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EU proposes sugar quota cut to prevent serious oversupply

By Anthony Fletcher , 07-Feb-2006

EU sugar quotas will have to be cut for the 2006/07 marketing year to prevent a serious oversupply, says the Commission.

This cut would be a measure on the internal market once strict export subsidy limits kick in from July 1, 2006 forward.

"The possibility cannot be ruled out that the Commission may have to take special management measures for sugar beet sown for harvest in 2006/07," it said in a statement.

 

Member States (MS) are divided over the format of the cut, and some countries have pointed out that the recent political agreement on sugar reform made no mention of the need. But the Commission noted that the current sugar regulation already allows for sugar to be removed from the market and that this would allow the Commission to reduce the amount of production under quota.

 

The recent political agreement referred to is of course the agreed reform of the EU sugar regime. The final deal certainly featured a number of concessions - first there was the climb-down from the original proposed 39 per cent price cut to a figure of 36 per cent, and most significantly for sugar producers, there was agreement the sector would be compensated for, on average, 64.2 per cent of this price cut.

 

It is still not clear however whether the recently proposed cuts would be linear or if only member states that will suffer a quota reduction of less than 50 per cent under the new regime should suffer the one-off quota. In addition, the communication did not mention the specific size of the cuts.

 

However, the Commission is claiming an expected surplus of at least two million tons, which would imply a quota reduction of between 10 to 15 per cent.

 

It is still not clear what the specific measures might be, though the Commission does mention the disposal of C-sugar. The disposal of surplus non-quota C-sugar is an issue that is probably even more sensitive since last years WTO panel stated that such exports should be deemed illegal after 22 May 2006.

 

Some say that the Commission has already issued C-sugar export licenses that are valid up to and beyond this deadline. The issue is seen as particularly sensitive, as any deviation from the provisions of the WTO panel could provoke Australia, Brazil and Thailand - the complainants in last years case - to open a new WTO trade panel against the EU.

 

A recent USDA report forecast a rise in EU sugar production, attributed to good weather and EU enlargement. The 2004 accession of 10 countries forming a 25-member state strong EU contributed about 3.7 million tones last year.

 

EU production is forecast at 21.2 million tonnes, with 3.6 million tonnes coming the new member states, mainly the Eastern European ones. Exports for 2006 are forecast at 7.1 million tonnes, a rise of 1.7 million tonnes on the previous year.

 

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