Brussels, 12/09/2003 (Agence Europe) - In the Communication by Franz Fischler is will be adopting on 23 September (see Europe of 10 September, p.12), the European Commission proposed three possible policy orientations for the EU sugar regime (leaving things unchanged, cutting prices or liberalisation) but favours the second since it would silence the strong criticisms that have been voiced of the sugar regime within the EU (the Court of Auditors) and outside (a WTO panel).
In an analysis to be adopted at the same time as the Communication, the Commission sets out a reference scenario for the second option, price cutting, foreseeing the scrapping of quotas and the intervention price by the end of 2013 through a cut of around 40% in the current price for white sugar (a EUR 725 a tonne cut to EUR 450 a tonne, compared with the world price of EUR 180-200 a tonne). To compensate for the impact of the cut in EU sugar prices, a single payment per farm will be made along the lines of similar payments planned in the June 2003 reforms of the Common Agricultural Policy.
The Commission argues that in the event of a negative decision for the EU at the WTO panel requested by Brazil, Australia and Thailand, the option of extending the present regime beyond 2006 (keeping intact the current market organisation, based on flexible quotas and price intervention) would be similar to a scenario of gradually dropping the growing of sugar in the EU, gradually transferring sugar production to third countries and beneficiaries. Extending the current system would have no corrective impact on the most controversial aspects of the EU's sugar regime and would therefore not deal with all the criticism, particularly criticism of lack of competition. Neither, argues the Commission, would it get rid of the uneven playing field between EU sugar farmers given the extremely high prices for growing sugar beet compared with other crops.
The option of complete liberalisation of the current regime would mean the domestic EU price support system would be abolished and production quotas would be abandoned. Quotas and trade tariffs would also be abolished (an option recommended by the most competitive cane sugar exporters, by some of the agri-food industry and a series of development NGOs). This option of lower prices depending on the price of sugar on the world commodity markets, would mean the European Union would remain attractive for the most competitive sugar exporters, like Brazil, explains the Commission. Imported sugar from the most competitive producers would replace most of the preferential imports from ACP countries, India and the least developed countries, which have much higher production costs. European manufacturers' profitability would be seriously hit, adds the Commission, saying they would find it difficult to remain competitive. Another impact of this scenario would be that sugar beet would no longer be grown in some areas. Given the scale of the price cuts, the EU budget for direct aid to compensate for loss of farmers' income would be high.
In 2001, the Council extended the EU's sugar regime for 5 years (see Europe of 24 May 2001). It set out mechanisms to manage the EU's sugar production (price support, management of production and export subsidies). The EU's sugar market is based on sugar production quotas shared out among the Member States. Each Member State is given two types of quota - A and B quotas - which differ according to the percentage of sugar produced under each that can be put into storage. Only sugar produced as part of the quota system can benefit from support mechanisms. There is a third category, C sugar, for sugar produced outside the quota system, destined exclusively for export without export subsidies. Production volumes of C sugar depend on the prices on the world commodity market. The price support mechanism is based on a "minimum price", the price at which sugar producers buy sugar beet from farmers (EUR 46.72 a tonne for beet used to make quota A sugar, and EUR 32.42 a tonne for beet used to make B quota sugar); and the intervention price (which has been frozen for the past ten years at EUR 631.90 a tonne for white sugar and EUR 523.70 a tonne for brown sugar) should the purchase of sugar production by intervention bodies prove necessary. The EU's sugar regime also includes preferential imports of ACP country sugar and sugar from India. Under the Sugar Protocol of the Cotonou Accord signed in June 2000 between the EU and ACP states, ACPs are authorised to sell a large proportion of their cane sugar in the EU at the intervention price and without customs duties. Once refined, some of the sugar imported from ACPs is exported and benefits from export subsidies.