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EU sugar sector set for significant reform

EU sugar sector set for significant reform

The European Union will cut its price for white sugar by 39 percent and plans to abolish intervention as part of a host of radical reforms to the EU sugar sector, to be announced in Brussels overnight.

The far-reaching reforms seek to modernise a system which has remained largely unchanged for more than 40 years. The changes will enhance the competitiveness and market-orientation of the EU’s Common Market Organisation for sugar. The reform proposals will also strengthen the EU’s negotiating position in the current round of world trade talks.

The proposal responds to all the EU's international obligations, including those resulting from the recent WTO panel brought by Australia, Brazil and Thailand.

Under the new plans, developing countries will continue to receive preferential access to Europe’s sugar market at an attractive price well above the world market level. African, Caribbean and Pacific (ACP) countries which traditionally export sugar to the EU will also benefit from a special assistance programme.

Announcing the proposals on 22 June, the European Commission said the 39 percent reduction to the white sugar price would be implemented in two steps and that farmers would receive compensation for 60 percent of the price cut through a decoupled payment – which, like the New Common Agricultural Policy’s (New CAP) Single Farm Payment, would be paid on the condition that farmers adhere to certain environmental and land management standards. Less competitive EU sugar producers will be invited to take part in a voluntary four-year restructuring scheme, assisting them to leave the sector.

The €40 million earmarked for the ACP countries assistance scheme in 2006, will be the first step in a programme of further assistance. The Commission-drafted reforms will be put to the EU’s Agriculture ministers for approval at the Agriculture Council in November.

EU Commissioner for Agriculture and Rural Development, Mariann Fischer Boel, said the EU had no alternative but to engage in profound sugar reform.

“The easy option would be to sit on my hands, but that would mean a slow and painful death for the European sugar sector. 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,” she said.

“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 social and environmental impacts of the restructuring process.

We will maintain preferences for our traditional suppliers in the developing world. Our market will remain an attractive place for some of them to sell their sugar.”

Louis Michel, EU Development Commissioner acknowledged that the reform of the EU’s sugar sector will prove a serious challenge for many of Europe’s ACP partners.

“However, the proposed assistance scheme will help them to secure a smooth transition, in the framework of a local strategy for sustainable development,” he said.

The rationale for reform

Following the reforms to the CAP in 2003 and 2004, the Commission decided to bring the sugar regime into line with the approach already adopted in other EU agricultural sectors. Insisting that any sugar reform would have to take proper account of the incomes of European farmers, EU consumers’ interests and the situation of the processing industry, the Commission considered that changes were necessary to bolster the competitiveness of the EU sugar industry, while improving its market orientation and producing a sustainable market balance in line with the EU’s international commitments.

The Commission has studied the sugar market in detail and consulted a wide a range of stakeholders. Its impact assessments have shown clearly that the current status-quo is unsustainable. Without reform, quotas would have to be drastically reduced across the board, hitting the most competitive producers hardest and leading to an attrition scenario.

The Commission believes that European producers must be given long-term certainty about the rules they will have to follow. The reform proposal therefore fixes the economic and legal framework for the European sugar sector until 2014/2015 without foreseeing a review clause. The Commission is proposing a substantial two-step price cut coupled with a generous restructuring fund lasting four years.

The restructuring fund has three main objectives:

1. To provide incentives to encourage less competitive producers to leave the industry.

2. To provide money to cope with the social and environmental impacts of factory closure (financing of social plans or redeployment programmes and of measures to put the site back into good environmental condition)

3. To provide funds for the most affected regions to develop new business in coherence with EU structural and rural development funds.

An assistance scheme for ACP countries

Europe is a traditionally crucial market for ACP countries and the Commission is intent on ensuring that the EU remains an attractive marketplace for some of the countries which have guaranteed access to the EU market under the Sugar Protocol.

The Commission is, however, also proposing an assistance scheme for ACP countries which traditionally export sugar to the EU. It recognises that the proposed reform will prove a major challenge, not only for EU beet and sugar producers, but also for many ACP suppliers.

Under the Sugar Protocol, eighteen ACP countries export sugar to the EU and may be affected by price reductions in the EU market.

The Commission proposes to start implementing the ACP assistance scheme as soon as 2006, as early investments in these countries will maximise their chances of successful adjustment. Since the complexity of restructuring and diversification processes requires a sustained effort, 2006 assistance should be integrated into an eight-year scheme. After 2006, further long-term assistance will be secured for the period 2007-2013.

Considering the differences between the ACP countries, a broad range of support options is being offered, to be tailored in each country to the needs identified by the stakeholders, and integrated into a long-term, comprehensive, sustainable strategy. The types of assistance have been designed with particular attention to the effectiveness of implementation.

Details of the EU sugar reform proposal

A 39 percent price cut over two years beginning in 2006/07 to ensure sustainable market balance.

Compensation to farmers at 60% of the price cut. Inclusion of this aid in the CAP’s Single Farm Payment and linking of payments to the respect of environmental and land management standards.

Validity of the new regime, including extension of the sugar quota system, until 2014/15. No review clause.

Merging of ‘A’ and ‘B’ quota into a single production quota.

Abolition of the intervention system and the replacement of the intervention price by a reference price.

Introduction of a private storage system as a safety net in case the market price falls below the reference price.

Voluntary restructuring scheme lasting four years for EU sugar factories, and isoglucose and inulin syrup producers, consisting of a high degressive payment to encourage factory closure and the renunciation of quota as well as to cope with the social and environmental impact of the restructuring process.This payment will be €730 per tonne in year one, falling to €625 in year two, €520 in year three and €420 in the final year. A top-up payment for beet producers affected by the closure of factories in the first year for which they have delivery rights. Both these payments will be financed by a degressive levy on holders of quota, lasting three years.

Sugar beet should qualify for set-aside payments when grown as a non-food crop and also be eligible for the energy crop aid of €45/hectare.

To maintain a certain production in the current “C” sugar-producing countries, an additional amount of 1million tonnes will be made available against a one-off payment corresponding to the amount of restructuring aid per tonne in the first year.

Sugar for the chemical and pharmaceutical industries and for the production of bio-ethanol will be excluded from production quotas.

Increase of Isoglucose guota of 300,000 tonnes for the existing producer companies phased in over three years with an increase of 100,000 tonnes each year.

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