EU Commission calls for cuts in sugar production to avoid surplus

The European Commission today announced it took the first steps in a process towards a substantial withdrawal of quota sugar from the market, in order to avoid a significant surplus at the end of the season.

Withdrawal means a temporary reduction in the amount of sugar producers can produce under their quota. As such, a proportion of the sugar produced in the 2007/2008 marketing year will either have to be counted against the quota for 2008/2009 or be sold as out of quota sugar for industrial use, i.e. for bioethanol, chemical industry etc.

The Commission believes that a provisional figure for withdrawal of at least 2 million tonnes, corresponding to 12% of the quota, will be necessary. It will make a proposal to the Management Committee in February for a Commission Regulation fixing such a provisional figure. A definitive figure will be set later this year towards October, once the Commission has a clearer picture of the harvest and production of sugar.

"On several occasions, and in particular at the Council in November and December, I alerted sugar operators and Member States to the risks arising from a failure to reduce production quotas under the terms of last year's reform. My main concern was that the Restructuring Fund, which was established to help unprofitable producers to leave the sector, was not being allowed to operate as intended and that too few companies were benefiting from its existence. I have been quite clear that unless much more quota was renounced, the consequences would be serious for everyone." - Mariann Fischer Boel, Commissioner for Agriculture and Rural Development.

The EU reformed its sugar subsidy program in 2005, ending the dumping of cheap sugar on the world market. The reform has caused job cuts at refineries and forced many farmers out of growing sugar beet and sugar cane. Under the old system, production was supported by generous EU subsidies and import tariffs that guaranteed and inflated price for sugar.

That will now be phased out. EU sugar prices are more than three times higher than the global market rate. The EU also pays out export subsidies to get millions of tons of sugar off its market every year:
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On the eve of the deadline for this year's applications to the Restructuring Fund, it is confirmed that abandonment of sugar quotas for 2007/2008 will not exceed 650 000 tonnes. As a result, the market oversupply for 2007/2008 is expected to be very substantial.

As a result, the Commission will make use of Article 19 in the basic Regulation 318/2006. It is clear already today that a substantial withdrawal will be necessary to address the serious market imbalance. It is important to announce this initiative to sugar producers and beet growers at this early stage so that the industry can plan for the coming growing season and the contracting process, at a time when decisions on sowing are imminent. There will be less room for sugar under quota for the production year 2007/2008:

Separately, Commissioner Fischer Boel has asked her services to analyse the situation with regard to the Restructuring Fund with the purpose of making it more efficient and to ensure that sufficient quota is renounced by the industry in the coming years. The main objective must be to avoid a simple linear cut at the end of the restructuring period to the detriment of the sustainability of the whole sector.

More information:
European Commission, Agriculture: CAP reform: sugar.
EU Rapid News: Commissioner Fischer Boel calls for substantial preventive withdrawal from the sugar market to avert probable surplus - Jan. 29, 2007
International Herald Tribune: EU calls for cuts in bloc's sugar production to avoid surplus - Jan. 29, 2007