Infopack: the European Sugar Sector

European Commission

THE EUROPEAN SUGAR SECTOR

Its importance and its future

Index table

Preface

1. The different uses for sugar

2. A sustainable future for the EU sugar regime

3. European sugar in figures

4. Sugar: EU and developing countries

5. World trade in sugar

6. Restructuring the EU sugar sector

7. Questions and answers about reforming the EU sugar regime

June 2005

1 Preface specific review clause. Our reforms must bolster the competitiveness of the EU sugar industry, improve its market orientation and produce a sustainable market balance in line with the EU’s international commitments to both third countries and the World Trade Orga- nisation.

We must also pay attention to the needs of developing African, Caribbean and Pacific countries for which Europe has traditionally been a crucial market. Our reforms of 2003 and 2004 mark the most significant shift in European Union farm policy since the common Europe will remain an attractive market place for these agricultural policy was first introduced more than four developing countries. And for those affected by our decades ago. internal reforms, we will provide tailored financial assistance to help them modernise their sugar sector or The reforms break the link between direct payments to look for other sources of income. farmers and what they produce. This will move European agriculture closer to the market and allow farmers to With all these objectives in mind, the path we must fol- produce what the consumer wants, rather than basing low is clear. Our reform must be based on the combined decisions on the level of subsidy. elements of a significant price cut - with ‘decoupled’ compensation payments to farmers - the abolition of To build on that success, the time has now come to bring intervention, and the reduction of quotas. the sugar sector - largely unchanged for 40 years - into line with the approach adopted in 2003 and 2004. The Commission’s impact assessments back up this approach. We have consulted widely with all interested The easy option for me would be to just sit on my hands and parties before finalising our plans. do nothing. But to do so would be irresponsible and result in the slow and painful death of the EU sugar industry. I am absolutely convinced that there is a bright future for sugar production in the European Union. But this must Even our most competitive producers would be held be based on competitiveness. back by the structures of the current regime, while competition from abroad would inevitably and inexorably increase.

Our reform must take proper account of farmers’ incomes, consumers’interests and the situation of the processing industry.

That is why we are proposing a generous restructuring Mariann Fischer Boel, fund to provide incentives to encourage less competitive Commissioner for Agriculture producers to leave the industry over a four-year transi- and Rural Development tional period.

We need a stronger industry with long-term certainty about the rules it must follow. That is why we need a meaningful reform now and why I am not proposing a

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European Commission

The different uses for sugar

Sugar is not a staple food, yet it has seized the imagina- Different types of sugar tion of politicians and people around the world. It caused a sensation when European explorers first There are many different types of sugar, for example: brought it home from their overseas adventures during the early modern era. It then counted heavily in many • granulated standard white sugar for domestic governments’foreign policies during the age of empire – use until Europeans went to great lengths to start producing • caster sugar produced by screening fine white it at home at the end of the nineteenth century, initially crystals and used in special applica- in northern France. tions, such as cake mixtures, puddings and powdered drink Sugar beet growing was introduced in order to break bases dependence on sugar cane from the colonies, the sole • manufacturers’ for use in the food industry source of sugar at the time, which made it a rare and pre- sugar cious commodity. The crop gradually spread throughout • cube sugar mainly for table use Europe. From the 1920s on, with the development of • icing sugar for cakes and confectionery maritime transport, sugar beet production faced compe- • brown sugar the colour derives from sugar cane tition from cane sugar and has survived largely as the molasses. Brown sugar is used to result of tariff protection. add special flavour to food preparations 1. What is sugar • jam sugar contains special elements to aid setting processes Sugar (the proper term is sucrose, which breaks down • golden syrup/ syrups with the flavour of molasses, into two components - glucose and fructose), is the most treacle for use in baking, prepared foods plentiful and economic sweetener. Sucrose can be found and domestically in many natural foods (e.g. fruits and vegetables) but can • organic sugar produced from organically-grown only be extracted economically from sugar beet and sugar beet/cane sugar cane. Sucrose is an important source of energy.

More to sugar than meets the eye Sugar is often thought of as a single product – a granulated foodstuff to sweeten tea and coffee. Of course, most people realise that sugar is present in many other foods, in many different forms. But many overlook just how diverse the uses of sugar can be. Furthermore, there are other sweeteners in everyday use in our lives, and not just in foods. Several of these alternative products are covered by the EU sugar regime.

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2. Uses for sugar Sugar in other walks of life Sugar can be used in a variety of ways in medicine. For Sugar as sugar example, it can be used to assist in healing certain wounds; and chemical manufacturers use it to grow The different uses for sugar as sugar can be summarized as: penicillin.

• a sweetener Sugar can be processed into alcohol, including fuel • a preservative ethanol or rum or to produce yeasts, amino acids and • a flavour enhancer proteins (for example lysine). • a bulking agent in other foods • a food for yeast to aid fermentation in baking and Sugar can be added to concrete, to aid the setting pro- brewing cess. It helps prolong the longevity of cut flowers. It has • a means to raise boiling or lower freezing points even been used in the film industry as a substitute for (e.g. in ice cream) glass in on-screen stunts. • an enhancer of the texture and shelf-life of certain foods (sugar absorbs moisture and provides a By-products of sugar ‘crunchy’ feel Leftovers from sugar production, molasses and sugar beet pulp, can be used for such diverse purposes as: ani- mal feed use, paper, yeast and animo acid production , generation of alcohol including ethanol, and as a soil Use of sugar – % market share in EU-15 conditioner.

3. Sugar as a biofuel

30 % 21 % Of particular interest is the potential for sugar to be used as a fuel, not just as a supplementary fuel at sugar processing factories but as a real alternative to simple fossil fuels. 2 % 7 % Sugar from beet and cane can be fermented to make alcohol. This is then combined with petrol and may be 7 % 15 % used as a transport fuel. In several European cities buses run on fuel derived from wheat and sugar beet. The 6 % 12 % practice is more widespread in Brazil where cars run on fuel originating from fermented cane.

direct consumption The problem with fuel derived from sugar is that the drinks production process is still relatively expensive. On the confectionery other hand, this type of fuel tends to create less air pol- biscuits lution than pure diesel or petrol. Another spin-off bene- dairy products fit is that the use of sugar as fuel would help farmers to various preparations find new and profitable outlets for their crops. other foodstuffs non-food

Source: European Commission, DG Agriculture and Rural Development

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4. EU support for biofuels extracted. The basic industrial product is glucose, obtained from starch through hydrolysis, and used particular- The EU has initiated several schemes to give an incentive ly in the food industry for its nutritional and structural for the production of more biofuels. Tax incentives are the qualities. Liquid in form, it is used as a sugar substitute prerogative of Member States but targets have been set mainly in production of drinks. at EU level for the desired percentage of Member States’ fuel needs that should be met by biofuels. Isoglucose has rapidly become a strong competitor to sugar and was added to the sugar regime in 1977. Its In a strictly agricultural policy context there are incenti- production has been limited to a quota of 0.3 million ves for biofuel production. The 2003 CAP reform offers tonnes (0.5 million tonnes for EU-25). This quota repre- farmers two systems for the encouragement of energy sents only a marginal activity for the starch industry, crops, via the new energy crops aid and through the set- which produces about 10 million tonnes of starch. The aside scheme (allowing growing of crops on set-aside main provisions laid down for sugar also apply to isoglu- land for many non-food uses, one of which is energy pro- cose. In other developed countries with high sugar pri- duction). ces isoglucose has taken a significant market share. It is on a par with sugar in the USA and amounts to a third of An aid of EUR 45 per hectare is already available to far- sugar consumption in Canada, Japan and Korea. mers who produce energy crops (applying on a maximum guaranteed area in the whole EU, of 1 500 000 hec- Inulin syrup tares). Sugar beet will qualify for such assistance if the Inulin syrup has a very high fructose content (80 %) Commission’s sugar reform is adopted. The energy crops obtained by hydrolysis of an inulin extracted from chi- aid is additional to the direct payments received by far- cory roots. Inulin production began in the 1980s when mers following the CAP reform. appropriate industrial hydrolysis and extraction processes were developed. The food industry uses inulin pow- Farmers may process crops receiving energy aid them- der and its oligofructose derivatives for their nutritional selves. They may use their crops: and dietary qualities rather than as a sweetener. Two- • as fuel for heating their agricultural holding thirds of inulin production is processed by full hydrolysis • for the production on the holding of power or biofuels into inulin syrup, which has a very high sweetening • to process into biogas on their holdings power. It is used by the food industry in drinks in particular, either on its own or mixed with glucose. Inulin By 31 December 2006, the Commission must submit a syrup was taken into the sugar regime in 1994 on the report to the Council on the implementation of the ener- same lines as isoglucose. The quota is 0.3 million tonnes, gy crops aid scheme, in light of the implementation of shared between three Member States. the EU biofuels initiative. Artificial sweeteners 5. Other sweeteners There are artificial sweeteners – not covered by the sugar regime – that have a sweetening power of tens or even Sweeteners fall into two categories: natural sweeteners hundreds of times that of sugar, no calories, and no containing calories that are extracted from plants, such impact on blood glucose levels. The best known of these as sugar itself, and 'artificial' sweeteners with zero calo- include saccharin, aspartame, cyclamates and the ‘alco- ries. hol sugars’ such as sorbitol. They enjoy an estimated market share of 15%. This market share is restricted for Isoglucose two reasons, one health-related and the other technical Isoglucose is a syrup obtained by isomerisation of gluco- (use in the food industry). se in fructose under the action of particular enzymes. The raw material is wheat or maize, from which starch is

3 European Commission

A sustainable future for the EU sugar regime

The common market organisation in the sugar sector per tonne for raw sugar. Current prices are unchanged (the sugar ‘regime’) was established in 1968 aiming to since 1993/94. ensure fair incomes and self-sufficiency among EU producers. It has been modified, but not fundamentally Sugar imports changed, despite reforms in other areas of the common The EU has several international trade agreements with agricultural policy (CAP) which have increased competi- third countries and groups of third countries, allowing tiveness in the agricultural sector by reducing support preferential access (i.e. at low or zero tariffs for quantities prices, compensating farmers with direct income subject to quotas) to the high-priced EU sugar market. payments and breaking the link between subsidies and These are longstanding and enshrined in multi-lateral production. trade agreements.

1. The current support system 2. Four reasons to reform the sugar regime

How the current sugar regime works The sugar sector maintains artificially high prices The essential features of the current sugar regime are Current EU price levels are three times higher than world support prices (a minimum price to growers of sugar market prices – this has been a constant point of criti- beet, and a guaranteed price to support the market), cism inside and outside the EU. The restructuring of our production quotas to limit over-production, tariffs and sugar industry is unavoidable: sugar must be brought in quotas on imports from third countries, and subsidies to line with today’s economic realities. export surplus production out of the EU. The EU lost a World Trade Organisation (WTO) Sugar quotas sugar ‘panel’ There are two types of quota: A quota (initially deter- The recent ruling of the WTO Appellate Body (‘panel’) in mined in accordance with domestic consumption) and B a case brought by Australia, Brazil and Thailand against quota (additional amount to fulfill export potential). aspects of the EU sugar regime obliges the EU to alter Production quotas were set to distribute production of the regime. The ruling found that ‘C sugar’ exports bene- sugar amongst the Member States and to keep overall fit from export subsidies by being cross-subsidised with production within certain limits. They represent the revenues from production under A and B quotas. maximum quantity of sugar eligible for price support. Secondly, the WTO ruled that the EU exceeds its export The total quota for the EU-25 is 17.4 million tonnes (A- subsidy commitments due to its subsidised export of quota: 82 %; B-quota: 18 %); Member States may produ- sugar equivalent to imports from the Africa Caribbean ce more but that over-quota production (‘C sugar’) has and Pacific (ACP) countries and India. Measures must be to be sold outside the EU without subsidy. taken to comply with the ruling.

Support prices The current sugar regime expires on The minimum price for sugar beet is the minimum price the 30 June 2006 at which sugar manufacturers are required to buy beet Without a new regime all price provisions, all quota from growers for the production of quota sugar. It is cur- arrangements and the public storage (‘intervention’) rently EUR 46.72 per tonne for beet used to produce A- system would cease to apply; this could lead to serious quota sugar and EUR 32.42 per tonne for beet used to market disturbances and threaten the organised restruc- produce B-quota sugar. ‘Intervention’ (market support) turing of the European sugar sector. prices are EUR 631.9 per tonne for white and EUR 523.7

1 Prolongation of the current system is not an option 4. Key elements of the reform The EU has to adapt to its international obligations. The status quo is unsustainable - it would lead to a scenario The Commission’s proposal has been made after discus- dominated by attrition: sion with stakeholders in the sector. The main elements • countries benefiting from the EU’s Everything But are: Arms (EBA) agreement with Least Developed Countries (LDCs), allowing free access to the EU sugar market, Significant price reduction could send all their production (around 3.5 million To be more competitive and market-oriented the reform tonnes) to the EU introduces price cuts. Those who cannot compete within • EU production quotas would then have to be reduced the new framework will be given incentives to give up automatically by the imported quantities in order to their quotas. Thus: achieve market balance • prices should revert to their true role as the determi- • the sugar industry, even in the most competitive EU ning factor in the allocation of resources and invest- regions, would be damaged. Non-competitive regions ment decisions; will suffer gradual decline without the incentive to seek • EU-funded buying into stores (‘intervention’) will be economic alternatives abolished and the intervention price replaced by a ‘reference’ price; At least 60 factories would close and 5 000 agricultural • the support price for white sugar will be cut in stages; jobs, 25 000 jobs in industry and 50 000 indirect jobs • minimum prices for beet will be cut by a corresponding would be lost. amount; • the new price system will remain for a period so as to 3. Objectives of the reform provide stability.

The main objectives are to: Partial compensation for farmers • guarantee a regular supply of sugar while protecting Direct payments for sugar beet growers will be paid the European market from extreme price fluctuations; (covering 60 % of the revenue loss from the price cuts). • make the sugar sector more competitive, able to with- Payments are calculated in the same way for all 25 stand international competition; Member States. Direct payments will be decoupled and • move towards more market orientation while become part of the Single Payment Scheme; payment is restructuring the sector; therefore conditional on the fulfilment of ‘Cross • provide a fair standard of living for farmers and Compliance’ requirements whereby farmers receive pay- maintain rural communities; ments provided they comply with environmental, health • maintain preferential access for ACP and LDC producers and welfare standards. to the high value EU market; • simplify the regime and make it more transparent; Quota reduction • limit budget costs. There will be no compulsory quota cuts in an initial phase to ensure competitive producers will not be weak- Reaching these objectives would provide the sector with ened. The hope is that voluntary restructuring will lead a long-term policy framework. to sufficient quota reduction. A restructuring fund will offer a clear incentive to leave sugar production for those whose production is not viable. Restructuring funds could be used in three ways: • Industry: contributing to costs of factory closing/ reconversion of sites • Farmers: compensating for full price cuts in year one

2 • Most affected regions: financing of diversification 5. Impact of the reform on EU Member States measures The fund would be financed via a levy on quota in the Variable impact across the EU first years. This scheme is explained in more detail in a The impact of sugar reform varies according to Member separate section. States’ possibilities for sustainable production. Areas with specific advantages, such as Austria, Belgium, At the end of the four-year restructuring period flat-rate France, Germany, the Netherlands, Poland, Sweden and quota cuts will be introduced, across all Member States, the UK should be least affected. but only if required by the market situation. Compensation for negative impacts Current quota arrangements will be simplified by merg- Negative impacts can be offset by: ing A and B quotas into one quota; the quota system will • new outlets for out of quota production (ethanol and be extended. To maintain production levels in Member industrial use); States currently producing C sugar additional quota will • refining of cane sugar in sugar beet factories to achieve be made available against a one-off payment. Further- economies of scale; more, isoglucose quotas will be increased. • increases in isoglucose quotas; • moving to alternative crops (notably to wheat or maize) Market Balance • the restructuring fund. Tools to ensure market balance in each marketing year will be retained, e.g.: 6. Assisting LDC and ACP countries • Carry forward mechanism: sugar factories may carry forward an overshoot of quota to the following year The situation of LDCs and ACP states is examined in a • Withdrawal mechanism: the Commission may deal separate sheet – “Suger: EU and developing countries”. with a market imbalance by compulsory storage of A lower price on the EU sugar market will affect those sugar countries exporting to the EU on preferential terms. • Private storage scheme: triggered once the market However, EU sugar prices post-reform will still be higher price falls below the reference price than world prices generally, and the EU is designing a package of assistance measures for less developed coun- Enlarging alternative outlets for out of quota sugar tries. We aim to improve incentives for the industrial uses of sugar: • biofuel, chemical and pharmaceutical industries will have access to out of quota sugar which should guarantee them reasonable raw material prices • processing of biofuel from sugar beet will be promoted - sugar beet will become eligible for energy crop aid to the sum of EUR 45/hectare (provided under the 2003 CAP reform) and will qualify for set-aside payments

Budget neutrality The reform will be budget neutral as the costs of new measures, notably the compensation of the sugar beet farmers, will be off-set mainly by savings resulting from a substantial reduction in export subsidies.

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European Commission

European sugar in figures

There is a wealth of misinformation about European 2. The importance of the EU’s sugar economy sugar production, consumption and trade. Some facts about the EU and sugar are shown here. Sugar beet covers 1.8 million hectares throughout the EU-15, accounting for 1.4 % of the agricultural area and 1. European production providing 1.6 % to 1.8 % of the value of EU agricultural output. EU-25 sugar production varies between approximately 19-20 million tonnes per year. Sugar is produced in all Sugar beet growers Member States of the EU-25 except Cyprus, Estonia, There are more than 325 000 farmers growing sugar beet Luxembourg and Malta. France, Germany and Poland are in the EU (230 000 in EU-15; 95 000 in the new Member the largest producers, accounting for half of EU-25 sugar States). Germany accounts for around 48 300 holdings, production, followed by Italy and the UK. The efficiency Italy for 46 400 and France for 31 800, the three States of sugar production varies significantly across Member making up more than half of the holdings in the EU-15. States. Sugar beet is usually grown along with other arable crops such as cereals. Generally, holdings with sugar beet are larger than average in terms of both area and

Production under quota Total Production Yield Share in Quota A Quota B Total Quota 2004/2005 2004/2005 Production

EU 25 14.723.213 2.717.321 17.440.535 19.998.055 9,14 100,0% France 2.970.359 798.632 3.768.991 4.515.176 12,23 22,6% Germany 2.612.913 803.982 3.416.896 4.305.959 9,83 21,5% Poland 1.580.000 91.926 1.671.926 2.001.412 6,72 10,0% United Kingdom 1.035.115 103.512 1.138.627 1.390.000 10,22 7,0% Italy 1.310.904 246.539 1.557.445 1.158.163 6,43 5,8% Spain 957.082 39.879 996.961 1.078.176 9,80 5,4% Netherlands 684.112 180.447 864.560 1.036.762 10,47 5,2% Belgium 674.906 144.906 819.812 991.666 10,89 5,0% Czech Republic 441.209 13.653 454.862 553.960 7,96 2,8% Hungary 400.454 1.230 401.684 487.725 7,30 2,4% Danmark 325.000 95.746 420.746 471.518 9,81 2,4% Austria 314.029 73.298 387.326 458.137 10,24 2,3% Sweden 334.784 33.478 368.262 371.632 7,80 1,9% Greece 288.638 28.864 317.502 259.301 7,91 1,3% Slovakia 189.760 17.627 207.432 233.005 6,75 1,2% Ireland 181.145 18.115 199.260 223.745 7,22 1,1% Finland 132.806 13.280 146.087 148.583 4,79 0,7% Lithuania 103.010 0 103.010 132.857 5,24 0,7% Portugal 132.806 13.280 146.087 148.583 4,79 0,7% Latvia 66.400 105 66.505 67.111 4,94 0,3% Slovenia 48.157 4.816 52.973 37.994 6,23 0,24%

Source: European Commission, DG Agriculture and Rural Development

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economic indicators. The overall agricultural area for hol- Sugar beet factories belong to 43 commercial entities. dings with sugar beet (70 hectares, of which eight are Some of them are owned by the same parent company, dedicated to sugar beet) is larger than the average for all therefore it is estimated that sugar production is in the farms (20 hectares). In general, holdings with sugar beet hands of 30 companies (EU-15 only). have above average incomes. Employment in the sector Only about 8 000 holdings in the EU-15 are specialised in In the EU-15 there has been a trend towards rationalisa- sugar beet, corresponding to 3.4 % of the total number tion and job reduction in the sugar sector over recent of sugar beet farms. As sugar beet is one crop among years. This results from increased productivity in sugar others in rotation, the number of specialised farms is beet production and processing. For instance, there limited. were 374 sugar mills in the EU-15 in 1968/69, around 240 in 1990 and just 126 in 2003. In the period 1992/93 to Sugar processors 2003/04 job numbers in the processing sector fell from There are 126 factories processing beet in the EU-15 and 58 546 to 31 862. If the sugar regime remains un- six cane sugar refineries in four Member States (Finland, changed, it is estimated that there would be around 15 France, Portugal, UK). Following enlargement, around 90 000 fewer jobs by 2012. more sugar processing plants have been added to the EU sugar sector (approximately 60 in Poland and 30 3. EU production in a global context among the other sugar producers). Poland alone (with more than 100 000 beet producers) accounts for 2 mil- Areas covered by sugar beet and sugar cane throughout lion tonnes of production (2004/05 figure). the world amount to about 25 million hectares, 75 %

Number of companies, factories and workers: EU-15

Sugar and refinery Sugar factories Staff employed during companies campain 1992/1993 2003/2004 1992/1993 2003/2004 1992/1993 2003/2004 Austria 1 1 3 3 1 621 1 067 Belgium 9 2 9 8 2 380 970 Denmark 1 1 4 3 1 571 858 Finland 1 2 3 2 460 184 France 30 16 48 32 13 377 7 963 Germany 14 7 52 27 9 509 6 778 Greece 1 1 5 5 3 495 1 875 Ireland 1 1 2 2 964 650 Italy 12 5 25 19 9 600 4 550 Netherland 2 2 6 5 2 589 1 492 Portugal 2 1 - 1 970 283 Spain 5 3 22 11 6 500 3 100 Sweden 1 1 5 2 2 029 840 United Kingdom 2 2 10 6 3 481 1 252 EU-15 82 45 194 126 58 546 31 862 Reduction (%) 45% 35% 46%

Source: CEFS, Comité Européen des Fabricants de Sucre

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World- Sugar Beet and Cane, Compared developments in harvested areas, 1961-2002

(000 Ha)

25 000 19 734 19

20 000

15 000

8 912 8 Sugar Cane 10 000 Trend Sugar Cane (Linear)

5 000

Sugar Beets

6 926 6 6 137 6 Trend Sugar 0 Beet (Poly.)

1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

Data source: FAOSTAT, Agricultural Production Crops Primary

World Top-10, Developments in sugar production, 1961-2002

(000 Mt) 25 000

20 000

15 000

10 000

5 000

* EU 15 figures include 0 France DOM’s

USA Cuba China India Brazil Mexico Pakistan Australia Thailand Europea

Union (15)* Data source: FAOSTAT, Agricultural Production Crops Primary

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planted with sugar cane and the rest with sugar beet. EU Imports and Exports While areas covered by sugar beet have been declining The EU-25 both imports and exports sugar, but in net since the mid-1970s, those under sugar cane have stea- terms is an exporter. On average in the period 2000/01 to dily increased since the 1960s. Areas under cane have 2002/03, exports amounted to 4.7 million tonnes with more than doubled in forty years. imports at 1.9 million tonnes. The EU is a key player on world sugar markets but remains far behind Brazil which Sugar production has more than doubled since the now dominates exports. 1960s. Average world sugar production for 2002/03 was 135 million tonnes. Over the last ten years, production 4. Sugar consumption has soared (+120 %) in Brazil and in India (+ 50 %). In 2000, food uses of sugar amounted globally to 113 The EU-25's share of the world market is divided up as fol- million tonnes (123 million tonnes in raw equivalent). lows: 14 % of production, 12 % of consumption, 12 % of Seven of the top ten sugar using regions are also among exports and 5 % of imports. Its share in world production, the top ten producers. FAO1 data illustrate steady growth consumption and exports has declined, whereas southern in sugar supply and use at world level. Consumption hemisphere countries have steadily gained importance. (based mainly on figures for the use of sugar as food) has

EU-15 - Production, uses and trade, 1961-2000

1 000 tonnes 25 000

20 000

15 000

10 000

5 000

1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999

Imports Exports Domestic Supply Food Production

Source: European Commission, DG Agriculture and Rural Development

1Food & Agricultural Organisation of the United Nations

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World- Top-5 sugar using countries, 1961-2000

000 MT 18 000

16 000

14 000

12 000

10 000

8 000

6 000

4 000

2 000

1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999

EU-15United States India Brazil China of America

Data source: FAOSTAT, Commodities Balance

grown by 1.7 million tonnes (refined) a year over the last 40 years. This represents a 3.8 % increase compared to the early 1960s and a 1.6 % increase compared to the average for the years 1991 to 2000.

5. Sugar policy impact

Sugar policies have a significant impact on production and trade, and therefore on prices. Several key sugar producers tend to supply their domestic market first, where prices are generally higher than on world markets. Leading producers are also among the main users, which explains why white sugar has been traded less. This trend has, however, been shifting.

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European Commission

Sugar: EU and developing countries

The EU sugar regime, with its high guaranteed prices to preferential raw cane sugar each year, corresponding to growers and processors, has been able to function part- their “presumed maximum needs”. If refineries cannot ly due to the tariff structure that ensures competition source sufficient quantities via the Protocol and other from imported sugar is controlled. Import duties have sources such as the outermost regions, a tariff quota at been maintained at levels designed to deter non-prefe- zero duty for raw cane sugar for refining, known as rential imports. Nevertheless, the EU has provided signi- Special Preferential Sugar (SPS), is opened. This quota ficant access to its market for sugar imported from less (usually around 150 000 tonnes, decreasing with the developed economies. The EU is still the world’s biggest increase of EBA sugar imports) is opened each year for importer of farm products from developing countries, the ACP Sugar Protocol states and India. buying as much as the US, Japan, Canada, Australia and New Zealand combined. Sugar is a good example of the Renewed terms EU’s commitment to the developing world. The terms of the initial Sugar Protocol of 1975 were unchanged when it was renewed in Cotonou in June 1. The EU’s sugar trade relation with the developing 2000. The guaranteed price is fixed each year (amoun- world ting to EUR 523.70 per tonne for raw sugar – the EU intervention price, and EUR 645.50 per tonne for white sugar). From UK accession onwards, a specific trade regime The difference between the guaranteed price and the for some ACP countries… world price, or the price on their own market, encoura- The UK’s accession to the EC in 1973 brought to the EU ges some of the Sugar Protocol countries to export as Britain’s strong tradition of buying farm goods from its much of their production as possible to the EU, even if former colonies – including large volumes of sugar. In that means supplying their own consumption needs by 1975 the EC signed the Sugar Protocol with African, purchasing white sugar on the world market. Caribbean and Pacific (ACP) countries, which now covers 20 countries. The guaranteed imports laid down in the 2. Everything But Arms (EBA) Protocol have since been worth millions of tonnes of sugar exports and billions of euros to those countries. Signed in 2001, the ‘Everything but Arms’agreement sus- pends almost all tariffs for products imported into the EU The Protocol on sugar attached to the 1975 Lomé from 50 least-developed countries (LDC), including six of Agreement between the ACP countries and the EC sets the ACP Sugar Protocol signatories. Special provisions out a commitment by the EC to buy certain quantities of were adopted for sugar. Until 2006, the suspension of sugar at guaranteed prices and a commitment by the tariffs is limited to a tariff quota of raw cane sugar for refi- ACP signatory countries to supply that sugar. Under the ning. The quota of 74 185 tonnes in 2001/02 increases by agreement, duty free import quotas are allocated for 1.3 15 % each year, to reach 129 751 tonnes in 2005/06, 149 million tonnes per year. 213 tonnes in 2006/07, 171 594 tonnes in 2007/08 and 197 334 tonnes in 2008/09. These growing imports of … and India “EBA”sugar are included in the supply needs of refineries An identical agreement to the Protocol on sugar was and the SPS quota for ACP countries is reduced by the reached at the same time with India (involving 10 000 same amount. The average import price is equivalent to tonnes per year). the guaranteed price in the Sugar Protocol. Between 2006/07 and 2008/09 tariffs will be gradually reduced for Supply of refineries sugar exported by LDC countries out of the quota. Tariffs The sugar regime provides that sugar refineries in five will be completely suspended from 1 July 2009 onwards. Member States must have access to 1.8 million tonnes of

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3. Other preferential imports ference in the prices for sugar on the two markets made the concession very attractive. Production, which fell CXL quota sharply during the conflicts but was almost one million This quota was agreed during trade negotiations when tonnes in former Yugoslavia, is being encouraged by the Finland joined the EU. It covers 85 463 tonnes of raw local authorities, in particular in Croatia and Serbia and cane sugar for refining, to which a reduced tariff of EUR Montenegro. Imports of sugar originating in the Balkans, 98 per tonne applies. It is mostly assigned to Cuba (58 which were previously zero, reached 300 000 tonnes in 969 tonnes) and Brazil (23 930 tonnes). The average the 2002/03 marketing year. import price is equivalent to the guaranteed price in the Sugar Protocol. This additional supply of sugar to the EU market resulted in a reduction in EU production quotas in order to comply 'Balkans' Initiative with its WTO commitments. Trade declined in 2003/04 Under the 'Stabilisation and Association Process' im- because the preference granted to Serbia and Montenegro plemented by the EU, all import duties for products orig- was suspended. A new quota scheme for sugar originating inating in the Western Balkans (Albania, Bosnia- from the Balkans enters into force on 1 July 2005 with the Herzegovina, Croatia, FYROM and Serbia and aim of securing the sustainable development of sugar pro- Montenegro) were abolished at the end of 2001. The dif- duction and consumption in these countries.

EU-15 Main partners for imports, quantities, "2000/01"

Mauritius 489 Fiji 204

Guyana 195

Swaziland 169

Jamaica 150

Zimbabwe 65

Cuba 63 Extra EU-15 total sugar import 1.8 mio t Trinidad, Tob 56

Belize 51

Barbados 44

Serb. Monten. 40

Malawi 39

Brazil 36

in 1000 t 0 50100 150 200 250 300 350 400 450 500

Source: European Commission, DG Agriculture and Rural Development

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Sugar production and exports to the EU market of Sugar Protocol countries

700 000 100 %

90 % 600 000 80 %

500 000 70 %

60 % 400 000

50 % 300 000 40 %

200 000 30 %

20 % 100 000 10 %

0 0 %

Fiji Kenya Belize Zambia Malawi Guyana St Kitts Tanzania Trinidad Jamaica Zimbabwe Congo Br. Swaziland BarbadosMauritius Mozambique MadagascarCote d’lvoire

Sugar Production Sugar Exports to Exports to EU/Production (%) 2003 EU 2003 2003

Source: European Commission, DG Development

Which developing countries supply became significant in 2001/02 (25 000 tonnes together). the EU market? This reflects the entry into force of the Everything But Mauritius accounts for over 25 % of imports. Among the Arms Agreement. Top-10 (% of imports), all suppliers but one (Cuba) are ACP countries which are benefiting from the Sugar 4. Preferences to developing countries continues Protocol. post-reform

LDC sugar exports to the EU showed a noticeable in- A lower EU price post-reform will reduce the expected crease from 95 000 tonnes in 1999/00 to 120 000 tonnes returns to LDCs and the Sugar Protocol countries on in 2001/02 (including exports under the Sugar Protocol). sugar shipped to the EU under preference. However, the In particular, imports from Sudan and Mozambique lower EU price will still be well above typical global mar-

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ket quotations. Sending sugar to the EU should therefore mitted to accompanying the adaptation process requi- still be attractive for a number of ACP country signatories red in these countries. The Commission discussed with of the Sugar Protocol and for some LDCs. the ACP the broad line of an assistance scheme on the basis of an “Action Plan”. It includes both trade measures Impact of reform on LDCs and development assistance to help the Sugar Protocol The reduction of EU prices proposed in the reform will countries to adapt. The trade measures are being esta- reduce the benefits that the LDC could have expected blished in negotiations on the Economic Partnership from exporting sugar to the EU. To avoid distortions of Agreements. A development assistance scheme is pro- competition with LDCs benefiting from the EBA agree- posed for an eight year period. ment, EU operators will continue to be obliged to buy the sugar to be imported under the EBA scheme at a Considering the differences between the different Sugar price no lower than the guaranteed price for ACP coun- Protocol countries, in terms of types of issues to face and tries and India. This means that LDC exports to the EU possible responses, a broad range of support options are will still benefit from prices significantly higher than being offered, to be tailored to each situation. Assistance world market prices. will be based on a country-specific, multi-annual, com- prehensive adaptation strategy, devised by the stakehol- The Commission carefully considered LDC requests that, ders in the country concerned. The range of assistance for a transitional period, the EU could continue to import should cover the needs of countries which will aim to their sugar at high prices but in quantities limited by upgrade the competitiveness of their sugar sector, as quotas. However, the Commission decided against alte- well as of those for which the adaptation process re- ring a central element of the EBA pact just four years quires diversifying into alternative economic activities, after negotiating it. Nor is it desirable to operate a dual around or instead of the sugar sector. Considering the price structure in the EU – lower internal prices alongside multifunctional role of the sugar sector especially in higher guaranteed value for some overseas suppliers. certain areas, these support measures should also cover broader social, economic, and environmental con- ACP countries sequences of the reform, if necessary. This adjustment For the ACPs covered by the Sugar Protocol, the reform process can also benefit from the use of other develop- does not alter the provisions of the Sugar Protocol and the ment assistance instruments. India agreement. To account for changes under the sugar reform proposal, the EC import commitments should now For this assistance package, the Commission is propo- be fulfilled at a lower guaranteed price for sugar, in the sing an envelope of EUR 40 million for 2006 and more range of the new EU ‘reference price’. At this price level, the significant budgets should thereafter be included in raw sugar price will be reduced to EUR 496,8 per tonne in future financial provisions. 2006/07 and EUR 303,0 per tonne from 2009/10. The Commission has proposed to integrate the Sugar Protocol into the Economic Partnership Agreements (EPA), currently being negotiated between the EU and the ACP. The EPA are due to enter in force in 2008.

Assistance scheme for ACP countries impacted by the sugar reform The Commission recognises that the sugar reform may lead to significant impacts and adjustment needs, with broad socio-economic consequences in ACP countries that are signatories to the Sugar Protocol and have been relying on preferential sugar exports to the EU. It is com-

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European Commission

World trade in sugar

Many global sugar players maintain high tariffs for sugar, lion tonnes). In Brazil the share of exports compared to some operate import quotas; others a mixture of the domestic production is very high (above 40 % since two. The EU currently operates a system of export subsi- 1995). In 1999, exports were even higher than food uses. dies; other countries subsidise production, and therefore trade, via indirect subsidies or use currency devaluation The share of EU-15 in world exports is close to its share in as a means to improve terms of trade. All these factors world production, while the higher rate of Brazil shows have affected the development of world trade in sugar. its export orientation. Australia, Thailand and Cuba make up the top five exporters, each exporting between three Exports of sugar and four million tonnes of sugar yearly. These five coun- While the EU is a net exporter of sugar, it lags way behind tries account for up to 70 % of world exports. Brazil in exports while providing a valuable market for sugar from less developed countries. Brazil is the leading The EU is both a leading exporter and importer. It beca- sugar exporter with 25 % of world exports (more than 10 me a net exporter at the end of the 1970s, mainly thanks million tonnes), followed by the EU-15 with 15 % (6 mil- to increased production versus stable consumption. The

World Top-15 sugar exporters, 1000 tonnes, "2000"

Brazil 10 231 EU-(15) excl. Intra-trade 5 957 Australia 3 971

Thailand 3 652

Cuba 3 163

South Africa 1 353 Guatemala 1 179

Colombia 982 Total World exports Turkey 690 (excl. EU-15 Intra trade) 39.4 mio t India 634

Mauritius 519

Swaziland 519

Untd Arab Em 419

Poland 408

China 366

in 1000 t 0 2 000 4 000 6 000 8 000 10 000 12 000

Source: European Commission, DG Agriculture and Development

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10 new EU Member States as a whole are net exporters and the EU-15, each accounting for 5 % of world imports, as well. Brazil has been a significant exporter since the at about 1.8 million tonnes. Japan, USA and the Korean 1970s – its exports have soared in line with production Republic together buy around 1.5 million tonnes, 4 % of since the 1990s. In 1999, exports reached an unprece- world imports. The Top-15 importers absorb one third of dented level (13 million tonnes). This is mainly explained world trade. by growth in the ethanol sector. Though guaranteed prices and direct subsidies have been phased out, the The nature of international sugar trade Brazilian sugar sector has developed by benefiting from Although leading sugar producing countries are also the large economies of scale provided by ethanol from major users, sugar is a widely traded commodity. On sugar cane juice. average international trade (close to 40 million tonnes) represents about 30 % of world production (120 million Importers of sugar tonnes, in refined equivalent). This share is high when The Russian Federation is by far the biggest world impor- compared to cereals (international trade represents 15 % ter of sugar, with 5.5 million tonnes (15 % of global of cereal production, not taking into account rice) and imports) in year 2000. Russia is followed by Indonesia close to the share for oilseeds. Nevertheless, as most

World - Top-15 world sugar importers, 1000 tonnes, "2000"

Russian Fed 5 440

Indonesia 1 785 EU-(15) excl. Intra-trade 1 774 Japan 1641

USA 1 487

Korea Rep 1 451 Malaysia 1 207

China 1 103

Iran 1 038 Total World imports (excl. EU-15 Intra trade) 35.7 mio t Nigeria 977

Canada 957

Algeria 949

Untd Arab Em 873

Egypt 745

Syria 668

in 1000 t 0 2 000 4 000 6 000 8 000 10 000 12 000

Source: European Commission, DG Agriculture and Development

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ISA sugar price - Yearly average - 1960-2002

Price in ECU/EURO or $/MT 1 US $ = … € 700 1.40

600 1.20

500 1.00

400 0.80

300 0.60

200 0.40

100 0.20

0 0.00

1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

ISA Price US $/MT ISA Price EURO/ECU per MT 1 USD => Euro or ECU

Source: European Commission, DG Agriculture and Development

international trade in sugar occurs under special trade agreements (e.g. preferential trade, long-term contracts), spot trade is considered residual.

Historically sugar prices have been highly volatile, for various reasons. Macro-economic factors, oil price changes and currency parities can induce variable demand while production is not particularly responsive to changes in prices.

Raw versus refined sugar While trade in raw sugar was on a declining trend from the mid-1970s to the mid-1990s, trade in refined sugar has steadily increased. Since 1995, exports have been expanding for both types of sugar. Raw sugar remains the main traded form, but its share in total exports is declining (to slightly above 50 %).

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EU sugar and the world market The EU sugar regime has often been singled out as the The next graph shows the dramatic increase in the major culprit for depressed world market prices and exportable surplus of sugar in Brazil and elsewhere negative effects on developing countries. While the which explains much of the decline in world market Commission acknowledges that the trade distorting prices. effects of EU export refunds have to be tackled in the current reform, the reality is more complex.

World sugar price and net exports

net exports (000 mt) price ($ per Mt) 16 000 320

12 000 240

8 000 160

4 000 80

0 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Brasil EU Thailand Australia Sugar price (FOB Caribbean)

Source: European Commission, DG Agriculture and Rural Development

EU versus world prices International prices for sugar are extremely volatile follo- indicator as it is a residual price resulting from surpluses wing a cyclical, though erratic, path. Since 1995, prices that are traded if not taken up by internal consumption. have been on a downward trend mainly attributed to an Almost all exporters, are selling sugar at world market overall excess of production over consumption. Data prices and hence at a lower price than their domestic pri- show that the EU price for sugar – i.e. the price of white ces. sugar as it leaves the sugar factory – is three times the ‘world price’. The Commission does not argue with the figures. However, the world price is not a true market

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European Commission

Restructuring the EU sugar sector

During discussions over several years there has been 3. The proposed restructuring scheme widespread restructuring of the EU’s sugar sector. One option discussed to aid this restructuring process was to The Commission is proposing a voluntary restructuring allow for production quotas to be transferred between scheme to be implemented over a four-year period Member States. However, there was widespread opposi- (2006/07 to 2009/10). The scheme comes in two parts: tion to this. The Commission is now proposing an ambi- tious voluntary restructuring scheme to be implemen- • significant, degressive (i.e. reducing over time) per ted over a four-year period. tonne restructuring aid of EUR 730 per tonne of quota in year one, EUR 625 per tonne in year two, EUR 520 per 1. The reasons for restructuring tonne in year three and EUR 420 per tonne in year four. This will be available to sugar factories, isoglucose and The EU has a structural surplus in sugar production. inulin syrup producers, and will be granted for factory Much of this surplus is exported to third countries, by closure and the renunciation of production quota. means of subsidies. Following the WTO panel ruling of Processors can abandon production during any one of April 2005 on certain trade-related aspects of the sugar the four years. Restructuring aid will be paid in two regime, the EU must curtail such exports. Furthermore, installments (60 % by 31 March of the marketing year various recent preferential import arrangements (EBA, in question and 40 % by 30 November the following Balkans agreement) will probably lead to the EU impor- year at the latest; ting significantly increased amounts of sugar, again exa- cerbating the structural surplus in sugar production. In • a top-up payment to ensure that beet growers, who addition, the Commission (and many other stakehol- are supplying a factory that takes the restructuring aid ders) believe that sugar production in several EU regions in year 2006/07 and thus closes, receive direct aid pay- is unsustainable in the long-term. This view applies to ments in full. The proposed additional payment is EUR sugar beet growers as well as to some in the processing 4.68 per tonne of A and B sugar beet delivered sector. In order to encourage early uptake of the scheme, sugar For all these reasons the EU sugar sector needs to factories closing as from 1 July 2005 will be eligible for restructure. the restructuring aid. Furthermore, from 2008/09 part of the restructuring aid may be earmarked for diversificati- 2. The objectives of restructuring on measures in regions most affected by sugar reform.

The objective of restructuring in the sector is to remove A temporary scheme from production those growers and processors that will The Commission is clearly proposing that the restructu- be unable to operate in a business environment in which ring scheme should be temporary. In 2010 the prices have been severely cut. Sugar factories and beet Commission may institute compulsory quota cuts if growers will be encouraged to give up their quota rights. necessary – for example as a result of the restructuring In this way more efficient producers will have better scheme not producing sufficient renunciation of quotas, opportunities for the future and the EU will not lose pro- or because of market conditions (or a combination of ductive capacity. factors).

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Who pays? Financing for the restructuring scheme will come from a specific amount charged over three years on all sugar, isoglucose and inulin syrup quota. The rates proposed are EUR 126,40 per tonne in 2006/07, EUR 92,30 per tonne in 2007/08 and EUR 64,50 per tonne in 2008/09. This should also be paid in two installments each year.

Conditions Abandoning of production will mean:

• renunciation of the relevant quota after consultation and under agreements between beet growers and the sugar industry • definitive and total stop to production in the factory/factories concerned • closure of the factory/ies concerned and dismantling of production facilities • restoration of the good environmental condition of the factory site and redeployment of the workforce

Applications for restructuring aid must be submitted by 1 February in the marketing year during which production will be abandoned.

Financial limits Restructuring aid will only be paid within the limits of funds available in the marketing year concerned. If amounts to be granted exceed that amount then aid will be granted on a first-come-first-served basis.

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European Commission

Questions and answers about reforming the EU sugar regime

Q. Why reform the sugar regime now? Q. Why doesn’t the reform proposal offer 100 % com- A. A simple answer would be that the current sugar regi- pensation to growers for the support price cuts? me runs out in June 2006, therefore the EU is bound A. The average income loss will be fully compensated to act. This ignores the many strong reasons for because, on top of compensatory payments at 60 % of reform. The 2003-04 CAP reform, which was designed the price cut, the current production levy will disappear. to encourage farmers to produce in a more sustainable and market-oriented way, did not include sugar Q. Are sugar producers in the EU-25 Member States (though it covered most other crops and livestock treated in the same way as those in EU-15 Member products). It is thus logical to extend the reform to States in this sugar reform? sugar – in the interests of all involved in the sector. A. Yes. The main elements apply: the price cut will come Second, if we don’t decide now on a new form for our in but with the full compensatory payments, while sugar regime, external economic forces will decide it processors ceasing sugar production will also have for us. Without support price cuts the market would access to the restructuring fund under the same con- overbalance and only deeper cuts to home produc- ditions as in EU-15. tion would restore balance. Q. Why do we need a reform agreement in November Q. Why not roll over existing arrangements? 2005? A. The present sugar regime is often subject to fierce cri- A. There are four important reasons: ticism for a lack of competition, distortions in the mar- i. The current regime lapses in June 2006. To comple- ket, high prices for consumers and users, and its effect te legal texts of new Council and Commission regu- on the world market. The gap between EU and world lations, and allow sufficient time for changes to be market prices has grown larger, while the EU under- implemented, we need earlier agreement on took new international commitments. In these condi- reform tions, the EU’s structural surplus risks widening while ii. The WTO panel that went against the EU sugar the rigidity of the present quota system leaves no regime requires changes to be implemented by incentive for the sector to adjust. July 2006 at the latest iii. Reform is important in order to strengthen the EU’s Q. Is reform driven by overseas factors? hand in the WTO Ministerial meeting in early A. The Commission’s own analysis of the sustainability of December 2005 which will discuss agricultural the sugar regime shows that we need to reform the trade reform regime now, in any case. Since this analysis was car- iv. A November agreement will give farmers and the ried out a WTO panel has handed a victory against the processing industry sufficient notice to adapt to EU to Australia, Brazil and Thailand on two counts: new circumstances first, the Union can no longer subsidise extra sugar exports to balance out preferential imports, mainly Q. Will ‘market-orientation’ permeate the whole from ACP countries; secondly, EU export commit- sugar production chain? ments will have to take account of sugar exported A. Yes. As growers and processors will both be affected with and without refunds. The annual volumes in que- by price cuts they will have to orientate their busines- stion are 1.6 million tonnes and up to 3 million tonnes, ses to actual market demand and future prospects. respectively, piling further pressure onto our market. Some restructuring in both parts of the sector is So, overseas factors are very much in play also. bound to occur.

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Q. Will the reform result in cheaper sugar for consu- employment since those leaving beet growing will mers and industrial users of sugar? turn to alternative arable productions. A. The reform will result in lower sugar prices at farm and processor level. Normally this should feed through Q. Does the Commission really believe that a system directly into lower ex-factory prices (i.e. prices to users of voluntary cessation of sugar production (and such as the food and drinks industry, and to the price giving up of quota) will be sufficient to reduce EU of a retail pack of sugar). The impact on the prices of production and subsequently the level of exports food and drinks containing sugar is more complex onto 3rd country markets? as sugar tends to be one of many ingredients, and A. Yes because, within the proposed scenario of price not necessarily the major one, in many foods. For cuts, the financial incentive has been calculated so as example, even in soft drinks the cost of the sugar to encourage an important part of the industry to quit accounts for only 2 % of the price of a can. the sector voluntarily. In any event, at the end of the restructuring period quota cuts will be applied if pro- Q. Will sugar production disappear from the EU? duction has not dropped sufficiently. A. No. The reform is designed specifically to prevent this from happening. We believe that, given more efficient Q. The Commission has chosen, according to some, a production, EU sugar could supply more than 75 % of more radical reform approach than is necessary – its 450 million consumers. Some important points surely an adaptation to the status quo would be should be underlined: better? • the trend towards rationalisation and job reduction A. We have taken the trouble to conduct impact asses- in the sugar sector would continue even without sments of all the viable options, we have consulted reform. This is the result of our increased productivi- very widely and we consider that the proposed ty in sugar beet production and processing. For reform is the option that offers the best possibilities instance, there were 374 sugar mills in the EU in for a sustainable sugar sector (within the EU and in 1968/69, around 240 in 1990 and just 135 in 2001. LDCs and ACPs) in the longer-term. We rejected com- The story is the same for jobs: in the period 1992/93 plete liberalization on the grounds that a large part of to 2003/04 job numbers in the processing sector fell the EU sugar industry would irreversibly disappear, from 58 546 to 31 862. If the sugar regime remained and because most ACP countries would become unchanged, it is estimated that there would be aro- uncompetitive. und 15 000 fewer jobs by 2012; • overall the reform will sustain production at a higher Q. Will the reformed sugar regime be secure from level than would be possible in future under the sta- further attack in the WTO? tus quo. This is because the maintenance of present A. We believe the sugar reform, as proposed, would comp- price levels would draw in substantially greater quan- ly fully with WTO rules and with our WTO commitments. tities of imports from the EBA countries. Thus annual quota cuts would have to be increasingly severe; Q. Will the reform bring an end to the dumping of • however, within the overall level of production there sugar by the EU on 3rd country markets? will be gradual shifts between regions and Member A. First, the EU is a major importer of sugar as well as States. This is necessary in order to promote greater being an exporter. Secondly, the EU has never prac- competitive efficiency. In regions where sugar pro- ticed ‘dumping’of sugar – an indirect impact of aspec- duction ceases the industry will be able to take ts of the sugar regime has been the export of subsidi- advantage of the EU-funded conversion scheme for sed sugar – this issue is addressed by the reform pro- those wanting to leave the sector. This will help to posal. In the Doha Development Round of WTO talks, cushion the social and economic effects of closure; we have pledged to phase out export subsidies if our • finally, as far as sugar beet farmers are concerned trading partners phase out their export support pro- there is no reason to expect any significant effects on grammes in parallel.

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Q. How does the Commission propose to assist less This is why the Commission opted for an approach to developed countries that will lose full benefit of prepare both EU producers and developing countries preferential access to the EU sugar market? in time for the inevitable changes. They are in the A. In two main ways: same boat. The proposed reform implementation in i. For the ACPs that under the Sugar Protocol have steps over four years provides time for adjustment. In enjoyed the benefits of long-standing access to the a changed environment which leads to considerable high-priced EU market there will be a special pack- price and production cuts for European beet and age of financial and other assistance. Of course they sugar producers, the guaranteed price for sugar from may still export to the EU market where sugar prices the ACPs has to be set at the corresponding level. are likely to remain above world market levels; ii. For the LDCs sugar to be imported within the EBA The Commission fully stands by its commitments scheme will continue to be bought by EU operators regarding the ACP countries. We offer them a clear at a price no lower than the guaranteed price for perspective. They will keep their import preferences, ACP countries and India. they will retain an attractive export market. But our proposals will also imply adjustments in the ACP’s Q. Why has the Commission not accepted the propo- sugar sectors. We are engaged in an open dialogue sal by LDCs to introduce an import quota system with the affected ACP countries on how to provide tai- for sugar in return for higher prices? lor-made and specific accompanying measures to A. We do not wish to alter a central element of the EBA assist their adaptation to the new market conditions pact just four years after negotiating it. Nor do we feel based on an action plan covering both development able to operate a dual price structure in the EU – a and trade measures. We want to help ACPs to make lower internal price alongside a higher guaranteed their domestic sugar production more efficient, or value for some overseas suppliers. If now is the time assist restructuring and the search for other income for the EU to build a durable future for its domestic sources. sugar production, founded on a more realistic price, then now is also the time for our trading partners to Q. What about the assertion that sugar (beet or come to grips with this new reality. Let’s keep this in cane) is not produced in an environmentally un- proportion - under the Commission’s proposals, the sustainable way? EU price would drop from its current very high level A. For EU production the cross-compliance require- but would remain well above typical global market ments under successive CAP reforms (and especially quotations. Sending sugar to the EU should still be the 2003 reform), which oblige and encourage far- attractive for a number of LDCs. mers to respect environmental laws and to keep land in a good agricultural and environmental condition, Q. Won’t this reform leave the ACP countries out in ensure that sugar beet production will be environ- the cold? mentally sustainable. A. The ACP countries have to understand that the EU sugar reform is unavoidable. The status quo is not an Q. Is sugar support expensive for the EU taxpayer? option. Subsidised EU sugar exports have come A. No. Recently, EU expenditure in the sugar sector has under fierce criticism for harming developing coun- been falling: tries. The EU cannot sustain an artificial internal price - 2000: EUR 2 100.6 million three times higher than the world market prices and, - 2001: EUR 1 676.9 million in the long run, to keep ACP countries dependent on - 2002: EUR 1 585.9 million prices that are out of touch with market realities - 2003: EUR 1 439.8 million would prove detrimental for their economies. We are - 2004: EUR 1 421.4 million proposing to make a severe cut in sugar production If the cost of exporting EU sugar equivalent to the and exports. amount imported under preferential agreements (to

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the benefit of less developed countries) is removed, then the ‘real’cost of supporting sugar production has been much lower still.

Q. Isn’t supporting sugar production incompatible with the EU’s commitment to tackling the growing problem of obesity (especially among children)? A. No. The Commission believes that a balanced diet is a fundamental basis for good health. Such a diet could and should include sugar, in moderation of course.