The European Commission has proposed far-reaching reforms to the European Union’s Common Market Organisation for sugar, aimed at enhancing the competitiveness and market-orientation of the EU sugar sector, as well as securing the sector’s future. But what will the proposals mean to sugar producers and processors and the industry as a whole? Alan Osborn reports.
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The European Commission’s long-awaited proposals for reforming the sugar sector have been released, but most people in the industry already had a pretty good idea of what to expect, and for many of the actual sugar producers the prospect is nothing like as dire as it might have looked a few months ago. That’s certainly true if the stock market is any guide – the share prices of both quoted producers, Associated British Foods and Tate & Lyle, have come up strongly in recent weeks and are, respectively, at or near the year’s best. Broadly speaking, what’s good for the sugar producers in the form of higher-than-expected European Union (EU) support prices is not such good news for food processors, but sugar is only one of many cost inputs for manufacturers and probably not among the most important.
At the heart of the Commission’s original sugar plans, drawn up last summer, was a three-year 33% price cut combined with a reduction of 2.8 million tonnes (about 16% of the total) in EU production. Beet growers would be compensated at 60% of their income loss and there was to be provision for the trading of quotas between countries.
Since then there have been two important developments. A new farm commissioner has been appointed in the person of Mariann Fischer Boel and there was a formal ruling by the World Trade Organisation (WTO) on 28 April that under its existing unreformed system, the EU was illegally subsidising sugar exports, under global commerce rules. Acting on complaints by the major sugar exporting countries of Australia, Brazil and Thailand, the WTO upheld its finding of last October against the EU, declaring that subsidised exports had been exceeding an agreed 1,273,000-tonne-a year limit by almost five times since 1995.
Fischer Boel was clearly not best pleased by this, noting that the WTO body “has called into question texts and commitments agreed upon by all WTO members during the Uruguay Round” and saying it was implying that the EU “agreed to reduce its subsidised exports of sugar by 72% rather than the 21%, which was agreed in the Uruguay Round”. She said the Commission shared the concern of the African, Caribbean and Pacific (ACP) bloc of former European colonies countries at the effect the ruling could have on their preferential access to the EU market, adding that “any changes that need to be made to the EU sugar market organisation to take account of this ruling will be included in the Commission’s (22 June) sugar reform proposals.”
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By GlobalDataIndustry remains positive
We know from a leak of the Commission’s proposals in May what this means: in order to take into account the WTO ruling, Brussels will now propose a cut of 39% in the sugar support price (as opposed to the 33% announced last year) and a 42% cut in the minimum beet price – both to be implemented over two years rather than three. The Commission sugar spokesman, Johann Reyniers, stressed that the figures were part of a working paper distributed to the Commission’s services and “may be substantially modified” before coming before the full Commission. Once the package has been endorsed by the Commission, however, it will go before the 25 EU agriculture ministers in July with the aim of reaching a political deal within the EU in November that could be presented to the meeting of WTO ministers in Hong Kong in mid-December.
A lot might change before the policy becomes law, in short. But based on the signs to date, it has to be said that the package is far less punitive for the sugar industry than has appeared likely at any time since last summer.
This was explicitly underlined by the German sugar giant Sudzucker when it reported higher profits and raised its dividend in May, saying that it could hold its profits in spite of the reduced sugar support prices and the net impact of the new EU sugar policy “would not be negative”.
Lower prices
In the UK, Mike Blacker, chairman of the National Sugar Board of the National Farmers Union, said he thought British beet farmers could handle a “realistic” price cut because of the size and efficiency of both UK beet farming and the sugar processing industry, though there was some concern about the basis for compensating farmers. “We accept that reform has to happen but we want it to be fair and balanced,” he said.
In France and Germany, by contrast, and despite the milder nature of the final reform package, there are likely to be vociferous protests about the effects of the price and production cuts on their sugar beet farmers, who produce almost half of all EU sugar. The French agriculture minister has stated that the proposed reforms are “not unfavourable” to the French government provided they take into account certain social consequences” for small sugar producers and others though he warned against any further changes in the package. Spain has declared itself against any reduction in quotas and prices and Italy says it “did not intend to abdicate all state sugar production, even if we are aware that reductions will be necessary”. These comments were made before the WTO ruling and the subsequent changes in the Commission proposals were announced in April/May, however.
Clearly those who stand to gain the most from all this are companies in the sugar confectionery, bakery and other industries who buy sugar on a commercial scale for manufacturing sweets, cakes, desserts and other sweet items. Brussels agrees that they would benefit but adds that consumers would not necessarily enjoy lower prices. The Commission’s initial proposal would bring down guaranteed EU prices (currently three times higher than global prices) by a third by the end of 2007 but by the time this gets through to the buyer the reduction would probably be some 20% to 30%. This tends to support the view that even fairly substantial reductions in the price of sugar are unlikely to make any significant difference to costs in general for the sugar-using industries.
