Fines highlight uncertainty in EU sugar markets

By Neil Merrett

- Last updated on GMT

Related tags European union

Sugar processors in the EU are facing further uncertainty over
their futures following the announcement of EU fines for failing to
reduce stockpiling in the declining sector.

The EC is to impose fines totaling €56m on the governments of Estonia, Latvia, Malta, Cypress and Slovakia as part of measures to protect the stability of the sugar industry in the bloc.

The fines which are required to be paid over the next four years, were put in place to prevent sugar producers from storing "unusual"​ amounts of produce before EU accession. This would then allow them to benefit from the enhanced prices afforded by EU membership after they joined.

The EC claim that the process - known as speculation - serves only to distort the industry affecting sugar prices, as well as the levies payable by producers.

With Estonia, Latvia, Slovakia, Malta and Cypress all failing to reduce their stocks significantly by the time of their ascension in May 2004, the fines were imposed at a rate of €499.5 per tonne.

The news comes at a difficult moment for the sugar industry in the EU, which is currently seeing wide scale decline.

Earlier this year, ingredients giant Tate & Lyle revealed it was considering phasing out its operations in the Czech Republic, Hungary, and Slovakia through its Eastern Sugar subsidiary to cut operating costs in Europe.

With the possibility of further cuts to Tate and Lyle's Europe (TALFIIE) division it remains to be seen how viable large scale sugar production will be in Eastern Europe in particular.

Following complaints from World Trade Organisation (WTO) members that subsidised sugar production in the EU, gave member states an unfair advantage, it was agreed that sugar production in the bloc will be reduced by 4m tons a year.

The fines have leant further weight to criticism of the reforms which are seen by some to undermine sugar production with the EU.

Commenting on the fines however, EU agricultural minister Mariann Fischer Boel refuted accusations that reforming sugar production was hurting the industry. She added that the measures taken would be beneficial to sugar production in the long term.

"It is our legal duty to enforce these rules, which prevent economic operators across the Union being harmed by speculative stockpiling. But I am aware of concerns in the affected countries and have done everything possible to ensure a fair outcome,"​ she said.

This has failed to prevent processors from looking outside the EU to continue their production. Despite industry reservations a report released earlier this year by credit ratings service Standard & Poor, suggested the industry will survive the reforms.

"We consider that the gradual nature of the reform provides a fairly protected environment for European manufacturers over the next four years, and we continue to believe that full deregulation in the EU market for sugar production and processing is remote,"​ said the report.

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