EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 7.9.2010 
SEC(2010) 1016 final 
  
REPLY OF THE COMMISSION TO THE SPECIAL REPORT  
"HAS THE REFORM OF THE SUGAR MARKET ACHIEVED ITS MAIN OBJECTIVES?"  
EN 2   EN REPLY OF THE COMMISSION TO THE SPECIAL REPORT  
"HAS THE REFORM OF THE SUGAR MARKET ACHIEVED ITS MAIN OBJECTIVES?"  
SUMMARY  
I, II, III. The 2006 reform of the EU sugar mark et has successfully managed the restructuring 
of the sector, providing it with a long-term policy framework and considerably improving its 
competitiveness. EU sugar producers are now ope rating in an environment with institutional 
prices reduced by 36%, and production is more c oncentrated in high pr ofitability regions.  
The key elements of the reform were a substant ial reduction of the institutional prices and a 
temporary restructuring fund aimed at compen sating operators for giving up production quota 
and helping counterbalance the potential negative social and environmental effects of the 
reform. This created an incentive for the least competitive sugar producers to renounce their quotas. Moreover, in order to further promote the competitiveness of the EU sugar producing 
sector, additional quotas were ma de available to EU operators  in exchange for a one-off 
payment.  
The reform has been budget neut ral in terms of agricultural expenditure. Adjustment needs in 
ACP countries signatories to the Sugar Prot ocol were explicitly  recognized in the 
Commission proposal and addresse d in a specific aid programme  agreed by the Council and 
the Parliament as part of the reform package. 
The sugar reform should be considered against the background of the EU's "Everything but 
Arms Initiative" (EBA) in 2001, and the 2005 Worl d Trade Organisation (WTO) ruling on the 
EU sugar regime. The EBA granted Least Deve loped Countries (LDC) free access to the EU 
market, including sugar. The WTO ruling necess itated a reduction of subsidized EU sugar 
exports. In response, the EU had to cut its s ugar production quotas to maintain the appropriate 
market balance. Thus, some of the developments  described by the Cour t (e.g. the reduction of 
production quotas) are ultimately rather a conse quence of the two aforementioned changes in 
the broader policy environment. Others (e.g. the concentration and closure of production 
facilities) can at least partially be attributed to longer-term trends. 
V. The overall increase in competitiveness of the EU sugar sector achieved by the reform is 
evident and the Commission considers that  this objective has been fully met. 
The reform was based on a voluntary system of  quota renunciation underp inned in particular 
by a temporary restructuring fund. The choice of  abandoning or keeping production was to be 
made by every sugar producing company bearing in  mind that in the future they would have 
to secure their long-term profitability in a situ ation of substantially lower institutional prices. 
The fact that the reform simultaneously o ffered the option of abandoning and obtaining 
additional quotas responded precisely to th e objective of achieving a smaller but more 
competitive EU sugar producing sector. 
As documented in Commission table 1, the re nunciation of quota has been more pronounced 
in Member States with a low level of combined profitability, whereas 93
 % of new quotas 
have been allocated to Member States with a high combined profitabilit y. As a result of this 
process, Member States with hi gh profitability  account for 78  % of the EU quota (68  % before 
the reform) whereas Member States with low profitability now hold 5  % of the quota (12  % 
before).  
EN 3   EN VI. The Commission welcomes the Court’s acknow ledgment that the re form’s objective of 
stabilising the sugar market and sugar prices has been met. 
The higher reliance on external supplies of suga r is the result of the trade and development 
policies of the EU, and in particular the ‘Eve rything but arms’ initiative that has granted 
unlimited access to the EU market to imports from least developed countries, some of which have substantial suga r export potential.  
Moreover, the sugar regime incorporates the necessary tools to deal with a hypothetical 
situation of undersupply of the EU market main ly by converting available out-of-quota sugar 
into quota sugar. 
The Commission will shortly launch a study on price transmission in the sugar sector to shed 
more light on this issue. 
VII. In line with the princi ple of subsidiarity, the res ponsibility for addressing the 
consequences of factory clos ures (or production reductions), including the implementation of 
the necessary diversification measures, lies wi th the Member States. Nevertheless, with a 
view to securing timely implementation of th ese measures and then  avoiding unnecessary 
delays, the EU legislation contains detailed execution and payment deadlines which Member 
States are bound to meet.  
The reform entails a more competitive business environment for traditional refiners, which 
need to adjust their operations in order to remain competitive in this new scenario. The 
purpose of this transitional aid, which was not part  of the Commission’s in itial proposal, is to 
enable these companies to take the necessary  measures to improve their competitiveness. 
VIII. As far as the reform of the sugar regi me is concerned, all the changes that were 
introduced within the Common Market Organisati on (CMO) for sugar need to be taken into 
account, i.e. the transfer from measures encomp assing high guarantee prices of sugar beet, 
production and export refunds to a sy stem mainly based on direct aid to farmers. In this sense, 
the sugar regime was conceived to be budget-neutral in terms of agricultural expenditure (see 
also the Court's observation in point 89). The Commission considers that this objective has 
been achieved.  
In accordance with Article 1(3) of Council Regulation (EC) No 320/2006, the remaining 
balance in the sugar restructuring fund will be assigned to the EAGF afte r the financing of the 
measures under that fund. 
The accompanying measures for ACP countries  result from the overall EU commitment, 
within the framework of the ACP-EU partnership agreement,  to support ACP countries on 
their path to poverty reduction and sustainable development. During the process leading to the 
sugar reform, the Commission had committed itself to support the adjustment needs of privileged Sugar Protocol countr ies and made an analysis of th e impact of the sugar reform on 
ACP countries. The need for such accompanying measures to ACP countries had been duly anticipated and they do not pertain to the agricultural section of the budget. 
IX.  First indent - As a matter of course, the Co mmission always exercises great diligence to 
ensure that instruments and measures are designe d so as to ensure overall consistency and are 
based on thorough technical assessments of n eeds and objective and non-discriminatory 
criteria. This approach has also been fo llowed in the reform of the sugar market. 
Second indent - In preparing its  proposal for the rules governi ng sugar after marketing year 
2014/15, the Commission, building on the experience of  the past, will exam ine a whole series 
of options. 
EN 4   EN Third indent - The Commission is of the view that the new sugar mark et balance emerging 
from the reform, including the level of EU self-s ufficiency, is in line with Treaty provisions, 
which do not stipulate that  the EU should be self-sufficient w ith regard to every agricultural 
product. Furthermore, the sugar regime incorporates  the necessary tools to deal with situations 
of undersupply of the market, mainly by convert ing available out-of-quota sugar into quota 
sugar. 
Fourth indent - In order to shed more light on this issue, the Commission will shortly launch a 
study on price transmission in the sugar sector.  
Fifth indent - In line with th e subsidiarity principle, the responsibility for implementation of 
diversification measures and for ensuring compliance with environmental obligations lies 
with the Member States, which ar e better placed to take the necessa ry decisions in the light of 
the number of specific factors applying in each case.  
INTRODUCTION  
4. The smooth operation of a sugar regime ba sed on quotas requires quotas for isoglucose and 
insulin syrup as well, since, as the Court rightly  points out, both pr oducts are potential 
substitutes for sugar. Quotas were introduc ed at a time when the production of these 
alternative sweeteners in the Community reached  a volume that risked disrupting the normal 
operation of the sugar regime. The quota levels  fixed then correspond ed to the production 
volume of that time. 
5. The Commission would like to clarify that in the light of  the World Trade Organisation 
(WTO) ruling, there is no absolute qu antitative limit on white sugar exports: 
The WTO Panel and the Appella te Body recommended that th e Dispute Settlement Body 
(DSB) request the European Community (EC) to bring its sugar regime, to the extent it was 
found to be inconsistent with the WTO Agreement on Agriculture , in line with its obligations 
under that Agreement.  
As regards the scope of the inconsistency, in  its report of 28 April 2005 the WTO Appellate 
Body upheld the Panel’s findings that  
First indent - footnote 1 in the EC Schedule relating to preferen tial imports from certain ACP 
countries and India did not have the legal eff ect of enlarging or otherwise modifying the 
European Communities’ quantity commitment level contained in the EC Schedule, 
Second indent - the complainants (Australia, Brazil and Thailand) ha d provided prima facie 
evidence that producers/exporte rs of C (i.e. out-of-quota) sugar that exceed the EC’s 
commitment levels received ‘payments’ on export (i) through sales of C beet to C sugar 
producers below their total costs of  production; and (ii) in the form of transfers of financial 
resources, through cross-subsidisation resulting from the operation of the EC sugar regime, 
within the meaning of Article 9.1(c) of the WTO Agreement on Agriculture  (and hence 
subject to reduction commitments for export subsidies),  
Third indent - the EC had not demonstrated that its exports of C sugar and ACP/India 
(equivalent) sugar that exceeded the Europ ean Communities’ commitment level were not 
subsidised. 
Therefore the EU may allow exports of out-of-quota sugar in excess of its WTO 
commitments, provided the EU can demonstrat e that these exports are not subsidised.  
Box 1   
See reply to point 5. 
EN 5   EN 7. The Commission would like to underline at the outset that not all EU sugar exports but only 
subsidised exports should be kept within the limit imposed by the WT O ruling. Accordingly, 
quota sugar and quota and out-of-quota isoglucose,  as far as no refund is granted, are not 
subject to this limit. 
9. The objectives of the reform are directly li nked to the objectives of the CAP, which are 
enshrined in the Treaties. Moreover, it is not a shortcoming of the reform to have partly 
diverging objectives, but rather a result of its  comprehensive scope. The different objectives 
of the reform reflect the different aspects of the sugar market and need to be balanced off 
against each other. 
10. d) A lower level of quota renunciation during the second year led to a situation of oversupply 
of the domestic market, in re sponse to which the Commission  had to take two sets of 
measures: on the one hand, extending export re funds into the marke ting year 2007/08, and, on 
the other hand, setting a wit hdrawal percentage of 13.5
 % (Commission Regulation (EC) No 
290/2007) in order to preserve the st ructural balance of the market. 
e) Since the reform involved a reduction of beet pr ices, it had a direct im pact on the income of 
growers, hence the justification for compensa tion. For cereal growers the isoglucose only 
constitutes a marginal outlet for cereals w hose price is much more dependent on other 
variables. The reform did not have a noticeable impact on the income of cereal growers and therefore any compensation woul d not have been justified.  
OBSERVATIONS
 
21. In order to secure an efficient and sm ooth restructuring, the Commission opted for a 
reform model based on voluntary decisions by sugar producers. This choice has proven 
efficient in delivering the objectives of the re form. An approach based on targeting specific 
regions or individual producers would ha ve encountered not only major opposition by 
Member States and operators affected by quota cu ts but also great prac tical difficulties in 
singling out who should go out of business and who should remain.  
22. The primary objective of the reform was to  attain a new balance for the EU sugar 
producing sector in a scenario marked by a greater openness of the domestic market to 
imports from third countries. In order to achieve this obj ective, a quota reduction was 
required; remaining companies should be able to  operate in a market with substantially lower 
institutional prices.  
23. For reasons of efficiency and transparenc y, the Commission opted for a reform model in 
which the final decisions for keeping, reducing or abandoning production would be taken by 
individual sugar companies, agai nst the background of a future characterised by substantially 
lower prices. In addition, a fi nancial incentive was provided fo r companies that decided to 
surrender quota. This model does not require an analysis of the current profitability and 
prospects of every individual sugar producer in the EU. Ther efore, the Commission did not 
consider it necessary to collect such data on productivity and e fficiency for the model chosen. 
Moreover, such an analysis would concern confidential asp ects of private business, and 
comparisons between companies based thereon would not be exempt from controversy.  
The gains in competitiveness of the EU sugar in dustry after the reform are incontestable since 
operating companies now have to maintain profitability in a scenario of substantially lower 
institutional prices. 
24. The Commission has consistently made use of  the best available information for the 
purpose of estimating the profitabil ity of the sugar sector in each  Member State. In order to 
EN 6   EN secure reliability of results, these analyses ar e to be based on consolidated underlying trends 
over a meaningful period of time.  The current results of the reform have, to a very large 
extent, confirmed the validity of these estimates. 
The original Impact Assessment SEC (2003) 1022 was based on data from the ‘Study to 
assess the impact of future options for the futu re reform of the sugar CMO,’ prepared by LMC 
for the CEFS (2003), which largely confirmed previous conclusions reached by the Commission.  
The update of the Impact Assessment SEC ( 2005) 808 drew on a range of sources, including 
various studies commissioned either by sector  organisations (e.g. Comité Européen de 
Fabricants de Sucre, Conféderation Générale de  Betteraviers) or Memb er States, as well as 
contributions from the academic world.  
Accordingly, the data in table 2 of the update d impact assessment are the latest available 
suitable for the purpose of estimating the profitability of the entire sugar sector in each Member State.  
25. See the reply to point 23 for the features of  the reform model reta ined by the Commission. 
As documented in Commission table 1, the share of quota held by high-p rofitability Member 
States has increased from 68
 % to 78  % after the reform while the share of low profitability 
Member States has dropped from 12  % to 5  %. The gains in the overall competitiveness of the 
EU sugar producing se ctor are clear. 
26. The rationale for the reform was the volunt ary renunciation of 6 million tonnes of quota 
production by the 2009/10 campaign for which a four  year-restructuring scheme was set up. 
While the uptake of the first year (1.47 million tonnes renounced) was in line with this goal, 
this was not so much the case for the second ye ar (0.71 million tonnes ), which prompted the 
Commission to make the necessary adjustment s. The relevant Council Regulation (EC) No 
1261/2007 was adopted in October 2007. 
The instruments encouraging the abandonment of quota during the first two years of the 
reform proved to be attractive only to the least competitive processors and the volume of 
quota abandoned was not sufficient for the sector to find a new balance. As the Court rightly 
explains in greater detail in point 27, a major obstacle for th e industry was not a lack of 
financial incentives, but rather the uncertainties li nked to the part of the aid to be reserved for 
growers and contractors. 
28. The transitional five-year coupled aid to grow ers has to be assessed in the political context 
of the reform of the sugar sector which also  had to be supported by  those Members States 
which, as a result, would lose sugar production capacity. The sugar reform is to be assessed 
against its final results, once the transitional period is over.  
29. The total level of quota renunciation estima ted by the Commission is not based on the 
analysis of the profitability of individual comp anies but the result of  the new macro-economic 
conditions prevailing in sugar economics in th e EU, namely the WTO panel decision and the 
increased access granted to certain sugar exporters.  
Since the Commission largely shares the Court’s position that the profitability of sugar 
producers can vary within the same region, it opt ed for a reform model where final decisions 
would be taken by individual sugar companies. Against this background, the objective of the 
reform was not to achieve the new market balan ce solely by a total cessation of production in 
the least profitable Member States but to set up conditions and incentives allowing the sector 
to undertake the necessary cuts in production.  
EN 7   EN 30. The decision to cease sugar production was taken by individual sugar companies. Most 
efficient sugar producers are certainly better pl aced to keep their activ ity in a scenario of 
lower prices. As the Court rightly points out in other parts of its report, the combined 
profitability of sugar production depends not only on the econ omic performance of processing 
facilities but also on the competitiveness of  the growing sector. To be commercially 
sustainable, both should go hand in hand. 
32.  c) The introduction of an obligatory uncompens ated quota cut in 2010 if the target had not 
been met by voluntary renunciations proved instru mental in securing a large uptake from the 
third year of the reform.  
34. As the Court describes in point 27, an essent ial element that precluded a greater uptake of 
the restructuring fund during the second year was a degree of uncertainty about the actual 
level of aid to be received by the sugar proce ssor. Moreover, the Comm ission wishes to stress 
that the total aid amount was not increased dur ing the second phase of the reform in which, 
nevertheless, the objective of total quota renunciation ha s been achieved. 
35. Decisions on quota renunciation were taken vol untarily by companies on the basis of their 
own assessment of the current situation and pe rspectives. All operators in the EU were 
confronted with the same choi ce under the same conditions and everyone took the decision 
that they considered to be the most appropriate.  
36. The aim was to achieve an overall increase in  the productivity of the EU sugar sector after 
the reform, and this goal has been reached.  
Being a voluntary scheme, all EU sugar producer s had access to the restructuring scheme. The 
final decisions were taken by i ndividual undertakings bearing in mind the likely profitability 
of the company in the new market environment. 
See also the figures presented in  the Commission re ply to point 25. 
37. The competitiveness of individual companies is not only a function of the Member State 
where they operate but also their size, the performance of the processing facilities, 
management and many other factors. As ri ghtly explained by the Court, profitability 
differentials between companies located in the same Member State can be important.  
The total quota allocated before the reform to  high-profitability Member States was much 
higher than in low- profitability Member Stat es. As emerges from Annex III, quota available 
in low-profitability Member States after the reform amounts to 31
 % of the quota they held 
before the reform. In the case of high-profita bility Member States, this percentage is 81  %.  
38. The Commission is of the view that the objectiv es of the reform have been fully achieved 
and remains persuaded that individual producer s are best placed to take decisions based on 
their assessment of their future competitiveness. 
39.-40. The Commission considers that the mechanisms do not  conflict given that the 
rationale for offering the option of additiona l quotas simultaneously with incentives to 
surrender quota through the rest ructuring fund was precisely to  underpin the goal that the 
Court mentions, namely to facilitate, by increas ing their processing capa city, further gains in 
competitiveness for those companies that were already competitive.  
40 (second indent). Whereas sugar processors woul d benefit from lower beet prices after the 
reform, the price of maize and other raw mate rials used for processing isoglucose would be 
unaffected. In order to ensure that isoglucos e processors could maintain their relative 
EN 8   EN competitiveness, additional quotas free of charge were granted so that they could profit from 
economies of scale.  
41. The result of the combined application of both measures was to facilitate the concentration 
of sugar production in those undertakings with  the best prospects of remaining competitive 
over the years and, thereby, achieving an overall in crease in the competitiveness of the EU 
sugar producing sector.  
42. The purpose of the reform was to achieve the necessary adjustment of the EU sugar 
production sector in a smooth and efficient way. This required a restructuring fund for those 
companies giving up quotas and flexible adjustme nt tools for those deciding to remain in 
business. Sugar companies in the EU were calle d on to take a series of decisions based on 
their own analysis of prospects and market outlook. In this complex economic environment, 
some companies decided to buy quota first and to renounce some quota afterwards.  
The Commission is of the view that this enhanced  flexibility of operators resulted in a more 
efficient adjustment of the EU sugar sector, while giving equal treatment to all operators. 
As the Court rightly points out, the amount ch arged for quota purchases and granted for quota 
renunciations was equivalent. 
As to the alleged negative financial conseque nces, please see the Commission reply to point 
43. 
43. Whereas sugar processors would benefit from lower beet prices after the reform, the price 
of maize and other raw materials used for pr ocessing isoglucose would remain unaffected. As 
the drop in sugar prices entails a reduction in the price of isogl ucose, the reform would have 
resulted in a reduction of the profits of isoglucose producers. 
In order to make sure that isoglucose processors  could maintain their relative competitiveness 
and thereby to ensure a level playing field be tween producers of sugar and of isoglucose, an 
increase of quotas for isoglucose was granted so  that they could profit from economies of 
scale. 
The Commission would like to stress that, as is the case for sugar quotas, isoglucose 
companies giving up quota and applying for the restructuring amount had to submit and prove 
correct implementation of  a restructuring plan. 
44. The reform aimed at a global improvement of  the overall competitiveness of the sector 
including growers, through a lower minimum pr ice for beet. As Annex VI of the Court 
highlights, certain Member States decided to focus the diversification aids mainly on sugar 
beet growers.  
45. The results of the reform show that EU beet  growers have exhibited greater capacity to 
adapt than initial estimates indi cated and sugar beet growing con tinues in substantial areas of 
those Member States referred to in Table 2. 
46-47. By its nature, sugar producti on requires heavy industrial faci lities. It can only remain 
competitive if both beet production and beet pr ocessing are carried out competitively . The 
cases reported by the Court notwithstanding, it is  also possible that performing industrial 
facilities were forced to close down due to th e limited competitiveness of the beet grown in 
the surroundings. This appears to be the case described by the Court in point 30.  
50. The Court’s observations rela te to the legal basis as ad opted by the Council, which the 
Commission is bound to implement. 
EN 9   EN 51. The reform has contributed to bridging the price gap betw een the internal EU and the 
world market. The EU sugar sector is now more  market-driven and more competitive than it 
was before the reform. 
54. The Commission welcomes the Court’s acknow ledgment that the EU sugar market has 
been stable since the start of the reform. 
55. The actual level of imports from these countr ies depends on the relative attractiveness of 
the EU in comparison with the world market. Therefore, one of the goals achieved by the 
reform has been to bridge this price gap.  
56. Greater reliance on imports is not the result of the sugar reform but  the consequence of 
EU policies aimed at boosting the role of suga r as a driver for economic activity in least 
developed countries with a good production potential.  
57. The Commission is of the view that the new market balance achieved by the reform of the 
sector can be sustained over the foreseeable fu ture. Market developments seem to confirm 
this. 
58. The fact that the EU has become more depe ndent on imports is the logical consequence of 
opening the EU market to third countries. Neve rtheless, this level of reliance on imports 
would have been much larger if present sugar pr ices in the EU had remained at the high level 
prevailing before the reform.  
All in all, the leve l of self-supply within quota mainta ined after the reform (around 85  %) can 
be considered satisfactory and the Commission would like to stress that the regime incorporates the necessary instruments to deal  with hypothetical situa tions of undersupply of 
the EU market mainly by converting availa ble out-of-quota sugar into quota sugar. 
59.  b) This greater reliance on imports depends es sentially on the gap between world and EU 
sugar prices. The reform has been instrument al in bridging this gap and has therefore 
contributed to maintaining a robust albeit smaller sugar pr oducing sector in the EU.  
60. By substantially raising the overall comp etitiveness of EU production, the Commission 
takes the view that after the reform the EU  sugar sector is better equipped to resist 
delocalisation.  
61. As the Court rightly explains , to receive restructuring aid the operator must present a 
restructuring plan containing detailed, concrete  measures whose implementation is enforced 
by national authorities. Only companies that ha ve satisfactorily implemented these measures 
are entitled to receive payments.  
The fact that EU sugar producer groups are al so importing sugar into the EU is not new. 
Moreover, in a new scenario where the EU is mean t to increase its imports of sugar, the fact 
that certain producing facilities are being transformed into refine ries would allow part of the 
processing of such sugar to remain in the EU. 
62. The Commission welcomes the Court’s acknowle dgement that the reform’s objective of 
reducing the sugar price has been met. 
63. In order to shed more light on this issue, the Commission will shortly  be launching a study 
on price transmission in the sugar sector.  
Furthermore, in the context of its periodic evaluation of policies, the Commission will launch 
an ex-post evaluation of CAP measures appl ied to the sugar sector. The evaluation will 
examine the impact of CAP meas ures applied to the sugar s upply chain, including the farm 
EN 10   EN sector and sugar producers and refiners, sin ce the reform was adopted in 2006. Work on the 
evaluation is expected to begin in the fourth quarter of 2010. The results can be expected at 
the end of 2011. 
64. It is not surprising that a reform reducing the overall size of the sector while requiring 
remaining companies to substantially increase th eir competitiveness leads to a certain degree 
of industrial concentration.  
69. Isoglucose is processed from cereals (mainl y maize and wheat) and, in contrast to the 
sugar beet sector, there are no specific, inter- branch delivery contracts between growers and 
processors. Hence reserving part of the aid fo r growers would not have been justified.  
72. As acknowledged by the Court in point 13 and in line with the principle of subsidiarity, 
the implementation of the restructuring aid is the responsibility of the Member States, which 
are best placed to grasp the particular circumstances of individual situations. 
Furthermore, the Commission would like to stress that the payment of th e restructuring aid is 
conditional upon the implementation of  a plan presented by the op erator to the Member State 
concerned including a detailed de scription of concrete actions . Needless to say, these plans 
have to comply with EU and national rules, some of which may vary substantially across 
Member States.  
73. Member State authorities must check that  social obligations are implemented in 
compliance with social plans. Audits by cl earance of accounts include verification that 
Member States carry out such checks. 
Social plans for the most part are drawn up in agreement between the producer and 
workers/unions. Fulfilment of obligations — training, redeployment, compensation, etc. — 
will also be monitored by the parties involved. 
Furthermore, the Commission hosts the ‘Sectoral Social Dialogue Committee for the Sugar 
Industry’ which comprises representatives fr om trade unions and sugar industries. In 
particular, this Committee has agreed a Code of Conduct of the European Sugar Industry on 
corporate social responsibility, which has been  extensively applied in the context of the 
reform. 
Moreover, the social impact of the reform will be considered in the evaluation of CAP 
measures applied to the sugar sector. Work on the evaluation is expected to begin in the fourth 
quarter of 2010. The results can be expected at the end of 2011. 
74. The rationale for extending the deadli ne producers had to comply with their 
environmental obligations was two-fold: on th e one hand, the initial deadline was fixed in 
2006 and the timetable needed updating to take in to account the important changes in national 
restructuring programmes that started in 2008. On the other hand, the consequences of the 
global financial crisis for the economies of certain Member States made this amendment appropriate. 
75. Isoglucose is processed from cereals (mainl y maize and wheat) and, in contrast to the 
sugar beet sector, there are no specific, inter- branch delivery contracts between growers and 
processors. Hence reserving part of the aid for cereals growers would not have been justified 
since cereal prices were not  affected by this reform. 
76-77. See also Commission reply to point 73. The Commission would also like to stress that the reduction in the number of sugar factories 
has been an ongoing process for many years, si nce well before the sugar reform, as each 
EN 11   EN production unit was increasing its processing ca pacity. For instance, between 2000 and 2006, 
67 factories closed down in the EU.  
The restructuring fund has provided a legal fra mework and financial support that closures 
which occurred before the reform could not benefit from. 
80. Diversification aid was introduced to give Me mber States the option of taking measures in 
the regions concerned and allows  them to include measures for other economic actors affected 
by sugar restructuring that  have not been compensated by restructuring aid. 
81. See Commission reply to point 74. 82. In line with the DG AGRI multi-annual evaluation plan 2010-2012, the evaluation of CAP 
measures applied to the sugar sector will be carried out in 2010-2011. The evaluation will 
examine the impact of CAP meas ures applied to the sugar s upply chain, including the farm 
sector and sugar producers and refiners, since the reform was adopted in 2006. The impact of 
diversification aid on regions affected by rest ructuring should also be examined in this 
evaluation (on the basis of case studies).  
Work on the evaluation is expected  to begin in the fourth quar ter of 2010. The results can be 
expected at the end of 2011.  
The Commission carries out its checks as part  of the Clearance of Accounts procedures.  
85. Although the Commission proposal did not include  transitional aid to full-time refiners, it 
became clear during Council discussions that, like  sugar beet processors, full-time refiners 
had to undergo a series of structural adjustment s as a consequence of the drop in institutional 
sugar prices.  
Indeed, the reform entails a more competitive business environment for traditional refiners, 
which need to adjust their operations in order to remain competitive in this new scenario. Concerned operators had to set out the necessary changes in a business plan to be submitted to national authorities. By granti ng this aid, the reform secured equal treatment of all sugar 
producers in the Community whether they us e beet or raw sugar as a raw material. 
86. EU legislation is to be applied uniformly in Member States whether they have one or more 
potential beneficiaries.  
88. These variations are due to  the actual quota that wa s renounced and the timing of 
renunciation. In reality more temporary restructuring amount s were collected and less 
expenditure was incurred under the sugar rest ructuring fund. The highest rates of aid per 
tonne of quota were available during the first two years of the reform. 
90. The reform of the sugar regime was designed to be budget-neutral in  terms of agricultural 
expenditure, rather than self-f inancing. The sugar restructurin g fund was designed to be self-
financing. 
As far as the reform of the sugar regime is concerned, all the changes that were introduced 
within the Common Market Organisation (CMO) for sugar need to be taken into account, i.e. 
the transfer from measures encompassing high gu arantee prices for sugar beet and production 
and export refunds to a system mainly based on dire ct aid to farmers. In this sense, the sugar 
regime was conceived to be budge t-neutral in terms of agricultu ral expenditure (see also the 
Court's observation in point 89) . The Commission considers th at this objective has been 
achieved.  
The sugar restructuring fund, which is not a com ponent of the CMO, was designed to be self-
financing, and this has also been achieved. 
EN 12   EN a) At the moment of the reform, sugar imports into the EU were expected to increase, 
primarily as a result of the "Everything But Arms " measures. Thus, in the absence of a reform 
and taking into account the WTO ruling, the evolution in the EU sugar market would have 
resulted in a decrease in EU  production. Hence, surplus produc tion would decrease and thus 
also the revenue from the production levies was anticipated to diminish gradually to zero as 
from budget year 2010. In this dynamic context,  the production charge, introduced by the 
sugar reform, was set at 12 €/tonne in order to  preserve budget neutrality as far as revenue 
was concerned. 
b) The accompanying measures result from the overall EU commitment, within the 
framework of the ACP-EU partnership agreemen t, to support ACP countries on their path to 
poverty reduction and sustainabl e development. During the process leading to the sugar 
reform, the Commission had committed to sup porting the adjustment needs of privileged 
Sugar Protocol countries and made an analysis  of the impact of th e sugar reform on ACP 
countries. The need for such accompanying measures to ACP countries had been duly 
anticipated. 
The support provided to the ACP countries falls outside the scope of Council Regulation (EC) 
No 1290/2005, as it concerns development aid to  the ACP countries and therefore is not 
covered by the expenditure of th e Common Agricult ural Policy.  
91. See Commission reply to point 90. 
CONCLUSIONS AND RECOMMENDATIONS  
93. The objectives of the reform are directly linked to the obj ectives of the CAP, which are 
enshrined in the Treaties. Moreover, it is not a shortcoming of the reform to have partly 
diverging objectives, but rather a result of its  comprehensive scope. The different objectives 
of the reform reflect the different aspects of th e sugar market and need to be balanced against 
each other. 
94. Companies operating after the re form have to maintain profitabi lity in a scenario of lower 
institutional prices and hence the objective of improving the overall competitiveness of the 
sector has been fulfilled. This gain in productivity  is confirmed by the fact that Member States 
with high profitability account now for 78  % of the quota (compared with 68  % before the 
reform) while Member States with lo w profitability now account for only 5  % (compared with 
12 % before the reform). 
The additional quota made available (in ex change for an amount equivalent to the 
restructuring aid) sought to further reinforce the competitiveness of the EU sugar sector by giving the companies the opportunity to expand their production and benefit from economies 
of scale, or at least maintain a production level similar to that prevailing before the reform in 
the event of a final quota cut.  
See also Commission reply to point 23. 95. After the reform the sugar market found a ne w balance resulting from reduced domestic 
production and lower institutional prices. The decision to cease production was taken 
voluntarily by the factories concerned after assessing the long-term viability of their 
operations in the new scenario. All operators in the EU were confronted with this option 
under identical conditions.  
The Commission stresses that the size of the necessary quota cut was assessed against the 
need to provide a market balance in the light of the new economic environment of the sector. 
It was achieved by means of those companies that considered themselves to be uncompetitive in the new prevailing conditions ceasing (or reduci ng) production.  
EN 13   EN 96. The rationale behind simultaneously o ffering the option of renouncing quotas and 
obtaining additional quotas responded to the need to manage a comprehensive restructuring of 
the sugar production sector in the EU. As a result,  the sector is now sm aller but considerably 
more competitive.  
Whereas sugar processors would benefit from lowe r beet prices after the reform, the price of 
maize and other raw materials used for proc essing isoglucose would remain unaffected in 
spite of the drop in isoglucose prices. In order to make sure that isoglucose processors could 
maintain their relative competitiveness, additiona l quotas free of charge were granted so that 
they could profit from economies of scale. 
97. Overall, EU growers are more competitive af ter the reform. That being said, growers’ 
competitiveness cannot be seen in isolation from th at of the factory to which they deliver their 
crops. See also Commission replies to points 46-47. 
98. The Council decided to maintain a regi me based on production quotas until 2014/15.  
99. The Commission considers that both objectiv es, stabilising the market and reducing 
unprofitable production capacity, have been fully met. Following the reform, the EU produces 
6 million tonnes less of quota sugar and operating co mpanies have to find their profitability in 
a scenario of substantially lower institutional prices. 
The reform has bridged the gap between EU and world prices. This has contributed to easing 
the pressure on the EU’s domestic sugar sector. 
Recommendation 1 
As a matter of course, the Commission always  exercises great diligence to ensure that 
instruments and measures are designed so as to ensure overall consistency and are based on 
thorough technical assessments of needs and obj ective and non-discriminatory criteria. This 
approach has also been followed in the reform of the sugar market. 
Recommendation 2 
In the preparation of its proposal for the ru les governing sugar after the marketing years 
2014/15, the Commission, building on the experience of  the past, will exam ine a whole series 
of options. 
100. The reform has contributed to making the EU sugar sector more competitive and should 
ensure continuing production in the EU. 
101. Greater reliance on imports is not the result of the sugar reform but the consequence of 
EU policies aimed at boosting the role of suga r as a driver for economic activity in least 
developed countries with good production potential.  
Recommendation 3 
The Commission takes the view th at the new sugar market balance emerging from the reform, 
including the level of EU self-s ufficiency, is in line with Treaty provisions. The Treaty does 
not stipulate that the EU should necessarily be se lf-sufficient with regard  to every agricultural 
product. Certain instruments built into the sugar regime would enable the EU to deal with 
situations of undersupply of the market, main ly by converting available out-of-quota sugar 
into quota sugar. 
102. The Commission considers that the reform’s  objective of reducing the sugar price has 
been met.  
The Commission will shortly be launching a study on price transm ission in the sugar sector in 
order to shed more light on the issue.  
EN 14   EN Furthermore, as part of its periodic evaluation of policies, the Commission will launch an ex-
post evaluation of CAP measures applied to the sugar sector. The evaluation will examine the 
impact of CAP measures applied to the suga r supply chain, including the farm sector and 
sugar producers and refiners, si nce the reform was adopted in 2006. Work on the evaluation is 
expected to begin in the fourth  quarter of 2010. The results can  be expected at the end of 
2011. 
Recommendation 4 
In order to shed more light on this issue, the Commission will shortly launch a study on price 
transmission in the sugar sector. 
103. The Commission would also like to stress that  the reduction in number of sugar factories 
has been an ongoing process for many years, since well before the sugar reform, as each production unit was increasing its processing ca pacity. For instance, between 2000 and 2006, 
67 factories closed down in the EU.  
The restructuring fund has provided a legal fra mework and financial support that closures 
which occurred before the reform could not benefit from. 
104. In line with the subsidiarity  principle, the legislator ha s given responsibility for the 
implementation and follow-up of the social co nsequences to the Member States, which are 
better placed to perform this task.  
Member State authorities must check that soci al obligations are implemented in compliance 
with social plans. Clearance of  accounts audits include verificat ion that Member States carry 
out such checks. 
Social plans for the most part are drawn up in agreement between the producer and 
workers/unions. Fulfilment of obligations — training, redeployment, compensation, etc. — 
will also be monitored by the parties involved. 
Furthermore, the Commission hosts the ‘Sectoral Social Dialogue Committee for the Sugar 
Industry’ which comprises representatives fr om trade unions and sugar industries. In 
particular, this Committee has agreed a Code of Conduct of the European Sugar Industry on 
corporate social responsibility  which has been extensively a pplied in the context of the 
reform. 
105. In line with the principle of subsidiarity, res ponsibility for the implementation of the 
diversification measures lie s with the Member States. 
106. In December 2009, the Commission amended the legislation to allow for an extension of 
the deadlines concerning environmental meas ures until September 2011. The rationale for 
extending this deadline was tw o-fold: on the one hand, the initial deadline was fixed in 2006 
and the timetable needed updating to take in to account the important changes in national 
restructuring programmes that started in 2008. On the other hand, the consequences of the 
global financial crisis for the economies of certain Member States made this amendment appropriate. 
107. Although the Commission proposal did not include transitional aid to full-time refiners, 
it became clear during Council disc ussions that, like sugar beet pr ocessors, full-time refiners 
had to undergo a series of structural adjust ments as a consequence of the drop in sugar 
institutional prices.  
Indeed, the reform entails a more competitive business environment for traditional refiners, 
which need to adjust their operations in order to remain competitive in this new scenario. Concerned operators had to set out the necessary changes in a business plan to be submitted to 
EN 15   EN national authorities. By granti ng this aid, the reform secured equal treatment of all sugar 
producers in the Community whether they us e beet or raw sugar as a raw material. 
108. The Commission would also lik e to stress that the reduc tion in the number of sugar 
factories has been an ongoing process for many y ears, since well before the sugar reform, as 
each production unit was increasing its proc essing capacity. The restructuring fund has 
provided a legal framework and financial suppor t that closures which occurred before the 
reform could not benefit from. 
Recommendation 5 
In line with the subsidiarity principle, responsibility for the implementation of the 
diversification measures lies with the Member States, which are better placed to take the 
necessary decisions in the light of the numb er of specific factors applying in each case. 
Recommendation 6 
In line with the subsidiarity principle, responsibility for ensu ring compliance with 
environmental obligations lies with the Member States, which are better placed to take the necessary decisions in the light of the numb er of specific factors applying in each case. 
109. As far as the reform of the sugar regime  is concerned, all the changes that were 
introduced within the Common Market Organisati on (CMO) for sugar need to be taken into 
account, i.e. the transfer from measures encompassing high guarantee prices of sugar beet and 
production and export refunds to a sy stem mainly based on direct aid to farmers. In this sense, 
the sugar regime was conceived to be budget-neutral in terms of agricultural expenditure. The 
Commission considers that this  objective has been achieved. 
In accordance with Article 1(3) of Council Regulation (EC) No 320/2006, the remaining 
balance in the sugar restruct uring fund, currently estimated at 640 million EUR, will be 
assigned to the EAGF after the financ ing of the measures under that fund. 
As far as the revenue is concerned, pl ease see Commission reply to point 90 (a). 
The accompanying measures result from the overall EU commitment, within the framework 
of the ACP-EU partnership ag reement, to support ACP count ries on their path to poverty 
reduction and sustainable development. During th e process leading to the sugar reform the 
Commission had committed to supporting the adju stment needs of privileged Sugar Protocol 
countries and made an analysis of the imp act of the sugar reform on ACP countries. The 
support provided to ACP countries falls outsi de the scope of Council Regulation (EC) No 
EN 16   EN 1290/2005, as it concerns development aid to the ACP countries and therefore is not covered 
by the expenditure of the Common Agricultural Policy. 
EN 17   EN Level of MS QUOTA Total in % Added Quota in %
combined 2006/2007 renounced of initial / of initial
profitability (tonnes) Quota Bought 2009/2010 Quota
LOW GREECE 317.502 158.800 50% 158.702 50%
IRELAND 199.260 199.260 100% 0 0%
ITALY 1.557.443 1.049.064 67% 508.379 33%
PORTUGAL 69.718 69.718 100% 0 0%
Total Group 2.143.923 1.476.842 69% 0 667.081 31%
in % of TOTAL 12% 28% 0% 5%
MEDIUM CZECH REPUBLIC 454.862 102.473 23% 20.070 372.459 82%
DENMARK 420.746 80.083 19% 31.720 372.383 89%
SPAIN 996.961 498.481 50% 498.480 50%
LATVIA 66.505 66.505 100% 0 0%
LITHUANIA 103.010 20.758 20% 8.000 90.252 88%
HUNGARY 401.684 301.264 75% 5.000 105.420 26%
SLOVENIA 52.973 52.973 100% 0 0%
SLOVAKIA 207.432 103.717 50% 8.605 112.320 54%
FINLAND 146.087 65.088 45% 80.999 55%
Total Group 2.850.260 1.291.342 45% 73.395 1.632.313 57%
in % of TOTAL 16% 25% 7% 12%
BELGIUM 819.812 206.066 25% 62.489 676.235 82%
HIGH GERMANY 3.416.896 757.200 22% 238.560 2.898.256 85%
FRANCE 3.288.747 683.655 21% 351.695 2.956.787 90%
NETHERLANDS 864.560 126.547 15% 66.875 804.888 93%
AUSTRIA 387.326 54.785 14% 18.486 351.027 91%
POLAND 1.671.926,0 366.868,9 22% 100.551,0 1.405.608,1 84%
SVEDEN 368.262 92.798 25% 17.722 293.186 80%
UK 1.138.627 165.000 14% 82.847 1.056.474 93%
Total Group 11.956.156 2.452.920 21% 939.225 10.442.461 87%
in % of TOTAL 68% 47% 93% 78%
others* 604.114 9.227 2% 0 594.886
TOTAL 17.554.453 5.230.331 1.012.619 13.336.741
* Azores, Madeira, French overseas departements, RO, BUBreakdown of Member States by their combined profitabilitySugar Restructuring