CHAPTER 2: Developments since the 2006
reform
The 2006 reform
11. Prior to reform in 2006, the key features
of the sugar regime were: support prices (a minimum price to growers
of sugar beet and a guaranteed price to support the market); production
quotas to limit over-production; tariffs and tariff quotas on
imports from third countries; and subsidies to export surplus
production out of the EU.
12. The key factor driving the 2006 reform of
the EU's sugar regime was a ruling by the World Trade Organisation
that EU sugar exports were subsidised by guaranteeing producers
an internal price higher than that of world prices. This had two
implications: first, that the EU's guaranteed price had to be
reduced and, second, that its exports had to be cut. The EU also
had to adapt to its wider international obligations. Countries
benefiting from the Everything But Arms (EBA) Agreement with Least
Developed Countries are allowed free access to the EU sugar market
for their production. Internal production quotas would then have
needed to be cut, with damaging effects on jobs, unless mitigating
action was taken to manage the transition. Finally, the Common
Agricultural Policy (CAP) had been in a state of continuing liberalisation
since 1992 and it was considered important that this process was
extended to the sugar sector. Indeed in many respects the sugar
regime of quotas, reference prices and tariff protection is one
of the last remnants of the 'old' CAP, aspects that have to a
considerable extent been reformed in other sectors.
BOX 2
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Key elements of the 2006 reform
- Price Reduction: the reference prices for sugar
and the minimum prices for beet growers were substantially cut
over the period 2006-10 (the reference price for white sugar was
cut from €631.9 per tonne to €404.4 and the minimum
price per tonne of quota sugar beet was cut from €44.01 to
€26.29)
- Production quota reduction by 6 million tonnes
- A temporary restructuring scheme was set up,
financed by manufacturers and aimed at encouraging the least efficient
to renounce their production quotas voluntarily
- Partial compensation for farmers
- End of preferential imports to traditional cane
refiners (such as Tate & Lyle Sugars), along with transitional
aid over the period 2006-09
- Exports of non-quota sugar limited to 1.37 million
tonnes
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Impact of the reform
13. An evaluation of the 2006 reform was undertaken
for the European Commission and published in December 2011.[7]
Its key findings were:
- the EU was transformed from a net exporter of
sugar to being a net importer, with the effect that, in year,
it produced around 85 per cent of its supply needs;
- 5.8 million tonnes of production quotas had been
renounced (around 30 per cent of the total), almost reaching the
6 million target, although some of this had to be renounced by
relatively competitive producers;
- quantities produced outside production quotas
decreased on average by 1.8 million tonnes;
- market share was further concentrated in France
and Germany (up from 43 per cent of production to 52 per cent);
- there was a 41 per cent decrease in the number
of factories over the period 2006-10;
- prices increasingly converged with the world
market price;
- the number of full-time refiners increased and
refineries increased their capacity;
- some beet sugar producing factories expanded
into refining;
- imports increased from 3-4 million tonnes but
supplies from developing countries did not expand to the level
expected;[8]
- the competitiveness of sugar producers, measured
by yield, working days, volume per factory and productivity per
labour unit had increased; and
- employment in the sector decreased by 44 per
cent over the period 2006-10.
14. These findings were largely reflected in
the conclusions of a European Court of Auditors report in 2010.[9]
It pointed out certain other weaknesses:
- while reducing production quotas, it observed
that the reform also allowed companies to purchase additional
quotas (around 1 million tonnes were purchased);
- the competitiveness of many individual growers
was not enhanced; and
- while acknowledging that price formation in the
food sector is complex, the intended reductions in the EU price
of up to 36 per cent were not passed on to the consumer and must
be subject to regular monitoring by the Commission, as must the
enforcement of competition law for the same reasons.
15. In addition, there have been specific effects
on third countries, which we explore in Chapter 4.
16. The views of our witnesses on the impact
of reform largely reflected the Commission and Court of Auditors'
analyses. British Sugar, the only beet sugar processor in the
UK, noted that, "although it was radical, the outcome of
the 2006 reform did provide a sufficiently stable policy environment
for us to invest".[10]
Anna Locke, Head of Programme, Agricultural Development and Policy,
Overseas Development Institute, observed that the 2006 reform
had succeeded in linking EU sugar prices to movements in world
prices.[11] In terms
of the implications of greater alignment with the world price,
we heard from John Adams (LMC International) that Brazil, as the
largest producer, is the price-setter of the world sugar market
price.[12] That price
has some linkage to oil prices as a significant proportion of
Brazilian sugar is used as ethanol for transport fuel.[13]
17. The National Farmers Union (NFU) cautioned
against attributing to the reform all changes seen in the industry
since 2006. Their representative, William Martin, Chairman, NFU
Sugar Board, agreed that the reform had certainly accelerated
the process of restructuring the industry towards one that was
more efficient, with higher yields. He regretted, however, that
the reform had forced not only inefficient factories to close,
but also some of the more efficient factories, such as British
Sugar's processing plant in York, thus forcing efficient farmers
also to reduce their production.[14]
18. Sugar users and cane refiners were far more
critical of the impact of reform. The UK Industrial Sugar Users
Group (UKISUG) observed that, pre-2006, the market was predictable
as there was a lot of supply. Reform has squeezed supply and therefore
put users in a more constrained position, which has created difficulties
for smaller users in particular. It was explained that restricted
supply on the EU market forces purchases to be made from the world
market, but such purchases are subject to tariffs of €419
per tonne, in addition to the various transport and port costs.[15]
19. Tate & Lyle Sugars were clear that the
situation now is worse than before the 2006 reform. The effective
quota system for certain cane refiners' access to raw cane was
abolished amid expectation that tariff-free imports would rise
substantially. In addition, there was a significant investment
by the beet industry into cane refining (1.85 million tonnes of
new cane-refining capacity). Ultimately, they reported, supply
had not materialised and cane refiners were running at around
60 per cent capacity.[16]
As explored in Chapter 4, we also heard that Mauritius is refining
cane itself and exporting the refined product to the EU, thus
further reducing the demand for refining capacity in the EU.
20. Our attention has been drawn to changes in
the EU market price for sugar since the reform and a recent surge
in prices (see graph below). Thus, the reform led to a substantial
reduction in the market price initially, as intended, but that
has since risen due to pressures on internal market supply, which
are examined further in Chapter 3.
FIGURE 1
EU Reference price and EU market price
for white sugar
Source: European Commission
21. In assessing the impact of the reform,
we are particularly mindful of the Court of Auditors' concerns
about the extent to which any benefits of the reform have been
passed on to consumers. We explore this issue in greater depth
in the next Chapter. More generally, it is clearly the case that
the EU sugar market has not evolved as expected at the time of
the last reform. The key message moving forward is that the
market cannot be predicted with any degree of certainty and therefore
that the EU's sugar policy must be sufficiently agile to respond
appropriately.
7 Evaluation of Common Agricultural Policy measures
applied to the sugar sector, AGROSYNERGIE, December 2011 Back
8
http://ec.europa.eu/agriculture/sugar/presentations/trade-statistics_en.pdf Back
9
European Court of Auditors, Special Report No. 6/2010: Has the
reform of the sugar market achieved its main objectives? Back
10
Q 89 Back
11
Q 1 Back
12
Q 3 Back
13
Q 20, 37 Back
14
Q 72 Back
15
QQ 120-122 Back
16
Q 157 Back
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