Required Report - public distribution

**Date:** 7/15/2005

**GAIN Report Number:** E35143

E35143

**EU-25**

Sugar

**EU proposes radical sugar reform**

2005

**Approved by:**

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

#### U.S. Mission to the EU

**Prepared by:**

Peter Talks

**Report Highlights:**

The European Commission has published proposals to radically alter the
shape the EU\'s sugar regime. The proposals center on a radical new
quota buyback scheme, which would likely see the end of EU sugar
production in southern Europe, eventually reducing sugar production in
the EU by at least one third. There are also price cuts of 40%, with
beet growers partially compensated through increased direct payments.
The Commission will likely face considerable political opposition to the
proposals. The Commission would like to get the reforms formally
approved by November, though this target may be a little ambitious.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Brussels USEU \[BE2\]

\[E3\]

[Summary 2](#summary-1)

[EU Sugar Reform Proposals 3](#eu-sugar-reform-proposals)

[Reaction 4](#reaction)

[Analysis 6](#analysis)

[How does the current EU Sugar Regime work?
9](#how-does-the-current-eu-sugar-regime-work)

# Summary {#summary-1}

With tentative estimates of future EU sugar production declining by
between one quarter and one third, the Commission proposals are calling
for a rapid and radical overhaul of both EU sugar policy and the
structure of the EU sugar industry, attempting to introduce market
forces into a sector which has long been heavily regulated and
maintained highly profitable operators. Even if the proposals inevitably
get watered down slightly they still represent a radical and ambitious
policy change from Agriculture Commissioner Mariann Fisher Boel.

With the current EU sugar regime due to expire in mid-2006, pressures
have been building for reform of the EU sugar policy, one of the last
major unreformed sectors of the EU Common Agricultural Policy (CAP). The
EU sugar price is around triple the world price, and roughly one quarter
of EU production has to be exported with subsidies. A WTO Panel also
recently found against many aspects of the EU sugar export policy.

On June 22, the European Commission presented new proposals for the
reform of the EU sugar regime. The proposals called for a 39% price cut,
as well as offering a quota buyback scheme and some new quota that the
more efficient sugar processors can effectively purchase through the
Commission. This quota sale along with a temporary restructuring charge
on remaining quota holders will finance the buy out. Beet growers will
be compensated with direct income payments equal to around 60% of the
value of the price cut they face.

The European Commission is keen to get the proposals formally approved
(by the Council) by November in order to try and avoid any potential for
EU sugar policy to become an issue at the WTO Ministerial meeting in
Hong Kong in December. Should the legislation be delayed beyond the
Commission's November target date, it could mean that processors and
growers make production and planting decisions for the 2006/07 marketing
year before the eventual outcome of the reform is known. However, many
observers think that November may be an over ambitious target. In any
case, proposals will need to be agreed by June 2006 at the absolute
latest when the current sugar regime runs out.

Reaction to the proposals has been, unsurprisingly, strong -- they
effectively spell out the end of sugar production in the south of Europe
-- although most actors accept the inevitability that EU sugar policy
needs adapting. The Commission, by having switched from using a stick
(compulsory quota cuts in previous reform proposals published last
summer) to a carrot approach, (voluntary quota buybacks with a
reasonably generous offer that represents perhaps 10 to 15 years profits
for some inefficient sugar producers), may have alleviated some
political opposition to the proposals. Northern sugar producers such as
France, Germany and the UK (quietly) favor the proposals as they give
them a chance of creating a sustainable sugar industry post-Doha.
Preliminary discussions are seeing the emergence of a substantial block
of countries opposed to the proposals, composed of Poland, Italy, Spain,
Ireland, Greece, Portugal and Finland. This grouping is more than
sufficient to form a blocking minority. In addition, Latvia, Lithuania,
Austria and Belgium do not appear to be particularly convinced by the
Commission's proposals. The Commission will need to review in what form
they can revise proposals to lessen opposition from some of these
countries, without altering the fundamental principles of the reform.
Beet growers have also voiced strong opposition to the proposals as
being "too drastic", without, in their opinion, ensuring the
sustainability of the sector.

The European Commission's estimates are that EU sugar production will
decline from 20 MMT to around 12 MMT by 2012, though with a possible
quota buyback of around 4 to 6 MMT (with a current quota of around 17
MMT plus 3 MMT of over quota production), this would perhaps be the low
end of future production estimates of perhaps 12 MMT to 14 MMT. The EU
would cease to be a net exporter, instead becoming a net importer, with
imports continuing from the ACP countries as well as increasingly from
the least developed countries.

# EU Sugar Reform Proposals

[Reform Outline]{.underline}

-   Prices of sugar and sugar beet cut around 40% in two steps between
    2006/07 and 2007/08;

-   Intervention and intervention prices to be abolished, replaced with
    a 'reference price' to act as a trigger for eligibility for private
    storage aid.

-   Minimum beet sugar prices cut in two annual steps to €25.05, from
    €43.63 today. Prices paid to beet growers will be allowed to
    fluctuate 10%;

-   Beet growers to be compensated for 60% of the price cut through
    direct income payments;

-   The current EU-25 quota of 17.4 MMT of sugar is maintained (no quota
    cut);

-   The new regime will last for nine years from 2006/07 to 2014/15;

-   A restructuring fund will be set up to buy back sugar quota. In
    2006/07, quota can be sold back to the Commission by sugar
    processors for €730/MT, this amount falls by €100 to €105/MT/year to
    the final year of the buy back offer, to €420/MT in 2009/10;

-   Processors keeping their quota will have to pay a restructuring
    charge the fund, set at €126.4/MT in 2006/07, €92.3/MT in 2007/08
    and €64.5/MT in 2008/09;

-   An additional 1 MMT of new quota will be offered for sale to current
    C sugar producers for €730/MT, the money will be added to the
    restructuring fund;

-   No cross border quota transfers allowed (the 2004 reform proposals
    enabled cross border transfers);

-   In 2010, the Commission can unilaterally reduce quotas to a
    'sustainable' level once the restructuring fund has finished in
    2009/10;

-   No review of price and quota levels in 2008 (as foreseen in the July
    2004 proposals);

-   Sugar beet grown for ethanol/industrial uses eligible for the
    €45/hectare carbon credit/set-aside;

-   EU sugar marketing year to be moved from July/June to
    October/September from 2007/08;

-   A price reporting system to be established;

-   Over quota production can no longer be exported as C sugar, but is
    to be carried over to the next marketing year, to be used as the
    first part of the following year's quota. The Commission can
    additionally order some quota sugar to be withdrawn from the EU
    market for up to one year. There is also scope to introduce a policy
    similar to the super levy in the dairy sector, where over quota
    production leads to steep penalties to producers.

-   EBA countries continue to receive unlimited zero duty access to EU
    sugar markets from 2009/10, with a minimum price for raw sugar of
    €303/MT;

-   ACP and EBA imports of raw sugar restricted to EU sugar refineries,
    as in the previous regime. However, from 2010, the sugar processors
    can also compete with the sugar refiners for raw sugar imports.

The restructuring fund is expected to raise €4.5 billion, all of which
the Commission expect to pay out. The envelopes for direct payments to
beet growers are €907 m in 2006/07, rising to €1,531 m in 2007/08.

**Overview of the reform proposals on EU sugar prices**

  ---------------------- ------------- ----------- ----------- ----------- -----------
  EUR/MT                 **Reference   **06/07**   **07/08**   **08/09**   **09/10**
                         Period**                                          

  White Sugar Reference  631.9         631.9       476.5       449.9       385.5
  Price                                                                    

  Sugar Price net of     631.9         505.5       384.2       385.5       385.5
  Restructuring Amount                                                     

  Restructuring Amount                 126.4       92.3        64.5        

  Price reduction (with                20%         39%         39%         39%
  restructuring amount)                                                    

  Reduction in                         -41.1%      -41.1%      -41.1%      -41.1%
  'effective' price of                                                     
  sugar                                                                    

  Raw sugar reference    496.8         496.8       394.9       372.9       319.5
  price                                                                    

  Minimum Beet Price     43.63         32.86       25.05       25.05       25.05

  Reduction                            24.7%       42.6%       42.6%       42.6%
  ---------------------- ------------- ----------- ----------- ----------- -----------

New Sugar Quota of 1 MMT to be made available to:

  ------------------------------------ ----------------------------------
  **MT**                               **Amount**

  France                               351,695

  Germany                              238,560

  Poland                               100,551

  UK                                   82,847

  Netherlands                          66,875

  Belgium                              62,489

  Denmark                              31,720

  Czech Republic                       20,070

  Austria                              18,468

  Sweden                               17,722

  Lithuania                            8,985
  ------------------------------------ ----------------------------------

# Reaction

[EU Member State Governments]{.underline}

For the Commission proposals to be approved, a qualified majority vote
(QMV) of EU Member States will be needed in the European Council[^1].
Following working level discussions as well as preliminary discussions
in the July Agriculture Council, Poland, Italy, Spain, Ireland, Greece,
Portugal, and Finland could all be broadly described as opposed to the
current proposals. This group would constitute a blocking minority,
though the Commission and UK Presidency would be aware that it would not
need many of these countries to switch to the pro camp for the proposals
to be approved. Agriculture Commissioner Mariann Fisher Boel has denied
that this group would constitute a blocking minority, no doubt aware
that the modus operandi in Brussels is that concessions should ensure
that opposition weakens.

Further, Latvia, Lithuania, Hungary, Austria and Belgium all have
objections to aspects of the current proposals. The Commission will
undoubtedly be looking at ways to address the concerns of these
countries, without altering the fundamental lines of the reform.

[Beet Growers and Sugar Processors]{.underline}

Beet farmers, represented by CIBE (Confederation of European beet
growers) as well as EFFAT (European Federation of Food, Agriculture and
Tourism Trade Unions) have fiercely criticized the Commission's plans,
describing them as "brutal", arguing that the proposals go too far in
cutting both prices and reducing production, leaving the sustainability
of the sector at stake.

These two groups, in combination with CEFS (who represent European sugar
processors) have presented that the proposals would lead to the loss of
up to 25,000 jobs (out of 60,000 jobs directly linked to the sugar beet
industry Europe wide). These figures are based on four out of every ten
sugar factories closing down.

[CEFS](http://www.cefs.org/) have also highlighted that the Everything
but Arms scheme could also become a vehicle for widespread fraud should
the proposals be approved

[Consumers Groups]{.underline}

[BEUC](http://212.3.246.142/1/DMNJOFIBEPDGEABKJDAELLKEPDB19DB1269DW3571KM/BEUC/docs/DLS/2005-00553-01-E.pdf)
(European Consumer's Organization) welcomed the reforms but were
critical that national quotas would be maintained, arguing that this
would continue to restrict competition, thus ensuring that "consumers
may enjoy little if any benefits in terms of lower sugar prices, whilst
contributing heavily to the 'restructuring' of the sector through
taxes".

[Food Industry]{.underline}

European food industry groups
([CAOBISCO](http://www.caobisco.com/english/press-releases-full.asp?ID=45)
and [CIUS](http://www.cius.org/)) have broadly welcomed the Commission's
proposals, but are quick to stress that much more work needs to be done
on the proposals to ensure that the EU sugar market becomes truly
competitive.

[Isoglucose Industry]{.underline}

The European Isoglucose industry has criticized the proposals, saying
that the 300,000 MT increase in Isoglucose quotas will not enable the
development of a competitive industry in the EU.

[NGOs]{.underline}

NGO Oxfam has criticized the proposals for being "a harsh, blunt reform
package that will hurt the most vulnerable", even if they support the
need for reform. See [Critique of the EC's Action Plan for ACP countries
affected by EU sugar
reform](http://www.oxfam.org/eng/pdfs/bp050601_eu_sugarplan_final_english.pdf),
OXFAM and WWF Joint Paper, June 2005, for more details.

[ACP Countries]{.underline}

The ACP Countries in a
[communiqué](http://www.acpsugar.org/docs/ACP press release - 220605.PDF)
have described the proposed reforms as "Reform too fast, too deep, too
soon", citing that they would lose around €400 million income per year.
According to Clement Rohee, Minister of Foreign Trade of Guyana and
Ministerial spokesperson on sugar for the Caribbean Community (CARICOM),
"It is impossible to overstate the devastating impact the price cuts and
timescale proposed by the Commission will have on ACP countries. ...
Under these conditions the sugar industries in many countries will be
simply unable to survive, while in other producing countries the
so-called reform will inevitably lead to severe cutbacks with disastrous
socio-economic consequences."

In contrast, Stefan Tangermann, in charge of Agriculture at the OECD has
argued that while some ACPs will lose out, that they would ultimately
benefit from the changes, with better results being achieved than if
they remain dependant on what is effectively EU financial aid (as at the
moment).

[Least Developed Countries]{.underline}

The Least Developed Countries (LDCs) who benefit from the EU's
Everything But Arms (EBA) initiative released a
[report](http://www.acpsugar.org/ldc/lmcsugarreporten.pdf) arguing for
the unlimited access to EU sugar markets from 2009/10 to be converted
into a limited zero duty quota to try and ensure that the LDCs could
continue to benefit from higher EU prices[^2]. The 40% price cut in the
reform proposals removes much of the benefit to the LDCs of their
preferential access.

# Analysis

The restructuring fund represents an ambitious and radical proposal by
the Commission that seeks to reduce EU sugar production by up to 40% in
a short space of time. The Commission has offered a carrot to sugar
processors to voluntarily cease sugar production, sweetened by a €730/MT
buy out. The buy out will also look more attractive to the less
competitive sugar producers in the EU given the 40% cut in prices due to
be rapidly phased in. The Commission also maintains a stick in reserve
with the right to reduce quotas once the buy back offer has expired in
2009/10.

Back of the envelope calculations suggest that the buyback could lead to
between 4 MMT and 6 MMT of the quota being bought back, out of current
EU quotas of around 17 MMT. The restructuring fund could pay for towards
6 MMT of quota to be bought out.

It is not yet clear what the political reaction to the proposals will be
-- in their current form they would effectively lead to the end of sugar
production in most of southern Europe as well as some of the New member
States, although it is unclear whether these countries will be able to
force the Commission to water down the proposals sufficiently to ensure
the long term viability of sugar production in these countries.

Strong political opposition to the proposals could force the Commission
to back track over aspects of the reform, including options such as
reducing the price cut, increasing compensation to either beet growers
or sugar processors, or giving Member States the right to veto sugar
processors who wish to sell their quota back to the Commission. This
would give Member State governments some degree of control over domestic
sugar industries, particularly if they perceive that foreign owned
processors may not operate in their national interests (by ending sugar
production). This scenario could arise in some of the NMS, where west
European producers own some sugar firms. A reduction in the proposed
price cut of 39% may also be seen as unlikely, as this has been
supported by Germany, France, the Netherlands, UK and the Czech
Republic.

The 2005/06 marketing year also looks very difficult to predict, with a
complex set of pressures due to the change-over from the current sugar
regime to the new regime in 2006/07, an overhang of sugar from 2004/05
seen in sugar being offered into intervention for the first time in
nearly twenty years, possible issues for the Commission to resolve in
declassifying (reducing the annual quota) in October 2005, as well as
any WTO Sugar Panel compliance issues that could arise. In addition,
there are likely to be substantial cuts made to the MY 05/06 EU sugar
quotas to ensure that the EU meets its Uruguay Round WTO export subsidy
commitments. Quotas could be cut by around 10%, 2 MMT in October, a move
which would likely lead to up to 2 MMT of additional EU sugar exports
during MY 05/06.

The Commission has adopted a carrot rather than a stick approach to
reform by offering a quota buyback. In addition, the more efficient
sugar processors will probably welcome the proposals, which mean that
they can try and reduce operating costs by not only maintaining current
production levels but also they could marginally expand output through
the 1 MMT of new quota that can be 'bought'. French and German sugar
interests have been arguing for price cuts but not quota cuts, though
they probably would not want to see cuts as deep as the 40% the
Commission is currently putting on the table. A small European sugar
processor recently went on record describing how French and German sugar
interests are looking for price cuts to force inefficient producers
(notably in southern Europe) out of sugar production as a means to be
able to maintain the viability of their own businesses.

The Commission's impact assessment of the proposed sugar reform predicts
a massive cut in EU sugar production, from 20.3 MMT to just 12.4 MMT by
2012/2013. Wildcards in the estimates include how much sugar is imported
from the EBA countries, as well as how much quota is reduced by the
restructuring fund buyback. The Commission estimates cited above of 12.4
MMT EU production suggest a higher level of EBA imports than earlier
Commission estimates produced in November 2004. This change leads to the
EU production decline perhaps being higher than it might otherwise be.

**European Commission estimates of EU-25 Sugar Balance post reform**

+-----------------------------+------------+------------+------------+
|                             | **Base     | **2        | **2        |
|                             | Year**     | 012/2013** | 012/2013** |
|                             |            |            |            |
|                             |            | **Reform** | **No       |
|                             |            |            | Reform**   |
+-----------------------------+------------+------------+------------+
| **Prices**                  |            |            |            |
+-----------------------------+------------+------------+------------+
| Institutional Price         | 631.9      | 385.5      | 560.0      |
+-----------------------------+------------+------------+------------+
| Reduction                   |            | 39%        | 11%        |
+-----------------------------+------------+------------+------------+
| **Quantities**              |            |            |            |
+-----------------------------+------------+------------+------------+
| Consumption                 | 16.4       | 16.0       | 16.0       |
+-----------------------------+------------+------------+------------+
| Quota                       | 17.4       | *17.4*     | *17.4*     |
+-----------------------------+------------+------------+------------+
| Increase in Isoglucose      |            | 0.3        | 0          |
| production                  |            |            |            |
+-----------------------------+------------+------------+------------+
| C sugar production          | 3          |            |            |
+-----------------------------+------------+------------+------------+
| Total EU sugar production   | 20.3       | 12.4       | 11.4       |
+-----------------------------+------------+------------+------------+
| **Total Imports**           | 1.9        | 3.9        | 5.2        |
+-----------------------------+------------+------------+------------+
| o.w. ACP                    | 1.3        | 1.3        | 1.3        |
+-----------------------------+------------+------------+------------+
| o.w. EBA                    | 0.2        | 2.2        | 3.5        |
+-----------------------------+------------+------------+------------+
| o.w. MFN                    | 0.1        | 0.1        | 0.1        |
+-----------------------------+------------+------------+------------+
| o.w. Balkans                | 0.3        | 0.3        | 0.3        |
+-----------------------------+------------+------------+------------+
| **Total Exports**           | 5.9        | 0.6        | 0.6        |
+-----------------------------+------------+------------+------------+
| o.w. Non Annex 1            | 0.4        | 0.4        | 0.4        |
+-----------------------------+------------+------------+------------+
| o.w. A/B with subsidies     | 2.5        | 0.2        | 0.2        |
+-----------------------------+------------+------------+------------+
| o.w. ACP equivalent         | 1.6        | 0          | 0          |
| re-exports                  |            |            |            |
+-----------------------------+------------+------------+------------+

Source: European Commission

Notes: MFN, most-favored nation. Non-Annex 1 is processed food products.

The level of estimated future EBA imports is clearly a wildcard in these
forecasts. The November 2004 modeling exercise estimates between 1.0 to
1.5 MMT EBA imports at a refined EU price of €421/MT, depending on the
level of swaps[^3]. From the November estimates (which use the prices
from the July 2004 reform proposals), the guaranteed raw sugar price for
EBA and ACP imports is around €330/MT. In the June 2005 estimates, the
guaranteed raw sugar price for EBA and ACP imports is around €300. It is
not clear why the Commission have decided to alter their assumptions on
EBA and swap trades in particular in the June modeling exercise,
suggesting that a rather large proportion of EBA sugar production would
be exported to the EU, despite the lower price and hence price
differential with the world sugar price.

**Commission Estimates of EU sugar production since September 2004**

+----------------+------+------+------+------+------+------+------+
| Published      |      | **S  |      | #    |      | **   |      |
|                |      | epte |      | #### |      | June |      |
|                |      | mber |      | ## N |      | 20   |      |
|                |      | 20   |      | ovem |      | 05** |      |
|                |      | 04** |      | ber  |      |      |      |
|                |      |      |      | 2004 |      |      |      |
+----------------+------+------+------+------+------+------+------+
|                | Base | Low  | High | (Low | (    | Re   | No   |
|                |      | Esti | Esti | EBA) | High | form | Re   |
|                |      | mate | mate |      | EBA) |      | form |
+----------------+------+------+------+------+------+------+------+
| Year           |      | 201  | 201  | 201  | 201  | 201  | 201  |
|                |      | 1/12 | 1/12 | 3/14 | 3/14 | 2/13 | 2/13 |
+----------------+------+------+------+------+------+------+------+
| Price Cut      |      | 7%   | 7%   | 33%  | 33%  | 39%  | 11%  |
+----------------+------+------+------+------+------+------+------+
| Sugar Price    | 6    | 588  | 588  | 421  | 421  | 3    | 560  |
|                | 31.9 |      |      |      |      | 85.5 |      |
+----------------+------+------+------+------+------+------+------+
| Consumption    | 16.3 | 16.3 | 16.3 | 16.3 | 16.3 | 16.0 | 16.0 |
+----------------+------+------+------+------+------+------+------+
| Quota          | 17.4 | 13.4 | 14.4 | 14.6 | 14.6 | 17.4 | 17.4 |
+----------------+------+------+------+------+------+------+------+
| Production     | 17.3 | 13.3 | 14.3 | 14.4 | 13.7 | 12.4 | 11.4 |
| under quota    |      |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+
| Total          | 20.3 |      |      |      |      | 12.4 | 11.4 |
| Production     |      |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+
| Total Imports  | 1.9  | 5.6  | 4.6  | 2.6  | 3.1  | 3.9  | 5.2  |
+----------------+------+------+------+------+------+------+------+
| o.w. EBA       | 0.2  | 3.5  | 2.5  | 1.0  | 1.5  | 2.2  | 3.5  |
+----------------+------+------+------+------+------+------+------+
| Total Exports  |      |      |      |      |      | 0.6  | 0.6  |
+----------------+------+------+------+------+------+------+------+
| o.w. exports   | 2.9  | 2.6  | 2.6  | 0.7  | 0.5  | 0.6  | 0.6  |
| of A/B         |      |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+
| o.w. non annex | 0.4  | 0.4  | 0.4  | 0.5  | 0.5  | 0.4  | 0.4  |
| 1              |      |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+
| o.w. with      | 2.5  | 2.2  | 2.2  | 0.2  | 0    | 0.2  | 0.2  |
| subsidies      |      |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+

Notes: The base year numbers for all three modeling exercises are
virtually identical, except only the June 2005 exercise includes C
sugar, the others only cover quota sugar.

Total Production is quota production plus C sugar production, only the
June 05 estimates include C sugar (3 MMT in the base year, but no C
sugar produced in 2012/13). The C sugar is exported, so in the base
period, the total exports are 5.9 MMT.

Sources:

[DG Agriculture\'s background notes on sugar reform, as presented to the
Council - September
2004[^4]](http://register.consilium.eu.int/pdf/en/04/st12/st12672-ad01.en04.pdf)

[Addendum to Commission Background Notes with revised medium term PSD
forecasts - November
2004[^5]](http://register.consilium.eu.int/pdf/en/04/st12/st12672-ad03.en04.pdf)

[Revised Impact Assessment, June
2005[^6]](http://europa.eu.int/comm/agriculture/capreform/sugar/impact_en.pdf).

# How does the current EU Sugar Regime work?

Member States are given quotas, which they allocate to sugar processors
in that country. Beet growers are allocated 'delivery rights' for an
amount of sugar, to provide beet to the processors.

Currently, the EU sugar market operates with A and B quotas (the only
difference between the two types of quota is that a levy is paid on B
production, effectively receiving a lower price). A and B quota sugar
can be sold on the EU internal market or exported (for which it is
eligible for export subsidies). Over quota production is called C sugar.
C sugar must be exported outside the EU without EU export subsidies. In
the EU-25, typically around 17 MMT of A+B sugar is produced per year and
around 3 MMT C sugar.

The price of sugar is backed by the availability to sell it to the EU
for a price of EUR 632/MT (refined sugar). This provides a floor to the
price of sugar in the EU. In practice, A+B quota sugar is usually sold
at between 10% to 20% higher than this price.

The EU has long standing preferences with some of the countries of the
ACP to import up to 1.6 MMT of sugar per year. The Everything but Arms
(EBA) Regulation fully liberalizes imports of sugar from the 48 least
developed countries (LDCs) by 2009. Both these sets of preferential
imports are guaranteed to receive the high EU prices. To prevent any
non-preferential imports, the import tariff is maintained at a
prohibitive level.

With EU-25 sugar consumption at around 17.7 MMT, and EU-25 production
around 20 to 22 MMT, with a further 1.7 MMT imported, around 4 to 6 MMT
must be exported each year. However, as the EU price is around triple
the world price export subsidies are used to bridge the gap between EU
and world prices for up to 2.6 MMT. The remaining exports are C sugar
exports, exported without subsidies.

In September 2004, the WTO ruled that the EU was in breach of its export
subsidy limits of up to 1.254 MMT export subsidies. The EU had not been
counting 1.6 MMT of sugar exported with subsidies against this limit
(arguing that this was equivalent to the re-export of the ACP raw sugar
preferential imports), not had it been counting C sugar exports. A WTO
Panel rules that the EU should count both of these against its export
subsidy limits, with C sugar being effectively cross subsidized by A and
B quota sugar, which had an effect like an export subsidy according to
the Panel.

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

E-mail: AgUSEUBrussels@usda.gov

Related reports from USEU Brussels, EU Member State and Candidate
Country posts:

  ------------------------------------------------------------------------------------------------------------------------------------------------------
  **Report Number**                                            **Post**   **Title**                                                         **Date
                                                                                                                                            Released**
  ------------------------------------------------------------ ---------- ----------------------------------------------------------------- ------------
  IT5025                                                       Rome       [Italian Views on Sugar                                           July 05
                                                                          Reform](http://www.fas.usda.gov/gainfiles/200506/146130143.pdf)   

  E35082                                                       USEU       [EU loses appeal in WTO EU Sugar Export Subsidies                 April 05
                                                                          Panel](http://www.fas.usda.gov/gainfiles/200504/146119524.pdf)    

  E35080                                                       USEU       [EU Sugar                                                         April 05
                                                                          Annual](http://www.fas.usda.gov/gainfiles/200504/146119515.pdf)   

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

  GM5010                                                       Bonn       [German Position on EU Reform Proposal for Sugar Market           February 05
                                                                          Regime](http://www.fas.usda.gov/gainfiles/200502/146118889.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>.                                                                                
  ------------------------------------------------------------------------------------------------------------------------------------------------------

[^1]: See GAIN Report E35003 for more details on how the EU voting
    structure works. The opinion of the European Parliament is also
    required, although it is non-binding.

[^2]: <http://www.acpsugar.org/ldc/lmcsugarreporten.pdf>

[^3]: Swap trade flows are the replacement of EBA produced and consumed
    sugar with world market imports so that the domestic sugar can be
    exported to the EU. The attractiveness of swap trade depends on the
    difference between world and EU prices, as well as freight costs.

[^4]: http://register.consilium.eu.int/pdf/en/04/st12/st12672-ad01.en04.pdf

[^5]: http://register.consilium.eu.int/pdf/en/04/st12/st12672-ad03.en04.pdf

[^6]: http://europa.eu.int/comm/agriculture/capreform/sugar/impact_en.pdf