EU Sugar Subsidies Face Radical Cuts as Trade Talk Looms

Strategic Insights -

European Union agricultural ministers may agree this week to significant cuts in subsidies paid to the Continent's heavily protected sugar producers, marking a major overhaul of a four-decade-old program. The proposed reductions, which would start taking effect next July, are seen as a crucial step towards making European sugar prices more competitive with global markets. Spain, Italy, Ireland, Poland, and other EU countries fiercely oppose the changes, which they fear could lead to sharp reductions in sugar production and the end of sugar farming in some European countries. However, big industrial sugar users and consumer groups, along with France, Germany, and Britain, are championing the changes, citing concerns that the current system has artificially inflated European sugar prices, keeping them more than three times the level of world prices.

Key Takeaways:

  • The European Union is considering radical cuts in subsidies paid to sugar producers, with the goal of reducing the artificially inflated price of sugar in Europe and making it more competitive with global markets.
  • The proposed cuts, which would start taking effect next July, would effectively dismantle a four-decade program of financial supports to European sugar farmers, who produce nearly 20 million tons of sugar a year.
  • The reductions are necessary, according to the European Commission, to shed uncompetitive producers and strengthen competitive ones in the face of rising global pressures, especially since the EU is committed to eliminating all tariffs for 49 of the world's poorest countries by 2009.
  • A group of 18 nations in Africa, the Caribbean, and Pacific, including Malawi, Fiji, Tanzania, and Mauritius, enjoy a special agreement to sell their sugar in European markets at the EU's inflated prices, and will be significantly impacted by the proposed cuts.
  • The EU's sugar support system is one of the last unchanged sectors of the EU's common agricultural policy, the financial support system for Europe's farmers.
  • To ease the blow, the commission is proposing a restructuring fund of up to €4 billion, or $4.7 billion, to compensate processors who leave the industry over four years.
  • Surviving producers would need to pay into the fund to support those who lose their business, and some sugar users fear that the fees will be passed on to consumers.
  • The proposed cuts are part of broader efforts to reform the EU's common agricultural policy and shed uncompetitive producers.

Statistics:

  • 20 million tons: the amount of sugar produced in Europe each year.
  • €4 billion: the proposed amount for the restructuring fund to compensate processors who leave the industry over four years.
  • 42 percent: the proposed cut in sugar beet prices.
  • 39 percent: the proposed cut in the price the EU guarantees its sugar processors.
  • 2009: the year by which the EU is committed to eliminating all tariffs for 49 of the world's poorest countries.
  • 15 percent: the percentage of Guyana's gross domestic product generated by the sugar industry.
  • 18: the number of nations in Africa, the Caribbean, and Pacific that will be significantly impacted by the proposed cuts.

Sources:

  • European Commission
  • World Trade Organization
  • Richard Laming, British Soft Drinks Association
  • Peter Mandelson, European Trade Commissioner
  • Nidhendra Singh, Fijian representative of African, Caribbean, and Pacific sugar-growing countries in Brussels