tradition of buying farm goods from itsformer colonies – including large volumes of sugar. In1975 the EC signed the Sugar Protocol with African,Caribbean and Pacific (ACP) countries, which now covers20 countries. The guaranteed imports laid down in theProtocol have since been worth millions of tonnes ofsugar exports and billions of euros to those countries.

The Protocol on sugar attached to the 1975 LoméAgreement between the ACP countries and the EC setsout a commitment by the EC to buy certain quantities ofsugar at guaranteed prices and a commitment by theACP signatory countries to supply that sugar. Under theagreement, duty free import quotas are allocated for 1.3million tonnes per year.

… and IndiaAn identical agreement to the Protocol on sugar was reached at the same time with India (involving 10 000tonnes per year).

Supply of refineriesThe sugar regime provides that sugar refineries in fiveMember States must have access to 1.8 million tonnes of

European Commission

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S u g a r : E U a n d d e v e l o p i n g c o u n t r i e s


2

ference in the prices for sugar on the two markets madethe concession very attractive. Production, which fellsharply during the conflicts but was almost one milliontonnes in former Yugoslavia, is being encouraged by thelocal authorities, in particular in Croatia and Serbia andMontenegro. Imports of sugar originating in the Balkans,which were previously zero, reached 300 000 tonnes inthe 2002/03 marketing year.

This additional supply of sugar to the EU market resulted ina reduction in EU production quotas in order to complywith its WTO commitments. Trade declined in 2003/04because the preference granted to Serbia and Montenegrowas suspended. A new quota scheme for sugar originatingfrom the Balkans enters into force on 1 July 2005 with theaim of securing the sustainable development of sugar pro-duction and consumption in these countries.

3. Other preferential imports

CXL quotaThis quota was agreed during trade negotiations whenFinland joined the EU. It covers 85 463 tonnes of rawcane sugar for refining, to which a reduced tariff of EUR98 per tonne applies. It is mostly assigned to Cuba (58969 tonnes) and Brazil (23 930 tonnes). The averageimport price is equivalent to the guaranteed price in theSugar Protocol.

'Balkans' InitiativeUnder the 'Stabilisation and Association Process' im-plemented by the EU, all import duties for products orig-inating in the Western Balkans (Albania, Bosnia-Herzegovina, Croatia, FYROM and Serbia andMontenegro) were abolished at the end of 2001. The dif-

Jamaica

Barbados

Brazil

0

Fiji

Guyana

Swaziland

Zimbabwe

Cuba

Belize

Trinidad, Tob

Serb. Monten.

Malawi

50 150 250 300 400 500

489204

195

169

150

65

63

56

51

44

40

39

36

100 200 350 450

Mauritius

EU-15 Main par tners for impor ts, quantit ies, "2000/01"

in 1000 t

Ex tra EU-15 total sugar impor t 1 .8 mio t



3

W hich developing countries supply the EU market?Mauritius accounts for over 25 % of imports. Among theTop-10 (% of imports), all suppliers but one (Cuba) areACP countries which are benefiting from the SugarProtocol.

LDC sugar exports to the EU showed a noticeable in-crease from 95 000 tonnes in 1999/00 to 120 000 tonnesin 2001/02 (including exports under the Sugar Protocol).In particular, imports from Sudan and Mozambique

became significant in 2001/02 (25 000 tonnes together).This reflects the entry into force of the Everything ButArms Agreement.

4. Preferences to developing countries continuespost-reform

A lower EU price post-reform will reduce the expectedreturns to LDCs and the Sugar Protocol countries onsugar shipped to the EU under preference. However, thelower EU price will still be well above typical global mar-

400 000

300 000

200 000

100 000

0

Kenya

Mozam

bique

Zambia

Zimbabwe

Tanzania

Congo Br.

Madagasc

ar

Swaziland

Malawi

Guyana

Trinid

ad

St Kitt

s

Maurit

ius

Barbados

Fiji

Jam

aicaBeliz

e

Cote d’lv

oire

500 000

600 000

700 000

70 %

50 %

30 %

20 %

0 %

80 %

90 %

100 %

10 %

40 %

60 %

Sugar produc tion and expor ts to the EU market of Sugar Protocol countr ies

Source: European Commission, DG Development

Sugar Production2003

Sugar Exports toEU 2003

Exports to EU/Production (%)2003


4

ket quotations. Sending sugar to the EU should thereforestill be attractive for a number of ACP country signatoriesof the Sugar Protocol and for some LDCs.

Impact of reform on LDCsThe reduction of EU prices proposed in the reform willreduce the benefits that the LDC could have expectedfrom exporting sugar to the EU. To avoid distortions ofcompetition with LDCs benefiting from the EBA agree-ment, EU operators will continue to be obliged to buythe sugar to be imported under the EBA scheme at aprice no lower than the guaranteed price for ACP coun-tries and India. This means that LDC exports to the EUwill still benefit from prices significantly higher thanworld market prices.

The Commission carefully considered LDC requests that,for a transitional period, the EU could continue to importtheir sugar at high prices but in quantities limited byquotas. However, the Commission decided against alte-ring a central element of the EBA pact just four yearsafter negotiating it. Nor is it desirable to operate a dualprice structure in the EU – lower internal prices alongsidehigher guaranteed value for some overseas suppliers.

ACP countriesFor the ACPs covered by the Sugar Protocol, the reformdoes not alter the provisions of the Sugar Protocol and theIndia agreement. To account for changes under the sugarreform proposal, the EC import commitments should nowbe fulfilled at a lower guaranteed price for sugar, in therange of the new EU ‘reference price’. At this price level, theraw sugar price will be reduced to EUR 496,8 per tonne in2006/07 and EUR 303,0 per tonne from 2009/10. TheCommission has proposed to integrate the Sugar Protocolinto the Economic Partnership Agreements (EPA), current-ly being negotiated between the EU and the ACP. The EPAare due to enter in force in 2008.

Assistance scheme for ACP countries impacted bythe sugar reformThe Commission recognises that the sugar reform maylead to significant impacts and adjustment needs, withbroad socio-economic consequences in ACP countriesthat are signatories to the Sugar Protocol and have beenrelying on preferential sugar exports to the EU. It is com-

mitted to accompanying the adaptation process requi-red in these countries. The Commission discussed withthe ACP the broad line of an assistance scheme on thebasis of an “Action Plan”. It includes both trade measuresand development assistance to help the Sugar Protocolcountries to adapt. The trade measures are being esta-blished in negotiations on the Economic PartnershipAgreements. A development assistance scheme is pro-posed for an eight year period.

Considering the differences between the different SugarProtocol countries, in terms of types of issues to face andpossible responses, a broad range of support options arebeing offered, to be tailored to each situation. Assistancewill be based on a country-specific, multi-annual, com-prehensive adaptation strategy, devised by the stakehol-ders in the country concerned. The range of assistanceshould cover the needs of countries which will aim toupgrade the competitiveness of their sugar sector, aswell as of those for which the adaptation process re-quires diversifying into alternative economic activities, around or instead of the sugar sector. Considering themultifunctional role of the sugar sector especially in certain areas, these support measures should also coverbroader social, economic, and environmental con-sequences of the reform, if necessary. This adjustmentprocess can also benefit from the use of other develop-ment assistance instruments.

For this assistance package, the Commission is propo-sing an envelope of EUR 40 million for 2006 and moresignificant budgets should thereafter be included infuture financial provisions.


1

European Commission

lion tonnes). In Brazil the share of exports compared todomestic production is very high (above 40 % since1995). In 1999, exports were even higher than food uses.

The share of EU-15 in world exports is close to its share inworld production, while the higher rate of Brazil showsits export orientation. Australia, Thailand and Cuba makeup the top five exporters, each exporting between threeand four million tonnes of sugar yearly. These five coun-tries account for up to 70 % of world exports.

The EU is both a leading exporter and importer. It beca-me a net exporter at the end of the 1970s, mainly thanksto increased production versus stable consumption. The

W o r l d t r a d e i n s u g a r

Many global sugar players maintain high tariffs for sugar,some operate import quotas; others a mixture of thetwo. The EU currently operates a system of export subsi-dies; other countries subsidise production, and thereforetrade, via indirect subsidies or use currency devaluationas a means to improve terms of trade. All these factorshave affected the development of world trade in sugar.

Exports of sugarWhile the EU is a net exporter of sugar, it lags way behindBrazil in exports while providing a valuable market forsugar from less developed countries. Brazil is the leadingsugar exporter with 25 % of world exports (more than 10million tonnes), followed by the EU-15 with 15 % (6 mil-

European Commission

Brazil

Cuba

India

Untd Arab Em

0

EU-(15)excl. Intra-trade

Australia

Thailand

South Africa

Guatemala

Turkey

Colombia

Mauritius

Swaziland

Poland

China

2 000 4 000 6 000 8 000 10 000 12 000

10 231

5 957

3 971

3 652

3 163

1 353

1 179

982

690

634

519

519

419

408

366

in 1000 t

Total World expor ts (excl . EU-15 I ntra trade) 39.4 mio t

World Top -15 sugar expor ters, 1000 tonnes, "2000"

Source: European Commission, DG Agriculture and Development

5


2

and the EU-15, each accounting for 5 % of world imports,at about 1.8 million tonnes. Japan, USA and the KoreanRepublic together buy around 1.5 million tonnes, 4 % ofworld imports. The Top-15 importers absorb one third ofworld trade.

The nature of international sugar tradeAlthough leading sugar producing countries are alsomajor users, sugar is a widely traded commodity. Onaverage international trade (close to 40 million tonnes)represents about 30 % of world production (120 milliontonnes, in refined equivalent). This share is high whencompared to cereals (international trade represents 15 %of cereal production, not taking into account rice) andclose to the share for oilseeds. Nevertheless, as most

10 new EU Member States as a whole are net exportersas well. Brazil has been a significant exporter since the1970s – its exports have soared in line with productionsince the 1990s. In 1999, exports reached an unprece-dented level (13 million tonnes). This is mainly explainedby growth in the ethanol sector. Though guaranteed pri-ces and direct subsidies have been phased out, theBrazilian sugar sector has developed by benefiting fromthe large economies of scale provided by ethanol fromsugar cane juice.

Importers of sugarThe Russian Federation is by far the biggest world impor-ter of sugar, with 5.5 million tonnes (15 % of globalimports) in year 2000. Russia is followed by Indonesia

Russian Fed

USA

Nigeria

Untd Arab Em

0

Indonesia

EU-(15)excl. Intra-trade

Japan

Korea Rep

Malaysia

Iran

China

Canada

Algeria

Egypt

Syria

2 000 4 000 6 000 8 000 10 000 12 000

5 440

1 785

1 774

1641

1 487

1 451

1 207

1 103

1 038

977

957

949

873

745

668

World - Top -15 world sugar impor ters, 1000 tonnes, "2000"

Total World impor ts(excl . EU-15 I ntra trade) 35.7 mio t

in 1000 t



3

international trade in sugar occurs under special tradeagreements (e.g. preferential trade, long-term contracts),spot trade is considered residual.

Historically sugar prices have been highly volatile, forvarious reasons. Macro-economic factors, oil price chan-ges and currency parities can induce variable demandwhile production is not particularly responsive to chan-ges in prices.

Raw versus refined sugarWhile trade in raw sugar was on a declining trend fromthe mid-1970s to the mid-1990s, trade in refined sugarhas steadily increased. Since 1995, exports have beenexpanding for both types of sugar. Raw sugar remainsthe main traded form, but its share in total exports isdeclining (to slightly above 50 %).

700

500

300

100

0

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1986

1988

1990

1992

1994

1996

200019

84

600

400

200

200219

98

1.40

1.00

0.60

0.20

0.00

1.20

0.80

0.40

ISA sugar pr ice - Yearly average - 1960-2002

Price in ECU/EURO or $/MT 1 US $ = … €

ISA Price US $/MT ISA Price EURO/ECU per MT 1 USD => Euro or ECU



4

EU sugar and the world marketThe EU sugar regime has often been singled out as themajor culprit for depressed world market prices andnegative effects on developing countries. While theCommission acknowledges that the trade distortingeffects of EU export refunds have to be tackled in thecurrent reform, the reality is more complex.

The next graph shows the dramatic increase in theexportable surplus of sugar in Brazil and elsewherewhich explains much of the decline in world market prices.

16 000

12 000

8 000

4 000

0

19901991

19921993

19941995

19961997

19981999

20002001

20032002

320

240

160

80

0

World sugar pr ice and net expor ts

Brasil EU Thailand Australia Sugar price (FOB Caribbean)

net exports (000 mt) price ($ per Mt)

EU versus world pricesInternational prices for sugar are extremely volatile follo-wing a cyclical, though erratic, path. Since 1995, priceshave been on a downward trend mainly attributed to anoverall excess of production over consumption. Datashow that the EU price for sugar – i.e. the price of whitesugar as it leaves the sugar factory – is three times the‘world price’. The Commission does not argue with thefigures. However, the world price is not a true market

indicator as it is a residual price resulting from surplusesthat are traded if not taken up by internal consumption.Almost all exporters, are selling sugar at world marketprices and hence at a lower price than their domestic pri-ces.



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European Commission

3. The proposed restructuring scheme

The Commission is proposing a voluntary restructuringscheme to be implemented over a four-year period(2006/07 to 2009/10). The scheme comes in two parts:

• significant, degressive (i.e. reducing over time) pertonne restructuring aid of EUR 730 per tonne of quotain year one, EUR 625 per tonne in year two, EUR 520 pertonne in year three and EUR 420 per tonne in year four. This will be available to sugar factories, isoglucose andinulin syrup producers, and will be granted for factoryclosure and the renunciation of production quota.Processors can abandon production during any one ofthe four years. Restructuring aid will be paid in twoinstallments (60 % by 31 March of the marketing yearin question and 40 % by 30 November the followingyear at the latest;

• a top-up payment to ensure that beet growers, whoare supplying a factory that takes the restructuring aidin year 2006/07 and thus closes, receive direct aid pay-ments in full. The proposed additional payment is EUR4.68 per tonne of A and B sugar beet delivered

In order to encourage early uptake of the scheme, sugarfactories closing as from 1 July 2005 will be eligible forthe restructuring aid. Furthermore, from 2008/09 part ofthe restructuring aid may be earmarked for diversificati-on measures in regions most affected by sugar reform.

A temporary schemeThe Commission is clearly proposing that the restructu-ring scheme should be temporary. In 2010 theCommission may institute compulsory quota cuts ifnecessary – for example as a result of the restructuringscheme not producing sufficient renunciation of quotas,or because of market conditions (or a combination offactors).

During discussions over several years there has beenwidespread restructuring of the EU’s sugar sector. Oneoption discussed to aid this restructuring process was toallow for production quotas to be transferred betweenMember States. However, there was widespread opposi-tion to this. The Commission is now proposing an ambi-tious voluntary restructuring scheme to be implemen-ted over a four-year period.

1. The reasons for restructuring

The EU has a structural surplus in sugar production.Much of this surplus is exported to third countries, bymeans of subsidies. Following the WTO panel ruling ofApril 2005 on certain trade-related aspects of the sugarregime, the EU must curtail such exports. Furthermore,various recent preferential import arrangements (EBA,Balkans agreement) will probably lead to the EU impor-ting significantly increased amounts of sugar, again exa-cerbating the structural surplus in sugar production. Inaddition, the Commission (and many other stakehol-ders) believe that sugar production in several EU regionsis unsustainable in the long-term. This view applies tosugar beet growers as well as to some in the processingsector.

For all these reasons the EU sugar sector needs torestructure.

2. The objectives of restructuring

The objective of restructuring in the sector is to removefrom production those growers and processors that willbe unable to operate in a business environment in whichprices have been severely cut. Sugar factories and beetgrowers will be encouraged to give up their quota rights.In this way more efficient producers will have betteropportunities for the future and the EU will not lose pro-ductive capacity.

European Commission

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R e s t r u c t u r i n g t h e E U s u g a r s e c t o r


2

W ho pays?Financing for the restructuring scheme will come from aspecific amount charged over three years on all sugar,isoglucose and inulin syrup quota. The rates proposedare EUR 126,40 per tonne in 2006/07, EUR 92,30 pertonne in 2007/08 and EUR 64,50 per tonne in 2008/09.This should also be paid in two installments each year.

ConditionsAbandoning of production will mean:

• renunciation of the relevant quota after consultationand under agreements between beet growers and thesugar industry

• definitive and total stop to production in thefactory/factories concerned

• closure of the factory/ies concerned and dismantlingof production facilities

• restoration of the good environmental condition of thefactory site and redeployment of the workforce

Applications for restructuring aid must be submitted by1 February in the marketing year during which produc-tion will be abandoned.

Financial limitsRestructuring aid will only be paid within the limits offunds available in the marketing year concerned. If amounts to be granted exceed that amount then aid willbe granted on a first-come-first-served basis.


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European Commission

Q. W hy doesn’t the reform proposal offer 100 % com-pensation to growers for the support price cuts?

A. The average income loss will be fully compensatedbecause, on top of compensatory payments at 60 % ofthe price cut, the current production levy will disappear.

Q. Are sugar producers in the EU-25 Member Statestreated in the same way as those in EU-15 MemberStates in this sugar reform?

A. Yes. The main elements apply: the price cut will comein but with the full compensatory payments, whileprocessors ceasing sugar production will also haveaccess to the restructuring fund under the same con-ditions as in EU-15.

Q. W hy do we need a reform agreement in November2005?

A. There are four important reasons:i. The current regime lapses in June 2006. To comple-

te legal texts of new Council and Commission regu-lations, and allow sufficient time for changes to beimplemented, we need earlier agreement onreform

ii. The WTO panel that went against the EU sugarregime requires changes to be implemented byJuly 2006 at the latest

iii. Reform is important in order to strengthen the EU’shand in the WTO Ministerial meeting in earlyDecember 2005 which will discuss agriculturaltrade reform

iv. A November agreement will give farmers and theprocessing industry sufficient notice to adapt tonew circumstances

Q. Will ‘market-orientation’ permeate the wholesugar production chain?

A. Yes. As growers and processors will both be affectedby price cuts they will have to orientate their busines-ses to actual market demand and future prospects.Some restructuring in both parts of the sector isbound to occur.

Q. W hy reform the sugar regime now?A. A simple answer would be that the current sugar regi-

me runs out in June 2006, therefore the EU is boundto act. This ignores the many strong reasons forreform. The 2003-04 CAP reform, which was designedto encourage farmers to produce in a more sustaina-ble and market-oriented way, did not include sugar(though it covered most other crops and livestockproducts). It is thus logical to extend the reform tosugar – in the interests of all involved in the sector.Second, if we don’t decide now on a new form for oursugar regime, external economic forces will decide itfor us. Without support price cuts the market wouldoverbalance and only deeper cuts to home produc-tion would restore balance.

Q. W hy not roll over existing arrangements?A. The present sugar regime is often subject to fierce cri-

ticism for a lack of competition, distortions in the mar-ket, high prices for consumers and users, and its effecton the world market. The gap between EU and worldmarket prices has grown larger, while the EU under-took new international commitments. In these condi-tions, the EU’s structural surplus risks widening whilethe rigidity of the present quota system leaves noincentive for the sector to adjust.

Q. Is reform driven by overseas factors?A. The Commission’s own analysis of the sustainability of

the sugar regime shows that we need to reform theregime now, in any case. Since this analysis was car-ried out a WTO panel has handed a victory against theEU to Australia, Brazil and Thailand on two counts:first, the Union can no longer subsidise extra sugarexports to balance out preferential imports, mainlyfrom ACP countries; secondly, EU export commit-ments will have to take account of sugar exportedwith and without refunds. The annual volumes in que-stion are 1.6 million tonnes and up to 3 million tonnes,respectively, piling further pressure onto our market.So, overseas factors are very much in play also.

European Commission

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Q u e s t i o n s a n d a n s w e r s a b o u t r e f o r m i n g t h e E U s u g a r r e g i m e


2

employment since those leaving beet growing willturn to alternative arable productions.

Q. Does the Commission really believe that a systemof voluntary cessation of sugar production (andgiving up of quota) will be sufficient to reduce EUproduction and subsequently the level of exportsonto 3rd country markets?

A. Yes because, within the proposed scenario of pricecuts, the financial incentive has been calculated so asto encourage an important part of the industry to quitthe sector voluntarily. In any event, at the end of therestructuring period quota cuts will be applied if pro-duction has not dropped sufficiently.

Q. The Commission has chosen, according to some, amore radical reform approach than is necessary –surely an adaptation to the status quo would bebetter?

A. We have taken the trouble to conduct impact asses-sments of all the viable options, we have consultedvery widely and we consider that the proposedreform is the option that offers the best possibilitiesfor a sustainable sugar sector (within the EU and inLDCs and ACPs) in the longer-term. We rejected com-plete liberalization on the grounds that a large part ofthe EU sugar industry would irreversibly disappear,and because most ACP countries would becomeuncompetitive.

Q. Will the reformed sugar regime be secure fromfurther attack in the WTO?

A. We believe the sugar reform, as proposed, would comp-ly fully with WTO rules and with our WTO commitments.

Q. Will the reform bring an end to the dumping ofsugar by the EU on 3rd country markets?

A. First, the EU is a major importer of sugar as well asbeing an exporter. Secondly, the EU has never prac-ticed ‘dumping’ of sugar – an indirect impact of aspec-ts of the sugar regime has been the export of subsidi-sed sugar – this issue is addressed by the reform pro-posal. In the Doha Development Round of WTO talks,we have pledged to phase out export subsidies if ourtrading partners phase out their export support pro-grammes in parallel.

Q. Will the reform result in cheaper sugar for consu-mers and industrial users of sugar?

A. The reform will result in lower sugar prices at farm andprocessor level. Normally this should feed throughdirectly into lower ex-factory prices (i.e. prices to userssuch as the food and drinks industry, and to the priceof a retail pack of sugar). The impact on the prices offood and drinks containing sugar is more complex as sugar tends to be one of many ingredients, and not necessarily the major one, in many foods. Forexample, even in soft drinks the cost of the sugaraccounts for only 2 % of the price of a can.

Q. Will sugar production disappear from the EU?A. No. The reform is designed specifically to prevent this

from happening. We believe that, given more efficientproduction, EU sugar could supply more than 75 % ofits 450 million consumers. Some important pointsshould be underlined:• the trend towards rationalisation and job reduction

in the sugar sector would continue even withoutreform. This is the result of our increased productivi-ty in sugar beet production and processing. Forinstance, there were 374 sugar mills in the EU in1968/69, around 240 in 1990 and just 135 in 2001.The story is the same for jobs: in the period 1992/93to 2003/04 job numbers in the processing sector fellfrom 58 546 to 31 862. If the sugar regime remainedunchanged, it is estimated that there would be aro-und 15 000 fewer jobs by 2012;

• overall the reform will sustain production at a higherlevel than would be possible in future under the sta-tus quo. This is because the maintenance of presentprice levels would draw in substantially greater quan-tities of imports from the EBA countries. Thus annualquota cuts would have to be increasingly severe;

• however, within the overall level of production therewill be gradual shifts between regions and MemberStates. This is necessary in order to promote greatercompetitive efficiency. In regions where sugar pro-duction ceases the industry will be able to takeadvantage of the EU-funded conversion scheme forthose wanting to leave the sector. This will help tocushion the social and economic effects of closure;

• finally, as far as sugar beet farmers are concernedthere is no reason to expect any significant effects on


3

Q. How does the Commission propose to assist lessdeveloped countries that will lose full benefit ofpreferential access to the EU sugar market?

A. In two main ways:i. For the ACPs that under the Sugar Protocol have

enjoyed the benefits of long-standing access to thehigh-priced EU market there will be a special pack-age of financial and other assistance. Of course theymay still export to the EU market where sugar pricesare likely to remain above world market levels;

ii. For the LDCs sugar to be imported within the EBAscheme will continue to be bought by EU operatorsat a price no lower than the guaranteed price forACP countries and India.

Q. W hy has the Commission not accepted the propo-sal by LDCs to introduce an import quota systemfor sugar in return for higher prices?

A. We do not wish to alter a central element of the EBApact just four years after negotiating it. Nor do we feelable to operate a dual price structure in the EU – alower internal price alongside a higher guaranteedvalue for some overseas suppliers. If now is the timefor the EU to build a durable future for its domesticsugar production, founded on a more realistic price,then now is also the time for our trading partners tocome to grips with this new reality. Let’s keep this inproportion - under the Commission’s proposals, theEU price would drop from its current very high levelbut would remain well above typical global marketquotations. Sending sugar to the EU should still beattractive for a number of LDCs.

Q. Won’t this reform leave the ACP countries out inthe cold?

A. The ACP countries have to understand that the EUsugar reform is unavoidable. The status quo is not anoption. Subsidised EU sugar exports have comeunder fierce criticism for harming developing coun-tries. The EU cannot sustain an artificial internal pricethree times higher than the world market prices and,in the long run, to keep ACP countries dependent onprices that are out of touch with market realitieswould prove detrimental for their economies. We areproposing to make a severe cut in sugar productionand exports.

This is why the Commission opted for an approach toprepare both EU producers and developing countriesin time for the inevitable changes. They are in thesame boat. The proposed reform implementation insteps over four years provides time for adjustment. Ina changed environment which leads to considerableprice and production cuts for European beet andsugar producers, the guaranteed price for sugar fromthe ACPs has to be set at the corresponding level.

The Commission fully stands by its commitmentsregarding the ACP countries. We offer them a clearperspective. They will keep their import preferences,they will retain an attractive export market. But ourproposals will also imply adjustments in the ACP’ssugar sectors. We are engaged in an open dialoguewith the affected ACP countries on how to provide tai-lor-made and specific accompanying measures toassist their adaptation to the new market conditionsbased on an action plan covering both developmentand trade measures. We want to help ACPs to maketheir domestic sugar production more efficient, orassist restructuring and the search for other incomesources.

Q. W hat about the assertion that sugar (beet orcane) is not produced in an environmentally un-sustainable way?

A. For EU production the cross-compliance require-ments under successive CAP reforms (and especiallythe 2003 reform), which oblige and encourage far-mers to respect environmental laws and to keep landin a good agricultural and environmental condition,ensure that sugar beet production will be environ-mentally sustainable.

Q. Is sugar support expensive for the EU taxpayer?A. No. Recently, EU expenditure in the sugar sector has

been falling:- 2000: EUR 2 100.6 million- 2001: EUR 1 676.9 million- 2002: EUR 1 585.9 million- 2003: EUR 1 439.8 million- 2004: EUR 1 421.4 millionIf the cost of exporting EU sugar equivalent to theamount imported under preferential agreements (to


4

the benefit of less developed countries) is removed,then the ‘real’cost of supporting sugar production hasbeen much lower still.

Q. Isn’t supporting sugar production incompatiblewith the EU’s commitment to tackling the growingproblem of obesity (especially among children)?

A. No. The Commission believes that a balanced diet is afundamental basis for good health. Such a diet couldand should include sugar, in moderation of course.


Infopack: The European sugar sector - Le Hub · PDF fileTHE EUROPEAN SUGAR SECTOR Its...

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Transcript of Infopack: The European sugar sector - Le Hub · PDF fileTHE EUROPEAN SUGAR SECTOR Its...