The European Commission today proposed far-reaching reforms to the Common Market Organisation for sugar. The changes will enhance the competitiveness and market-orientation of the European Union sugar sector, guarantee it a viable long-term future and strengthen the EU’s negotiating position in the current round of world trade talks. They will modernise the current system, which has remained largely unchanged for around 40 years. The new system will continue to offer preferential access to Europe’s sugar market for developing countries at an attractive price well above the world market level. African, Caribbean and Pacific countries which traditionally export sugar to the EU will benefit from an assistance programme, also adopted by the Commission today. The Commission reform proposals include a two-step cut totalling 39% in the price for white sugar; compensation to farmers for 60 percent of the price cut through a decoupled payment - which would be linked to the respect of environmental and land management standards and added to the Single Farm Payment; a voluntary restructuring scheme lasting four years to encourage less competitive producers to leave the sector; and the abolition of intervention. The ACP assistance plan will earmark € 40 million for 2006 and pave the way for further assistance. The Commission hopes for a political agreement on the proposals at the Agriculture Council in November.

“There is no alternative to a profound reform,” said Mariann Fischer Boel, Commissioner for Agriculture and Rural Development. “The easy option would be to sit on my hands. But that would mean a slow and painful death for the European sugar sector. I am convinced that EU sugar producers have a competitive future, but only if we act now and act decisively to prepare them for the challenges ahead. We are offering a long term, stable planning horizon with a generous restructuring fund to encourage less competitive producers to leave the sector and to cope with the social and environmental impacts of the restructuring process. And we will maintain preferences for our traditional suppliers in the developing world. Our market will remain an attractive place for some of them to sell their sugar.”

Commissioner for Development and Humanitarian Aid, Louis Michel, highlighted: “We fully understand that the EU sugar reform is a serious challenge for many of our ACP partners. The proposed assistance scheme will help them to secure a smooth transition, in the framework of a local strategy for sustainable development".

The rationale for reform

Following the CAP reforms of 2003 and 2004, the time has now come to bring the sugar regime into line with the approach already adopted in other sectors. Sugar reform must take proper account of farmers’ incomes, consumers’ interests and the situation of the processing industry. The reform 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. The Commission has studied the sugar market in detail and consulted as wide a range of stakeholders as possible. Its impact assessments have shown clearly that the maintenance of the Status quo is unsustainable. Without reform quotas would have to be drastically reduced across the board, hitting the most competitive producers hardest and leading to an attrition scenario.

European producers must be given long-term certainty about the rules they have to follow. The reform proposal therefore fixes the economic and legal framework for the European sugar sector until 2014/2015 without foreseeing a review clause. The Commission is proposing a substantial two-step price cut coupled with a generous restructuring fund lasting four 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.

An assistance scheme for ACP countries

Attention must be given to the needs of developing African, Caribbean and Pacific countries for which Europe has traditionally been a crucial market. Post-reform, Europe will remain an attractive market place for some of the countries which have guaranteed access to the EU market under the Sugar Protocol.

However, the Commission is also proposing an assistance scheme for the African, Caribbean and Pacific countries which traditionally export sugar to the EU. It recognises that the reform is a major challenge not only for EU beet and sugar producers, but also for many ACP suppliers. In order to respond to the diversity of situations of the different countries, the Commission’s assistance scheme proposes to cover a broad range of social, economic and environmental actions.

Under the Sugar Protocol, eighteen ACP countries export sugar to the EU, and may be affected by price reductions on the EU market. The commitment of the Commission to assist them in the adaptation process was integrated in its Communication of July 2004, and expanded in an “Action Plan” produced in January, as a basis for dialogue with the ACP.

The Commission proposes to start implementing the assistance scheme as soon as 2006, as early investments in these countries will maximise their chances of successful adjustment. Since the complexity of restructuring and diversification processes requires a sustained effort, 2006 assistance should be integrated into an eight year scheme. An initial budget of € 40 million has been earmarked for 2006. Ffurther long term assistance will be secured for the period 2007-2013.

Considering the differences between the ACP countries, a broad range of support options is being offered, to be tailored in each country to the needs identified by the stakeholders, and integrated into a long term, comprehensive, sustainable strategy. The types of assistance have been designed with particular attention to the effectiveness of implementation.

Details of the EU sugar reform proposal

• A 39 percent price cut over two years beginning in 2006/07 to ensure sustainable market balance.
• Compensation to farmers at 60% of the price cut. Inclusion of this aid in the Single Farm Payment and linking of payments to respect of environmental and land management standards.
• Validity of the new regime, including extension of the sugar quota system, until 2014/15. No review clause.
• Merging of ‘A’ and ‘B’ quota into a single production quota.
• Abolition of the intervention system and the replacement of the intervention price by a reference price.
• Introduction of a private storage system as a safety net in case the market price falls below the reference price.
• Voluntary restructuring scheme lasting 4 years for EU sugar factories, and isoglucose and inulin syrup producers, consisting of a high degressive 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 730 euros per tonne in year one, falling to 625 in year two, 520 in year three and 420 in the final year.
• A top-up payment for beet producers affected by the closure of factories in the first year for which they have delivery rights.
• Both these payments will be financed by a degressive 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 45 euros/hectare.
• To maintain a certain production in the current “C” sugar producing countries, an additional amount of 1million 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.
• Increase of 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.