EU Sugar policy

EU Sugar policy

Background

The sugar policy of the EU is governed by its farm support programme known as the Common Agricultural Policy (CAP). The CAP came into existence in 1962 with the objectives of increasing productivity, stabilising markets and ensuring availability of food at reasonable prices. Under the CAP, the EU bought farm output when the market price fell below the target level, which led to over production and the creation of ‘mountains' and ‘lakes' of surplus food and drink. The EU also taxed imports and subsidised agricultural exports. Put together, these policies hurt the interests of foreign farmers, especially those of poorer countries whose cheaper produce was kept out of the European market; they  also made Europe's food prices some of the highest in the world.

Reform of the CAP was undertaken since the 1990's however sugar was left out of these reforms. In September 2002, Brazil along with Australia and Thailand, filed a complaint in the WTO that the EU's sugar exports were in excess of WTO quantity commitments and that its sugar exports subsidies were more than double its WTO export subsidy expenditure commitments. The WTO verdict sided with Brazil, Australia and Thailand. The EU appealed the verdict but its appeal was rejected and the EU was ordered to bring its sugar policy in line with WTO rules by 22nd May 2006. Following this verdict the EU initiated a reform of its sugar policy.

Reforms to EU sugar policy

The reforms agreed by EU agriculture ministers are as follows:

1.       There will be a 36 per cent and 32.5 per cent cut in the reference price for white sugar and raw sugar, respectively spread over a period of 4 years. The white sugar price will fall each year and will be €404.4 per tonne in 2009-10 from €631.9 per tonne in 2006-07. Similarly, the reference price for raw sugar will fall to €335.2 per tonne in 2009-10 from the present € 496.8 per tonne. 

2.       The minimum price for sugar beet will be cut each year from the present € 32.86 per tonne in 2006-07 and will be at € 26.29 in 2009-10.

3.       The A and B production quotas will be merged into a single production quota. An additional quota of 1.1 million tonnes will be available for a one off charge of € 730 per tonne till 30th September 2007.

4.       There will be a one year cut of 2.4 million tonnes in production quotas in 2006-07 so as to ensure that the new sugar regime gets underway without heavy surpluses undermining market balance.

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

6.       No compulsory quota cuts.

7.       There will be no change to the ‘Everything But Arms' (EBA) initiative agreed with the least developed countries.

8.       Exports of ‘C' sugar will continue but will now be counted against the EU's export subsidy limit of 1.273 million tonnes.

9.       If the market price falls below the reference price then the EU will temporarily be able to withdraw sugar from the market and place it in private storage.

10.   The intervention system will be retained on a limited basis till 2010 and will be for a maximum of 600,000 tonnes per annum. The intervention price will be 80 per cent of the reference price for the following year.

11.   A production charge of € 12 per tonne of quota will be introduced from 2007-08 to pay for export and production refunds and the private storage system.

12.   Sugar beet farmers will receive 64.2 per cent of expected revenue loss due to price cuts as compensation in the form of direct payments provided that the meet certain requirements on environmental standards.

13.   A voluntary restructuring scheme is established and will operate for 4 years from 2006-07 to 2009-10. The main objective of the scheme will be to provide incentive for less competitive producers to leave the industry. Under the scheme, EU sugar beet factories, which exit production and renounce quotas, will receive payments of € 730 per tonne of quota in 2006-07 and 2007-08, € 625 in 2008-09 and € 520 in 2009-10. The restructuring scheme will be financed by a levy on all quota production. The levy will be € 126.4 per tonne in 2006-07, € 173.8 per tonne in 2007-08 and € 113.3 in 2008-09.

14.   Aid for diversification will be granted per tonne of quota renounced in regions affected by the restructuring of the sugar industry. The aid will be € 109.5 per tonne in 2006-07 and 2007-08, € 93.8 in 2008-09 and € 78 in 2009-10.

15.   The new sugar regime will run from July 1, 2006 to September 31, 2015. The first marketing year will be for 15 months, from July 1, 2006 to September 31, 2007. Subsequent marketing years will be for an October to September period.

16.   There will be no review of price and quota levels in 2008.