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EC warns of looming sugar oversupply

By Anthony Fletcher , 23-Feb-2006

The European Commission argues that quotas will have to be cut for the 2006/07 marketing year to prevent a serious oversupply of sugar.

In said this week that the first marketing year under the reformed sugar regime, which comes into force in July, could be very difficult.

Oversupply of the market is highly likely given the limited export possibilities and the fact that in this first year, the effects of the restructuring fund - designed to encourage less competitive producers to leave the sector - will not yet be felt.

Following requests from a number of Member States to do so, the Commission is therefore proposing to reduce sugar production under quota in the first year of the reform by two to three three million tonnes in order to relieve the pressure on the market. This will be done as a transitional measure by management commission procedure.

It will improve the balance on the sugar market without creating new stocks of sugar.

Member States however remain divided over the format of the cut, and some countries have pointed out that the recent political agreement on sugar reform - formalised this week - made no mention of the need. But the Commission argues 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.

"This one-off cut in sugar production is vital to ensure that the newly-reformed sugar market gets off to a good start," said Commissioner Fischer Boel.

"Unless we act, heavy surpluses will weigh on the market as the reform gets underway. This way, we can kick off our new system with the market in balance.

"I realise this decision will be difficult for some. That is why the reduction will take into account the special efforts undertaken by Member States giving up quotas for 2006/07."

The cut in production under quota will be most probably around 2.5 million tonnes, and this quantity will be divided up between the individual Member States.

Sugar quotas given up already in the first marketing year by a Member State will be counted against the reduction. The draft Commission decision will be presented to the sugar management committee on 2 March for a vote.

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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