The first sugar-reform report is published

Options for reform of the EU sugar regime were reported by the UK Sugar Traders website on March 25th 2003 following receipt of the first of two studies. These studies are intended to lay the basis for Commission proposals in July 2003 for reform of the EU Sugar regime. This first report raises doubts about the data used as the basis for the modelling exercises undertaken within the framework of the study, including doubts about whether the model used gives an accurate guide to the likely impact on sugar-sector reform on ACP countries and EBA sugar beneficiaries. The EC's own review, looking at four options for the future of the sugar regime, can be accessed via the Sugar Traders website. The first option considered is the 'status quo' option involving extending the current regulatory framework beyond June 30th 2006. In the context of the EBA, WTO limits on export refunds and a successful challenge to the EU's 'C' exports, the report suggests that sugar production in Europe would be gradually abandoned if the 'status quo' is maintained. The second option considered is a 'liberalisation' option, involving 'abolishing domestic price support for sugar and beet, as well as ending production quotas and quantitative and tariff restrictions on trade'. It concludes that 'in the absence of any protection, domestic sugar prices would fall into line with world market prices. At that price level the European market would remain attractive to the most competitive exporters, such as Brazil. Their exports would come to replace the majority of preferential exports from ACP countries, India and LDCs, whose production costs are considerably higher'. It is concluded that the 'liberalisation' option would 'lead to a reduction in sources of supply, which would expose the European and world markets more directly to the consequences of a single large exporter country's climatic, economic and political risks.' If EU sugar farmers were to be compensated in line with CAP reform in other sectors then the budgetary costs would prove to be very high given the scale of the price reductions which would occur. In addition the report points out 'it would be necessary to examine the need for measures to alleviate the effects of the drastic fall in income derived from preferential imports at guaranteed prices by ACP countries and LDCs'. The report points out that 'if liberalisation were implemented gradually, with a sufficiently long transitional period, the accompanying measures could be more limited; in particular, it would be possible for them not to include financial compensation'. In terms of down-stream linkages, European manufacturers would find their profitability severely jeopardised, with closure of isolated production units leading to a complete cessation of beet cultivation in some areas. A third option considered is that of returning to a system of 'fixed quotas'. This would require going back on commitments made under the EBA. According to the report 'returning to fixed quotas would entail considerably lower production quotas than at present. Preferential imports would also be subjected to quotas again. The quotas to be negotiated would without doubt have to consolidate the highest export levels attained while taking into account the investment entered into by a number of partners with a view to accessing the European market from 2009 onwards'. Under a return to the 'fixed quotas' option continued tariff protection would be required and, domestic prices would remain lucratively high, which would be good news for some ACP countries. However, it could allow for 'a moderate and gradual fall in guaranteed prices'. Indeed, 'if the reduction in prices were linked to the introduction of direct income subsidies, the option could bring the regulatory system for sugar gradually into line with the support arrangements provided for by the reformed CAP'. A fourth option considered is the 'fall in price' option, modelled on the current rice-sector reform. In this option the Commission points out that 'reducing the domestic price would make it possible to satisfy the external constraints while exerting less pressure on the production level. Depending on the price-level chosen, the European market would become less attractive for quite a large proportion of exporters with high production costs - including a significant proportion of ACP countries'. Under this option the guaranteed price for beet would be abolished. Prices would be determined by negotiations between farmers and millers. To compensate farmers, direct support de-coupled from production would be introduced. However it is recognised that some form of production-linked payments would probably be needed to maintain refineries in certain areas (giving rise to a partial decoupled system). Under this option it is argued that 'in the interests of fairness and to reduce its budgetary cost, direct aid could be modulated and fall rapidly beyond a certain size of holding or amount of direct payment'. In addition 'production quotas would be abolished gradually once the levels of imports and production had stabilised, or could be abolished immediately if part of the compensation per hectare remained linked to the introduction of a maximum area.' Again this option would have to include compensation to ACP sugar suppliers. Comment: Any option allowing the regulatory system for sugar to be brought into line with that applied to arable crops would be consistent with the Commission's desire to bring sugar into the single decoupled farm payment scheme. Some decline in EU sugar prices does appear to be inevitable regardless of the actual option pursued by the European Commission.Options for reform of the EU sugar regime were reported by the UK Sugar Traders..