EN Official Journal of the European Union C 157/102

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the Council and the European Parliament — accomplishing a sustainable agricultural model for Europe through the reformed cap — sugar sector reform’

(COM(2004) 499 final)

(2005/C 157/19)

On 15 July 2004 the Commission decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the abovementioned communication.

The Section for Agriculture, Rural Development and the Environment, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 16 November 2004. The rapporteur was Mr Bastian. The co-rapporteur was Mr Strasser.

At its 413th plenary session of 15 and 16 December 2004 (meeting of 15 December 2004) the European Economic and Social Committee adopted the following opinion by 137 votes to 21, with 11 abstentions:

1. Introduction

1.1 Twenty-one EU countries produce sugar beet. The French overseas departments and Spain are minor sugar cane producers (280,000 tonnes). In general, annual European sugar production fluctuates between 17 and 20 million tonnes, whereas European demand for sugar is estimated at 16 million tonnes a year.

1.2 Beet cultivation on crop rotation extends over 2.2 million hectares of land and involves 350,000 farmers (i.e. slightly more than 6 hectares per beet farmer). Beet is processed at 200 sugar factories employing 60,000 workers directly.

1.3 The European Union also produces 500,000 tonnes of isoglucose and 250,000 tonnes of inuline syrup and has a refining industry for raw sugar cane (most of which — 1.5 Mt — is imported from the ACP countries (1)).

1.4 In the sugar, isoglucose and inuline syrup sector, the production quota system arising from Regulation 1785/81 has been rolled forward several times. The last roll-forward, in 2001, covered five marketing years — from 2001/2002 to 2005/2006. The regulation involved here (1260/2001) made a number of important changes to its predecessor. These include fixing prices until 30 June 2006, abolishing the storage scheme, ending the financing of storage costs for carried-over sugar, cutting quotas by 115,000 tonnes and making beet planters and sugar manufacturers bear the cost of all production refunds to the chemical industry.

1.5 On 14 July 2004, the Commission submitted a communication on sugar sector reform [COM(2004) 499 final] as a further step in the establishment of its sustainable agricultural model for Europe.

1.6 In this document, the Commission proposes radical changes to the sugar regime, prices and quotas from 1 July 2005 and anticipates making further proposals on quotas and prices in 2008, if need be. The Commission is thus seeking to bring the sugar regime into line with the CAP reform, make the European sugar market less attractive for imports, substantially cut quota sugar exports involving refunds, and abolish production refunds for sugar sold to the chemical industry.

1.7 The Commission proposes merging the A and B quotas into a single quota and cutting the sugar quota by 1.3 million tonnes and by a further 500,000 tonnes per year for the following three years (thereby securing an overall reduction of 2.8 million tonnes or 16 %).

1.8 In tandem with this cut in sugar quotas, the Commission is proposing increasing the isoglucose quotas by 100,000 tonnes a year for three years (i.e. a rise of 60 %) and maintaining insulin quotas.

1.9 In order to bring about what it sees as the necessary restructuring of the sugar sector, the Commission proposes making quotas freely transferable at European level. The Commission also makes provision for a co-financing scheme with the Member States, for granting aid — to the tune of €250 per tonne of quota sugar — to sugar manufacturers who are unable to sell their quota and wish to withdraw from sugar production. The purpose of this aid would be to help the sugar manufacturers concerned meet their social and environmental commitments.

1.10 The Commission proposes a private storage scheme (2) and a mandatory carry-over mechanism for quota sugar to replace the intervention regime and the declassification mechanism. The purpose of this proposal is to guarantee prices through market balance and to ensure compliance with WTO commitments.

1.11 On prices, the Commission proposes replacing the intervention price for sugar by a reference price which will serve to calculate the minimum price for imports from the ACP and least developed countries (LDCs) and as a trigger for private storage measures and the carrying-over of any surplus volume to the following year. The institutional support prices would be reduced in two stages. To that end, the Commission is proposing a reference price of €506 per tonne of white sugar in 2005/2006 and 2006/2007 and €421 per tonne in 2007/2008. This compares with a current intervention price of €631.9 per tonne and a weighted A+B market price estimated by the Commission at €655.

1.11.1 At the same time, the minimum weighted price for A+B quota sugar beet would drop from €43.6 per tonne at the moment to €32.8 per tonne in 2005/2006 and 2006/2007 (-25 %) and to €27.4 per tonne in 2007/2008 (-37 %). The basic beet price is currently €47.67 per tonne. The Committee believes that price-cutting will be greater in some Member States than in others due to the differing proportions of the A and B quotas.

1.11.2 The Commission considers that up to 60 % of the income lost as a result of the drop in the weighed price of quota beet should be offset through direct income support decoupled from production (in line with the provisions of the 2003 CAP reform).

1.11.3 The Commission estimates the cost to the budget of decoupled compensation at €895 million in 2005/2006 and 2006/2007 and €1.340 billion a year from 2007/2008.

1.12 The Commission proposes abolishing production refunds for the chemical and pharmaceutical industries (3) and allowing these industries to take supplies of C sugar, as happens in the alcohol and yeast sector.

1.13 With regard to relations with suppliers of preferential ACP sugar, the Commission proposes pressing ahead with the ACP sugar protocol — which involves import quotas — but with a reduction in the guaranteed price that matches the reduction in the price of beet. The Commission proposes initiating dialogue with the ACP countries to help them adapt to the new conditions, on the basis of an action plan to be submitted before the end of 2004.

1.13.1 The Commission proposes abolishing refining aid for sugar from the ACP countries and the French overseas departments and, in time, dispensing with the concept of Maximum Supply Needs.

1.14 For the least developed countries (LDCs), the Commission makes no proposals on managing import levels. It asks that the import prices for LDC sugar be no lower than the ACP minimum price. With regard to the Balkans, the Commission plans to negotiate an import quota. Under the EBA (Everything but Arms) arrangement, sugar from 49 LDCs will be allowed onto the European market tariff- and quota-free from 2009.

2. General comments

2.1 The European Economic and Social Committee (EESC) notes that changes and adaptations to the Common Market Organisation (CMO) in sugar have become necessary because of: — the 2001 Everything but Arms initiative aimed at the least developed countries (LDCs), the impact of which on sugar was not properly gauged by the Commission at the time; — the overall trend towards more open European agricultural markets as a result of World Trade Organisation negotiations; — threats to European sugar exports arising from the WTO sugar panel and Doha Round trade negotiations; and — CAP reform. It is not therefore a question of assessing the need for reform, but of examining what kind of reform is needed, its scope and the date it is to become operative.

2.2 The Commission favours a radical revamp of the sugar regulation. It justifies its proposal by stating that the current regime is criticised ‘for a lack of competition, distortions in the market, high prices for the consumers and users, and its effect on the world market, particularly in relation to developing countries’. The European Economic and Social Committee regrets that the Commission should base its thinking on blanket criticism of this sort without seeking verification for it in reliable studies. In that regard, the Committee would point to its own opinion of 30 November 2000 (4).

2.3 The EESC notes that the Commission proposal largely pre-empts the upcoming international agenda and undermines the WTO negotiating remit. That is unwise and detrimental to safeguarding the legitimate interests of the EU sugar industry and its preferential suppliers. Furthermore, it does not enable the Commission to deal with issues relating to sugar outside the quota system.

2.4 The EESC is concerned about the impact of the proposed cuts in prices and quotas on levels of EU beet and sugar production, the incomes of many family farms, the sustainability of industrial and trading activities in the sugar sector, sugar industry and rural employment, and multifunctionality, not least in less-favoured or outlying regions and in the new Member States where major restructuring investments are needed. The EESC has its doubts as to whether the Commission's reform proposals are in keeping with the European agricultural model, the multifunctional approach and the sustainability principle as unanimously defined by the Luxembourg European Council in December 1997 (5). The EESC also considers that the reform proposals run counter to the Lisbon strategy, which expressly cites job creation as one of its goals.

2.5 The EESC asks the Commission to conduct a detailed and verifiable study of the regions where beet production and the sugar industry will be threatened and on how many direct and indirect jobs in the agricultural and industrial sectors will be at risk overall. Last year's Commission impact assessment does not provide the requisite information.

2.6 The EESC does not believe that the Commission's reform scenario — securing market balance by cutting prices — can meet its objective. Nor, in the long run, will this scenario maintain a strong European beet farming and sugar industry. It also fails to uphold European commitments towards developing countries supplying preferential sugar. In fact, these cuts will spell the end for many producers both in Europe and in the developing countries and will considerably weaken the position of those producers that do survive. At the same time, Brazil will be given the opportunity to increase its world market share and, from 2008/2009, will also be able to export — indirectly — more and more sugar to Europe through the swap (6) (triangular trade) arrangement with the least developed countries, which will not benefit themselves in terms of social and rural development.

2.7 The EESC feels that such a reform of the sugar CMO will benefit only a few countries, primarily Brazil. In that connection, the Committee would stress that Brazilian sugar production — which is largely sustained by that country's bio-ethanol policy and monetary policy — is subject to social, environmental and land-ownership conditions which are unacceptable but which nonetheless account for the extremely low Brazilian production costs and thus the low prices on the world market.

2.8 For that reason, the EESC fails to understand why the Commission did not adopt the idea of negotiating preferential import quotas with the LDCs, as those countries themselves are requesting. That would make it possible to satisfy the interests of the poorest developing countries in a more targeted way and to secure a balanced market supply at sustainable prices in Europe. The EESC would highlight the fundamental contradiction in the stance taken by the Commission which, on the one hand, cites the Everything but Arms initiative to justify the radical reform of the sugar CMO, but, on the other, refuses to act on the LDCs' explicit request for a preferential quota system. The EESC considers that import quotas for the Balkans should be established on an urgent basis.

2.9 The EESC considers that the proposed cuts in prices and quotas go well beyond the WTO remit and are a major step towards full sugar market liberalisation. Such a move cannot provide beet planters, sugar sector workers and European consumers with the prospect of a sustainable future — despite the Commission's attempts to convince us otherwise.

2.10 The EESC cannot agree with the Commission that the significant fall in sugar prices should benefit consumers in essence (7). As in earlier reforms, such reductions in the raw material price will hardly — if ever — be passed on. That is true in particular of processed goods, such as soft drinks and sweetened products (75 % of sugar in Europe is consumed in processed goods). The EESC believes that the Commission should carefully monitor the impact of the reform on the prices of goods containing sugar.

2.11 The EESC shares the ACP countries' concern about the detrimental impact of the reform proposals on incomes and jobs in the economic sectors directly affected and on the social balance and development prospects in those countries.

2.12 The EESC recognises the threats to European sugar exports. It fails to understand therefore why the 2005-2009 quota reductions planned by the Commission involve greater cuts than necessary in exports with refunds — on the assumption that the EU would lose the WTO panel dispute with Brazil, Australia and Thailand. On the contrary, the EESC feels that the EU should take appropriate steps to retain all the export opportunities that it claims and enjoys under international agreements, and that it should therefore propose a lower cut in quotas.

2.13 The EESC believes that the Commission should propose measures to ensure the development of alternative markets, particularly in the biofuel sector, to compensate for export and import initiatives that result in fewer outlets for European producers.

2.14 Overall, the EESC feels that the Commission has failed to gauge the impact of its proposal, which would result in a massive transfer of resources from the rural sector (farming and primary processing) in both Europe and the developing countries to large international food and marketing companies. It would also be the unmaking of much of the European and ACP sugar industry, with the latifundia that dominate Brazilian sugar production being virtually the sole beneficiaries. In several cases, the latter are in breach of fundamental human rights and labour laws (1998 Declaration of the ILO International Conference (8)) and principles of sustainability (deforestation of the Amazon). The EESC considers that access to the EU market should be conditioned by compliance with social and environmental norms.

3. Specific comments

3.1 The EESC notes that Regulation 1260/2001, adopted unanimously by the Council, remains in force until 1 July 2006 and provided a basis for accession negotiations with the ten new Member States. It thus fails to understand the Commission's proposal to bring the reform forward unnecessarily to 1 July 2005. Moreover, farmers have already organised their 2005/2006 crop rotations and, in some European countries, the autumn beet sowing is currently under way. On top of this, there has been heavy investment by farms and industry since 2001 on the assumption that Regulation 1260/2001 would remain in force until its due expiry date.

3.2 The Committee therefore asks that the new sugar regulation should not take effect until 1 July 2006 at the earliest. Any other solution would rightly be seen as a breach of the principle of trust by the trade bodies concerned and the new Member States.

3.3 The EESC notes that the Commission proposal leaves open the question of what is to happen to the CMO post-2008. However, the beet and sugar sectors need predictability for the requisite restructuring and investment operations. The Committee therefore asks the Commission to put forward a regulation covering the period from 1 July 2006 to 30 June 2012, which ties in with the timeframe of the revamped CAP.

3.4 The EESC feels that the Commission has not given any reasons for the massive cuts in institutional prices (33 % for sugar and 37 % for beet, in two stages). However, reliable calculations indicate that a maximum cut of 20 % would be enough to comply with the expected new WTO constraints. The EESC would like to see the Commission adopt that figure. It would also ask the Commission to bear in mind the LDCs' desire to negotiate preferential quotas as, in subsequent years, that would take much of the pressure off the European sugar market and create a satisfactory export environment for LDCs.

3.5 The EESC condemns the weakness of the market organisation tools that have been put forward to replace the CMO intervention. Indeed, it is possible to foresee that private stockage and the carry-over mechanism will not adequately ensure that the market price respects the reference price.

3.6 The EESC takes note of the Commission's proposal to partially offset loss of farming income through compensation payments. However, it would point out that smaller price cuts — or restricting those cuts to the first stage only — would make it possible both to save on the budget and raise the compensation rate without exceeding the available budget. The Committee wonders how the national envelopes can be distributed in a fair and practical way so that the aid does in fact reach those farmers facing cuts in — or the loss of — beet income. It would be appropriate for the distribution of aid to take into account the reference granted to the farmer in the last two years before the regulation enters into force, as was the case for the 2003 CAP Reform for milk. The Committee stresses the need to keep such aid going in the long term and to maintain the sugar budget.

3.7 The EESC feels that any quota cuts that do prove necessary should be kept to the bare minimum and should apply to the same extent to sugar and competing products under the quota system. The proposal set out in the communication to increase the isoglucose quota is thus unfair as it induces the Commission to propose bigger cuts in sugar quotas — to the detriment of beet planters and the sugar industry.

3.7.1 The EESC thinks that any decision on the required scale of potential quota cuts should not be taken until the Commission has carried out a detailed study covering structural deficits and possible suspensions of quota sugar production or until it becomes clear how the WTO agreements pending and the outcome of the WTO panel will impact on the production of quota sugar and non-quota sugar and trade flows between the European Union and non-EU countries.

3.7.2 The EESC feels that the Member States must be given enough scope to internally manage both the sugar and beet quota cuts — with due regard to the interests of all the parties concerned — in accordance with conditions of fairness and social benefits. Therefore, it asks the Commission to make specific provision for this possibility in the reform proposals and regulations.

3.8 Abolishing production refunds for supplying quota sugar to the chemical and pharmaceutical industry would also adversely impact sugar quota levels and introduce a risk factor into future arrangements for the supply of sugar to those industries. The EESC therefore calls for the retention of the rules currently in place.

3.9 The EESC feels that quota such transfers — and cross-borders transfers in particular — could sound the death knell, in many regions, for profitable beet farming. That would have grave economic consequences for beet planters' families and the employment situation. It would also be harmful to the environment — from the point of view of crop rotation — and would adversely impact the agricultural markets in replacement crops. The EESC requests that the management of quotas should remain subject to Member State control and that all restructuring decisions should first be subject to an inter-branch agreement.

3.9.1 Instead of quota trading, the EESC feels that the Commission should explore the possibility of setting up a European restructuring fund for the sugar industry which, paying particular attention to the reconversion needs of farmers and workers within the sector, would indemnify the quotas that had become available once the regulation came into force, — following an inter-branch agreement between the sugar manufacturer and the beet planters concerned and reducing all the more the need to cut quotas.

4. Conclusions

4.1 The EESC recognises the need to reform the sugar CMO but believes that the reform proposals go too far and that their implementation will have considerable repercussions for the European sugar sector, particularly in employment. It is unfortunate that the proposals are not adequately substantiated and that their consequences have not been subjected to appropriate analysis, as would have been expected.

4.2 The EESC recommends that the regulation's date of entry into force be postponed to 1 July 2006 and that farmers should receive immediate notification of this decision to enable them to confirm their 2005 crop rotations.

4.3 The Committee considers that the regulation should cover a minimum six-year period to provide the sector with an adequate perspective.

4.4 The Committee requests that the Union negotiate import quotas for sugar from the least developed countries, as these countries have requested. Swap practices should, under no circumstances, be admitted and social and environmental sustainability and food sovereignty criteria should be established for access to the EU market.

4.5 The EESC calls for import quotas for the Balkans to be established as soon as possible.

4.6 It considers that any changes to prices and production quotas should be strictly in line with international commitments and should apply equally to all sweeteners (sugar and competing products under quota). Sugar must be treated as a sensitive product in the context of the Doha Development Agency (DDA) negotiations.

4.7 It recommends that the current CMO intervention mechanism be maintained to guarantee the price level.

4.8 The EESC stresses that the price of the product (beet) should reflect planters' production costs. It takes note of the proposals to partially compensate planters for income lost as a result of beet price cuts. It calls for increases in this compensation, insofar as this may be possible. It emphasises the need to ensure sustainable aid and to maintain the sugar budget.

4.9 It asks that the current provisions for the supply of quota sugar to the chemical and pharmaceutical industries should remain in force.

4.10 It believes that the Commission must not shirk its responsibilities but must launch a proper restructuring plan for the European sugar industry that reflects the interests of sugar manufacturers, beet planters and the workforce.

4.11 The Committee would request the Commission to clarify its intentions regarding sugar production that is not under quota.

Brussels, 15 December 2004. The President of the European Economic and Social Committee Anne-Marie SIGMUND

(1) ACP countries: Developing African, Caribbean and Pacific States, signatories to the Cotonou agreement.

(2) Private stockage makes it possible to withdraw a certain tonnage of sugar from the market temporarily without reducing quotas. The mandatory carry-over system and the transfer of sugar from campaign n to campaign n+I, with a corresponding reduction in quotas for the n+I campaign.

(3) Council Regulation 1265/2001 grants a production refund (support that aims to narrow the gap between the intervention price and the world market price) for quota sugar and isoglucose products used in the chemical and pharmaceutical industries (approximately 400,000 tonnes a year).

(4) OJ C 116 of 20 April 2001, p. 113-115. Committee opinion on the Proposal for a Council Regulation on the common organisation of the markets in the sugar sector. ‘The Committee asks to be involved in the study which the Commission intends to undertake to analyse inter alia the criticisms directed at the sugar CMO, concentration in the agri-food industry and the passing-on of price changes from the producer to the consumer’.

(5) Presidency conclusions: SN 400/97, p.14, 13.12.1997

(6) In this particular case, the export of Brazilian sugar to a least developed country and the consumption of said Brazilian sugar in the least developed country, which replaces local sugar. This least developed country's sugar, thus replaced, is exported to the European Union.

(7) See Communication COM(2004) 499 final, start of point 3.2 Economic impact

(8) ILO Declaration on fundamental principles and rights at work. International Labour Conference, 86th Session Geneva, June 1998