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Sugar users’ perspectives on EU production quotas and the limits of reform

04 May 2013

According to the German Retail Blog, an inter-institutional trilateral dialogue is now to take place to determine the end date for sugar production quotas. The European Commission (EC) favours 2015, the Parliament has voted for 2020, and the EU Council reached political agreement on October 2017 as the end date for the quotas. The dialogue is one of 30 pending ‘trilogues’ scheduled between 11 April and 20 June 2013, all aimed at clarifying elements of the CAP reform package.

According to a spokesperson for the Sugar Users’ Information Centre (IZZ) in Germany, a deadline of October 2017 for ending sugar production quotas “would be greeted with a sigh of relief by sweets and bakery goods manufacturers who are groaning under the 50 per cent hike in sugar prices since 2011”. Significantly, while EU white sugar prices have been rising since January 2011, world market white sugar prices have been falling dramatically since July 2011, with only recent slight recoveries.

Christoph Kind, head buyer at German biscuit maker Bahlsen, maintained that the company was finding it “hard to grow when sugar volumes are so tight”. He pointed out that while “theoretically, users can meet their demands by buying on the world market”, the EU prices of roughly €730/tonne, with world market prices of around €400/tonne and protective duties of €419/tonne, make this “financially impossible”. Mr Kind maintained that this situation allowed sugar refiners to “dictate the prices” to end users, since “market regulations for 2012/13 have set a maximum production quota of 13.8m tonnes, whereas local requirements are estimated at 16.8m tonnes.”

The German Retail Blog has also published an interview with Agriculture Commissioner Dacian Cioloş, in which the Commissioner defended the EC’s proposal for a 2015 deadline for ending sugar quotas, maintaining that with the EU restructuring scheme completed in 2010, a period of 5 years to consolidate restructuring efforts and prepare for quota abolition was sufficient. Continuing quotas, it was maintained, would hold back the development of the EU sugar sector. Commissioner Cioloş took the view that while the ‘trilogue’ process will need to agree a date, “the sugar quota system will end within the next few years”.

However, the EC is not proposing to change the import regime for sugar, and intends to maintain the contractual obligation between beet farmers and sugar producers. Private storage support will also be maintained as a safety-net measure, in case prices drop below €404/tonne.

Commissioner Cioloş maintained that quota abolition would not result in “one additional kilogram of sugar import from non-preferential country suppliers”. The reforms would, however, avert “the artificial shortage” that has emerged in the EU, by removing limits on sales onto the domestic market of domestically produced beet sugar. Supplies would then be determined by “the market and the relative competitiveness of the different players”, rather than by administrative decisions by the EC. According to the Commissioner, the EU sugar sector is “ready to face competition from least-developed and ACP countries”, and “is also ready to compete on the world market in the longer term”.

Editorial comment

It is argued that the continuation of the current EU sugar tariff regime will continue to maintain preferences for ACP/EBA sugar exporters, while quota abolition will reduce the chances of sugar shortages on the EU market. Sugar shortages on the EU market in 2012 saw EU market prices for EPA/EBA sugar reaching between €450 and €647/tonne for raw sugar, and between around €700 to €771/tonne for refined sugar.

Since eliminating quotas will increase the availability of domestically produced sugar, this will ease sugar shortages on the EU market. This will exert a downward pressure on prices paid for ACP sugar. This will occur even if no changes are made to the EU sugar import regime (for details of possible price effects of EU quota abolition see Agritrade article ‘ EC proposals for sugar sector reform’, 28 November 2011).

Significantly, according to discussions held at the EU Advisory Group on Sugar on 9 July 2012 on whether the WTO limit on EU exports of sugar would be lifted with the end of production quotas, EC representatives pointed out that the EC legal service had concluded that “the WTO ruling was based on quota sugar, so if there was no quota, the WTO ruling expressed by the Appellate Body in 2004 would not apply.” This meant that “the WTO limit would remain but would not be applicable.” This may account for why Commissioner Cioloş maintains that the EU sugar sector is “ready to compete on the world market in the longer term”, particularly if sugar traders “started investing further in logistical facilities for EU sugar exports”. 


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