Required Report - public distribution

**Date:** 4/27/2005

**GAIN Report Number:** E35080

E35080

**EU-25**

**Sugar**

**Annual**

**2005**

**Approved by:**

![](media/image1.wmf)Norval Francis

U.S. Mission to the EU

**Prepared by:**

Peter Talks

**Report Highlights:**

Estimates for EU sugar production in the 2004/05 campaign are revised
upwards by 2 MMT to 21.3 MMT from 19.4 MMT (EU beet sugar, raw
equivalent), exports and stocks (notably including EU intervention
purchases) are both revised upwards. This is due to very favorable
conditions during Fall 2004 encouraging higher sugar yields. Preliminary
estimates of 2005/06 EU-25 sugar production are 20.445 MMT, with 16.927
MMT in the EU-15 and 3.518 MMT in the 10 New Member States (NMS).

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Brussels USEU \[BE2\]

\[E3\]

Table of Contents

[**Executive Summary 3**](#executive-summary)

[PSD Table -- EU-15: 2003/04 4](#psd-table-eu-15-200304)

[PSD Table -- EU-25: 2004/05 -- 2005/06
5](#psd-table-eu-25-200405-200506)

[EU-25 Production 6](#eu-25-production)

[New Member States Production 8](#new-member-states-production)

[Consumption 9](#consumption)

[Stocks 9](#stocks)

[Trade 10](#trade)

[Policy 11](#policy)

[Reform of the Sugar Regime 11](#reform-of-the-sugar-regime)

[WTO Panel on EU sugar export subsidies
11](#wto-panel-on-eu-sugar-export-subsidies)

[Danish Minister of Agriculture Criticizes beet farmers double subsidies
12](#danish-minister-of-agriculture-criticizes-beet-farmers-double-subsidies)

[EU Action Plan for ACP Sugar Protocol Countries
12](#eu-action-plan-for-acp-sugar-protocol-countries)

[Annex One - Balance Sheets for EU-15, NMS-10 and EU-25
14](#annex-one---balance-sheets-for-eu-15-nms-10-and-eu-25)

**Note**

All figures are given in raw sugar equivalents unless otherwise
mentioned.

This report provides a PSD data and information for the EU-25 for
marketing year (MY) 2004/05. Unofficial estimates for the New Member
States 10 (NMS) and EU-25 are provided for Marketing Years (MY) 02/03 to
03/04 for informational purposes. However, intra-EU-25 trade has not
been netted out of the trade estimates (trade between, for example,
Germany and Poland which would disappear from EU-25 extra-EU trade
estimates) and the footnotes to the EU-25 PSDs should be referred to.

Following EU enlargement on May 1, 2004, FAS has switched to reporting
an EU-25 number, however USEU Brussels will continue in the meanwhile to
provide EU-15, NMS-10 and EU-25 balances for comparison purposes.

**Visit our website:** our website
**[www.useu.be/agri/usda.html]{.underline}** provides a broad range of
useful information on EU import rules and agricultural policy and allows
easy access to USEU reports, trade and other practical information.

E-mail: <AgUSEUBrussels@usda.gov>

Related reports from USEU Brussels and other EU Posts:

  --------------- ---------------------------------------------------------------------- ------------------
  **Report No.**  **Title**                                                              **Date Released**

                                                                                         

  E35032          [EU sugar intervention used for first time in 20                       2/25/05
                  years](http://www.fas.usda.gov/gainfiles/200502/146118920.pdf)         

  GM5010          [German Position on EU Reform Proposal for Sugar Market                2/18/05
                  Regime](http://www.fas.usda.gov/gainfiles/200502/146118889.pdf)        

  E34087          [EU Sugar                                                              11/18/04
                  Semi-Annual](http://www.fas.usda.gov/gainfiles/200411/146118041.pdf)   
  --------------- ---------------------------------------------------------------------- ------------------

These reports can be accessed through our website
[www.useu.be/agri](http://www.useu.be/agri) or through the FAS website
<http://www.fas.usda.gov/scriptsw/attacherep/default.asp>

# Executive Summary

Estimates for EU sugar production in the 2004/05 campaign are revised
upwards by 2 MMT to 21.3 MMT from 19.4 MMT (EU beet sugar, raw
equivalent). This is due to very favorable conditions during Fall 2004
encouraging higher sugar yields, with earlier estimates of 8.97
MT/hectare across the EU-25 revised up to 9.93 MT/ha. post harvest.

This increased availability leads to higher estimated exports and ending
stocks. Over quota production (known as 'C sugar') has to be exported by
the end of the calendar year following the marketing year it was
produced. In addition, Marketing Year (MY) 04/05 has seen the first
offering of sugar into intervention for nearly twenty years. Just under
250,000 MT of sugar has already been accepted into intervention so far
during MY 04/05. This is reportedly due to surplus availability of sugar
(which also helped to depress domestic prices) coupled with apparent
decreased consumption in the New Member States as well as EU export
refunds being lower than expected by the trade. It is expected that the
Commission will eventually export the sugar with export refunds (and
reduce future quota allocations accordingly).

Preliminary estimates of 2005/06 EU-25 sugar production are 20.445 MMT,
with 16.927 MMT in the EU-15 and 3.518 MMT in the 10 New Member States
(NMS). PSD estimates are based on solid export performance from the EU,
with exports of 5.3 MMT to the rest of the world and a reduction in
ending stocks by the end of 2005/06 from the high level at the end of
2004/05. It is also assumed that there will be no disruption from either
the anticipated end of the current sugar reform in June 2006, nor from
the WTO Panel.

With the current sugar regime ending in June 2006, formal reform
proposals are expected by July of this year. These are likely to involve
price cuts of around one third, coupled with quota cuts partially
compensated by direct payments to beet farmers. Areas of controversy
include quota transfer between different Member States, though the
Commission maybe preparing to water down, or perhaps sweeten, this point
of the reform.

Results are expected at the end of April from the EU's appeal against a
WTO Panel ruling that aspects of its sugar export regime were not
compatible with WTO rules. The original ruling in September 2004 set out
that the EU was exporting sugar considerably beyond its WTO limitations.
A likely timeframe for compliance is difficult to establish at the
moment.

## PSD Table -- EU-15: 2003/04

  ------------------------------------- ---------------- -----------------
  **EU-15**                                              

  Sugar, Centrifugal                                     

                                        03/04 Revised    

                                        USDA Official    Post Estimate
                                        \[Old\]          \[New\]

  Market Year Begin                     7/2003           

  Beginning Stocks                      3581             **3864**

  Beet Sugar Production                 16856            **16211**

  Cane Sugar Production                 276              **295**

  TOTAL Sugar Production                17132            **16506**

  Raw Imports                           1750             **1742**

  Refined Imp(Raw Val)                  150              **250**

  TOTAL Imports                         1900             **1992**

  TOTAL SUPPLY                          22613            **22362**

  Raw Exports                           5                **15**

  Refined Exp.(Raw Val)                 4895             **4700**

  TOTAL EXPORTS                         4900             **4715**

  Human Dom. Consumption                14247            **14380**

  Other Disappearance                   11               **11**

  Total Disappearance                   14358            **14391**

  Ending Stocks                         3355             **3256**

  TOTAL DISTRIBUTION                    22613            **22362**
  ------------------------------------- ---------------- -----------------

Figures in 1,000 MT of raw sugar equivalent

From 2004/05, sugar PSDs are reported for the EU-25 following the
enlargement of the European Union in May 2004.

Notes: When converting from white to raw sugar, a conversion factor of
1.087 is used. Sugar produced in French Overseas Departments are
included in production data and excluded from trade data.
Sugar-containing products are excluded from trade data. Therefore,
domestic consumption includes an additional 0.354 MMT to account for net
trade in sugar-containing products (0.25 MMT is used for MY 03/04).

Please see Annex One for unofficial FAS/USEU Centrifugal Sugar and Sugar
Beet PSD estimates for the New Member States-10 and EU-25 for 03/04,
04/05 and 05/06.

## PSD Table -- EU-25: 2004/05 -- 2005/06

  ------------------- ---------- ---------- ---------- ----------- ---------- -----------
  **EU-25**                                                                   

  Sugar, Centrifugal                        (1000 MT)                         

                      03/04                 04/05                  05/06      
                      Revised               Estimate               Forecast   

                      USDA       Post       USDA       Post        USDA       Post
                      Official   Estimate   Official   Estimate    Official   Estimate
                      \[Old\]    \[New\]    \[Old\]    \[New\]     \[Old\]    \[New\]

  Market Year Begin                         7/2004                 7/2005     

  Beginning Stocks                          4699       **4699**    0          **5339**

  Beet Sugar                                19396      **21311**   0          **20157**
  Production                                                                  

  Cane Sugar                                288        **300**     0          **288**
  Production                                                                  

  TOTAL Sugar                               19684      **21611**   0          **20445**
  Production                                                                  

  Raw Imports                               1820       **1757**    0          **1757**

  Refined Imp(Raw                           550        **500**     0          **500**
  Val)                                                                        

  TOTAL Imports                             2370       **2257**    0          **2257**

  TOTAL SUPPLY                              26753      **28567**   0          **28041**

  Raw Exports                               3          **3**       0          **3**

  Refined Exp.(Raw                          4371       **5500**    0          **5360**
  Val)                                                                        

  TOTAL EXPORTS                             4374       **5503**    0          **5363**

  Human Dom.                                17635      **17701**   0          **17765**
  Consumption                                                                 

  Other Disappearance                       27         **24**      0          **24**

  Total Disappearance                       17662      **17725**   0          **17789**

  Ending Stocks                             4717       **5339**    0          **4889**

  TOTAL DISTRIBUTION                        26753      **28567**   0          **28041**
  ------------------- ---------- ---------- ---------- ----------- ---------- -----------

Note: For both MYs 04/05 and 05/06, domestic consumption includes an
additional 0.370 MMT to account for net trade in sugar-containing
products

# 

# EU-25 Production

Preliminary estimates of 2005/06 EU-25 sugar production are 20.445 MMT,
with 16.927 MMT in the EU-15 and 3.518 MMT in the 10 New Member States
(NMS).

Estimates of sugar production (beet, cane and sugar from molasses) in
the EU-25 for MY 04/05 are revised upwards from 19.684 MMT (18.108 MMT
in white sugar equivalent) to 21.611 MMT. This is due to optimal
conditions during the fall of 2004 which lead to much higher sugar
yields -- 9.93 MT/hectare in the EU-25 for 2004/05, compared to 8.97
MT/ha. estimated back in September 2004.

[Sugar (beet, cane and molasses) Production in the EU (in 1,000 MT raw
value)]{.underline}

  ----------------- ----------------- ----------------- -----------------
                    **2003/04**       **2004/05**       **2005/06**

  Austria           420               527               515

  Belgium           1118              1077              1028

  Denmark           535               512               522

  Finland           148               161               158

  France - beet     4601              4908              4653

  Germany           4079              4700              4227

  Greece            223               284               251

  Ireland           243               232               236

  Italy             978               1258              1174

  Netherlands       1166              1127              1076

  Portugal          65                77                78

  Spain - beet      994               1177              1125

  Sweden            452               407               417

  UK                1484              1511              1467

  **Total EU-15**   **16506**         **17957**         **16927**

                    **03/04**         **04/05**         **05/06**

  Czech R.          554               602               529

  Estonia           0                 0                 0

  Cyprus            0                 0                 0

  Latvia            72                75                75

  Lithuania         119               147               136

  Hungary           274               532               510

  Malta             0                 0                 0

  Poland            2011              2000              2000

  Slovenia          22                41                39

  Slovak R.         192               257               228

  **Total NMS-10**  **3244**          **3654**          **3518**

  **Total EU-25**   **19750**         **21611**         **20445**
  ----------------- ----------------- ----------------- -----------------

**[EU Sugar from beet, crop area and yields]{.underline}**

+-----------+--------+--------+--------+--------+--------+--------+
|           | ###### |        |        | #      |        |        |
|           | # Area |        |        | ###### |        |        |
|           |        |        |        |  Yield |        |        |
|           | (      |        |        |        |        |        |
|           | 1000's |        |        | (MT    |        |        |
|           | hec    |        |        | raw    |        |        |
|           | tares) |        |        | beet   |        |        |
|           |        |        |        | su     |        |        |
|           |        |        |        | gar/he |        |        |
|           |        |        |        | ctare) |        |        |
+-----------+--------+--------+--------+--------+--------+--------+
|           | **200  | **200  | **200  | **200  | **200  | **200  |
|           | 3/04** | 4/05** | 5/06** | 3/04** | 4/05** | 5/06** |
+-----------+--------+--------+--------+--------+--------+--------+
| Austria   | 43     | 45     | 45     | 9.2    | 11.1   | 10.9   |
+-----------+--------+--------+--------+--------+--------+--------+
| Belgium   | 92     | 91     | 86     | 12.0   | 11.8   | 12.0   |
+-----------+--------+--------+--------+--------+--------+--------+
| Denmark   | 50     | 48     | 48     | 10.8   | 10.7   | 10.9   |
+-----------+--------+--------+--------+--------+--------+--------+
| Finland   | 30     | 31     | 29     | 5.0    | 5.2    | 5.4    |
+-----------+--------+--------+--------+--------+--------+--------+
| France    | 367    | 347    | 335    | 11.8   | 13.3   | 13.0   |
+-----------+--------+--------+--------+--------+--------+--------+
| Germany   | 445    | 438    | 430    | 9.2    | 10.7   | 9.8    |
+-----------+--------+--------+--------+--------+--------+--------+
| Greece    | 41     | 33     | 33     | 5.4    | 8.6    | 7.6    |
+-----------+--------+--------+--------+--------+--------+--------+
| Ireland   | 31     | 31     | 31     | 7.8    | 7.5    | 7.6    |
+-----------+--------+--------+--------+--------+--------+--------+
| Italy     | 215    | 180    | 180    | 4.6    | 7.0    | 6.5    |
+-----------+--------+--------+--------+--------+--------+--------+
| Ne        | 106    | 99     | 99     | 11.1   | 11.4   | 10.9   |
| therlands |        |        |        |        |        |        |
+-----------+--------+--------+--------+--------+--------+--------+
| Portugal  | 7      | 8      | 8      | 8.7    | 9.6    | 9.8    |
+-----------+--------+--------+--------+--------+--------+--------+
| Spain     | 100    | 110    | 103    | 9.9    | 10.7   | 10.9   |
+-----------+--------+--------+--------+--------+--------+--------+
| Sweden    | 50     | 48     | 48     | 9.0    | 8.5    | 8.7    |
+-----------+--------+--------+--------+--------+--------+--------+
| U.K.      | 140    | 136    | 135    | 10.6   | 11.1   | 10.9   |
+-----------+--------+--------+--------+--------+--------+--------+
| **Total   | **     | **     | **     | *      | **     | **     |
| EU-15**   | 1717** | 1645** | 1610** | *9.4** | 10.7** | 10.3** |
+-----------+--------+--------+--------+--------+--------+--------+
|           | **200  | **200  | **200  | **200  | **200  | **200  |
|           | 3/04** | 4/05** | 5/06** | 3/04** | 4/05** | 5/06** |
+-----------+--------+--------+--------+--------+--------+--------+
| Czech R.  | 76     | 70     | 70     | 7.3    | 8.7    | 7.6    |
+-----------+--------+--------+--------+--------+--------+--------+
| Latvia    | 14     | 14     | 14     | 5.1    | 5.4    | 5.4    |
+-----------+--------+--------+--------+--------+--------+--------+
| Lithuania | 26     | 25     | 25     | 4.6    | 5.9    | 5.4    |
+-----------+--------+--------+--------+--------+--------+--------+
| Hungary   | 49     | 67     | 67     | 5.6    | 7.9    | 7.6    |
+-----------+--------+--------+--------+--------+--------+--------+
| Poland    | 286    | 298    | 298    | 7.0    | 7.3    | 7.1    |
+-----------+--------+--------+--------+--------+--------+--------+
| Slovenia  | 5      | 6      | 6      | 4.4    | 6.8    | 6.5    |
+-----------+--------+--------+--------+--------+--------+--------+
| Slovak R. | 32     | 35     | 35     | 6.0    | 7.3    | 6.5    |
+-----------+--------+--------+--------+--------+--------+--------+
| **Total   | **4    | *      | *      | *      | *      | *      |
| NMS-10**  | 88.3** | *515** | *515** | *6.8** | *7.4** | *7.0** |
+-----------+--------+--------+--------+--------+--------+--------+
| **Total   | **     | **     | **     | *      | *      | *      |
| EU-25**   | 2205** | 2160** | 2125** | *8.8** | *9.9** | *9.5** |
+-----------+--------+--------+--------+--------+--------+--------+

Note: Area does not include sugar beet grown for other purposes than for
sugar, for example, alcohol, but this production is included in the
Sugar Beet PSD.

## New Member States Production

  ----------------------------------- ------------ ----------- -----------
  000's MT                            **NMS-10**               

                                      **03/04**    **04/05**   **05/06**

  Beginning Stocks                    1501         1443        1414

  Beet Sugar Production               3305         3654        3518

  Cane Sugar Production               0            0           0

  TOTAL Sugar Production              3305         3654        3518

  Raw Imports                         82           7           7

  Refined Imp.(Raw Val)               600          250         250

  TOTAL Imports                       682          257         257

  TOTAL SUPPLY                        5488         5354        5189

  Raw Exports                         19           0           0

  Refined Exp.(Raw Val)               460          725         660

  TOTAL EXPORTS                       479          725         660

  Human Dom. Consumption              3550         3200        3264

  Other Disappearance                 16           15          16

  Total Disappearance                 3566         3215        3280

  Ending Stocks                       1443         1414        1249

  TOTAL DISTRIBUTION                  5488         5354        5189
  ----------------------------------- ------------ ----------- -----------

Source: FAS/USEU and FAS/NMS Posts estimates.

Note: NMS trade includes trade between different acceding EU countries.

# Consumption

No significant changes to consumption are forecast for MY 2005/06, with
EU-25 sugar consumption estimated at 17.77 MMT for MY 05/06, virtually
unchanged from 17.70 MMT in MY 04/05. These numbers hide two offsetting
effects from MY 03/04 to MY 04/05 -- firstly, the EU's net export of
sugar containing products, included in total domestic consumption is
assumed to have risen from 250,000 MT of raw sugar in 2003/04 to 370,000
MT in 2004/05. Secondly, there appears to be a decline in consumption on
the 10 New Member States, falling from 3.550 MT in 03/04 to 3.215 MMT on
04/05. This drop is probably more due to a decline in sugar purchases as
consumers use up stocks of sugar they purchased prior to EU accession.
It is assumed that this lower level of consumption will continue into MY
05/06.

# Stocks

While EU sugar policy has a system for producers to sell their in-quota
output to the EU at a guaranteed minimum price -- so called intervention
purchases -- until recently, it has hardly ever been used since the EU
sugar regime was set up in the late 1960's. The last intervention
purchase dated back to 1986.

However, in early 2005, the first quantities of EU sugar have been
accepted into intervention. In early April, 250,000 MT of sugar has been
offered into intervention across the EU. This figure could rise further
during the remaining couple of months to June, the end of the 04/05
marketing year, with trade estimates of a stock overhang of between
500,000 MT and 800,000 MT.

Intervention is reportedly being driven by a combination of a higher
than expected output in MY 04/05, apparently lower consumption in the
New Member States, as well as the restart of preferential imports from
the former Yugoslavia. In addition, trade sources have highlighted that
the level of export subsidies being paid out this year is lower than
what they would have otherwise expected, meaning that profits would be
higher by putting sugar into intervention.

It is not clear how the Commission will respond, given that they now
find themselves in the unusual position of controlling a substantial
quantity of sugar. It is likely that the sugar will eventually be
exported with subsidies, using the first part of the export subsidy
allocations that would normally have gone to quota sugar. This would
lead to reduced quota being available in the next sugar campaign, known
as declassification. With the expectation of lower quotas in 2005/06 due
to the intervention stocks, it would be logical for there to be reduced
beet plantings. However, intervention may have occurred too late into
the planting season, with farmers having already made their area
allocation decisions, to have much practical impact on area sown to
sugar beets in the forthcoming campaign.

###### EU Sugar Intervention to April 2005

  -------- ----------- ---------- ---------- ---------- ---------- ----------
  MT                   Total      France     Belgium    Slovenia   Sweden

           Volume      51,000     3,000      38,000     10,000     0
           Rejected                                                

           Volume      247,348    136,340    52,000                59,038
           Accepted                                                
  -------- ----------- ---------- ---------- ---------- ---------- ----------

Source: [DG
Agriculture](http://forum.europa.eu.int/irc/DownLoad/kVeqA-JHmmGtZo2GF--QMFSzRZPfoCW7fs8Rq0d4AF2-TC2tGhDWPNsE5Djs9FtuLVifvl0RCF-9gqmf-/recap 15 avril 2005 bis.pdf),
European Commission. Amounts are for white sugar except the Swedish
quantity which is raw sugar.

###### New Member States 'excessive stocks'

In the run up to EU accession on May 1 2004, the EU passed a series of
legislation designed to prevent traders in the New Member States
stocking up on commodities with high prices in the EU. These so-called
'surplus stocks' would then eventually be taxed at the level of the EU
import tariff (circa EUR 500/MT), if they had not been exported,
converted (for example into biofuel) or destroyed within a year of EU
enlargement. The Commission has assessed that in five NMS -- Estonia,
Cyprus, Latvia, Slovakia and Malta -- there have been 'excessive' stocks
amounting to some 180,000 MT, of which around half this volume is in
Estonia. There has been considerable political discussion over these
fines, the Estonian fine was reported initially to be over 2% of
Estonian GDP. The Estonian government had countered that the large
volume of sugar was needed by Estonians who are keen jam-makers! The
Commission has not yet finalized what action it will take, though the
Commission could impose fines of up to EUR 90 million on the five
countries. It has however pushed back the deadline for elimination of
these stocks from April 2005 to November 2005.

# Trade

The European Commission have introduced Tariff Rate Quotas (TRQs) for
sugar exports from Serbia and Montenegro (180,000 MT), Bosnia and
Herzegovina (12,000 MT)and Albania (1,000 MT)[^1]. This follows the 2003
suspension of preferential imports from Serbia due to fraud concerns. It
had been expected that the Commission would only grant a 150,000 MT TRQ
to Serbia.

# Policy

## Reform of the Sugar Regime

In November, Mariann Fisher Boel replaced Franz Fischler as the European
Agriculture Commissioner. She has continued to push strongly for reform
of the sugar regime along the same lines as the Fischler's reform
proposals in July 2004. This would involve price cuts of around one
third and quota cuts (2.8 MMT) partially compensated by direct income
transfers. In addition, sugar quotas could be transferred from one
Member State to another. However, this idea has caused considerable
controversy as it would likely lead to the end of sugar beet growing and
sugar production in the least competitive Member States. Fisher Boel has
recently stated that the Commission would review this proposal, so the
quota transfer proposals may get watered down or changed in some form,
possibly leaving some degree of control over quota transfers in the
hands of Member State interests, maybe backed with compensation funds.
Other changes to the reform proposals that the Commissioner has flagged
are a delay in the start of the reform to the beginning of the 2006/07
marketing year, as well as dropping the requirement for a review of the
sugar reform in 2008. This 2008 review could have lead to a deepening of
the sugar reform.

The October 2004 GAIN Report E34087, [EU Sugar
Semi-Annual](http://www.fas.usda.gov/scripts/gd.asp?ID=146118041),
provides an overview of the key points of the Commission's
[proposals](http://europa.eu.int/comm/agriculture/capreform/sugarprop_en.pdf)
to reform the EU sugar regime. Further information on the sugar reform
proposals as well as links to the Commission background documents can be
found on the sugar pages of the FAS/USEU website:

<http://www.useu.be/AGRI/sugar.html>

The Commission currently aims to complete Council approval of sugar
reform by the November 2005 EU Agriculture Council. This is partly in
order to try to prevent the issue of EU sugar policy dominating the
forthcoming WTO Ministerial Meeting in Hong Kong in December. However,
November is considered as an ambitious (i.e. optimistic) timetable by
some commentators.

Formal reform proposals are currently expected 'before the summer',
likely to mean June or July 2005. However, the Commission will not be in
a position to finalize its proposals until the results of the EU's
appeal against the WTO Panel on EU Sugar Export Subsidies are published
at the end of April.

It should also be noted that there is still considerable opposition to
the Commission's current reform proposals, from many beet farmers and
sugar processors, as well as 10 Member State governments who wrote to
the Commission in November, 2004, opposing reform proposals[^2].

## WTO Panel on EU sugar export subsidies

Final results from the appeal by the EU against the findings of the
Appellate Body are due to be published on April 28^th^ 2005.

In September 2004, a [WTO
Panel](http://www.wto.org/english/tratop_e/dispu_e/265r_e.pdf) requested
by Brazil, Australia and Thailand concerning EU export subsidies for
sugar found against the EU[^3]. The Panel focused on two issues --
ACP/India re-exports and C sugar (over quota production that must be
exported). The WTO Panel found that the 1.6 MMT of ACP sugar that the EU
imports per year and exports a corresponding level with subsidies should
be counted against its export subsidy commitments. On C sugar, the Panel
found that this benefits from a cross subsidization from A and B quota
sugar, so that it is effectively a form of export subsidy.

In January 2005, the EU appealed the WTO Panel's decision, reportedly
challenging broadly nearly all of the Panel's findings. Brazil is also
reported to have cross-appealed The appeal results are expected at the
end of April 2005.

## Danish Minister of Agriculture Criticizes beet farmers double subsidies

The Danish Minister of Agriculture, Hans Christian Schmidt, has been
vocal in criticizing windfall subsidy payments due to Danish beet
farmers. On January 1, 2005, new direct payments were introduced under
the CAP reform of 2003 (see GAIN Report E34044, 'Deconstructing
Decoupling' for more details). Denmark opted to pay its farmers under a
regional model whereby each hectare would be eligible for a payment.
This new system includes Danish sugar beet farmers, who as well as
continuing to receive the benefits of the EU sugar regime, will also now
in addition receive a reported 113 million Danish Kroner per year (USD
20 m), according to Schmidt.

## EU Action Plan for ACP Sugar Protocol Countries

In February 2005, the European Commission published an Action Plan to
provide assistance to the ACP Sugar Protocol countries[^4] who will be
negatively impacted by the EU sugar reform. Currently, the ACP countries
are granted EU import quotas for up to 1.6 MMT of raw sugar annually at
a guaranteed minimum price of over EUR 500 (USD 650). Post reform, this
price is likely to drop by over a third to EUR 329/MT (USD 430). The
Guyanese President, Bharrat Jagdeo, who is responsible for agriculture
in CARICOM, said that the value of this reduction would mean USD 90
million less per year for the ACP sugar countries of the Caribbean:
Guyana, Jamaica, Barbados, St Kitts & Nevis and Trinidad & Tobago.

Reform of the EU's Common Agricultural Policy impacts on much more than
just the EU. Developing countries in the ACP group currently benefit
from an income transfer of around USD 500m/year from EU sugar import
preferences. Reform of the EU sugar policy will reduce this by lowering
the guaranteed minimum prices that ACP sugar exporters receive in the
EU. The EU is launching a financial assistance package to help the sugar
producing ACP countries adjust to changes in the CAP.

In total, sixteen developing countries will benefit from the EU's
financial aid due to EU sugar reform. Though the amount has not yet been
set out, it could be tens of millions of Euros over the life of the
eight year program. These efforts should also be seen in the context of
the EU's efforts to garner developing country support for its Doha
agenda. Several have already received high profile visits from the EU's
Trade Commissioner Peter Mandelson, with further high-level outreach
efforts likely during the course of the year. ACP Ambassadors as well as
the Mauritius Minister of Agriculture have been given the opportunity to
address the EU's Agriculture Council and EU Member State Ministers of
Agriculture.

The compensation package will likely tailor assistance for
diversification to the least efficient producers and investment aid to
those ACPs who could be efficient producers in the long run.

The Commission plans for the aid to be split among the ACP sugar
producers based on whether sugar production will be viable post EU
reform. For the highest cost sugar producers such as Barbados, Jamaica,
St Kitts and Trinidad that may be unlikely, so EU assistance will likely
be tailored towards restructuring aid, shifting resources away from
sugar production. For other countries, such as Mauritius, Fiji and
Guyana, assistance could be a mix of investment aid in the sugar sector
as well as other restructuring assistance.

The EU will negotiate with each ACP sugar producer individually to try
and get the package best suited to each country's needs. The Trade
Commissioner, Peter Mandelson, has said that he would like to see plans
in place for how the assistance would be spent by the time of the Hong
Kong WTO Ministerial meeting in December 2005.

Over the medium term, production destined to fill EU preferential quotas
is likely to switch from some Caribbean ACP countries to those ACP
members who are best able to reform their sugar sectors. Several ACP
countries have already announced ambitious reform projects in the sugar
sector, with for example, Mauritius targeting a reduction in production
costs from 20 US cents/lb to 10-12 cts/lb and Guyana from 16 cts/lb to
8-10 cts/lb. It remains to be seen how effectively this later group will
be able to benefit from EU assistance.

###### Background

Some 41% of sugar production in these 18 countries is exported to the
EU, providing 71% of the revenue to the sugar sector due to the high
guaranteed EU prices they receive. The loss of export earnings for these
countries due to the proposed price cuts could be as much as EUR
275m/year.

![](media/image2.wmf){width="6.183333333333334in" height="3.5in"}

Source: [European
Commission[^5]](http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/05/85&format=HTML&aged=0&language=EN&guiLanguage=en)

# Annex One - Balance Sheets for EU-15, NMS-10 and EU-25

**Centrifugal Sugar Balance Sheets for EU-15, NMS-10 and EU-25**

  --------------- ----------- ------- ------- ------------ ------- ------- ----------- ------- -------
  000's MT        **EU-15**                   **NMS-10**                   **EU-25**           

                  02/03       03/04   04/05   02/03        03/04   04/05   02/03       03/04   04/05

  Beginning       3864        3256    3925    1501         1443    1414    5365        4699    5339
  Stocks                                                                                       

  Beet Sugar      16211       17657   16639   3305         3654    3518    19516       21311   20157
  Production                                                                                   

  Cane Sugar      295         300     288     0            0       0       295         300     288
  Production                                                                                   

  TOTAL Sugar     16506       17957   16927   3305         3654    3518    19811       21611   20445
  Product'n                                                                                    

  Raw Imports     1742        1750    1750    82           7       7       1824        1757    1757

  Refined         250         250     250     600          250     250     850         500     500
  Imp.(Raw Val)                                                                                

  TOTAL Imports   1992        2000    2000    682          257     257     2674        2257    2257

  TOTAL SUPPLY    22362       23213   22852   5488         5354    5189    27850       28567   28041

  Raw Exports     15          3       3       19           0       0       34          3       3

  Refined         4700        4775    4700    460          725     660     5160        5500    5360
  Exp.(Raw Val)                                                                                

  TOTAL EXPORTS   4715        4778    4703    479          725     660     5194        5503    5363

  Human Dom.      14380       14501   14501   3550         3200    3264    17930       17701   17765
  Cons'n                                                                                       

  Other           11          9       8       16           15      16      27          24      24
  Disappearance                                                                                

  Total           14391       14510   14509   3566         3215    3280    17957       17725   17789
  Disappearance                                                                                

  Ending Stocks   3256        3925    3640    1443         1414    1249    4699        5339    4889

  TOTAL           22362       23213   22852   5488         5354    5189    27850       28567   28041
  DISTRIBUTION                                                                                 
  --------------- ----------- ------- ------- ------------ ------- ------- ----------- ------- -------

Note: For 2003/04, NMS trade includes trade among different acceding EU
countries, as well as trade between the EU-15 and the NMS for the EU-25.
For 2004/05, trade between the EU-25 and the rest of the world has been
allocated to the EU-15. It is also assumed that all EU-15 and NMS-10
occurs with third countries, i.e., there is no intra-EU trade recorded
in the above estimates.

**Sugar Beet Balance Sheets for EU-15, NMS-10 and EU-25**

  --------------- ----------- -------- -------- ------------ ------- ------- ----------- -------- --------
  000's MT, 000's **EU-15**                     **NMS-10**                   **EU-25**            
  ha.                                                                                             

                  02/03       03/04    04/05    02/03        03/04   04/05   02/03       03/04    04/05

  Area Planted    1779        1668     1660     489          497     515     2268        2165     2175

  Area Harvested  1779        1668     1660     489          497     515     2268        2165     2175

  Production      100790      101818   100442   19751        21684   22489   120541      123502   122931

  TOTAL SUPPLY    100790      101818   100442   19751        21684   22489   120541      123502   122931

  Utilization for 96792       97948    96572    19751        21684   22489   116543      119632   119061
  Sugar                                                                                           

  Utilizatn for   3998        3869     3869     0            0       0       3998        3869     3869
  Alcohol                                                                                         

  TOTAL           100790      101818   100442   19751        21684   22489   120541      123502   122931
  UTILIZATION                                                                                     
  --------------- ----------- -------- -------- ------------ ------- ------- ----------- -------- --------

Source: FAS/USEU Estimates

# 

[^1]: Council Regulation 374/2005 of February 28 2005, published in
    Official Journal L59/2005.

[^2]: The ten countries were Italy, Spain, Greece, Ireland, Latvia,
    Portugal, Finland, Hungary, Lithuania and Slovenia.

[^3]: http://www.wto.org/english/tratop_e/dispu_e/265r_e.pdf

[^4]: The ACP is composed of developing countries that were former
    British, French and Portuguese colonies. The ACP Sugar Protocol
    countries are: Barbados, Belize, Guyana, Jamaica, Trinidad and
    Tobago, St Kitts and Nevis, Fiji, Republic of Congo, Cote D'Ivoire,
    Kenya, Madagascar, Swaziland, Tanzania, Zambia and Zimbabwe.

[^5]: http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/05/85&format=HTML&aged=0&language=EN&guiLanguage=en