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Agriculture Case 2.2
Sugar
How sweet is sugar?
Expectations are that the renewed European sugar policy will prevent the dumping of sugar, which is a good thing for all cane sugar producing developing countries. These reforms, however, do not sufficiently consider the preferential access the ACP countries have to the European market. The interim regulations for European farmers should also apply to farmers from these ACP countries.
In November 2005 the European sugar policy underwent radical reforms for the first time in forty years. In the World Trade Organization (WTO) Brazil in particular put pressure on the European Union (EU) to drastically reduce its subsidized sugar exports1. To meet the WTO obligations and to bring the sugar policy more in line with the rest of the reformed Agricultural Policy, the ministers for Agriculture opted for reforms whereby the European sugar price will be reduced by 36 percent during the next four years. As a result of this European exports will decrease, but at the same time sugar producers from Africa, the Caribbean, and the Pacific region (the ACP countries) will lose a large part of their income, because for decades a number of these ACP countries have been able to sell a fixed amount of raw cane sugar in Europe at the high guaranteed price.
European agricultural policy
Incoherence
The second point of criticism is that the cut will be implemented too quickly, allowing little time for investments, which could improve the competitive position or make the industry more diverse. This is not helping gradual integration into the world economy, as was laid down in the European development objectives mentioned earlier. Another point of criticism is the compensation these countries will receive. In 2006 the ACP countries will receive forty million euros in compensation8. According to the ACP countries themselves and aid organizations this compensation is far from sufficient.
Abolish export subsidies on European sugar immediately, which will bring dumping to an immediate halt.
Higher compensation for ACP countries under the Sugar Protocol (review the needs of each country and support the LDCs): 200-300 million euros annually for additional means under the EU budget.
The consequences of the sugar policy have to be evaluated for each ACP country. In countries where there are prospects for the sugar industry the competitive position could be enhanced. In countries where there is no future for the sugar industry ways to make exports more diverse must be explored.
Support for building-up the sugar industry in ACP countries, as these countries will have less money to invest due to lower sugar prices.
European development policy
The development policy of the European Union (EU) states among other things that the policy of the EU in developing countries should contribute to sustainable economic and social development, smooth and gradual integration into the world economy and the combat against poverty (Article 177). In accordance with Article 178 these development goals should be taken into account while implementing the policies which are likely to affect developing countries (see document 1). This therefore also applies to the European sugar policy.
In ‘The European consensus on development’, which was established in November 2005, these objectives were repeated to a large extent: ‘The primary and overarching objective of EU development cooperation is the eradication of poverty in the context of sustainable development, including pursuit of the Millennium Development Goals (MDGs)’(see document 2). In accordance with the first Millennium Goal the proportion of people living in extreme poverty must be reduced at least by half in 2015 compared to 1990.
European agricultural policy
Sugar factories are paying European farmers a guaranteed price for the sugar beet they grow. As a result of this the sugar price for European consumers is much higher than the price being paid on the world market. Encouraged by this price guarantee European farmers are producing much more than Europeans can consume. On top of that there is an historical obligation to import and refine a certain quantity of raw sugar from the APC countries at guaranteed prices. The result of this is that the EU has much too much sugar and is therefore dumping about five million tonnes on the world market annually2. About 800 million euros worth of export subsidies are used for this purpose.
As mentioned earlier, the agricultural ministers of the EU reached an agreement on liberalization of the sugar sector. With the price cut the EU meets the demand of the World Trade Organization to reduce subsidized exports drastically to a maximum of 1.2 million tonnes with a maximum of 499 million euros of subsidies. This should prevent dumping on the world market.
Sixty percent of the losses of European farmers will be compensated through income subsidies. Because the subsidies are not coupled with the production, as used to be the case, overproduction and saturation of the European market should be prevented3. The European production should drop drastically due to the price cut and decoupling of subsidies and production, because due to this last measure there is no direct encouragement to grow the product. In countries where more than half of the production is given up, however, there is a possibility of up to thirty percent coupled support. Novib is worried about this because it is not clear how this will affect production. It may result in dumping on the world market after all.
For the surpluses that are likely to shrink, export subsidies are still granted4. This means that sugar can be sold under the cost price on the world market. In December 2005 it was agreed within WTO that export subsidies are to be abolished by 2013, in order to give other countries more space on the world market. It would be better to abolish export subsidies immediately to stop dumping now.
The European sugar policy with respect to developing countries is not univocal. There are different agreements with different countries. In this case we concentrate on the ACP countries which can export sugar under the so-called Sugar Protocol.’ The Sugar protocol is part of the Cotonou Agreement. It establishes that seventeen former colonies - sixteen of the so-called ACP countries5 and India - enjoy preferences with the objective of sustainable development through support for the sugar sector in the countries concerned. Under the protocol these countries are allowed to sell 1,3 million tonnes of sugar in the EU annually at guaranteed prices6. On average the European price is three times higher than the world market price.
Incoherence
Reforms in the sugar policy have therefore significant consequences for the ACP countries, which are getting preferential prices for their sugar on the European market. In view of sustainable development these countries have enjoyed preferential access to the European market since 1975 and as a result of the reforms this preferential access is brought to a halt.
Since the Commission presented its first plans for sugar reforms (in 2003) the countries involved in the Sugar Protocol have criticized the plans; not only the proposed price cut, but also the time frame in which the cut will be implemented. Early November 2005, two weeks before the agricultural ministers of the EU decided to reduce the price of sugar in Europe by 36 percent over a period of four years, the ACP countries requested the EU to limit the cut to 19 percent over a period of eight years. The reason for their request was that the price cut will lead to a sharp decrease in income. Expectations are that a number of countries, especially in the Caribbean, will not be able to produce on a cost-effective basis. The loss of income from exports for the ACP countries amounts to about 300 million euros per year (see document 3). Due to the expected closure of part of the sugar industry lots of jobs will also be lost7.
The second point of criticism is that the cut will be implemented too quickly, allowing little time for investments, which could improve the competitive position or make the industry more diverse. This is not helping gradual integration into the world economy, as was laid down in the European development objectives mentioned earlier. Another point of criticism is the compensation these countries will receive. In 2006 the ACP countries will receive forty million euros in compensation8. According to the ACP countries themselves and aid organizations this compensation is far from sufficient.
The EU should take its responsibility by giving farmers who benefit from the Sugar Protocol the opportunity to deal with the changes. This means that the EU should earmark more money for compensation and that the transitional period should be extended.
Recommendations
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Notes |
Case Documents
2. European Consensus on
Development
download PDF (138 kb)
3. ACP Sugar Press Release
download PDF (111 kb)
Development
download PDF (138 kb)
3. ACP Sugar Press Release
download PDF (111 kb)