Sugar Policy in
the European Union - A Policy on the Move
Sugar
Club Annual Banquet
Waldorf Astoria Hotel
New
York
City
12 May 2004
Jean-Marc Trarieux
Agricultural Attaché
Delegation of the European Commission to the US
Ladies and
Gentlemen:
I am very
honoured to be here tonight, in this prestigious place, and with such an
impressive gathering of sugar industry leaders from around the world. I
would like to warmly thank James Johnson, Sugar Club President, for giving
me the opportunity to update you on the European Union’s
sugar policy.
First,
allow me to say a few words about the
European Union itself, which 12 days ago underwent its biggest and most
historic
enlargement to date. On May 1, 10 new Member States joined the EU,
making it the world’s largest trading bloc: 455 million citizens and
consumers in the largest barrier-free market in the world – bigger than the
US, Canada and Mexico together. And the 25-nation European Union
is more than a Single Market: it is a family of democratic European
countries, committed to working together for peace and prosperity and
taking steps towards political union.
So, ladies
and gentlemen, the European Union is on the move, and its agricultural
policy is on the move as well. Over the last 10 years, the
Common Agricultural Policy, or CAP, has fundamentally changed, leading
to a different core farm policy model. A model that includes a major shift
of support directly to producers, with less reliance on support for products
in the form of either intervention or export subsidies. The June 2003
reform confirmed that the EU moves away from an old system of support,
which distorted trade, towards a greener, more consumer-oriented and more
trade-friendly policy.
A key
objective of the reform process has been to bridge the gap between world and
domestic prices by bringing our support prices down and shifting the
emphasis from product to producers. In WTO terms, that has led to a decrease
of our most trade-distorting support by 30%, compared to a decade ago. And,
thanks to the last reform, it is expected to drop further - by at least
another 35%. A good indicator of this steadily decreasing reliance on
trade-distorting support is the shrinking share of EU
agricultural exports
on the world market: 60% decrease for cereals, 50% for cheese, and in beef
the EU has even become a net importer. In addition, our import tariffs on
agricultural products represent an average of only 10%.
The way the
CAP has changed shows how the EU is setting a good example, and it is beyond
dispute that, as far as agricultural policy reform is concerned, it is a
long way ahead of the rest of the developed world.
So the ag.
policy is on the move, for most commodities, including
Mediterranean
products since last month’s decision. What about our sugar policy? Here the
picture is slightly different, as the June 2003 reform did not concern
sugar.
First, let
us recall what the situation of the EU sugar sector is.
The sugar
sector plays a vital role, both economically and socially, in the European
Union’s rural sector. In the EU-15 (i.e., the 15 European countries that
constituted the EU prior to May 1), sugar beet provides for 1.6 to 1.8% of
the agricultural output and is grown on 230,000 farms; there are 135 sugar
processing plants and 6 refineries. Among the 10 new Member States, 7
are producing sugar. With the new Member States, total sugar production is
expected to increase by 15% to about 20 million tons per year.
The EU-15’s
share in world production, consumption and exports has steadily declined,
while Southern Hemisphere countries are gaining importance. The EU-15 is the
3rd largest importer of sugar in the world, after Russia and Indonesia,
accounting for about 2.2 million tons of sugar in 2002.
With 4.7
million tons of exports, the EU-15
remains a
key player
on world sugar markets, but far behind Brazil,
which dominates exports, with 13.4 million tons, or a 30% share of world
exports.
Where does
the sugar regime stand in all this?
The Sugar
Common Market Organisation was introduced in 1968 and, since then, despite
evolving, it has kept its fundamental elements virtually unchanged. The
current system of sugar quotas ensures a spread of production over the
entire EU rather than encouraging concentration in more competitive regions.
The price support allows producers from less competitive regions to cover at
least their production costs. Internal prices are maintained higher than
intervention prices through production restrictions and border protection.
The current
system has strong advantages: it ensures a secure, stable and high quality
supply of sugar; it helps to maintain producers’ incomes as well as sugar
industry profit margins. In addition, preferential treatment of
ACPs [African, Caribbean and Pacific] and
Least Developed Countries offers them favourable prices and trade stability.
So why is
there a need for a reform?
The CAP
reform of June 2003, which gave new orientations for EU agriculture, did not
cover the sugar sector. It is obvious that a commodity-specific policy
cannot be singled out for long, especially in a world moving away from
policies based on high price support, towards policies with little or no
impact on trade.
One can say
that the EU’s sugar regime meets its obligations agreed in the Uruguay Round
– we have already reduced export refunds for sugar by 36%, reduced
subsidised export quantities by 21% and reduced import tariffs by 20%,
since 1995. In the
Doha Round, we will certainly do even more, since the negotiating offer
of the EU is already more ambitious than the result of the Uruguay Round.
In terms of
time pressure, the unilateral import concessions the EU awarded to the Least
Developed Countries through the
Everything But Arms Initiative, and to Western Balkan states, may cause
EU sugar market imbalances as early as 2007, which may lead to severe
disruptions and a decline in the EU sugar industry.
Of course,
looking into the options for reform requires more serious thinking than it
takes to level criticisms of the type: “European taxpayers and consumers are
paying to destroy livelihoods in the developing countries.” Claiming that
farmers in less-developed countries suffer the consequences of our regime
fails to convince for 2 reasons:
Firstly, it
ignores the fact the EU has led the way with improved market access for the
world’s 49 poorest countries, with its Everything But Arms Initiative.
Secondly, it does not take into account the realities of the world sugar
market. The net export share of the EU-15 in the world sugar market has
decreased from 18.5% to 10.7% over the last 10 years. Brazil’s export
share, by contrast, has increased from 7.1% to a massive 30.5% over the same
period.
So the
decision on the reform must be carefully considered to ensure a sustainable
and long-term EU sugar policy. And any change in the internal market price
will have a significant impact on the countries benefiting from the Sugar
Protocol under the EU-ACP Partnership Agreement of
Cotonou.
Where do we
stand in the discussions on reform?
Last
September, the European Commission presented a
Communication to the Council of Ministers and to the European
Parliament, on the prospects of the EU sugar regime. The report describes a
range of possible options for reform, indicating their advantages and
disadvantages, to allow for a debate of principle. The 3 options are:
status quo, price decrease and full liberalisation.
-
the
status quo scenario implies maintaining current mechanisms: price
intervention and flexible quotas. That means quotas would be reduced – as is
currently the case – according to the volume of imports agreed under the
different international commitments. Duties would be reduced as well as
prices, but to as high a level as possible depending on international
commitments.
-
the 2nd option – price decrease – would lead to a gradual phasing-out of the
current system until internal market prices would be in balance with entry
prices. Such a price would settle in a way to assure the balance on a market
without quotas, without production surplus or deficit, making the EU market
less attractive for high cost producers. Market supply would be assured by
European sugar, preferential sugar and isoglucose. Compensation might be
necessary for beet growers.
-
the 3rd
option of full liberalisation means abolition of the price support system,
production quotas, import tariffs and quantitative restrictions on imports.
What’s
next?
The
intention of the Commission is to submit a concrete reform proposal by mid-2004. The debate is not over, so I can only offer some general remarks and
not a definite direction of where we will go.
To maintain
the status quo would, strictly speaking, be impossible. A cut in both EU
production and prices and a decrease in the prices offered for preferential
imports seems unavoidable if we want to be able to face the competitive
pressures that will arise in the next few years.
On the
other hand, full market liberalisation would have 3 major implications
for the sugar sector. Firstly, it could cut current EU production levels by
more than half. Secondly, the EU could thus become dependent on a single
country (Brazil – the largest and most competitive exporter) for its sugar
needs, which may be considered inappropriate from a supply security point of
view. Thirdly, price volatility in sugar world prices would also impact
heavily on the stable investment environment that the sugar industry needs.
Then there
are the implications that this approach would have on the ACP countries. If
one thing is certain, it is that any reform of the sugar regime, or
liberalisation of the world market, could not ignore the impact that it will
have on poor countries. The immediate elimination of all support and
protection would expose the developing countries to competition from
countries that enjoy far lower production costs and far more developed
export structures.
Ladies and
Gentlemen,
You will
have realised that the need for reform is there. However, the EU sugar
policy will not be reformed overnight, as it needs thorough reflection and
discussion between all the parties involved. One thing is clear: this reform
will be consistent with the overall CAP objectives and the EU’s
international commitments. As the CAP reform process aims to make it more
market-oriented, more sustainable, so the same must be true for the sugar
sector.
Let me
invite you to be a little patient until mid-2004 when we will have the
Commission’s reform proposal for the EU sugar policy. At least tonight you
heard that the needs for reform are recognised and that a large debate has
been launched and is ongoing, so the sugar regime is very much a policy on
the move, just like the CAP is on the move and just like the European Union
is on the move.
Thank you
very much.
