Article posted June 9 2007:

European Sugar policy

`This is hard work. I earn around 40 Dollar a month cutting sugar cane. But the alternative is poverty. At least now I can send my children to school and buy the basics for my family´Bekele Telila, a cane cutter on East Shoa, Ethiopia

´Low world sugar prices and the dumping of suger are a problem… I would like to see sugar subsidies cut and a global levelling of the playing field. European fafmers should farm something more suitable to their climate. This would allow developing countries, particularly the small scale growers, to grow more sugar cane for the world market, which would improve my situation. I can’t grow anything other than sugar cane´ Mzo Mzoneli, smallholder sugar farmer, Natal, South Africa 

1.1 Introduction
Sugar is produced in many countries in the world, from either sugar cane or sugar beets. Sugar cane is the source of 75% of global sugar production. Asia is the leading cane growing area, followed by South America. Sugar beet is produced mainly in Europe and North America.
In the EU-15, sugar beet provides for 1.6 to 1.8% of the agricultural output and is grown on 230,000 farms. 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 is the 3rd largest importer of sugar in the world, after Russia and Indonesia. So the EU-15 remains a key player on world sugar markets, but far behind Brazil, which dominates exports.

1.2 Current situation of the sugar policy
The common market organisation for sugar (CMO sugar) is a rather complicated structure. A lot of agricultural products have been changed in the last years, but the sugar policy is not changed for a long time. The European market regulations are giving guaranteed prices to the growers and producers of sugar. There is also an import protection and there are export subsidies. Countries as Brazil and Thailand complained about the unfair currency of the EU at the World Trade Organisation (WTO). So in simplified terms, the sugar regime in Europe rests on three legs:

-          Guaranteed prices
-          Import protection
-          export subsidies

Guaranteed prices: Every year the EU applied a quota of sugar. In recent years, quotas have been set at around 14 million tonnes. Quotas were designed originally to ensure self sufficiency. But nowadays they evolved to provide price support for a volume of output far in excess of EU consumption. There is a structural surplus of around 1,5 million tonnes now built into the quota system, making this one important source of the EU surplus. The guaranteed price is usually three or four times above world prices! Currently the guaranteed price paid to sugar is around €632/tonne for white sugar, compared with a world market price of €157/tonne

Import restrictions: The import restrictions are extremely high in the European Union. Even with world prices for sugar locked at very low levels, it is impossible for other exporters to enter the EU market. In addition to a fixed tariff, the EU deploys a special safeguard that increases as world prices fall, thereby creating a watertight system of protection of the own market. Current import duties create a tariff equivalent to around €324 per cent.

Export subsidies: Export subsidies are obverse of import tariffs. The surplus built into guaranteed price quota and preferential imports has to be kept off the domestic market, otherwise it would force down guaranteed prices. Europe’s preferred solution is to dump the surplus on world markets. At present, the EU pays around €525/tonne in export subsidies on quota sugar. In other words, every 1 Euro in export sales generated by sugar costs the EU €3, 30 in subsidies!

1.3 Reform options
The current sugar policy is ending on 30 June 2006. So that is in 2 weeks from now and this opened for a new way of sugar policy. We have several options that we will discuss now:

-          Status quo option
-          Fixed quotas option
-          Price fall option
-          Liberalisation option

1.3.2 Status quo option
Under this option the current regime of the EU would be extended, meaning that Community prices would continue to be about three times higher than world market levels. The market situation would nevertheless change substantially. The high EU prices would continue to attract preferential imports. The status quo option would uphold a CMO, which is heavily criticised within the EU, for example by the European Court of Justice and the European Court of Auditors, for its lack of competition, in creating extremely high consumer prices and having negative environmental effects. This is making a decision of the status quo option highly unlikely.

1.3.3 Fixed quotas option
The option to fixed quotas would require the Community to go back on its international commitments. So it opens up the Community market to all products from the least developed countries (LCD’s). Reintroducing tariff quotas would exact a high political price and harm the Community’s credibility. Sow the quotas must be lower than it now is. From the viewpoint of renegotiating the regime, the option of returning to fixed quotas could provide a Community framework for regulating the transfer of production quotas between cultivation areas. Such a system could, however also weigh heavily on the restructuring efforts of competitive industries. It would affect producers differently depending on their funding capacity, thus leading to a more marked process of concentration. The environmental consequences of this option would depend on the choice of alternative land uses and their location, but the reduction of production of production quotas is a priori quite favourable.

1.3.4 Price fall option
The price fall option is the favourite by the European Commission. This option is bases on the assumption that EU prices will be reduced. However they would continue to be supported by an adequate level of tariff protection. After full implementation of this option a quantitative market balance would be achieved with neither surplus nor deflects in production of preferential imports by adjusting supply to prices free from production quotas. Production quotas would have been abolished once the level of imports and production had stabilised. As an overall result sugar prices on the EU market would be about 40% lower than it is currently.

1.3.5 Liberalisation option
Under the liberalisation option all domestic price support, the quota system as well as all quantitative and tariff restrictions would be abolished. In absence of any protection, EU sugar prices would fall into line with world market prices, meaning that the EU market would be attractive for the most competitive exporters, such as Brazil. Their exports would replace most of the current preferential exports. The full liberalisation would also lead a drastic reduction in EU sugar production. This in turn would result in the necessity for huge compensation payments to European sugar farmers and possibly to increased payments to the beneficiaries of the preferential arrangements to assist them with restructuring efforts. Full liberalisation would bring along the risk of being dependent on only one or a very few suppliers. For both reasons, the liberalisation option is also very unlikely to be adopted, although economically this is the most sounds option.

Is the current trade policy of the EU just? To make a liberal free market with those countries they can fetch up with the EU. Still now the EU has huge barriers for thirth world countries. All countries are in the race for export-oriented growth. The EU protects their own market against the cheaper markets. Ofcourse this is not fair, but in the end it will al be taking over by the free market capitallism. “In the triumph of free market capitalism we are left with a single world ideology.”
Does the EU contribute to an equal world? “The current shape of the Common Agricultural Policy of the EU is adverse to the interests of European consumers an taxpayers. It deforms the free market environment in the EU, hinders the liberalization of the world trade and what is more, it discriminates agricultural countries of the developing world. The Eu gives subsidy and there are structural or cohesive EU funds.” More and more services of the EU governments will be privatised. This can be a step closer to an equal world. This can result in a privately hel big business. In the same step they lower the business taxes, which is not equal anymore to the developing countries. Because the European privatised compagnies are maybe a step ahead of them with more money etc etc..

1.3.6 Best option and advice in our view
In our view the best reforming method is the price fall option (1.3.4). In 2012 there is no quota anymore in the European Union for sugar. So the developing countries van be put their sugar on the European markets. The production in the European Union will fall from 20 to 14 Million, so there is more space for developing countries to export to the EU. The import increases with 0.6 Million. And the price of white sugar will be the second lowest in the EU by the price fall option. The lowest is the liberalisation option but we think this is a very unlikely option for the EU. Because all farmers in the EU must compete with developing countries, and the most of them will be fallen down.

If we look back at the introduction: `This is hard work. I earn around 40 Dollar a month cutting sugar cane. But the alternative is poverty. At least now I can send my children to school and buy the basics for my family´ Bekele Telila, a cane cutter on East Shoa, Ethiopia

About the Author....

Sources:

http://www.lei.dlo.nl/publicaties/PDF/2005/6_xxx/6_05_09.pdf, http://www.tralac.org/pdf/WP_nbsp_12%5B1%5D.2003_nbsp_Malzbender.pdf, Commision of the European Union: Reforming of the European Union’s sugar policy, http://ec.europa.eu/comm/agriculture/publi/reports/sugar/fullrep_en.pdf, www.ods.cz/docs/programy/program_2004e-eng.pdf, The Silent Takeover by Noreena Hertz, ISBN 0099410591

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