EU sugar reform balanced between success and failure

By Anthony Fletcher

- Last updated on GMT

Related tags Sugar European union Council of the european union European commission Eu

Four key factors will determine whether this week's EU discussions
regarding the sugar regime have been a success or a failure, says a
key industry body.

According to the UK Industrial Sugar Users Group (UKISUG), sorting out the size of the price cut, the amount of compensation available, the degree of competitiveness and the maintenance of market access will be essential if the new regime has any chance of being effective.

So when the EU Council of Ministers, chaired by UK agriculture minister Margaret Beckett, meets to sort out the regime, industry eyes should, according to UKISUG, be focused on these gauges. There remains, however, serious opposition to such radical proposals.

The size of the price cut

The European Commission has proposed a 39 per cent reduction in the institutional price of sugar. This is intended to reduce the amount of sugar produced in the EU, and some of the less efficient producers are expected to give up if the price falls.

There is growing pressure from some member states to reduce the size of the price cut, but if this were to happen, said UKISUG, then the balance of the whole proposal could be upset.

The size of the compensation fund

The Commission proposal includes a compensation fund of €4 billion to be paid out to processors that leave the industry.

The money will be raised from a "restructuring levy" paid by that part of the industry that remains in production. UKISUG is concerned that calling it a levy rather than a tax will make it easier for people to suggest that it should be made larger.

Ensuring competitiveness

The European sugar market is not governed by the normal forces of supply and demand because supply is constrained by quotas. The market price is at present some 10 to 20 per cent above the intervention price, even while there is a surplus on the European market.

UKISUG has argued for measures to enforce market disciplines in the future sugar market. At the very least, says the group, there must be an explicit political commitment by the Council of Ministers to ensuring more competitiveness in the future marketplace.

Maintaining market access

One of the most controversial aspects of the reform proposal relates to the imports of sugar from Africa and the Caribbean. The world's 50 poorest countries have been granted unlimited access to the EU market for the sugar that they produce, starting from 2009.

There have been calls within the EU that this offer should be rescinded, but UKISUG believes that the imposition of new restrictions would be wrong. Unlimited market access for the world's poorest countries must be maintained.

However, there remains substantial opposition to such far-reaching reform. European sugar growers and processors fear that the proposals will eat significantly into profits. British Sugar for example has estimated that proposals from Brussels could slice £10 million from operating profit in 2006/7, and some £40 million per year thereafter.

Some New Member States have also expressed reservations. In Poland for example the reform proposals are not only viewed as bad news for the country's sugar beet industry, but for the Polish economy as a whole.

Poland currently has the highest unemployment rate in the EU and has been hovering at about 18 per cent for more than a year. A recent situation report by the US Foreign Agricultural Service (FAS) said Polish officials opposed EU plans to merge A and B quotas: sugar for domestic use at guaranteed prices and sugar for export at guaranteed prices.

Proposals for reform of the EU sugar regime have been the cause of bitter dispute since they were first published by the European Commission on 22 June 2005. The aim is to bring the sector into line with other already reformed CAP sectors, as well as helping to meet the EU's existing WTO obligations.

A decision from the Council of Ministers is expected Thursday.

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