EU ADOPTS SUGAR REFORM

EU member states agreed on 24 November to reform their sugar regime for the first time since 1968, voting to slash the price that the EU guarantees domestic sugar producers by 36 percent over four years, bringing it closer to world market levels. African, Caribbean, and Pacific (ACP) countries that have long been able to sell sugar into EU markets at the internal price are complaining that the changes will cost them dearly. They point out that the compensation that Brussels is offering them is a pittance compared to the lavish payments it has promised EU farmers.

The deal, which will be phased in from 2007, was reached after the European Commission's earlier reform proposal met furious resistance from 11 EU sugar-producing country. The June 2005 package would have cut the price by 39 percent over two years and compensated EU sugar beet farmers for 60 percent of lost income through direct payments decoupled from production (see BRIDGES Weekly, 29 June 2005). EU member states eventually settled on a payment that would give farmers the equivalent of 64.2 percent of such losses. The total compensation package to EU sugar beet farmers is estimated at over EUR 6 billion.

In contrast, the EU has offered ACP countries a EUR 40 million assistance plan for 2006, with aid for future years to be negotiated. These countries will, however, continue to enjoy preferential access to the EU market, albeit at the diminished rate. International charity Oxfam has criticised the EUR 40 million aid offer as 'a bitter blow,' contrasting it with the EU's plan for its own sugar farmers.

The reforms were prompted at least in part by an April 2005 ruling by the WTO Appellate Body against the EU's sugar regime in a case brought by Australia, Brazil, and Thailand. In October, a WTO arbitrator obliged the EU to reduce its sugar exports in accordance with the ruling by 22 May 2006 (see BRIDGES Weekly, 2 November 2005; and 4 May 2005). EU Agricultural Commissioner Mariann Fischer Boel said the deal would "ensure that we come rapidly into line with the recent WTO panel." The Brazilian Foreign Ministry has also indicated that the reforms would bring the EU into compliance with the ruling.

Sweetened deal easier to swallow in EU...

The augmented compensation scheme made the reform package more palatable for the 11 EU countries -- Greece, Spain, Portugal, Italy, Ireland, Finland, Poland, Hungary, Latvia, Lithuania and Slovenia -- that had been blocking the deal. In addition to offsetting income losses, the EU will provide farmers with aid to adapt or simply shut down.
Payments to encourage factories to close and governments to renounce sugar production quotas is EUR 730 per tonne of eligible quota sold back in the first two years of the restructuring period. Similar grants for the fourth year increased to EUR 520 from EUR 420 per tonne in an earlier reform proposal.

According to a press release from the European Commission, member states that give up more than half of their production quota may be eligible to receive payments amounting to an additional 30 percent of income losses for a temporary period of five years.

...but a bitter pill for ACP countries

The 18 sugar-producing ACP countries -- which will have to share the EUR 40 million in compensation amongst each other -- are crying foul. They estimate that they will lose as much as USD 352 million a year due to the reform's 36 percent decrease in sugar prices and had proposed a 19 percent cut.

Caribbean countries had been banking on a promise by the UK, which currently holds the EU's rotating presidency, to "push for an increase in transitional assistance and examine the issue of greater market access" for them, and are insisting that they receive compensation comparable to that slated for EU sugar producers.

Kenny Anthony, Prime Minister of St. Lucia and head of the Caribbean Community and Common Market (CARICOM) described the deal as "totally unacceptable." He said that the money being offered to the ACP sugar producers "is a drop in the bucket. It is not going to allow these countries to undertake the transitional arrangements that they need to finance as a result of the severe loss of income that is going to occur." Mauritius' interim prime minister, Rashid Beebeejaun criticised the EU for sweetening the deal for its own farmers at the ACP's expense. He estimated the cost of restructuring the country's sugar sector at 23.5 billion Mauritian rupees, or about EUR 670 million.

The EU has been resisting calls to make deeper cuts to its farm tariffs in the Doha Round negotiations, arguing that doing so would have devastating effects on ACP countries that currently benefit from preferential access to its market.

Fischer Boel noted that the reformed sugar policy would strengthen the EU's hand at the Hong Kong Ministerial Conference in December, since it would bring the EU into compliance with the dispute ruling and significantly decouple farmers' payments from production, rendering them less trade-distorting under WTO rules. "From 2009, the world's poorest countries will have completely free access to our market," she said.

The European Commission press release is available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/05/1473&forma

ICTSD reporting; "Sugar Deal not Enough," JAMAICA GLEANER, 28 November 2005; "UK's Blair gets flak for phased-in sugar tariff," JAMAICA GLEANER, 23 November 2005; "EU Sugar Reform Proposal 'a bitter blow'" OXFAM Press Release, 22 November 2005; "Rough Cut for Sugar - EU Decision Still Higher than ACP had Hoped," JAMAICA GLEANER, 25 November 2005; "EU Bolsters Stance in WTO trade talks with Sugar Subsidy Cut," FINANCIAL TIMES, 28 November 2005; "EU Sugar Deal to hit Developing Countries," FINANCIAL TIMES, 24 November 2005; "Sucre :le choc!" L'EXPRESS, 28 November 2005; "Le sucre perdra Rs 30 milliards en l'espace de dix ans," L'EXPRESS, 28 November 2005; "Sucre: que nous réserve l'avenir?" L'EXPRESS, 28 November 2005; "Brazil Govt: EU Sugar Reform Will Meet WTO Recommendations," DOW JONES, 28 November 2005.