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IP/07/617

Brussels, 7 May 2007

Sugar reform: Commission proposes to improve sugar restructuring scheme

The European Commission today proposed changes to the sugar restructuring scheme aimed at making it more effective and thus reducing European Union sugar production to sustainable levels. The restructuring scheme was a key element of the 2006 reform of the Common Market Organisation for sugar, offering producers who would be uncompetitive at the new lower price a financial incentive to leave the sector. Unfortunately, much less quota has been renounced during the first two years of the scheme than anticipated and changes therefore have to be made to make it more attractive. The main changes proposed are that the percentage of the aid given to growers and machinery contractors should be fixed at 10 percent, but growers who renounce quota will get an additional payment, paid retroactively to avoid penalising those who have already given up their quotas. A new element is that beet growers could apply directly for aid from the restructuring fund, up to a certain limit. As an additional incentive for companies to participate, those which renounce a certain amount of their quota in 2008/09 will be exempted from paying the restructuring levy on the part of their quota which was subject to preventive withdrawal in the 2007/2008 marketing year. The Commission believes that the changes proposed should allow the renunciation of about 3.8 million tonnes of sugar quota in addition to the 2.2 million tonnes given up so far. If insufficient quota has been renounced by 2010, the Commission also proposes that the level of compulsory quota cut would vary depending on how much quota each Member State had renounced under the restructuring scheme. The Commission hopes that the Council and Parliament can adopt the proposal by October at the latest.

"We need to reduce our sugar output dramatically if we are to give the sector in Europe a sustainable future," said Mariann Fischer Boel, Commissioner for Agriculture and Rural Development. "The restructuring fund is a key element of our reform, offering financial incentives to factories which can't compete at the lower price introduced by the reform. Regrettably, it hasn't proved as attractive as we had hoped. But I believe the changes we are proposing today will encourage many more companies to give up quota. I urge them to take this chance. As the price falls, life will get tougher. And after 2010, there won't be any money to help producers who have to bow out."

Background:

Besides a price cut of 36 percent and the payment of decoupled aid to farmers, a key element in the EU sugar reform was the establishment of a restructuring fund financed by sugar producers to assist the restructuring process needed to render the industry more competitive. The objective is to take out about 6 million tonnes of quota in order to ensure balance on the market after the four year transition period.

In the first year of application, about 1.5 million tonnes of quota were renounced under the restructuring scheme. This means that by the start of the marketing year 2006/2007 on 1 July 2006 quotas were reduced by 1.5 million tonnes. In the case of full dismantling of the production facilities, each tonne of quota renounced was compensated with 730 €/t from the restructuring fund. This was also the level 2007/08, but the restructuring aid then falls to 625 €/t in 2008/09 and 520 €/t in 2009/10, the fourth and final year. Sugar enterprises unable to produce at around 400 €/t should take advantage of the restructuring aid.

Unfortunately, in year two of the scheme, producers only renounced about 0.7 million tonnes of sugar, well below the target of 5 million tonnes and way below what is necessary to balance the market. Forecasting an oversupply of about 4 million tonnes, the Commission decided in March to withdraw at least 13.5 percent of quota sugar, or about 2 million tonnes.

Because of the phase-in of the price cuts in the reform, the effects are yet to be felt by growers and are only moderate for processors. Processors have been insecure because, under the current system, Member States can fix the percentage of aid to be given to farmers above the 10 percent minimum. They therefore have to decide if an application to the restructuring fund is appropriate for them without knowing exactly how much aid they will get.

Main changes proposed:

The percentage of the aid to be given to growers and machinery contractors to be fixed at 10 percent, with a special top-up for growers, payable retroactively. For the 2008/2009 marketing year, growers will receive an additional payment of €237.5 per tonne of quota renounced.

Beet growers to be allowed to ask directly to renounce quota, up to 10 percent of a factory's quota.

The final compulsory quota cut will take account of each Member State's success in reducing national quota under the restructuring scheme.

A revised withdrawal scheme for the period until the 2009/10 marketing year, allowing an initial decision before sowing, possibly completed by a further withdrawal in October, with lower withdrawal for Member States where quota has already been renounced. The withdrawal will not reduce the traditional supply needs for refiners.

Given the short amount of time between the publication of the Council Regulation and the application deadline, a Communication will be published in the Official Journal to inform the interested parties in detail and to allow them to prepare their applications in advance.

See also:

http://ec.europa.eu/commission_barroso/fischer-boel/index_en.htm

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

Commissioner Fischer Boel's blog:

http://blogs.ec.europa.eu/blog_fischerboel/page/fischerboel


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