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Biofuels and EU sugar sector reform

05 July 2011

USDA has published a GAIN report on ‘Industrial uses of sugar from sugar beet increasing in the EU’, released in April 2011. In the report, it is argued that EU biofuel policy developments since 2005 have allowed several sugar processing plants to convert to bio-ethanol production while dedicated bio-ethanol production plants are being constructed. This has allowed ‘beet farmers to recover part of the 800,000 hectare lost following the reform’. The analysis notes that ‘bio-ethanol production and other industrial uses of sugar originate from out-of-quota sugar, as well as from contract-based sugar beet production outside the sugar regime.’ It further notes that the on-farm use of sugar beet for biogas is increasing. Overall it is estimated that around 100,000 ha of beet production now takes place outside the sugar regime. This is projected to increase by 10% in 2011. This however is equivalent to only around 6.9% of the area under sugar beet as part of the sugar regime. Current world market prices for grains are making it difficult to sustain contracted farming of sugar beet outside the sugar regime (i.e. for non-sugar uses at price below the reference price).

The USDA analysis notes that ‘these recent developments in the EU sugar market do not seem to play a part in the debate on the future functioning of the EU sugar regime with or without production quota in the CAP post 2013’.

In a separate development at the May EU Agricultural Council meeting, the Polish delegation requested that sugar production quotas be increased by 15% for each member state, starting in 2011/12, or incrementally by 5% per annum over the next three years. The EC responded by implicitly suggesting that the measures already set in place were sufficient to meet market needs, but that it would keep the situation under review.

The FAO, meanwhile, has produced a ‘Bioenergy and food security analytical framework’, a methodology to assist governments in evaluating the benefits of bio-energy crop production.

Editorial comment

The USDA analysis suggests that if world market prices for sugar are low, the use of sugar beet for bio-ethanol production could be expanded, providing an alternative outlet for EU sugar production if current production quotas were removed and world market prices were to fall. This could potentially make the transition to a quota-free EU sugar regime easier. The Polish delegation’s proposal, which was supported by a number of other delegations, is indicative of the extent to which some countries wish to see the system of sugar production quotas ended within the EU.

Movement to a production quota-free regime would have important implications for the ACP, as any abolition of production quotas would exert a downward pressure on EU sugar prices. This would occur since it would no longer be possible to maintain in the EU a two-tier pricing system: a higher price for sugar per se (the reference price plus) and a lower price for sugar used for industrial purposes (the out-of-quota price or reference price minus).

However, the fact that the new trends in the use of sugar beet in biofuel production are not being factored into the CAP reform process suggests that the EC is not keen to build expanded biofuel markets based on dedicated crop production into the future of the CAP. As part of its biofuel policy, the EC is committed to encouraging increased production of second and third generation biofuels, and does not want to see its biofuel policy subordinated to the demands of the EU farming lobby.


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