EU Sugar Reform
By Ambassador Per Eklund
Guyana Chronicle
August 1, 2004
Head of EC Delegation to Guyana, Suriname, Trinidad and Tobago Aruba, The Netherlands Antilles
`Sugar in crisis' was the headline of the editorial in Stabroek News of July 28. Yes, but sugar is in crisis also in Europe and that is why a proposal to reform the sugar regime has been tabled. But in the ongoing heated debate allow me to provide some background to the proposal and clarify some facts.
First, the reform is not primarily directed at ACP or Caribbean producers. It is first and foremost about reforming the EU sugar regime and it will also affect EU sugar producers. The reform is meant to bring the EU sugar market in line with ongoing Agricultural Policy reform, moving from product to producer support and from high to low price support.
The present EU sugar regime, almost unchanged since the 1970s, operates through a combination of national quotas and intervention prices. This has resulted in EU prices currently being three times higher than world market prices. It also effectively prevents imports, other than strictly regulated amounts through preferential trade agreements (like the ACP Sugar Protocol or the LDCs Everything But Arms initiative), since the market is protected by high tariffs. It has also resulted in a surplus of some six million tons of sugar that are exported at subsidised prices in the international market, thus depressing prices and heavily damaging competitive international producers, including those from ACP countries. The structural surplus resulting from the present EU sugar regime has turned the EU into the third largest sugar exporter in the world!
Second, the sugar reform does not change the EU preferential policy via-à-vis ACP sugar imports: the EU would continue to provide access at zero duty. Specifically, and contrary to what has been stated in the heat of the debate, the proposals do not violate provisions in the Sugar Protocol to the 1975 EC-ACP Lomé Convention. The Sugar Protocol stipulates that 'The [European] Community undertakes for an indefinite period to purchase and import, at guaranteed prices, specific quantities of cane sugar, raw or white, which originate in the ACP States...". The Protocol does not fix the level of that guaranteed price. It has been negotiated annually and been tagged to the EU price. When the internal EU price for sugar goes down, so will the price that is paid for sugar from the ACP countries.
Third, the EU-ACP Sugar Protocol has to be modified anyway. The Cotonou Agreement commits ACP and EU countries to review all the commodity protocols in the context of EPA negotiations, with a view of making them WTO compatible while "...safeguarding the benefits derived therefrom..." The Protocol has at any rate been criticised for not providing the right incentives to improve the competitiveness of the industry and for encouraging dependency on a single commodity. It also maintains an arbitrary and economically unjustifiable discrimination between ACP countries and its benefits are not linked to the developments needs of beneficiary countries1.
What then are the proposals about? The overall objective is to establish consistency of the sugar regime with the overall approach of the new Common Agricultural Policy and specifically to improve competitiveness, provide greater market orientation and a sustainable market balance consistent with EU's commitments regarding trading partners. The reform is based on a combination of institutional support price reduction, reduction of EU production quotas and introduction of quota transferability. Specifically:
starting from 1 July 2005, the institutional support price for sugar would be cut by 33 per cent in two steps over three years, with the abolition of the intervention price and the introduction of a reference price.
EU producers would be partially compensated in the form of direct decoupled payments, equal to 60 per cent of the cut in the institutional support price.
the total EU production quota would be reduced from 17.4 to 14.6 million tonnes and there would be a provision for transferability of quota between EU Member States.
How would this affect ACP Sugar Protocol suppliers? There is no denying that the proposal would reduce their earnings. Some countries would still find their exports viable, although at reduced profit margins, some countries would need to further reform the sugar industry, others would need to develop an exit strategy driven by social and environmental considerations. Value-added "brand" sugar, cane fuel and other by-products of sugarcane may provide viable alternatives, while re-foresting, alternative crops and/or tourism development could be alternatives.
This is the beginning of a process, both within the EU and between the EU and ACP Sugar Protocol countries. As regards the latter, the EC will launch a dialogue with the ACP on this matter in the coming months to design appropriate accompanying measures which will encompass both trade and development support measures. The Commission is ready to cushion the social and economic effects of restructuring by providing a financial support package and has given a firm commitment to reserve additional funds for this purpose. Concerning trade support measures, negotiations will take place in the context of Economic Partnership Agreements (EPAs). ACP countries (and Guyana in particular) may, within EPA negotiations, find it in their best interest to seek an improvement in market access for sugar exports.
Far from being solely a threat, this reform also presents opportunities for ACP states in particular to adjust their economies. The European Commission has already indicated in its Communication to the Council of Ministers its will to engage in discussion with ACP partners, on the basis of an action plan to be proposed before end 2004, and to explore mechanisms to assist in the countries' efforts to raise competitiveness and, if necessary, to diversify out of sugar.
In the political posturing that precedes any negotiation, the Caribbean leaders naturally defend the interest of their countries to the best of their ability. Their concerns are clear to the EU.
However, a reform of the sugar regime is unavoidable.
The final decision will spell out the timing, level and speed of the price cuts