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Goals of the European Union sugar reform

The goals of the reform were as follows.

  • • To integrate the sugar sector in the reformed CAP, drastically reducing budgetary support to sugar exporters.
  • • In terms of the sugar balance sheet in raw sugar equivalent, to cut production by about 6 million tonnes to 13-14 million tonnes, to reduce exports by about 44.5 million tonnes to 1.4 million tonnes, and to double sugar imports to about
  • 4.5 million tonnes.

Major features of the reform

On 24 November 2005, EU Ministers of Agriculture reached agreement on the reform

of the sugar regime. The major features of the reform were as follows.

  • • Reference prices, which replaced intervention prices, would be reduced by 36% over four years starting from 2006/07. The 2006/07 white sugar support price of EUR 631.9/tonne would be reduced to EUR 404.4/tonne by the end of the transition period in 2009/10 (Table 8.1).
  • • Intervention (an obligation of the Commission to buy from the industry any unsold quota sugar at a guaranteed price) after the four-year transition would be abolished and replaced with a system of private storage. Producers taking advantage of the scheme would be paid a private storage aid. Intervention during the transition period would be limited to 600 000 tonnes per marketing year and the buying-in would take place at 80% of the reference price of the following marketing year.
  • • To compensate farmers leaving the sector, direct payments would cover 64.2% of their income loss.
  • • A restructuring fund would pay a basic EUR 730/tonne over the first two years to producers who renounced their quotas and quit the industry, with at least EUR 73/tonne going to ex-growers (the fund would be paid for by a levy on continuing processors). To qualify for this aid, which fell to EUR 625/tonne in 2008/09 and EUR 520/tonne in 2009/10, sugar companies had to give up their rights to quotas, stop production and close at least one factory (or factories), restore the factory site to good environmental conditions, and help redeploy factory staff.
  • • The quota system was simplified. The “A” and “B” quotas were merged into a single quota. The previous basic maximum (A+B) quotas would apply for the first four years as there will be no compulsory quota reduction applicable during that time.

Table 8.1. Evolution of EU reference prices for sugar

2006/07

2007/08

2008/09

2009/10

White sugar, EUR/tonne

631.9

631.9

541.5

404.4

Cumulative reduction in %

0

14

36

The key objectives of the reform were to reduce sugar output by about 6 million tonnes. It was decided not to introduce compulsory quota cuts for EU manufacturers, but to implement a voluntary restructuring scheme. Under the system of voluntary quota renunciation, which was funded by a restructuring levy on production, the least efficient producers were encouraged to exit the industry early on, with the highest level of compensation (EUR 730/tonne) offered in the 2006/07 and 2007/08 seasons. The scheme came into operation on 1 January 2006; however, by the end of January 2007, the deadline for renunciations for 2007/08, less than 2.2 million tonnes had been renounced and the programme appeared to be in trouble. In September 2007, new elements to the restructuring scheme were agreed to by the EU Council of Ministers in order to improve its attractiveness. These included additional payments of EUR 237.50/tonne to farmers who gave up quotas, and fixing the share of the growers and machinery contractors to 10%. A waiving of the restructuring levy was introduced on withdrawal of sugar production during the 2007/08 season if renounced for the 2008/09 season, and a two- stage mechanism was announced for renunciation with producers allowed to submit volumes on 31 January and 31 March 2008.

This revised package substantially improved incentives for producers to renounce production quotas. After the modifications in the rules for quota renunciation were approved in 2009, 3.3 million tonnes of quota were given back for 2008/09 and 0.1 million tonnes for 2009/10. Aggregating the figures shows that there was a decrease of almost 5.217 million tonnes, white value, in the EU's supported sugar production since the sugar market reform came into effect in 2006. The Commission has practically reached its initial goal of reducing sugar production by 6 million tonnes.

 
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