European Union governments today agreed on a Commission proposal for a one-year cut of 2.5 million tonnes (13.6 percent) in sugar, isoglucose and inulin syrup production. This one-off reduction is necessary to ensure that the newly-reformed sugar regime gets underway without heavy surpluses undermining market balance. The production cut is divided up between the individual Member States according to a balanced weighting of the reduction coefficients traditionally used in the sugar sector and the linear cut laid down in the new Common Market Organisation (CMO) Regulation. The coefficients reduce production more for those countries which previously had higher “B” quotas: in other words those which produced more sugar for export. Under the sugar reform, this distinction between “A” and “B” quotas will disappear. In calculating the cut in production for 2006/07, special account will also be taken of those countries which undertake large reductions in quota in the first year of the reform through the newly-introduced Restructuring Fund.

The first marketing year under the reformed sugar regime could be very difficult because of possible oversupply of the market, due to 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 proposed to reduce sugar production under quota in the first year of the reform by 2.5 million tonnes (13.6 percent) in order to relieve the pressure on the market. This will improve the balance on the sugar market without creating new stocks of sugar.

The regulation agreed today also fixes transitional arrangements to take account of the fact that the first year of the new regime will last 15 months. This is so that, in future, the marketing year will run from 1 October to 30 September every year.

Background on sugar reform

On February 20, EU agriculture ministers 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.

The table below shows the effects of today’s decision to reduce production under quota for one year: