Lecture 11.
EU sugar policy reform

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What we want to learn about this topic

• How is the EU sugar regime organised?
• What were the contributing factors to the reform of the EU sugar regime in 2005?
• What was the outcome of the sugar reform in 2005?
• What was the outcome of the reform for the Irish sugar industry?
• What were the implications of the reform for developing countries?

Short introduction to the issues

Background on the EU sugar regime

• generally high support price relative to world price
• production controlled by quota
• quota greater than domestic consumption, so structural export surplus
• export surplus aggravated by preferential sugar imports from former EU colonies in Africa, the Caribbean and the Pacific (ACP)
• however, cost of the sugar regime (mainly the cost of refunds to subsidise the export of the surplus to the world market at a price much lower than the EU price) was met by levies on producers, so that the overall budget cost of supporting the sugar price was relatively limited
• the EU quota was assigned to member states who in turn assigned it to sugar companies operating on their territories, who in turn allocated production quotas under contract to sugar beet growers.

Contributing factors to reform of the EU sugar regime

• Uruguay Round Agreement on Agriculture disciplines limited volume and value of export subsidies
• WTO challenge by Brazil and Thailand to legality of EU re-exporting sugar equivalent to the imports from ACP countries above its export subsidy commitments under the Uruguay Round Agreement on Agriculture
• Expected additional imports from least developed countries under the Everything But Arms agreement once sugar imports were fully liberalised after 2009
• To prepare for the likelihood that tariffs would be cut as a result of the Doha Round which would make EU sugar production uncompetitive with imports unless the EU support price for white sugar (refined sugar) was reduced
• The desire to include sugar in the general pattern of reform initiated by MacSharry and the Agenda 2000 reforms.

Outcome of the 2005 sugar reform

• 36% reduction in intervention prices over four years, compensated by direct payments
• voluntary restructuring scheme to encourage uncompetitive producers to leave the sector
• Commission expectation was to remove 6 million tonnes of sugar capacity
• Restructuring incentives improved in 2007 because of lower than expected uptake in first two years of reform scheme

Consequences of reform for Irish sugar industry

• Sugar beet a highly profitable crop for Irish tillage farmers and important as a break crop in the tillage rotation
• When early attempts to establish a private sugar industry failed in the 1920s, the state nationalised it and the sugar company was a state-sponsored body for many years until eventually privatised as Greencore
• High Irish costs of production made sugar production here marginal even in an EU context
• The decision was made by Greencore to accept the compensation on offer for giving up its quota
• The decision by the Minister on the share out of the compensation fund challenged by Greencore and still unresolved

Consequences of reform for developing countries

• Developing countries divided between those with preferential access to the EU market under favourable conditions (the ACP countries with the Sugar Protocol, and the least developed countries under the EBA scheme), many of whom are uncompetitive producers at world market prices, and competitive exporters without preferential access who face the very high EU import tariffs and who compete against subsidised exports of EU sugar
• The preferential exporters favoured maintenance of high prices but greater quota cuts on EU domestic production as the solution to the over-production capacity in the EU. Lower prices erodes the rents these countries earned by selling at the very attractive EU internal price. The EU made a compensation package available to these countries to assist in either making their sugar industries more competitive at the lower price or to diversify into other activities.

Reading suggestions

The EU sugar reform

USDA Foreign Agricultural Service, 2004, Sugar and the European Union: Implication of WTO Findings, and Reform, Washington, D.C.

House of Lords, 2005. Too Much or Too Little? Changes to the EU sugar regime, House of Lords European Union Committee, 18th Report of the Session 2005-06, London, The Stationery Office.

Impacts on Ireland

Chaplin, H. and Matthews, A., 2005, Reform of the EU sugar regime: impacts on sugar production in Ireland, IIIS Discussion Paper No. 90, Trinity College Dublin.

Impacts on developing countries

Hannah Chaplin and Alan Matthews, Coping with the Fallout for Preference-receiving Countries from EU Sugar Reform, The Estey Centre Journal of International Law and Trade Policy, Volume 7 Number 1 2006, p.15-31

Supplementary references

Commission DG Agri sugar reform site

The ACP-EU Centre for Technical Assistance has produced a sugar executive brief with links to many documents around the EU sugar reform.

Siemen van Berkum, Pim Roza and Frank van Tongeren, Impacts of the EU sugar policy reforms on developing
countries, Report 6.05.09, Agricultural Economics Research Institute (LEI), The Hague, 2005

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