Select Committee on European Scrutiny Second Report


COM(00) 604

Draft Council Regulation on the common organisation of the market in the sugar sector.

Legal base: Articles 36 and 37 EC; consultation; qualified majority voting
Department: Agriculture, Fisheries and Food
Basis of consideration: Oral evidence from Ministers on 20 December 2000
Previous Committee Report: HC 23-xxxi (1999-2000), paragraph 10 (29 November 2000)
To be discussed in Council: Following receipt of European Parliament opinion
Committee's assessment: Politically important
Committee's decision: Not cleared; further information requested


  4.1  The Community sugar market is extremely complex, and covers a range of producer, consumer and trading interests. Beet production is by far the major source of supply within the Community, and is of considerable economic significance in a number of regions, such as East Anglia. Annual production has averaged about 16.7 million tonnes (of white sugar equivalent) over the last six years, whereas, over the same period, consumption has averaged around 12.68 million tonnes (three-quarters in the form of processed products, such as confectionery and cakes). This built-in surplus can only be accommodated by building up stocks or by exports (though, in the latter case, the quantities which may be exported with a subsidy are having to be progressively reduced as a result of the Uruguay Round Agreement). The position is further complicated by the undertaking which the Community has given to permit preferential access at guaranteed prices to around 1.3 million tonnes of cane sugar from the African, Caribbean and Pacific (ACP) countries, 1.13 million tonnes of which is imported into the UK (where it provides a major source of supply for the associated refining industry).

  4.2  The provisions of the common organisation of the market are also extremely complex, and, in addition to the preferential import arrangements for the ACP countries, involve:


—  a system of internal price guarantees, comprising a minimum price for sugar beet and an intervention price;


—  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 (corresponding to the demand in the internal market), B (representing the excess sugar which may be exported with the aid of refunds), and C (covering any excess quantity, which has to be exported without refund);


—  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).

  4.3  The regime also sets production quotas for two competing bulk sweeteners — isoglucose (made from wheat or maize) and inulin (made from chicory).

  4.4  Since the sugar regime was not subject to the major reforms which took place in the arable sector in 1992, or part of the Agenda 2000 reforms of the CAP, it is widely accepted that its reform is long over-due. However, the Commission considers that account needs to be taken of such factors as the financial framework agreed in 1999 in Berlin; the forthcoming round of WTO negotiations on agriculture; and the future enlargement of the Community. It also suggests that there is a need to review first the operation of the quota system and such issues as lack of competition within the sector, which it expects to take until July 2002 at the latest. A further consideration for the Commission is the cost of providing compensation of the kind made available for other crops in the event of a price reduction of the size needed to bring about a better balance between supply and demand on the Community market.

  4.5  It has therefore concluded that the most appropriate course for the time being would be to continue the present regime for a further two years until 30 June 2003, with some modifications. More specifically, it suggests that:


—  prices should remain unchanged for the next two years;


—  quotas should be reduced by 115,000 tonnes (corresponding to 50% of the structural surplus, which it puts at 227,000 tonnes);


—  flexibility should be maintained by reducing the quota annually in order to respect the WTO limit;


—  the storage levy/refund system should be abolished;


—  minimum stocks should be abolished; and


—  production refunds for the chemical industry should be fully covered by production levies.

  4.6  As we noted in our Report of 29 November 2000, the Minister of State (Commons) at the Ministry of Agriculture, Fisheries and Food (the Rt. Hon. Joyce Quin) has told us that the Government can support the broad thrust of the Commission's proposal. In particular, it has welcomed 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. However, the Minister considered the main weakness in the proposal to be the price freeze and consequent reliance on quota cuts as the sole mechanism to counter the budgetary and external pressures faced by the regime. She also expressed concern at the apparent lack of coherence between this proposal and the separate proposal[16] for duty-free access for all products (except arms) from the least-developed countries (LLDCs), and pointed to the need for the impact of such imports on the sugar regime to be assessed.

  4.7  In the conclusion to our Report, we commented that, whilst a two-year extension of the present system was clearly preferable to the five-year roll-over a number of other Member States were said to favour, there must be a danger that the problems currently foreseen by the Commission will get worse, rather than better, over time. We also said that the actual surplus within the Community could be nearer 4 million tonnes, rather than the 227,000 tonnes suggested by the Commission, and that it seemed to us unacceptable that a decision on the proposal to grant duty-free access to products from the least-developed countries (LLDCs) should be taken without a proper analysis of its possible effect on the Community's sugar producers, ACP suppliers and budget. We therefore said that we were not clearing this document until we had taken oral evidence from Ministers on the relationship between it and the matter of access for the LLDCs.

Written evidence received

  4.8  In addition to seeking oral evidence from Ministers, we also invited written comments from a number of interested organisations. These tended to focus on the effects of "everything but arms" proposal, but, of those which commented on the reform of the sugar regime, two (representing the sugar users) pressed for more radical reform, whilst the NFU and British Sugar favoured the maintenance of the present arrangements for as long as possible. The last two organisations also argued that sugar should be excluded from the "everything but arms" proposal, as did Tate & Lyle.

Oral evidence

  4.9  Similarly, the oral evidence we took from the Minister for Trade and the Minister of State (MAFF) on 20 December 2000 also focussed mainly on the "everything but arms" proposal. However, the Minister of State did reiterate that the UK preferred that the effective roll-over of the present arrangements which the Commission has proposed should be limited to two years, and that, when it came to more substantive reforms, the Government wished to see reductions in price rather than quota. She again highlighted the lack of coherence between this proposal and that on access for the least- developed countries, and said that the Government had been pressing for changes to the sugar regime which are consistent with the "everything but arms" approach (Q.7).


  4.10  As we observed in our previous Report, the main impression given by this proposal is of the Commission buying time in which to put forward more radical reforms in a couple of year's time, and, taken in isolation, the document — though unadventurous — would not be particularly contentious. Its main interest, therefore, lies in the extent to which it may need to be amended to accommodate the "everything but arms" proposal. Although the Minister has indicated that the UK has been pressing for a number of changes in order to achieve this, we are not clear precisely what these changes are. We would, therefore, be grateful for further clarification on this point, and to be kept informed of any subsequent developments arising out of the "everything but arms" proposal which might be relevant. In the meantime, we are not clearing this document.

16  (21715) 12335/00; see HC 23-xxxi (1999-2000), paragraph 9 (29 November 2000). Back

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