COMMON ORGANISATION OF THE SUGAR MARKET
(21743)
12087/00
COM(00)604
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Draft Council Regulation on the common organisation of the market in the sugar sector.
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| Legal base:
| Articles 36 and 37 EC; consultation; qualified majority voting
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| Document originated:
| 4 October 2000 |
| Forwarded to the Council:
| 16 October 2000 |
| Deposited in Parliament:
| 3 November 2000 |
| Department: |
Agriculture, Fisheries and Food
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| Basis of consideration:
| EM of 17 November 2000
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| Previous Committee Report:
| None |
| To be discussed in Council:
| Following receipt of European Parliament opinion
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| Committee's assessment:
| Politically important |
| Committee's decision:
| Not cleared, pending evidence session with Minister
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Background
10.1 The Community sugar market is extremely
complex, and covers a range of interests. So far as supplies are
concerned, beet production is by far the major source within the
Community, involving nearly 270,000 growers and 159 processing
plants, with the latter employing some 47,000 people. Moreover,
apart from providing an important element in the arable crop rotation
sequence, beet production is of considerable economic significance
in a number of regions throughout the Community, including East
Anglia (where it takes place on around 38% of farms). Annual production
varies largely according to yields, but has averaged about 16.7
million tonnes (of white sugar equivalent) over the last six years.
As in other developed areas, consumption is now relatively stable,
and, over the same period, has averaged around 12.68 million tonnes,
of which roughly three-quarters is in the form of processed products,
such as confectionery and cakes etc. There is, therefore, a built-in
surplus, which can only be accommodated either by building up
stocks or by exports, though, in the latter case, the quantities
which may be exported with the aid of a subsidy are having to
be progressively reduced as a result of the WTO Uruguay Round
Agreement. The position is further complicated by the undertaking
which the Community has given to permit preferential access to
imports of cane sugar from the African, Caribbean and Pacific
(ACP) countries. At present, these countries are allowed to send
around 1.3 million tonnes each year, which is free of import duty
and receives a guaranteed price at or near the Community intervention
price. By far the largest share (1.13 million tonnes) of this
quantity is imported into the UK, and this forms a major source
of supply for the associated refining industry.
10.2 There has been a common organisation of
the market in sugar since 1968. Not surprisingly, its provisions
are also extremely complex, even by the standards of the Common
Agricultural Policy (CAP), in that they endeavour to cover the
interests of beet and cane producers, refiners, and consumers
(including those industries using sugar in their products), not
to mention Third Countries for which sugar represents a significant
crop and source of export earnings. Thus, leaving aside the preferential
import arrangements for the ACP countries, the present arrangements
involve:
— a system of internal
price guarantees, comprising a minimum price for sugar beet
(which manufacturers must pay to Community farmers), and an
intervention price (at which the intervention agencies buy
in all sugar offered to them by Community producers): these are
fixed annually by the Council, but have in practice been frozen
since 1984-85;
— the application of duties on imports
from Third Countries, and the payment of export subsidies,
designed to take account of the substantial difference between
world and Community market prices;
— the application of three production
quotas, fixed for each Member State and establishment —
A (which corresponds in principle to the demand in the internal
market), B (which represents the amount of excess sugar which
may be exported with the aid of refunds), and C (which covers
any quantity produced in excess of the A and B quotas, and which
has to exported without refund): the UK has A and B quotas of
1.04 million and 104,000 tonnes respectively, equivalent to 8.6%
and 3.98% of the corresponding Community totals of 11.97 million
and 2.61 million tonnes;
— levies paid by producers on A and
B quotas, to cover the cost of export refunds (other than
those on quantities equivalent to the ACP imports, which are financed
by the Community budget);
— monthly storage payments on stocks
of sugar, aimed at encouraging orderly marketing, and funded by
a levy on sales to the consumer;
— production refunds on sugar used
to manufacture chemicals; and
— a requirement, dating back to the shortages
in the mid-1970s, for a minimum stock level (currently
3% of the annual quantity produced or refined by an undertaking).
10.3 The regime also sets production quotas
for two competing bulk sweeteners — isoglucose (made
from wheat or maize) and inulin (made from chicory). In common
with twelve other Member States, the UK has no inulin quotas;
for isoglucose, it has an A quota of around 21,000 tonnes, and
a B quota of around 5,750 tonnes.
10.4 The future of the regime was last considered
in 1996, when the present arrangements (which last until 30 June
2001) were agreed. Sugar was thus not considered within the context
of the Agenda 2000 reforms of the CAP, and nor was it among those
commodities subject to the major reforms which took place in the
arable sector in 1992. It is clear, therefore, that reform of
this regime is long over-due.
The current proposal
10.5 In presenting this proposal, the Commission
maintains that the market organisation has fulfilled many of its
stated objectives, notably in ensuring a steady supply of sugar
to the market and a stable income for producers within both the
Community and the ACP countries in a sector where world prices
are extremely volatile. However, it also accepts that the sector
suffers from a lack of competition; that the regime has been costly
for consumers; and that the need for surplus production to be
exported with the use of refunds has had a negative effect on
developing countries.
10.6 Overall, therefore, the Commission acknowledges
the need for an overhaul of this regime. However, it argues that
this cannot be considered in the abstract, given in particular
three major factors which it sees as influencing the evolution
of the CAP, namely the financial framework agreed last year in
Berlin; the forthcoming round of WTO negotiations on agriculture;
and the future enlargement of the Community. It suggests that
significant uncertainties remain in these areas, and that there
is also a need to review the operation of the quota system and
such issues as lack of competition within the sector. It therefore
concludes that a thorough review of the regime should be undertaken
once these various studies have been completed, which it expects
to be by July 2002 at the latest.
10.7 In the meantime, it says that it has looked
at the three following options based on the continuation of the
quota system:
— a price reduction
on the Agenda 2000 model, combined with compensation to producers
for the resultant loss of income;
— a progressive reduction in prices over
a number of years;
— the continuation of the present price
level, with minor adjustments to the quota level.
10.8 It points out that each of the first two
of these options would entail a reduction in producer incomes,
and that, in view of the low supply and demand elasticity of sugar,
this would need to be of the order of 25% to have any real effect.
Even if only half of the resultant loss of income were to attract
compensation under the Agenda 2000 model, the Commission puts
the resultant cost at 1.125 billion euros (for which it says there
is no room under the present financial framework): and, even if
a price reduction of this order were to be spread over a period
of years, it says that this would still have a substantial cumulative
effect on producer incomes and create a need for compensation,
albeit over a different time profile.
10.9 The Commission has thus concluded that a
continuation of the present regime for a further two years until
30 June 2003 with some modifications would be the most appropriate
course for the time being. More specifically, it suggests that:
— prices would
remain unchanged for the next two years;
— quotas would be reduced by 115,000 tonnes
(corresponding to 50% of the structural surplus, which it puts
at 227,000 tonnes);
— flexibility would be maintained by reducing
the quota annually in order to respect the WTO limit;
— the storage levy/refund system would
be abolished, leading to a reduction of 300 million euros in annual
expenditure under the European Agricultural Guidance and Guarantee
Fund;
— minimum stocks would be abolished; and
— production refunds for the chemical industry
would be fully covered by production levies.
10.10 Other aspects of the proposal include the
need for the growing of sugar beet to be conducted in an environmentally
friendly way, and the transfer from the Council to the Commission
of the power to set certain detailed rules.
The Government's view
10.11 In her Explanatory Memorandum of 17 November
2000, the Minister of State (Commons) at the Ministry of Agriculture,
Fisheries and Food (the Rt Hon Joyce Quin) says that the Government
can support the broad thrust of the Commission's proposal, although
it regrets that this does not go further. In particular, the Government
welcomes the proposal to limit the next regime to two years, in
order to bring the sugar reform cycle in line for the first time
with the Agenda 2000 arable commodities whose regimes are due
for a mid-term review in 2002. It would, however, like greater
clarity on the conduct and coverage of the Commission's proposed
studies, and firm deadlines for their completion.
10.12 The Minister considers that the main weakness
in the proposal is the price freeze and consequent reliance on
quota cuts as the sole mechanism to counter the budgetary and
"mounting external" pressures faced by the regime. She
points out that the Government has been calling for small, progressive
price cuts instead, and sees quota cuts as the wrong response
(in that it would not give the Community the flexibility it needs
to respond to external pressures).
10.13 The Minister also expresses concern at
the apparent lack of coherence between this proposal and a separate
proposal for duty-free access for all products (except arms) from
the least-developed countries (LLDCs), and she says that the Government
considers that the impact of duty-free imports of LLDC sugar on
the regime should be assessed. She also makes the point that,
under the Commission's proposal, any Community response to LLDC
imports would be limited to further quota cuts and/or intervention
purchases of sugar, neither of which the UK considers desirable.
10.14 Finally, the Minister says that the transfer
of powers from the Council to the Commission within the framework
criteria is questionable in a number of areas, including those
of deficit area pricing, powers to ban Inward Processing Relief,
and powers to set production refunds for the chemical industry.
Conclusion
10.15 We can see the logic of linking a thorough
reappraisal of the sugar regime with the review which is due to
take place in 2002 of the arrangements agreed under Agenda 2000
for the other arable crops. We have also noted that the Commission
has suggested that the continuation of the present arrangements
for a further two years will both enable a number of studies within
the sugar sector to be completed and reduce the uncertainties
currently arising in areas such as the WTO and enlargement negotiations.
However, whilst a two-year extension of the present system is
clearly preferable to the five-year roll-over which a number of
other Member States are said to favour, there must be a danger
that the problems currently foreseen by the Commission (and set
out in paragraph 10.8 above) will get worse, rather than better,
over time.
10.16 Our concerns on this last point are
reinforced on two counts. First, although the Commission suggests
that the structural surplus in this sector is 227,000 tonnes,
this figure is based on the difference between the current level
of production quotas (14.25 million tonnes), and the sum of internal
consumption (12.75 million tonnes) and the amounts which may currently
be exported with the aid of refunds (1.273 million tonnes). This
calculation ignores the fact that actual production has
on average been about 2.5 million tonnes above quota, involving
a large carry-over of stocks from one year to another. It also
takes no account of the Community's import commitment of around
1.3 million tonnes to the ACP countries. This suggests that the
actual surplus could be nearer 4 million tonnes.
10.17 Secondly, the Commission appears to
have paid scant regard to the implications for this sector of
its proposal to grant duty-free access to products from the least-developed
countries (LLDCs), on which we are reporting separately.[25]
Whether or not such a proposal is desirable is a matter of judgement,
but it seems to us unacceptable that a decision on it should be
taken without a proper analysis of its possible effect on the
Community's sugar producers, ACP suppliers and budget. For that
reason, we are not clearing this document until we have taken
oral evidence from Ministers on the relationship between it and
the matter of access for the LLDCs.
25 (21715) 12335/00; see paragraph 9 above. Back
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