European Union agriculture ministers today formally adopted a radical reform of the EU sugar sector. The reform, which will come into force on 1 July, will bring a system which has remained largely unchanged for almost 40 years into line with the rest of the reformed Common Agricultural Policy. It will ensure a long-term sustainable future for sugar production in the EU, enhance the competitiveness and market-orientation of the sector and strengthen the EU’s position in the current round of world trade talks. The key to the reform is a 36 percent cut in the guaranteed minimum sugar price, generous compensation for farmers and, crucially, a Restructuring Fund as a carrot to encourage uncompetitive sugar producers to leave the industry.

“I am absolutely delighted that the Council has taken the courageous decision to back these long-overdue reforms,” said Mariann Fischer Boel, Commissioner for Agriculture and Rural Development. “The measures may appear tough, but there is no alternative. Thanks to these reforms, the EU sugar sector can look to the future with confidence. And we have sufficient funds available to help those who have to leave the sector to find alternative sources of income.”

The previous regime had become untenable. The sugar price was three times world market levels. The EU’s export system had been ruled contrary to international trade rules. And the EU will open its market completely to imports from the world’s 49 poorest countries from 2009.

By making these changes now, the reform ensures that funds are available to ease the painful restructuring of the sector that is an absolute must, and to compensate farmers. The deal offers the sector long-term certainty. It will not cost a single cent extra in public money.

EU production is expected to fall by between 6 and 7 million tonnes. This will bring it down to a sustainable level – at a sustainable price - allowing domestic needs to be met from European production and imports from the EU’s African Caribbean and Pacific partner countries and the Least Developed Countries.

EU exports will fall dramatically, allowing the EU to respect its WTO commitments.

Sugar will continue to be produced where it makes the most sense, with farmers generously compensated for the income loss caused by the price cut. Their direct payments will be incorporated in the Single farm Payment and linked to the fulfilment of strict environmental and land management criteria.

In the less competitive areas, there will be a financial incentive to close down sugar factories, convert them to other uses and retrain workers. Farmers will be able to diversify to other products.

Additional aid has been built in for those countries which will reduce their output by more than half, or even phase out sugar production completely.

The reforms will also affect sugar producers in the developing world who have traditionally benefited from the inflated EU price.

The EU will remain an attractive market for many developing country exporters. For those who will struggle in the new environment, financial assistance will be available to help them modernise, adjust or diversify.

Commission announces one-year cut in sugar production

The first marketing year under the reformed sugar regime could be very difficult because of possible oversupply of the market, given the limited export possibilities and the fact that in this first year, the effects of the restructuring fund will not yet be felt. The EU will of course use the export possibilities available under its international obligations, but will have to respect the ruling of the WTO appellate body and take account of budgetary constraints.

Following requests from a number of Member States to do so, the Commission is therefore proposing to reduce sugar production under quota in the first year of the reform by 2 to 3 million tonnes in order to relieve the pressure on the market. This will be done as a transitional measure by Management Commission procedure. It will improve the balance on the sugar market without creating new stocks of sugar.

“This one-off cut in sugar production is vital to ensure that the newly-reformed sugar market gets off to a good start,” said Commissioner Fischer Boel. “Unless we act, heavy surpluses will weigh on the market as the reform gets underway. This way, we can kick off our new system with the market in balance. I realise this decision will be difficult for some. That is why the reduction will take into account the special efforts undertaken by Member States giving up quotas for 2006/07.”

Details of the production cut

The cut in production under quota will be most probably around 2.5 million tonnes. This quantity will be divided up between the individual Member States according to a balanced weighting of the traditional method of break-down coefficients and the linear cut laid down in the new CMO Regulation. Sugar quotas given up already in the first marketing year by a Member State will be counted against the reduction. The draft Commission decision will be presented to the sugar management committee on 2 March for a vote.