Impact of CAP reform agreement on the sugar sector
06 August 2013
As part of the 26 June 2013 political agreement between the European Commission, European Parliament and EU Council, the abolition of EU sugar production quotas from 30 September 2017 was confirmed. According to an EC memorandum, sugar quota abolition “will ensure improved competitiveness for EU producers on the domestic and world market alike (as EU exports are limited by WTO rules under quotas)”.
The memorandum maintained that “ample supply on EU domestic markets at reasonable prices will also benefit the intermediate and final users of sugar.” This needs to be seen in a context where average EU raw sugar prices in June 2013 were more than 50% above world market prices, and the gap between EU and world market white sugar prices even more pronounced.
Alongside the abolition of sugar production quotas, the EC announced that “the organisation of the sugar sector will be strengthened on the basis of contracts and mandatory inter-professional agreements,” which will include “standard provisions for agreements between sugar factories and growers”. In addition, “for the period after quotas, white sugar will remain eligible for private storage aid.” These measures are intended to “provide added security” to the functioning of the EU sugar market.
Isoglucose production quotas will also be abolished. According to representatives of the European Starch Industry Association (AAF), this “will unleash production, investments and growth in the European starch industry”. The European sugar users’ group CIUS, for their part, maintained that the end of sugar production quotas “will allow the EU sugar sector to play an increasingly important role on the world market”.
The president of the European farmers’ organization Copa, meanwhile, issued a press release welcoming the slight extension of production quotas, but maintained that this was not long enough to allow time for full adjustment in the sugar sector. This view was endorsed by the ACP Sugar Group which, according to their press statement, was “appalled by the decision”, arguing that “the concerns and expectations of the ACP have not been taken into account.”
Editorial comment
The EU’s final decision to abolish sugar production quotas from October 2017 can be seen as completing a 12-year process of EU sugar sector reforms, an extended process similar to that undertaken in the cereals sector from 1992 to 2005. However, this will not create a free market, with the EC introducing mandatory measures to regulate relationships along sugar supply chains (for details on these arrangements see Agritrade article ‘ Importance of inter-professional agreements in managing unequal power re..., 28 October 2012). This is seen as essential, given the inequality in power relationships along sugar supply chains. This is potentially an area to which ACP governments will need to pay increasing attention.
Abolishing production quotas will see the EU market increasingly supplied from existing domestic EU production and should exert a downward pressure on sugar prices, making the EU market less attractive to sugar exporters. This is projected to result in a major reduction in EU sugar imports (from an average of 3.63 million tonnes per annum from 2009 to 2011, to 1.55 million tonnes per annum 5 to 7 years after quota abolition – see Agritrade article ‘ EU sugar sector developments and projections’, 7 April 2013).
In June 2013, the EC implied that the lapsing of WTO constraints on sugar exports would serve to boost exports by improving price competitiveness. This is in contrast to the EC’s ‘Prospects for agricultural markets and income’ report in December 2012, which projected a decline in EU sugar exports, with these falling dramatically in 2013 and steadily thereafter (to one-third below 2012 export levels and to half of 2011 levels 5 to 7 years after quota abolition).
The EU sugar industry, however, is more optimistic, seeing an important role for the EU sugar sector on world markets. This may of course come about through the strong network of EU corporate linkages being developed in areas of expanding sugar production (e.g. Southern Africa) and in major expanding sugar markets (e.g. China), with EU refiners and value-added processors playing the critical intermediate role.
