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EU bolsters stance in trade talks with sugar subsidy cut

By Raphael Minder in Brussels
Published in the Financial Times on November 25

European Union agriculture ministers yesterday bolstered the EU's negotiating stance in world trade talks by agreeing the first significant cut in European sugar subsidies in almost four decades.
After three days of negotiations, the ministers decided to phase in over four years a 36 per cent cut in the EU's guaranteed sugar price - rather than a reduction of 39 per cent over two years as initially envisaged - and a more generous compensation scheme for inefficient European sugar producers who will be forced to halt production because of the price drop.
The last-minute softening of the European Commission's initial proposals helped whittle down - from 11 to three - the countries opposed to the overhaul. Of the 25 EU states, Poland, Latvia and Greece refused to endorse the compromise.
The expected production drop is designed to reduce EU dumping of sugar on world markets, after the practice was successfully challenged by Brazil, Australia and Thailand at the World Trade Organisation.
In the run-up to next month's WTO ministerial meeting in Hong Kong, the EU has been under pressure to help break the deadlock in the Doha round of global trade talks by allowing more farm exports into its market. Brazil, the world's leading sugar producer, has led the attack on the EU.
Mariann Fischer Boel, the EU's agriculture commissioner, said yesterday it would have been difficult for EU negotiators to travel to Hong Kong without a sugar agreement to demonstrate that the EU could tackle one of the bastions of its common agricultural policy as well as respect WTO rulings.
"If we didn't have a proposal in the pocket, we would have nothing to defend," she said. "This will strengthen our hand at next month's WTO Hong Kong ministerial." The EU has 312,000 sugar beet farmers and Brussels currently buys sugar from European producers at €632 ($745, £432) per tonne, three times the world market price.
The UK Industrial Sugar Users Group yesterday deplored last-minute concessions that would still leave the EU price about double that in the rest of the world."This deal takes the easy way out by simply dumping increased compensation costs on consumers and industrial users," it said.
Still, Margaret Beckett, the agriculture minister, said it was "a historic day" for the EU, given the political sensitivities surrounding European agriculture and how entrenched practices had become in the European sugar sector. "Although there has long been the recognition of the very strong case and logic of reforming the sugar sector, this was a decision of considerable difficulty and complexity," she said.
Sugar companies were last night assessing the impact of the revised proposals, but are expected to welcome them as being less severe than those tabled in June. Tate & Lyle, Europe's only large cane sugar refiner and a leading isoglucose producer, had feared in June that it would lose up to £85m in profits by its financial year to March 2009. Associated British Foods, which owns British Sugar, the beet refiner, had predicted its profits would be as much as £40m lower in its 2007-08 financial year.
Greencore, the Irish sugar group, said last night that it welcomed "the improved phasing of the new pricing arrangements". It said it would "continue to produce sugar..as long as it is commercially viable". Many analysts think Greencore could decide to close its remaining sugar refining factory and take compensation on offer.
Sugar has become one of the most hotly contested issues in international farm trade and the deal will have a significant impact on many developing countries, especially sugar cane producers among the African, Caribbean and Pacific (ACP) group of nations.
These producers, who have become reliant on the EU's generous sugar pricing thanks to the preferential trade terms they receive from the Union, have denounced the proposed compensation, envisaged at €40m for 2006. The ACP producers have warned that the sugar reform could devastate their economies, especially when coupled with planned reform of the EU's import rules for bananas. Changes to this regime are also being discussed this week.
Source: Financial Times

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