From an ACP perspective, one of the most significant reforms of market management instruments proposed is the abolition of EU sugar and isoglucose production quotas, which currently play a central role in managing the EU sugar market. Annex 5 of the EC’s impact assessment, which reviews the impact of proposals to modify market measures, takes the view that production quotas generate rigidities which prevent the EU sugar sector from responding rapidly to market development. In addition, production quotas are seen as slowing down ‘the development of innovative bio-based products, therefore hampering the development of the bioeconomy’.
In the main body of the Commission staff working paper that assesses the impact of proposals for further reform of the CAP, the EC acknowledges that ‘the end of the sugar quota regime will have important implications for the sugar sector’. According to the staff working paper, the removal of sugar quotas is expected to lead to higher production and lower prices, with an increase in the area under sugar beet (of between +12.7% and +14.3% compared to 2009/10, depending on the scenario for abolition pursued, but lower average yields. It highlights how, if production quotas were abolished in 2015/16, a 2.3% increase in EU sugar beet production would be likely by 2020. However, if they were phased out only by 2017/18, a 3.9% increase in production would be likely.
This higher level of sugar production would see sugar beet prices and white sugar prices fall by 8.2% and 3.5% under the 2015/16 abolition scenario, and 10% and 5.7% respectively under the 2017/18 phasing out scenario. Indeed, the review of market measures suggests that ‘prices are projected to fall below the current support prices for sugar beet and white sugar under each scenario.’
Under each scenario the EU would continue to be a net importer, but with a better net trade balance in sugar compared to the current situation. The impact assessment notes that ‘the phasing out scenario produces a larger impact on the EU sugar market’, and that ‘extending the life of the quota system … prolongs the inefficiencies of the industry’.
It is held that quota abolition ‘increases competitiveness as production would move to the economically most efficient areas’. It would, furthermore, enable the EU sugar sector ‘to adapt to limitations in EU exports, with increased market orientation, including the abolition of private storage aid for sugar’. It is however likely to lead to EU sugar prices increasingly following global sugar price trends. It will also allow the EU to circumvent current WTO restrictions on the export of sugar which are linked to the deployment of export refund support and cross-subsidisation. According to an EC spokesperson, ‘an end to quotas is the only option for providing the sector with a long-term perspective’.
One of the few bodies to unequivocally support EC reform proposals has been the European Sugar User’s Association (CIUS), which maintains that the current regime is not delivering ‘a sustainable sugar value chain’. CIUS wants to see not only the abolition of production quotas, but also a substantial reduction of import tariffs in order to stimulate competition in the market. This, it is thought, will deliver ‘a more competitive EU sugar market while ensuring greater security of supply’.
ACP and LDC sugar suppliers meanwhile have condemned the EC proposals for jeopardising the EU market balance and ‘the future of the sugar industries of the ACP/LDCs’. They describe the EC proposals as ‘premature, unnecessary and almost certainly counterproductive’ in terms of the future of ongoing restructuring efforts in ACP/LDC countries. They also maintain that the decision is ‘tantamount to a unilateral modification of an international treaty’, namely recently concluded EPAs. The ACP/LDC sugar group argues for a maintenance of production quotas until at least 2020.
The current difficulties faced in the EU sugar market – which leave some EU sugar users struggling to secure supplies at competitive prices and some retailers placing restrictions on the sale of sugar to domestic consumers – are likely to intensify pressure for an early abolition of sugar production quotas (by 2015/16).
This needs to be seen in the context of the central EU policy objective of promoting greater value-added processing in agricultural product chains prior to export. A number of important sugar-using industries have in recent years been expanding their exports in response to growing demand in emerging markets (e.g. the EU chocolate sector). Securing sugar supplies to sustain this growth is accorded a high priority.
The EC assessment suggests that the abolition of production quotas is likely to lead to sugar prices falling below ‘current support prices’. Against a background of heightened global price volatility, this suggests a need for ACP sugar exporters to pay increasing attention to the functioning of the sugar supply chains with which they are engaged. The importance of more favourably defining the basis for engagement with the EU sugar sector can be illustrated by two ACP examples.
In Mauritius a programme of investment has been successfully implemented to move entirely away from the export of raw sugar. This has been implemented in part through the identification of a new strategic partner in the EU (the German sugar giant Suedzucker – see Agritrade special report ‘ Corporate restructuring in the EU sugar sector: Implications for the ACP’, May 2010), which is transforming the arrangements for marketing Mauritian sugar, with Mauritius now exclusively exporting refined sugar products. This strategy is designed to build a knowledge base on the packaging and marketing of refined sugar products which will enable the Mauritian sugar sector to adjust to evolving patterns of global sugar demand.
In Jamaica, crop financing difficulties have seen contracts entered into which provide widely differing returns (from €333.2/tonne under the Eridania contract and €370 /t under the Tate & Lyle contract to US$936.98/t for sugar sold on the open market to ED&F Man Sugar Ltd). This suggests a need for far greater transparency of contracts entered into in an era of heightened price volatility (particularly where profit sharing arrangements are subject to unilaterally determined reductions for expenses incurred).
Against this background, EU efforts to promote greater transparency in contractual arrangements in the dairy sector, so as to rebalance unequal power relationships along the supply chain, could potentially hold important lessons for ACP sugar exporters.