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Commission opens discussion to reform the EU sugar regime

Commission Européenne - IP/03/1286   23/09/2003

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IP/03/1286

Brussels, 23 September 2003

Commission opens discussion to reform the EU sugar regime

Today the European Commission has tabled a communication setting out the implications of three possible reform scenarios for the EU's sugar sector. Before proceeding to a formal proposal, the Commission wishes first to open a discussion, based on the information provided in the sugar Extended Impact Assessment, on the objectives of EU's sugar regime in the new context. This Extended Impact Assessment describes the three main policy options. In the first option, the present regime would be extended beyond 2006. The necessary reduction of quotas, tariffs and prices would be made within the current common market organisation (CMO). The second option would involve the phasing out of production quotas and the EU internal price would be allowed to adjust itself to the price of the non-preferential imports. This price reduction scenario is also analysed with regard to its impact on world trade patterns, and includes the possibility of allowing sugar producers to benefit from the decoupled single farm payment. Finally, a complete liberalisation from the current sugar regime has been considered in the third option. Producers would be integrated into the Single Farm Payment system. In this scenario the impact on the EU sugar market of the complete removal of import tariffs and quantitative restrictions on imports has been assessed. With this Communication, together with the accompanying Extended Impact Assessment of the sugar sector, the Commission fulfilled the undertaking to report in 2003 on the EU sugar regime and its prospects.

Franz Fischler, Commissioner for Agriculture, Rural Development and Fisheries, said: “ Following the June 2003 CAP reform for major agricultural sectors, the time has come to consider how we can make the present EU sugar sector more market orientated and economically, environmentally and socially more sustainable.”

3 scenarios for the reform of EU's sugar sector

Based on the Extended Impact Assessment, the Commission proposed three possible policy orientations for the EU sugar regime:

    An extension of the present regime beyond 2006

This would consist of keeping intact the current CMO, based on flexible quotas and price intervention. The EU market would be open to import quantities, according to the various international commitments already agreed or to be agreed in the future. Custom duties, internal prices and production quotas would be reduced. The Extended Impact Assessment also addressed the impact of a request by the Everything But Arms (EBA) countries to implement that agreement through a fixed quota system.

    A reduction in the EU internal price

In this scenario, once the levels of imports and production have stabilised, production quotas would be phased out. The internal market price would be allowed to adjust itself to the price of non-preferential imports. However, lowering the level of the EU internal price would make the EU market less attractive for the least competitive sugar producing countries. The impact of this policy option on the world trade patterns was given particular attention. To soften the effects of the reduction in the EU sugar prices, this scenario also looked at the possibility of allowing sugar producers to benefit from the single farm payment, in line with the June 2003 CAP reform. Finally, the impact of this scenario on the revenue from sugar for countries currently exporting sugar to the EU has been assessed.

    A complete liberalisation of the current regime

The domestic EU price support system would be abolished and production quotas would be abandoned. The impact on the EU sugar market, of the complete removal of import tariffs and quantitative restrictions on imports, has been assessed. As with the price reduction scenario, the possible introduction of income support for EU producers, as well as the impacts of liberalisation on world trade and the implications for the revenue from sugar of countries currently exporting sugar to the EU have been assessed.

The Communication "Accomplishing a sustainable agricultural model for Europe through the reformed CAP - the tobacco, olive oil, cotton and sugar sectors", adopted by the Commission today, will be available on the internet at:

http://ec.europa.eu/agriculture/capreform/com554/index_en.htm

The Extended Impact Assessment of the sugar sector can be found at :

http://ec.europa.eu/agriculture/publi/reports/sugar/index_en.htm

Background

    How does the existing sugar regime work?

At present the CMO for sugar is governed by Council Regulation (EC) No 1260/2001. Its essential features are price arrangements, production quotas, trade with third countries and self-financing. Its primary provisions are applicable only up to 30 June 2006.

Community support for the sector is provided and income safeguarded by intervention buying of sugar and a minimum price for sugar beet. These provisions have been little modified since the CMO was set up in 1968. The intervention price at which intervention agencies are obliged to buy in eligible sugar offered to them has been frozen since 1984/85 at € 631.90 per tonne for white sugar and € 523.70 per tonne for raw sugar. Intervention is conceived as a 'safety net' guaranteeing a minimum price for sugar. Import duties and restriction of available quantities, which are the other tools of the CMO, keep market prices above the level of intervention. The minimum price is the price at which sugar manufacturers are required to buy beet from growers. It is set by the Council at € 46.72 per tonne for the A beet used to produce A quota sugar and € 32.42 per tonne for the B beet used to produce B quota sugar. The present prices, unchanged since the 1993/94 marketing year, are in force up to the end of 2005/2006. The Community prices are guaranteed only for production within quotas.

The total quota amount of 14.5 million tonnes for EU 15 splits into A quotas (82 %) and B quotas (18%) set per Member State. These A and B quotas correspond in principle to the demand on the internal market, and to the export of excess quota sugar with export refunds, respectively. For sugar produced outside the quotas there is no support, nor can it be freely marketed within the Community. The extra quantities must be 'carried over' to the next marketing year or exported as they are without refund. The 'carryover' involves, for the sugar plant that produced beyond its quota, storage of the surplus for a minimum period of 12 months, following which it is treated as A sugar produced by the plant as part of that year's production. The sugar produced outside the quota that is not carried over must be exported without refund, and is called C sugar.

Export refunds are intended to cover the difference between the Community price and the world price for sugar, allowing it to be sold on the world market. The average export price for white Community sugar was € 280 per tonne for the 2001/2002 marketing year. Refunds are paid for sugar obtained from beet or cane harvested in the Community and sugar imported under the ACP Protocol/Agreement with India. For the marketing year 2001/02 refunds were € 443 per tonne and for 2002/03 € 485 per tonne.

While protection at the Community's borders ensures the coherence of the arrangements, preferential agreements allow the import of sugar at zero or very low rates of customs duty. ACP and India imports into the EU, under preferential arrangements at Community guaranteed prices, can be re-exported financed by the EU-budget. The co-financing principle operates through levies collected by the Member States from sugar plants and paid into the Community budget minus a 25% deduction for collection costs. They have to cover the 'overall loss', assessed using the average export refund, on the surplus of quota production over Community consumption. Thus, net exports of quota production are financed by a system of production levies paid in full by the sugar beet producers and the sugar industry.

    What is the situation of the EU sugar sector?

Sugar beet provides for 1.6 to 1.8 % of the EU's agricultural output and is grown on 230,000 farms. Generally, holdings with sugar beet are larger than average and they achieve a better income.

The EU-15 sugar production fluctuates between 15 and 18 million tonnes, in refined equivalents. With the ten new Member States sugar production is expected to increase by 15 %. In the EU-15, there are 135 sugar processing plants and 6 refineries.

Sugar is produced in all Member States of the EU-15 with the exception of Luxembourg. However, the productivity of sugar production varies significantly across Member States. Germany and France account for more than half of the EU-15 sugar production, followed by the United Kingdom and Italy (8 % each). Among the ten new Member States, six are manufacturing sugar for a total of about 3 million tonnes, with Poland accounting for two thirds.

The EU-15 both imports and exports sugar, but in net terms it is an exporter. On average for the marketing years 1999/2000 to 2001/02, exports amounted to 5.3 million tonnes versus 1.8 million tonnes for imports. Net exports represent on average 20 % of sugar production and 2 to 3.5 % of the EU-15 exports of agri-food products, according to the Uruguay Round definition.

The EU is a key player on world sugar markets but remains far behind Brazil which now dominates exports. The EU-15's share of the world market amounts to 13 % for production, 12 % for consumption, 15 % for exports and 5 % for imports. Its share in world production, consumption and exports has declined, whereas Southern Hemisphere countries have steadily gained importance.

International prices for sugar are of significant importance and are extremely volatile, following an erratic path. Since 1995, prices have been on a downward trend. This is mainly explained by an overall excess of production over consumption.

Statistical information on the sugar sector is available on the internet at:

http://ec.europa.eu/agriculture/agrista/2002/table_en/en43.htm


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