A shake-up of the EU sugar market was proposed yesterday (4 October) by the European Commission, but although it involves substantial cuts in subsidies, Brussels officials said that they did not expect sugar price rises for the food processing industry.

The Commission is expecting to save the equivalent of GB£200m annually by withdrawing support for storage; an official in Mr Fischler's office said that this "should not in itself lead to higher sugar prices for the food processing industry." Prices would reflect trends in the world market, the official said, "and are going down all the time - they are now 50% below 1995 levels."

Don't expect it to have very much effect on the consumer prices of confectionary, cakes and other sugar-based food products either. Essentially, the Commission is proposing a permanent cut in the sugar production quota of 115,000 tonnes per year, to abolish the reimbursement of storage costs to producers "and to simplify the market organisation by recasting the rules and repealing outdated provisions."

According to Franz Fischler, EU commissioner for agriculture, "the modified quota regime is less cumbersome, increases competition and ensures the continuation of the drop in real sugar prices." In practice though the institutional price for sugar has a very limited effect, if any, on consumer prices. Although more than 70% of sugar consumption in the EU is in the form of processed products, the share of sugar in the price of such products is only about 5 per cent and still falling.

The proposed cut in EU sugar production follows a Brussels analysis of the challenges of overproduction and globally-agreed limits for subsidising exports. In effect the Commission has bought time by allowing the market organisation to continue in its present form - i.e. with "frozen" prices and the same system of production levies to finance export refunds - though at a reduced level. This will continue until the 2002/03 marketing year when more fundamental changes will be considered.

The Commission said it had rejected proposals to cut the intervention price, even though this would have reduced the burden to consumers. The reason? A 25% price cut - necessary for a real effect on production - would cost the EU budget about GB£675m and this was simply too much.

By Alan Osborn