House of Lords - Leaving a bitter taste? The EU Sugar Regime

Leaving a bitter taste? The EU Sugar Regime - European Union Committee Contents

CHAPTER 4: ACP/LDC countries and the eu sugar regime

Impact of the 2006 reform

49. The 2006 reform of the EU Sugar Regime included a €1.2 billion package of transitional assistance through Accompanying Measures to affected ACP[68] and LDC[69] producers to help mitigate the effects of the reduction in the EU sugar price—encouraging increased competitiveness where applicable and assisting other producers to diversify and leave sugar production. This transitional assistance has been delivered through individual, country-specific multi-annual Action Plans.

50. To comply with a 2005 WTO ruling, the EU had to maintain preferential access to its sugar market for these countries under reform of the regime; all ACP and LDC producers therefore have tariff-free access to the EU market, subject to safeguard measures on imports from those ACP countries that are not LDCs.

51. Discerning the impact of the reform on ACP and LDC countries has been challenging, with varied responses from the ACP countries to restructuring efforts.[70] However, the overwhelming impression we received from our witnesses was that much of the €1.2 billion set aside for transitional assistance had not reached where it needed to be, with many countries experiencing delays in receiving such funds.[71] Red tape and bureaucracy emanating from the Commission were highlighted as impediments to the smooth flow of funding to these countries, such as Belize which had only received 16 per cent of the money allocated to it for 2007/10.[72] In addition, it was highlighted that "the administrative procedures associated with those [funds] actually cost more than the amount of money received."[73]

52. We were concerned to hear that EU delegations might be responsible for the variable disbursement of funding, owing to the pressured timetable and that "it is usually the case that one person ... who is dealing with lots of other things, may have no knowledge of the sugar industry, and suddenly they have to deal with it".[74] We strongly urge the Commission to ensure that delegations in the ACP/LDC countries are sufficiently resourced and to monitor closely the progress of disbursement of funding.

53. The capacity of the governments in recipient countries was also highlighted as an issue in funding getting through and it was suggested that a more realistic view about the time required to get things done in target countries was needed.[75] Barry Newton, EPA/EBA London Sugar Group, also suggested that many of the smaller countries did not have the resources necessary to meet all of the conditions laid down for contracts.[76] Whatever the reason, in many countries it seems that results have not been tangible.[77]

54. Another issue highlighted in relation to transitional assistance was that funds were not being used to target the issues that recipient countries wanted to address.[78] Gerald Mason, Vice-President, EU Affairs and Strategy at Tate & Lyle Sugars explained that the views of local EU officials often held considerable sway, with the power to spend money effectively delegated to them and their views as to the right solution for the country being central to the process.[79] This apparent lack of focus on the country's view of important issues was borne out in the comments made to us by the Minister, who did not believe the 2006 reforms had paid sufficient attention to the needs of developing countries.[80] We recommend that Action Plans for the affected ACP/LDC countries should be revisited as soon as possible. Such Action Plans need to be started in the period before 2015 but sufficient time should be allocated to design appropriate plans and build the capacity in recipient countries to implement them. We further recommend that Action Plans should be targeted at issues identified by the countries themselves, such as increasing their competitiveness and efficiency or, where appropriate, moving away from sugar production altogether.

55. We were, though, encouraged to hear the experience of Mauritius, where considerable restructuring and diversification has taken place, most notably through a deal with Sûdzucker to export up to 400,000 tonnes of refined sugar annually to the EU, thus enabling Mauritius to add value within its own sugar sector and increasing its competitiveness.[81] Nevertheless, we are in agreement with our witnesses, including Tate & Lyle Sugars and the Minister, that while there are lessons to be learnt from the decision by Mauritius to focus on the high added value sugar market, this model may not work for all ACP/LDC countries for reasons of scale and geography.[82]

56. Our witnesses highlighted another more positive result of reform, whereby the reduction of EU production of sugar beet had enabled the ACP/LDC countries to negotiate higher prices for their sugar due to greater competition in raw sugar imports.[83] As Anna Locke, Overseas Development Institute stated, "I think that the original EU sugar reform has worked to the benefit of the ACP countries", though she recognised that "that may have been unintentional".[84] It should also be noted that the positive impact of increased prices may have been limited, as ACP/LDC countries have not been able to supply as much sugar to the EU as needed or expected (exporting around 1.8-1.9 million tonnes in 2012[85] against the 2006 estimation of up to 3.5 million tonnes each year); something which Barry Newton, EPA/EBA London Sugar Group, attributed to delays in the finance getting through.[86]

Situation post-2015

57. We heard that, under further reform, ACP and LDC countries would face a more volatile market, losing the current protection provided by the EU sugar regime which shields them from variable world prices. It was therefore likely that there would be greater uncertainty for these countries in future, with the possibility of particularly detrimental effects if the world price sat at a low level.[87]

58. However, views amongst our witnesses were split. Anna Locke, ODI was concerned about the price volatility under further reform and the resultant uncertainty for developing countries[88] and Barry Newton, EPA/EBA London Sugar group suggested that the time to end production quotas had not arrived, citing the staff working paper in 2006 which stated that production quotas would be phased out once imports and production levels had stabilised, which he did not think was currently the case.[89] On the other hand, Sheila Page, ODI was supportive of an end to production quotas and expressed the view that "if you have too much time to adjust you do not do so".[90] While she recognised that exposure to volatility would result for all ACP/LDC countries under further reform, she thought that "most of them will survive ... either by changing their sugar, their markets or what they are producing".[91](See Chapter 3 for further discussion of quotas).

59. While increased exposure to volatility was widely recognised as the likely result of further reform, there were mixed views amongst our witnesses about the likely direction of the world price for sugar over the coming years. John Adams, Senior Research Economist for LMC International suggested that there would be higher prices over the next decade and that any low levels would be unlikely to last;[92] the EPA/EBA London Sugar Group was less optimistic, predicting that prices would fall, whilst recognising that "anybody who forecasts the world sugar market price endangers their reputation";[93] while the Minister did not see any likelihood of a significant decrease in the world price.[94] We consider that the future price of sugar on the world market is uncertain and that increased exposure to volatility for ACP and LDC countries is likely.

60. The uncertainty of future prices makes an accurate prediction of the likely impact of reform on ACP and LDC countries difficult. This is compounded by the fact that the situation varies greatly from country to country. As highlighted by the ODI and the Minister, some countries have no chance of becoming competitive in sugar, some will require considerable work and investment to reach a competitive standard and others are likely to be able to respond to a variable world price.[95] The Commission will need to work closely with the ACP and LDC countries to determine what mitigation measures are needed beyond 2015. We recommend that such work should be part of decisions on the pace and detail of further reform and that this should involve extensive consultation with representatives of the countries concerned.

61. Support for the ACP and LDC countries beyond 2015 is particularly important in light of the fact that in these countries, the sugar industry is often woven into the fabric of society, acting as the main source of employment in a particular area.[96]We therefore recommend that it will be necessary for the Commission not just to consider matters on a country-by-country basis, but to look at the localised impact of changes and support.

62. We recognise that some countries will need to move out of sugar production altogether and were struck by the suggestion of providing retraining for those workers who are affected by changes to the EU sugar regime.[97] For example, Anna Locke, ODI pointed to the experience of Brazil, which had mechanised its sugar cane harvesting and was retraining the sugar cane cutters to service and maintain the machines. She suggested that this was "an interesting model to look at."[98] We recognise that it will be necessary for some countries to move away from sugar production altogether and that others will need support to improve their competitiveness and efficiency. We therefore recommend that in determining what mitigation measures are needed beyond 2015, the Commission should consider support for retraining, drawing inspiration from existing best practice where relevant.

63. Another area of concern, highlighted by the Minister, was the possible impact on ACP and LDC countries in relation to the problems being faced by Tate & Lyle Sugars, the UK's only significant cane refiner, in importing sufficient raw sugar to maintain its factory.[99] Inevitably, if this factory had to close, the market for cane sugar in the UK would alter dramatically, with direct consequences for ACP and LDC producers. This was borne out in the evidence we heard from Barry Newton, EPA/EBA London Sugar Group, who underlined that, though there was not a problem at the moment, if any of the larger factories were to go out of production "it does introduce a problem for a number of us, in that we may be forced to supply to a refining capacity that is well away from the port".[100]

64. Overall, we recognise that developments in EU sugar policy have implications for the future of sugar production in many ACP/LDC countries. We were therefore struck by the Minister's condemnation of the plans for further reform for almost ignoring the needs of developing countries and encouraged by his view that the Government have an obligation to find ways to support them.[101] Ultimately, support for developing countries is a matter for development policy rather than agricultural policy. We agree with the Minister that plans for further reform of the EU Sugar Regime have not sufficiently accounted for the likely impact on ACP and LDC countries and appear to have been taken in isolation from discussions on future development policy. We recommend that the Government vigorously pursue this issue during negotiations on the Commission's agriculture and development proposals for the period 2014-2020.

Free Trade Agreements

65. A number of our witnesses raised concerns about the potential impact on the EU market of various Free Trade Agreements (FTAs) signed by the Commission with third countries, in addition to the specific arrangements with the ACP and LDC countries.

66. There are currently about 300,000 tonnes' worth of commitments to the Central American and Andean countries to import sugar into the EU market.[102] As noted by Chris Carter, Corporate Affairs Director, British Sugar plc, this will affect the supply balance, with implications for ACP and LDC suppliers.[103] Barry Newton, EPA/EBA London Sugar Group, suggested that the result would be increased instability in the market, meaning that ACP and LDC countries would not be "bankable" to the European bankers, whose funding is required for further investments in efficiency to be realised.[104]

67. We heard from Sheila Page at the ODI that the FTAs which have been signed or are in negotiation with some Latin American countries would make the system "even less workable".[105] However, Ian Bacon, President, Tate & Lyle Sugars suggested that, in the light of a probable 1.5 million tonne deficit in cane sugar, and with the maximum being brought in under FTAs at around 250,000 tonnes, it was unlikely to make a big difference to the overall supply and the overall impact on the market in the short term.[106]

68. We are not convinced that importing an additional 300,000 tonnes of cane sugar will have significant consequences for ACP and LDC producers. However, more Free Trade Agreements are likely to be signed. In preparation for the negotiation of such Agreements, we recommend that the Commission should produce an Impact Assessment of the likely effect on these countries and the EU sugar market before making any further commitments relating to the trade of sugar.

68 The African, Caribbean and Pacific Group of States is an organisation of 48 Sub-Saharan African states, 16 Caribbean states and 15 Pacific states. It was established in 1975 with the aim of coordinating cooperation between its members and the EU. Back

69 Least Developed Countries are 48 countries suffering from the most severe structural impediments to sustainable development on the basis of GNI per capita, human assets, economic vulnerability and population size. Back

70 Q 53 Back

71 QQ 8, 53, 181 Back

72 Q 53 Back

73 Q 14 Back

74 QQ 14, 41 Back

75 Q 1, 14, 57, 61, 181 Back

76 Q 58 Back

77 Q 8 Back

78 QQ 14, 58 Back

79 Q 181 Back