European Union farm ministers have agreed to the reform of the sugar sector, based on a proposal put forward by the European Commission in June.

“I am delighted with this historic agreement,” said Mariann Fischer Boel, commissioner for agriculture and rural development. “I congratulate ministers for their brave and bold decision to reform a sector that nobody has been able or willing to reform in the past.”

The reform will enhance the competitiveness and market-orientation of the EU sugar sector, guarantee it a viable long-term future and strengthen the EU’s negotiating position in the current round of world trade talks, the Commission said. It will bring a system, which has remained largely unchanged for almost 40 years, into line with the rest of the reformed Common Agricultural Policy.

The guaranteed price for white sugar will be cut by 36% over 4 years; farmers will be compensated for, on average, 64.2% of the price cut through a decoupled payment – which will be linked to the respect of environmental and land management standards and added to the Single Farm Payment; countries which give up more than half of their production quota will be entitled to pay an additional coupled payment of 30% of the income loss for a temporary period of five years; a generous voluntary restructuring scheme will be established to provide incentives for less competitive producers to leave the sector; intervention buying of surplus production will be phased out after four years. Developing countries will continue to enjoy preferential access to the EU market at attractive prices. Those ACP countries which need it will be eligible for an assistance plan worth EUR40m (US$47m) for 2006, which will pave the way for further assistance.

“It has been tough but common sense has prevailed,” Fischer Boel said. “This agreement will give the EU sugar sector a viable and competitive future. Acting now means we have the funds available to ease the painful restructuring of the sector that is an absolute must, and to compensate farmers. This deal offers the sector long-term certainty. It will not cost a single cent extra in public money. It is also very important externally. Our new policy will be trade friendly, thus strengthening our hand at next month’s WTO Hong Kong Ministerial. Farmers will receive a direct payment largely decoupled from production. From 2009, the world’s poorest countries will have completely free access to our market. The EU will remain an attractive market for developing countries to sell their sugar, and we will offer our ACP partners financial assistance to adapt to the changes. This agreement will also ensure that we come rapidly into line with the recent WTO panel.”

The sugar sector will come into line with the CAP reforms of 2003 and 2004. The reform takes proper account of farmers’ incomes, consumers’ interests and the situation of the processing industry. It will 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.

European producers will now enjoy long-term certainty about the rules they have to follow. The reform fixes the economic and legal framework for the European sugar sector until 2014/2015 without foreseeing a review clause. The 36 percent price cut is coupled with a generous restructuring fund lasting 4 years. The restructuring fund has three main objectives: firstly to provide incentives to encourage less competitive producers to leave the industry, secondly to provide money to cope with the social and environmental impacts of factory closure (financing of social plans or redeployment programmes and of measures to put the site back into good environmental condition) and thirdly to provide funds for the most affected regions to develop new business in coherence with EU structural and rural development funds.

Europe will remain an attractive market place for developing countries to sell their sugar. The Commission is also proposing an assistance scheme for the African, Caribbean and Pacific countries which traditionally export sugar to the EU, initially worth 40 million euros for the second half of 2006. Further long term assistance will be secured for the period 2007-2013, depending on the outcome of the discussions on the Financial Perspectives.

The agreement includes a 36% price cut over four years beginning in 2006/07 to ensure sustainable market balance, -20% in year one, -25% in year two, 30% in year three and -36% in year four.

Compensation to farmers at an average of 64.2% of the price cut. This aid will be included in the EU’s Single Farm Payment and linked to respect of environmental and land management standards.

In those countries giving up at least 50% if their quota, the possibility of an additional coupled payment of 30% of the income loss for a maximum of five years, plus possible limited national aid.

The new regime will be valid, including the extension of the sugar quota system, until 2014/15. There is no review clause.

The ‘A’ and ‘B’ quotas will be merged into a single production quota. The intervention system will be abolished after a four-year phase-out period and replaced by a reference price. A private storage system will be introduced a as a safety net in case the market price falls below the reference price.

There will be a voluntary restructuring scheme lasting 4 years for EU sugar factories, and isoglucose and inulin syrup producers, consisting of a payment to encourage factory closure and the renunciation of quota as well as to cope with the social and environmental impact of the restructuring process.

This payment will be EUR730 per tonne in years one and two, falling to 625 in year three, and 520 in the final year. There will be the possibility to use some of this fund to compensate beet producers affected by the closure of factories.

An additional diversification fund for Member States where quota is reduced by a minimum amount, which increases the more quota is renounced. Both these payments will be financed by a levy on holders of quota, lasting three years.

Sugar beet should qualify for set-aside payments when grown as a non-food crop and also be eligible for the energy crop aid of EUR45/hectare.

To maintain a certain production in the current “C” sugar producing countries, an additional amount of 1.1m tonnes will be made available against a one-off payment corresponding to the amount of restructuring aid per tonne in the first year.

Sugar for the chemical and pharmaceutical industries and for the production of bio-ethanol will be excluded from production quotas.

There will be an increase in isoglucose guota of 300,000 tonnes for the existing producer companies phased in over three years with an increase of 100,000 tonnes each year, with the possibility to purchase extra isoglocose quota in Italy (60,000 tonnes, Sweden 35,000t and Lithuania 8,000t) at the restructuring aid price.

Britain’s Department of the Environment, Food and Rural Affairs claimed the credit. “The UK Presidency achieved an historic deal on the reform of the EU sugar sector in Brussels today, it said as soon as the deal was done.

“After difficult and detailed negotiations we have reached agreement on radical reform of the EU sugar regime,” said Margaret Beckett, secretary of state for the environment, who chaired the meeting.