Thursday, November 24, 2005

Sweeteners lead to sugar deal

In a rare success for the UK presidency, EU farm ministers have agreed to a reformed sugar regime to operate from next July. Sufficient sweeteners had to be offered to the most vociferous opponents to get them to accept a deal, although one had to be reached before too long given the WTO deadline of next May and the fact that the regime itself would expire in the summer.

Ministers agreed to a slight cut in the depth of the price cut, and to an increase in the rate of compensation. The European Commission and ministers compromised on a 36% cut in the price of sugar (a relative marginal reduction in the original figure of 39%), and a 4.2% increase in compensation for farmers. They will thus now receive compensation covering 64.2% of the loss incurred by the price cut. There is a also a more generous compensation scheme for inefficient European sugar producers who will be forced to halt production because of the price drop. Extra compensation will be given to farmers in countries that give up 50 per cent of their production, a move that will principally benefit Italy and Spain.

Finland benefits from a special deal that allows beet farmers in one of the least competitive sugar producer countries in Europe a special aid of €350m so they can continue supplying he one remaining beet producer in the country. Why not import sugar from elsewhere which is what mostly happens anyway.

However, these side payments should not distract attention from a substantial reduction in the guaranteed price. In other words, a deal has been struck that will not bust the budget or fail to curb uneconomic production in the sector.

The new compromise proposal – the second to be tabled at this week's EU farm Council – offers significant sweeteners for various countries, in particular Italy, one of the most vociferous opponents of the reform. Poland, Latvia and Greece still refused to endorse the compromise. The producer price for sugar will be reduced in four stages, with a cumulative reduction over four years of 20%, 25%, 30% and 36%.

The deal has come under criticism from both third world NGOs and industrial suger users. Some development experts suggested that the EU had been forced to offer more compensation to inefficient European farmers at the expense of their more vulnerable sugar cane rivals. 'Developing countries have been sacrificed in order for Europe to reach a deal', said Luis Morago, head of Oxfam International in Brussels.

The UK Industrial Sugar Users Group 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.' In fact the EU internal reference price will be €404 per tonne, about 40 per cent above the current spot price. Moreover, the world price could rise if uneconomic EU production is withdrawn and bioethanol actually takes off in a significant way.

For all the criticism, the deal was probably as good as could be obtained given the opposition and will bolster the EU's position in world trade talks.

1 comment:

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