Memorandum submitted by CAFOD and OXFAM
(Joint Submission) (O80)
"Since 1995 the EU has spent approximately
1.25 billion euros a year subsidising sugar exports. The system
is so distorting that it pays a country like Finland to actually
produce sugar. . . . We must seize the opportunity to reform the
sugar regime later this year and I can announce today that I will
lobby hard both in Brussels, in other member states, and at home
for this."
The Rt Hon Patricia Hewitt, Progressive Globalisation:
achieving global justice through trade, Fabian Society Conference,
Monday 23 June 2003
"Without agreement on agriculture, there
will be no development round. The developed world failed to offer
sufficiently radical or quick reforms of its agricultural policies.
The EU's failure on agriculture was an own goal resulting from
a lack of coherence between its policies on trade, development
and agriculture. The developed world must accept that if its agricultural
policies harm developing countries—and trade distorting
domestic support and export subsidies clearly do—then they
must be changed."
House of Commons International Development Committee,
"Trade and Development at the WTO: Learning the lessons of
Cancun to revive a genuine development round", 11 December
2003.
"The price of sugar fluctuates. If it goes
low, we have to forgo certain things. Normally I'm able to feed
my family although we're experiencing problems at the moment.
Sometimes the money runs out. It makes me very angry that European
farmers get so much support"
Sipho Sibeko, South African sugar cane farmer[12]
1. INTRODUCTION
1.1 CAFOD[13]
and Oxfam[14]
welcome the opportunity to submit views to Defra on the European
Commission's proposals for reform of the EU sugar regime.
1.2 The EU sugar regime is in desperate
need of reform. It is failing to deliver on a long list of criteria.
None of these failings is as great or as manifestly unjust as
its negative impact on developing countries.
1.3 The recent collapse of the WTO Ministerial
in Cancun was partly due to the intransigence by the North on
agricultural reform. The EC's position on its agricultural subsidies
was a contributing factor to this collapse.
1.4 Perhaps more than in any other sector,
the sugar regime demonstrates why CAP reform cannot be treated
solely as a domestic EU affair.
1.5 The EU's position as a major global
producer, exporter, and importer means that decisions taken in
Brussels will have implications not just for a large group of
poor countries, but for millions of desperately poor people within
those countries. That is why the EU needs to display a sense of
international responsibility commensurate with its market power.
1.6 Reforms will have a direct impact on
developing countries. This should be given greatest weight and
priority in the Commissions consideration of reform options and
in their future proposals.
1.7 The status quo is not an option. The
damage currently being done by dumping alone means that reform
is urgent and imperative. The current system also disproportionately
benefits a wealthy minority in Europe. The UK Government needs
to push the Commission to take action on sugar reform this year,
and to ensure that the Commission puts development centre stage
in the formulation of proposed policy changes.
2. EU SUGAR DUMPING
2.1 The EU sugar regime is a notoriously
complex system, but it produces a problem that can be very simply
stated: too much sugar.
2.2 Europe is one of the highest cost producers
of sugar[15]
According to a study by the Netherlands Economic Institute (NEI)
the production costs of the lowest cost beet producers in the
EU were 60% higher than the costs of low cost cane production
throughout the 1990s. It cost Europe around 673 euro to produce
one tonne of white sugar, compared to just 286 euro for competitive
countries like Brazil, Colombia, Malawi, Guatemala and Zambia[16]
2.3 Yet despite high costs the EU sugar
regime suffers from a chronic problem of overproduction and dumping.
In net terms the EU is an exporter[17]
Net exports represent an average 20% of EU sugar production.[18]
The share of the EU 15 in total world sugar exports amounts to
15%[19]
2.4 This only happens because of the array
of quotas, subsidies, levies and trade barriers put in place by
the current regime. Europe's farmers and processors are the world's
biggest recipients of sugar subsidies[20]
Europe's sugar prices are maintained at around three times world
market levels[21]
protected by tariffs that reach 140%[22]
2.5 This is highly damaging to sugar producers
in the vast majority of sugar producing developing countries.
2.6 Dumping under the EU sugar regime damages
the interests of developing countries in two ways: firstly, by
depressing global sugar prices, directly undermining developing
country sugar producers; and secondly, by undercutting competitive
developing country sugar exporters in third country markets.
2.7 What is the scale of this damage? It
is difficult to assess the precise level of harm inflicted by
the EU sugar regime, but the overwhelming consensus is that it
is high.
2.8 By driving down prices and dumping such
a large surplus of exports the EU sugar regime contributes to
volatility in the world sugar market[23]
It has also contributed to the downward trend of global sugar
prices since 1995[24]
Developing countries lose foreign exchange earnings, markets and
their sugar producers lose valuable revenue. The depression of
prices by the EU retards developing country sugar producers, including
many LDCs. CAFOD have documented the damage EU sugar subsidies
cause to small, poor sugar producers in South Africa[25]
2.9 In third country markets cheap subsidised
European sugar also displaces small, poor sugar producers from
developing countries. In 2001 for example, Europe exported 770,000
tonnes of white sugar to Algeria and 150,000 tonnes to Nigeria—countries
that would be potential export markets for competitive African
exporters like Malawi, Zambia or Mozambique. The costs in terms
of income and development opportunities are huge[26]
2.10 CAFOD and Oxfam's primary concern is
that EU sugar reform should stop the dumping of cheap subsidised
European sugar on global markets.
2.11 European exports are only made possible
by the level of subsidies and support that the EU sugar regime
receives. This is a result of deep-seated problems in the current
structure and implementation of the sugar regime that cause both
overproduction and dumping. Currently, the EU is spending
3.30 in subsidies to export sugar worth
1. These issues need to be urgently addressed in
the reform process.
2.12 EU dumping occurs through three channels.
— The first is by export subsidies
given to sugar exports for an amount equivalent to ACP cane sugar
exports. This costs 800 million Euro per annum and is paid directly
out of the EU CAP budget[27]
— The second is through subsidies on
exports from "A" and "B" quotas. These subsidies
are funded by levies collected from farmers and processors on
all quota production[28]
The cost of these levies (around 800 million euro each year[29])
is paid for by consumers through higher priced sugar.
— The third is through exports of non-quota
"C" sugar. This "C" sugar is cross subsidised
by the high price EU farmers receive for "A" and "B"
sugar. The generosity of the sugar regime enables farmers to cover
their fixed costs and the bulk of their costs of production and
still produce surplus "C" sugar that they can export
at a profit[30]
2.13 In 2000-01 quota exports were 3.1 million
tonnes whilst non quota "C" sugar exports were 3.8 million
tonnes[31]
As seen from the examination of average EU export refunds and
costs of production, all sugar exports from the EU should be classified
as dumping. There is therefore a need for sugar reform to address
more than just the removal of export subsidies funded from the
CAP budget.
2.14 Oxfam has used the WTO criteria for
measuring dumping to estimate the scale of dumping by the EU in
non-quota sugar exports. Average costs of production in the major
exporters of the EU are currently around four times world price
levels, or 25 cents/pound, compared with world prices of 8 cents/pound.
This translates into a price gap and implicit export subsidy of
$374/tonne. Over the past three marketing years, non-quota exports
have averaged 2.7 million tonnes. Multiplying this volume by the
implicit export subsidy produces a figure of $1 billion[32]
2.15 At the heart of the problem of dumping
is the setting and implementation of the sugar regime's quota
system. The quota system has failed to prevent high support prices
from generating production far in excess of domestic demand.
2.16 The EU's Court of Auditors in 2000
found that production quotas for "A" and "B"
sugar were set around 25% higher than the level at which the EU
sugar supply would equal consumption[33][34]
For the past decade at least, total "A" and "B"
quotas in the EU have consistently been set significantly above
total EU sugar consumption, creating a large annual surplus[35]
As well as being set too high, these quotas have also been failing
in their task of keeping producers within quota production limits.
EU producers continue to produce far more sugar than their quotas
restrict them to.
2.17 The result is that the use of "C"
sugar has grown at a significant rate. In 2002, "C"
sugar reached a total of nearly a quarter of total EU sugar production
("A" and "B" production) at 3,264 million
tonnes[36]
Since 1996-97, "C" sugar exports have consistently been
larger than official EU subsidised exports[37]
2.18 Quotas are clearly set far too high,
and this has been compounded by the institutionalisation of overproduction,
the use of "C" sugar and, as a result, systematic dumping.
2.19 Rather than addressing this problem,
the political nature of quota setting and the repartition of the
EU's sugar production capacity across the entire Community has
instead postponed attempts at reform.
3. MAIN BENEFICIARIES
OF THE
EU SUGAR REGIME
3.1 Europe's most prosperous agricultural
regions—such as eastern England, the Paris Basin, and northern
Germany—are among the biggest beneficiaries of sugar subsidies.
Oxfam estimates the average support provided to 27 of the largest
sugar-beet farms in the UK at
206,910[38]
Sugar production takes up a comparatively small proportion of
EU agriculture—accounting for only 1.4% of the utilised
agricultural area[39]
Holdings with sugar beet are larger than average, in terms of
both area and economic indicators. Within this the benefits of
the regime are substantially skewed to the largest farmers. As
the Commission points out "more than half the areas sown
to beet belong to 13% of holdings, with an average area of more
than 120 ha"[40]
EU sugar farmers have a higher income than other European farms
and are "often better off than the average taxpayer"[41]
Whilst "the agricultural regions in question generally have
the best land and are therefore in a relatively good position
to convert to other agricultural activities"[42]
3.2 But the biggest welfare transfers are
directed towards corporate sugar processors. The 25% profit margin
achieved by British Sugar, a subsidiary of Associated British
Foods, is among the highest in the manufacturing sector in the
EU. British Sugar is among the most vigorous lobbyists for maintaining
the current regime, having built an entire campaign on a selective
and misleading interpretation of facts.
3.3 Other companies benefit from export
subsidies worth millions of euros each year. It is estimated that
export-subsidy receipts for the six major sugar processors were
819 million in 2003. The French company Beghin Say
tops the league with receipts of
236 million, followed by the German company Sudzucker,
Europe's largest processor, with receipts of
201 million, and Tate and Lyle with
158 million[43]
4. MAIN LOSERS
OF THE
EU SUGAR REGIME
4.1 Developing countries figure prominently
in the ranks of losers from CAP-sponsored sugar dumping. Translated
into foreign-exchange losses, world-market distortions associated
with EU sugar policies cost Brazil $494 million,Thailand $151
million, and South Africa and India around $60 million each in
2002. These are large losses for countries with significant populations
living in poverty, acute balance-of-payments pressures, and limited
budget resources.
4.2 Trade preferences mitigate the losses
caused by the sugar regime—but only marginally. Countries
in the African, Caribbean, and Pacific (ACP) group enjoy preferential
access to the European sugar market at prices linked to EU guaranteed
prices. Preferential access has provided stable export earnings
to a group of 17 ACP countries, worth annually over 500 million
euro over what could be earned on the world market[44]
It has maintained sugar industries in these countries, and has
been a source of employment and wages to their sugar sectors and
producers.
4.3 Least Developed Countries (LDCs) also
have preferential access for a limited quota. This is a transitional
arrangement under the Everything But Arms (EBA) initiative, through
which the EU is committed to providing duty-free access from 2009.
4.4 But EU generosity has its limits. Market-access
rights for developing countries are severely restricted to accommodate
the concerns of processing companies such as British Sugar, Beghin
Say, Sudzucker, and the sugar-beet lobby. Under the Sugar Protocol
ACP imports accounted for just 8% of European sugar production[45]
and[46]
Current EBA arrangements allow Least Developed Countries to export
a volume of sugar equivalent to 1% of EU consumption. In other
words, a group of 49 of the world's poorest countries are allowed
to supply Europe, one of the world's richest regions, with only
three days' worth of sugar consumption. Mozambique and Ethiopia,
two of the world's poorest countries, have a right to export a
combined total of 25,000 tonnes in 2004. Just 15 of the biggest
sugar farms in Norfolk produce more than this[47]
As figure 1 clearly shows, the EU sugar regime does not operate
with the interests of developing countries at the front of its
mind.
Figure 1: The EU sugar balance: average
for 2000-03 (tonnes)
4.5 Oxfam estimates that the costs of current
EU market restrictions since the inception of the EBA in 2001
for Ethiopia, Mozambique, and Malawi have resulted in total losses
of $238 million. These restrictions were the result of a massive
lobby effort by the European sugar industry.
5. Oxfam and CAFOD believe that the reform
of the EU sugar sector must place development concerns at its
centre.
5.1 Regrettably reform of the sugar regime
does not present policy makers with a "win-win" situation.
The issue is complex and presents conflicting interests and choices.
The interests of different developing countries also present competing,
and not necessarily compatible, demands.
5.2 Nevertheless this should not be used
to obscure the fact that the primary beneficiaries of the regime
are a wealthy minority of farmers and sugar processors in Europe.
Oxfam and CAFOD believe that the guiding principle of reform should
be that the burden of change should fall on those that are most
able to deal with adjustment.
5.3 Oxfam and CAFOD put forward the following
principles that any reform must seek to address. These include
several urgent policy measures.
5.4 EU SUGAR
REFORM MUST
ELIMINATE THE
USE OF
EXPORT SUBSIDIES
AND DUMPING
The EU has to stop the direct and indirect subsidisation
of exports. Continued dumping of surpluses must be ended. For
practical purposes, this means that the EU should adopt a "zero
export" regime for sugar, which in turn means cuts in production
quotas.
5.5 The following policy steps should be
taken:
— Sugar reform must immediately eliminate
the use of export subsidies.
— Reducing "A" and "B"
quotas substantially to a level at which they are lower than EU
consumption, plus preferential imports.
— Elimination of "C" sugar
altogether—as "C" sugar is not allowed to be sold
on the EU market, any use of the category is de facto dumping
by the EU. It should therefore be eliminated. CAFOD and Oxfam
also note the particular duty of the UK government to address
the issue of "C" sugar exports. From 1996-97 to 2000-01
almost one quarter (23%) of UK sugar production was non quota
production that was dumped on world markets[48]
5.6 We estimate that a cut of around 5.2
million tonnes, or one-third, in the EU quota would end all EU
exports, facilitate an increase in imports from least developed
countries, and realign domestic production with consumption.
5.7 We believe a realistic approach to the
implementation of these reforms would be a two-stage approach:
Stage 1: The elimination of all direct and indirect
export subsidies with immediate effect. An immediate prohibition
on non-quota exports (2.7 million tonnes) and a domestic quota
cut of around 2.5 million tonnes.
Stage 2: An incremental, graduated cut in quotas
over the period 2006-13 to accommodate an additional 2.7 million
tonnes in imports from Least Developed Countries at prices linked
to those on the EU market.
5.8 EU SUGAR
REFORM MUST
TAKE INTO
ACCOUNT THE
INTERESTS OF
LDCS AND
ACP COUNTRIES
As we state above, the interests of different
developing countries present competing, and not necessarily compatible,
demands on sugar reform. Recognising these challenges, Oxfam and
CAFOD make the following observations:
— We are sceptical that proposals for
complete liberalisation are based on a proper assessment of both
likely global sugar market behaviour and the possible implications
for groups of smaller and less capital-intensive developing country
sugar producers.
— We are aware that deep price cuts
in the EU would devastate the ACP and LDC industries that currently
export at prices linked to CAP guaranteed prices. Whilst politically
feasible price cuts are unlikely to eliminate EU export surpluses,
especially if implemented with large direct income aids to compensate
the biggest farms for income losses.
— We are also aware that a fully implemented
EBA will provide a group of the poorest developing countries with
a valuable source of market access and development finance. Governments
of the Least Developed Countries have indicated a preference for
retaining quotas through which they can export to the EU at a
remunerative and predictable price. If this option is adopted,
the quota should reflect their potential export capacity and their
interests should take precedence over the interests of European
producers.
— It is widely accepted that reform
of the sugar regime will result in lower guaranteed prices, for
which large growers in Europe will be generously compensated.
But as EU prices fall, so too will those received by ACP exporters.
For a large group of ACP countries this poses a serious threat.
Some will face severe adjustment costs and the threat of social
and economic dislocation. For this reason, it is imperative that
the EU provides generous and timely support to aid countries undergoing
any adjustment resulting from sugar reform.
20 April 2004
12 From interviews conducted by CAFOD in South Africa
through their partners SACBC. Back
13
CAFOD is the official development agency of the Catholic Church
in England and Wales, working in partnership with over 1,000 programmes
worldwide. Back
14
Oxfam is a development, relief and campaigning organisation dedicated
to finding lasting solutions to poverty and suffering around the
world. Oxfam GB is a member of Oxfam International, a Confederation
of 12 development agencies that work in 120 countries throughout
the developing world. Back
15
Oxfam, 2002, "The Great Sugar Scam" Oxfam, Oxford, pg
1. Back
16
NEI, 2000 "Evaluation of the Common Organisation of the Markets
in the Sugar Sector", NEI, Rotterdam. Back
17
European Commission, 2003, Communication from the Commission to
the Council and the European Parliament, "Accomplishing a
sustainable agricultural model for Europe through a reformed CAP-the
tobacco, olive oil, cotton and sugar sectors", Brussels,
(SEC 2003 1022), pg 11 23 September 2003. Back
18
European Commission, 2003, Communication from the Commission to
the Council and the European Parliament, "Accomplishing a
sustainable agricultural model for Europe through a reformed CAP-the
tobacco, olive oil, cotton and sugar sectors", Brussels,
(SEC 2003 1022), pg 11 23 September 2003. Back
19
European Commission, 2003, Commission Staff Working Paper, "Reforming
the European Union's sugar policy, Summary of impact assessment
work" Brussels. Back
20
Borrell and Pearce, 1999, "Sugar: the taste test of trade
liberalisation", Centre for International Economics, Canberra
and Sydney. Back
21
Oxfam, 2002, "The Great Sugar Scam" Oxfam, Oxford, pg
1. Back
22
Oxfam, 2002, "The Great Sugar Scam" Oxfam, Oxford, pg
6. Back
23
Borrell and Larson, 2000, "Sugar Policy and Reform",
Policy Research Working Paper 2602, World Bank, Washington. Back
24
European Commission, 2003, Communication from the Commission to
the Council and the European Parliament, "Accomplishing a
sustainable agricultural model for Europe through a reformed CAP-the
tobacco, olive oil, cotton and sugar sectors", Brussels,
(SEC 2003 1022), pg 12 23 September 2003. Back
25
CAFOD, 2002 "Dumping on the Poor" CAFOD, London. Back
26
Oxfam, 2002, "The Great Sugar Scam" Oxfam, Oxford. Back
27
Oxfam, 2002, "The Great Sugar Scam" Oxfam, Oxford, pg
9. Back
28
Oxfam, 2002, "The Great Sugar Scam" Oxfam, Oxford, pg
9. Back
29
Oxfam, 2002, "The Great Sugar Scam" Oxfam, Oxford, pg
9. Back
30
Court of Auditors, 2000, "Special Report No 20/2000 Concerning
the management of the common organisation of the market for sugar,
together with the Commission's replies", Official Journal
of the European Communities. (2001/C50/01), pg 16. Back
31
Oxfam, 2002, "The Great Sugar Scam" Oxfam, Oxford, pg
8. Back
32
Oxfam 2004, "Dumping on the World" Oxfam, Oxford. Back
33
Court of Auditors, 2000, "Special Report No 20/2000 Concerning
the management of the common organisation of the market for sugar,
together with the Commission's replies", Official Journal
of the European Communities. (2001/C50/01), pg 4. Back
34
See also: http://www.eca.eu.int/EN/NOTEINFO/2000/nirs20_00en.pdf. Back
35
Court of Auditors, 2000, "Special Report No 20/2000 Concerning
the management of the common organisation of the market for sugar,
together with the Commission's replies", Official Journal
of the European Communities (2001/C50/01), pg 21. Back
36
Common Organisation of the Sugar Market Description" Annex
III http://europa.eu.int/comm/agriculture/markets/sugar/reports/descri_en.pdf. Back
37
Paul Goodison, 2004, "Executive Brief of the EU Sugar Regime",
European Research Office, Brussels. Back
38
Oxfam 2004, "Dumping on the World" Oxfam, Oxford. Back
39
European Commission, 2003, Communication from the Commission to
the Council and the European Parliament, "Accomplishing a
sustainable agricultural model for Europe through a reformed CAP-the
tobacco, olive oil, cotton and sugar sectors", Brussels,
(SEC 2003 1022), pg 6 23 September 2003. Back
40
European Commission, 2003, Commission Staff Working Paper, Reforming
the European Union's sugar policy, Summary of impact assessment
work" Brussels, pg 31. Back
41
European Commission, 2003, Commission Staff Working Paper, Reforming
the European Union's sugar policy, Summary of impact assessment
work" Brussels, pg 12. Back
42
European Commission, 2003, Commission Staff Working Paper, Reforming
the European Union's sugar policy, Summary of impact assessment
work" Brussels, pg 34. Back
43
Oxfam 2004, "Dumping on the World" Oxfam, Oxford. Back
44
Oxfam, 2002, "The Great Sugar Scam" Oxfam, Oxford, pg
19 from NEI, 2000 "Evaluation of the Common Organisation
of the Markets in the Sugar Sector", NEI, Rotterdam. Back
45
Oxfam, 2002, "The Great Sugar Scam" Oxfam, Oxford, pg
19. Back
46
It should be noted that this data is pre Everything But Arms.
EBA access is outside the framework of the Sugar Protocol. Back
47
Oxfam 2004, "Dumping on the World" Oxfam, Oxford. Back
48
Oxfam, 2002, "The Great Sugar Scam" Oxfam, Oxford, pg
8. Back
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