Memorandum submitted by the Australian
sugar industry (Australian Canegrowers Council Limited, Australian
Sugar Milling Council and Queensland Sugar Limited) (O45)
REFORM A SENSIBLE PATH FORWARD
1. Sugar is one of the world's most distorted
trading markets. The EU sugar regime causes greater distortions
in international trade than the sugar policies of any other country.
The EU sugar regime is not an instrument of development policy.
Its objectives are internally focussed, yet they impose large
domestic and international costs. The level of assistance provided
to the EU sugar industry is significantly higher than assistance
to other crops. The high cost of EU sugar reduces the international
competitiveness of the UK food and beverages industries. These
industries account for over 70% of EU sugar consumption.
2. The EU sugar regime is not self financing
and EU sugar prices are set at a level which enables cross subsidisation
of C sugar exports. Quotas are set at levels that are too high
and act as a disincentive to structural adjustment. The basic
instruments of the EU sugar regime can be changed to deliver better
outcomes. A mix of policy solutions including significant reductions
in support prices, significant cuts in production quotas, the
elimination of export subsidies and the provision of decoupled
income support paid on a regional basis is necessary.
3. Production and export subsidies are freely
acknowledgedincluding by the EU Commissioner for Agricultureas
distorting the world trade system. Production and export subsidies
are no less trade distorting for agricultural products than they
are for manufactured goods. Market access restrictions and unfair
competition on world markets are a direct consequence of those
4. At the multilateral level, steps were
taken nearly 50 years ago to eliminate export subsidies on manufactured
goods and to impose stricter disciplines on the more trade distorting
forms of production subsidies in the manufacturing sector. However,
until the conclusion of the Uruguay Round, disciplines on agricultural
subsidies were virtually non-existent. Subsidies on agricultural
products are now subject to modest disciplines, in particular
in regard to export subsidies, where budgetary outlay and quantity
commitments apply to subsidised exports. Sugar is not exempted
from those disciplines, but the level of market distorts applying
to sugar is well behind that for other crops. More, rather than
less, effort is required to reduce market distortions in the sugar
5. Many countries provide high levels of
support to their domestic sugar industries, with consequential
protective barriers against imports. However, the EU and US stand
alone in providing country specific market access regimes. The
EU is unique in providing export subsidies for its sugar, including
export subsidies for the so called equivalent of its imports under
preferential arrangements. It is also unique in that it its sugar
regime effectively prohibits access to sugar from low cost exporters
except at the margin.
6. Australia has limited access to the US
market but has no access to the EU market, except under limited
inward processing arrangements. The adverse impact of the EU sugar
regime on the Australian sugar industry has been compounded by
successive enlargements of the EU, which, on every occasion, have
served to close off third country access to the markets of the
new EU members.
THE EU SUGAR
7. The EU is not alone in protecting its
sugar industry. In common with the US and some other developed
economies, the EU maintains high internal guaranteed prices and
high levels of border protection against sugar imports.
8. The applied EU sugar tariff is
700 a tonne (or 419% for white sugar), effectively
prohibiting imports outside of preferential quota schemes.
9. Unlike any others, the EU also extensively
subsidises its sugar exports. The EU is the world's second largest
sugar exporter, with exports averaging around 5 million tonnes
a year. The EU heavily subsidises sugar exports to developing
countries. In calling for others to eliminate export subsidies
and other forms of export competition that are damaging developing
countries in Africa in the cotton sector, the EU's international
credibility will be at stake if it fails to be responsive to the
trade distortions caused by its own sugar regime.
10. A special safeguard has been applied
against sugar imports for nearly a decade, at variance with the
objective of normal safeguard arrangements as temporary protection
measures to facilitate adjustment. The protection extends to imports
of processed products containing sugar, as a variable import levy
is applied to the sugar content of imported products.
11. Maintaining such high levels of protection
is at odds with calls by the EU and others to developing countries
to open up their markets. The continued use of a special safeguard
on sugar and protection at the processed product level is also
against the spirit of the EU's WTO obligations requiring WTO Members
to convert quantitative import restrictions and variable import
levies into ordinary customs duties.
12. While the EU points to its position
as the world's second largest importer of sugar, imports have
been virtually static for around 30 years. During the Uruguay
Round, the EU refused to provide WTO-bound market access guarantees
to ACP members at then prevailing import levels. In fact, imports
from ACP sugar protocol holders have declined.
The EU exports three times as much as it imports and spends about
twice as much on export subsidies alone than it delivers to ACP
sugar exporters under the guaranteed price arrangements of the
ACP/EU Sugar Protocol. Sugar imports from least developed countries
are subject to restrictive quota limits. Full liberalisation under
the Everything but Arms arrangement has been deferred until 2009,
with some seeking to trade off unlimited access for quota access
at guaranteed prices.
13. Successive EU enlargements have led
to an erosion of market access opportunities for third country
sugar producers such as Australia. For example, as a consequence
of the application of the EU sugar regime to the UK market some
30 years ago, imports were reduced. Another example is the current
EU enlargement, EU beet sugar will displace third country cane
sugar in the Slovenian market (Slovenia imported around 18,000
tonnes of cane sugar). Slovenia was a frequent importer of Australian
raw sugar from 1996 to 2000, until its preparations for accession
to the EU commenced in earnest. Should Romania join the EU, a
market of 400,000 tonnes of cane sugar could well be lost to third
14. It is important to note, imports from
ACP quota holder under the ACP/EU Sugar Protocol are not responsible
for EU sugar surpluses. The total quantity of quotas under the
Sugar Protocol is less than 1.3 million tonnes, compared to EU
domestic production of 15-18 million tonnes and exports of 5 million
tonnes. Imports from the ACPat levels unchanged since inception
of the Protocolshave formed part of EU domestic consumption
for more than thirty years and traditionally account for around
50% of UK consumption. As imports under the Sugar Protocol receive
guaranteed prices comparable to those accorded to EU domestic
sugar producers, such imports do not undercut domestic price support.
Yet the EU continues the practice of subsidising the export of
the so-called equivalent of imports from ACP countries, at a cost
800-900 million to the EU budget,
in addition to close to
500 million on export subsidies that is partly recoverable
from producer levies. The expenditure on export subsidies on the
so-called equivalent is a direct charge to the EU budget and is
not subject to producer levies, despite the fact that the sugar
in question is clearly EU-domestic sugar.
THE EU SUGAR
15. The EU sugar regime is not an instrument
of development policy.
Its objective is to deliver improved incomes to its own producers.
Other internally focussed objectives relate to the stabilisation
of markets, guaranteeing regular supplies to consumers and promoting
increased technical and economic efficiency. That the regime's
objectives are internally inconsistent and impose a large domestic
and external costs has, to-date, not weighed heavily in policy
decisions. The regime is in fact extremely economically inefficient.
Although it may deliver supplies to consumers it does so only
at very high prices.
16. Some are arguing that the access arrangements
for certain ACP countries provide justification for retaining
the basic instruments of the EU sugar regime. EU domestic support
for sugar is nearly
6 billion, with an additional
1.6 billion spent on export subsidies. The EU spends
more per tonne on export subsidies alone than the estimated per
tonne revenue for ACP sugar quota holders under the guaranteed
17. Current EU expenditure on export refunds
in the sugar sector dwarfs that for all other agricultural products.
1.6 billion was spent on direct export subsidies
in the sugar sector, compared to around
950 million on milk products (the next most heavily
subsidised EU export sector). For third country competitors operating
in global markets, whether the subsidies in question are partly
funded by producer levies or from the EU budget is not relevant.
The EU is spending over
500 per tonne on direct export subsidies to secure
a return of
145 per tonne from the world market.
18. The guaranteed prices delivered to certain
ACP sugar exporters should not be used as an excuse to defer EU
sugar reform. There are alternatives to the current assistance
which could deliver more equitable and better targeted development
assistance. Such assistance does not need to be contingent on
maintaining a link between ACP guaranteed prices and EU domestic
sugar prices. If the EU were to cease the practice of subsidising
exports of the so-called equivalent of imports from the ACP, between
800-900 million would be available for development
assistance without the need for any additional budgetary expenditure.
THE EU SUGAR
19. The EU sugar regime has remained fundamentally
unchanged for over thirty years. As acknowledged by the European
Commission, the introduction of subsidy disciplines as an outcome
of the Uruguay Round scarcely affected the EU sugar regime
20. Sugar production in the EU is not a
cottage industry. Sugar beet is a rotational crop. It is not the
sole source of income for sugar beet growers. Support for sugar
beet growers is far in excess of the support for other crops.
According to the EU Commission, sugar beet growers' profits are
seven times greater than that for cereal, oilseed and protein
21. The EU sugar regime also provides significant
subsidies to sugar manufacturers
many of them multinationals, whose rates of return are far beyond
those experienced for most industries. One EU sugar manufacturerSudzuckeris
the world's largest sugar producer. Sudzucker produces more sugar
than the total amount that Australia exports (Australia is the
world's fourth largest sugar exporter). It is estimated that sugar
manufacturing in the EU is in the hands of 30 firms.
THE EU SUGAR
THE UK FOOD
22. The level of EU subsidies to sugar manufacturerstogether
with import controls and controls on supply to the domestic marketis
probably without parallel in other industry sectors. Yet the EU
sugar regime penalises the EU's own food and beverages processing
industry, which accounts for over 70% of EU sugar consumption.
23. EU processed food manufacturers are
paying up to four times the world price for EU sugar. The architecture
and structure of the sugar regime delivers market prices at least
10-20% above the intervention price. EU competition policy does
not have full application to the agriculture sector. The EU sugar
regime is anti-competitive It precludes price competition between
domestic and imported sugar and between Member states under the
national quota system. It has been described by the EU Commission
as a system of "tacit collusion". It is effectively
financed by a consumer tax, whose true costs have never been documented,
unlike taxes forming part of budgetary revenue.
24. The EU processing industry is protected
against imports by sugar levies applied to imported products containing
sugar, but, except for the processed fruit and vegetable sector,
its access to export subsidies for incorporated sugar is extremely
The international competitiveness of the EU processed foods and
beverages sector is further compounded by restrictive inward processing
arrangements and the denial of access to surplus to quota sugar
(which must be exported)
25. Further, unlike the direct payments
provided in the cereals and oilseeds sectors the EU provides price
supports to sugar producers. The sugar production quotas have
effectively become minimum production targets. Because of the
high value accorded to quotas and high domestic support prices
available to quota production, substantial quantities are produced
in excess of quota and exported on world markets at below costs
of production over sustained periods. The surplus to quota sugarwhich
cannot be sold on the domestic marketis clearly cross subsidised
through quota support. Quotas are set at levels significantly
in excess of consumption. For the EU-25, the quotas will be 17.4
million tonnes, for a projected production of 20 million tonnes
and consumption of 16 million tonnes. Taking into account imports
under existing WTO-market access and other treaty concessions,
the EU exportable surplus is expected to remain in the order of
6 million tonnes. If there are no changes to the EU sugar regime,
the surplus will be exported, with benefit of direct subsidies
or cross subsidies, at levels well in excess of the EU's WTO export
subsidy commitments. It is therefore apparent that the regime
in its present form allows no scope for the EU to accord improved
market access for sugar as an outcome of the Doha Round. Nor does
it permit the EU to observe its existing WTO export subsidy commitments.
EU SUGAR PRICES
C SUGAR EXPORTS
26. The EU sugar regime is not self financing.
In addition to EU budgetary expenditure on direct export subsidies
(less than half of which is recovered by producer levies), EU
consumers are taxed by the high institutional support prices and
the effective absence of competition between EU sugar producers.
In addition, sugar producers such as Australia bear a high cost
in competing against the subsidised disposal of surpluses on world
markets. It is apparent that subsidised surplus disposals represent
a cheaper option for the EU than that of intervention storage.
27. In addition to directly subsidised exports
of quota sugar, the EU exports up to 3 million tonnes of "C"
sugar each year. There are no independent producers of quota sugar
and "C" sugar. "C" sugar production and exports
are stimulated by the quota system and high prices for quota sugar.
They are financed from the profits of quota production. The level
of "C" sugar exports suggests that EU institutional
prices are set at a level far beyond what is necessary to deliver
a fair income to EU growers.
28. Current quota levels guarantee that
quota production alone will be considerably in excess of EU consumption
needs and that EU domestic sugar production will always go well
beyond EU self-sufficiency objectives. It is clear that imports
under the EU's international commitments are not responsible for
EU domestic production surpluses.
29. The system of national quota allocation,
together with the high institutional support prices, constitutes
an institutional disincentive to structural adjustment, which,
according to the EU Agriculture Commissioner, is supposed to be
an element of EU agricultural policy. Instead structural adjustment
is forced on third country producers such as Australia, by the
subsidised disposal of surpluses on world markets as an alternative
to the more costly EU budgetary option of intervention purchasing
and storage. But the much more attractive and cheaper option is
to cut the intervention price. The EU's own consultant NEI, found
that lowering the support price would be the most effective way
to overcome the regime's problems.
EU SUGAR REFORM
30. Australian industry incomes depend on
world prices (around 80% of sugar is exported). Australia is among
the world's lowest cost sugar producers, but cannot compete against
EU subsidised exports. Australia and all other major sugar exporters
are locked out of the EU market.
We are forced to compete on a shrinking world market, in competition
with EU exports which receive subsidies more than four times greater
than the world price. The EU is spending twice as much on export
subsidies as the estimated value of Australian sugar exports.
31. It is freely acknowledged within the
EU that subsidies have a trade distorting effect. Protection against
imports is direct consequence of production-based domestic support
provided by the EU, the USA and several other developed economies.
But only in the EU is the subsidised disposal of surplus production
on world markets part of sugar supply management.
THE EU SUGAR
32. There is an urgent need for the EU to
reform its sugar regime. The higher domestic prices arising from
the EU sugar regime have encouraged higher production and lower
consumption within the European Union. They have reduced the international
competitiveness of EU food and beverage industries. The global
effect of this has been lower and more variable world sugar prices
and trade volumes. The policies have changed the pattern and often
direction of world trade flows. They have not encouraged the development
of vibrant internationally competitive sugar industries in ACP
countries and they have impeded the development of such industries
in other developing countries.
33. In the EU the effects are perverse.
The high prices paid for EU sugar production in combination with
the high level of export subsidies encourage the shift of resources
to an industry where the EU's comparative and competitive advantage
is limited. This reduces the international competitiveness of
other EU businesses, particularly those in the food and beverage
manufacturing sector. As a partial offset for this loss of competitiveness,
the EU pays subsidies in the form of export refunds to food and
beverage manufacturers on the sugar contained in their exported
products. The consequence, EU export earnings are lower and EU
national income is lower than would otherwise have been the case.
34. In the context of reform, no one policy
measure is likely to be sufficient to reduce the distortionary
effects of the EU sugar regime. A mix of measures may be necessary.
35. It is suggested that a mix of solutions
including significant reductions in support prices, significant
cuts in production quotas, the elimination of export subsidies
and the provision of decoupled income support paid on a regional
basis is necessary.
36. Price reductions would increase the
competitiveness of sugar using industries in the EU and contribute
to the EU's WTO commitments to reduce the volume and value of
subsidised sugar exports.
37. Price reductions accompanied by cuts
in production quotas would assist in bringing support offered
to sugar producers in line with that offered to producers of other
38. The removal of export subsidies would
reduce the impact of the EU sugar regime on the world sugar market,
encouraging the growth and development of the world sugar market.
39. Direct income support which is unrelated
to the quantity of sugar actually produced could be provided to
producers in specific regions on a needs basis linked to their
total agricultural activity rather than single commodity production.
This would achieve the objective of ensuring farmer and regional
incomes while avoiding the payment of unintended benefits to efficient
producing regions and large companies.
40. Taken together these policy suggestions
represent a feasible package for moving away from the current
price support arrangements to a less market distorting system
while maintaining returns to those farmers with the greatest need.
They would also reduce the price of sugar to consumers and increases
the international competitiveness of the EU's sugar using industries.
Developing countries would receive an income boost through higher
world prices and a more targeted EU aid programme.
41. An even handed reform of the sugar regime
in concert with other agricultural programs will deliver outcomes
that are consistent with Common Agricultural Policy objectives.
31 March 2004
1 billion in export subsidies.
27 Australia is not allocated any part of the WTO "MFN"
quota of 85,000 tonnes. The quantity is equivalent to the amount
allocated to Australia under the USA WTO tariff rate quota. Back
Imports of raw sugar for refining under the Special Preferential
System have declined. The EU's WTO market access obligations are
limited to 1.3 million tonnes equivalent to imports under the
ACP/EU and India/EU sugar protocols and 85,000 tonnes of raw sugar
for refining under a general quota allocated to some Latin American
Except for some speciality sugars, Australia grants duty free
access to sugar from all sources (speciality sugars are subject
to a duty of 5%). As from July 2003, Australia granted duty free
access to all least developed countries without any quota restrictions
or product exclusions. Back
In part, because the EU reserved to itself the right to exclude
around half of its directly subsidised sugar exports from its
WTO export subsidy reduction commitments. The EU was not accorded
a WTO waiver for this unilateral exemption from WTO obligations. Back
Although it undoubtedly confers benefits to ACP sugar protocol
holders, those benefits are unevenly distributed between developing
country sugar producers and it is generally acknowledged that
there are better development policy instruments. Back
EU Commission Staff Working Paper: Reforming the European Union's
sugar policy-summary of impact assessment, page 9. Back
Sugar: International Analysis- Production Structures within the
EU, page 61. Back
The current EU sugar regime guarantees a minimum 42% of the intervention
price to sugar processors. Because of high levels of protection
against imports and also because of the system of national quota
allocation, EU sugar manufacturers receive market prices some
10-20% in excess of the intervention price. In addition, sugar
manufacturers receive over Back
Processed fruits and vegetable are eligible for export subsidies
under the standard arrangement applicable to sugar, but export
refunds for sugar contained in more highly processed products
are subject to a monetary limit which must be shared with other
processed products incorporating basic agricultural products (such
as milk). Back
In a letter to the Financial Times of 12 June 2003, the Director-General
of the UK biscuit, Cake, Chocolate and Confectionery Alliance
advised that the UK was now importing more biscuits and confectionery
than it exported, due to high EU sugar prices. Back
Except for a residual quota of 85,000 tonnes of raw cane sugar
shared between Latin American suppliers. In contrast, Australia's
access to the US market is 85,000 tonnes and to the Japanese market
access is not bound by quota restriction. Back