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
Date: 2004-07-14
Institutions: European Commission
Subjects: reform of the CAP, sugar, sustainable agriculture

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 14.7.2004 
COM(2004) 499 final 

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 

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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 

1. 

INTRODUCTION AND SUMMARY 

The present sugar regime is often subject to fierce criticism 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.  Yet,  despite  calls  for 
reform, it has remained essentially unchanged for four decades. 

The  success  of  the  new  orientation  of  the  CAP,  which  moved  away  from  price  and 
production support to a more comprehensive policy of farmer income support through 
the  single  farm  payment  scheme,  has  added  a  new  dimension  to  the  need  for  sugar 
reform  

If  unchanged,  the  EU  sugar  policy  will  become  an  anomaly  deviating  from  the 
fundamental  principles  of  the  new  Common  Agricultural  Policy  (CAP)  –  market 
orientation,  decoupled  farm  income  support,  and  a  better  balance  between  the  two 
pillars of the CAP via the strengthening of rural development. 

The  public  debate  following  the  publication  of  the  Commission’s  September  2003 
Communication1,  and  accompanying  Extended  Impact  Assessment  on  the  Sugar 
Sector2  on  the  options  for  reform  of  the  EU  sugar  regime,  has  confirmed  both  the 
urgent  need  for  a  significant  reform  in  the  sector  and  the  complexities  that  such  a 
reform would entail. 

On the one hand this debate has highlighted that, despite claims that the fixed nature 
of  the  EU  sugar  policy  is  proof  of  its  good  functioning,  the  status  quo  is  no  more 
sustainable. The gap between EU and world market prices has grown larger, while the 
EU  undertook  new  international  commitments.  In  these  conditions,  the  structural 
surplus of the EU risks widening while the rigidity of the present quota system leaves 
no incentive for the sector to adjust. 

On  the  other  hand  expectations  about  the  positive  impact  of  any  reform  are 
sometimes over simplistic. For example, the necessary restructuring of the sector will 
not  affect  in  the  same  manner  all  sugar  producing  regions  in  the  EU.  Similarly,  the 
prospect that not just potential winners, but also potential losers from developments 
in  the  EU  sugar  market,  with  or  without  reform,  are  to  be  found  among  the 
developing countries raises serious questions about how to deal with this issue. 

The  Commission,  in  developing  the  current  proposal,  has  taken  into  account  three 
important elements. 

1  
2 

COM(2003) 554 final. 
SEC(2003) 1022. 

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1.  While  the  proposal  represents  a  necessary  step  in  terms  of  sugar  reform, 
experience from CAP reform in other sectors has demonstrated that it needs to 
be balanced. 

2. 

3. 

EU producers and trade partners should be provided with realistic perspectives 
about their long-term future. 

The  possibility  for  further  reform  should  be  reviewed  in  the  medium-term, 
when a series of factors, surrounded by uncertainty at this stage, will be clearer 
and better known.  

in 

turn,  must  be  based  upon 

Against this background, it is clear that the objectives of the reform should be those 
of  the  recent  overall  approach  to  CAP  reform.  A  sustainable  long-term  policy 
perspective  must  be  given.  This, 
improved 
competitiveness,  greater  market  orientation  and  a  sustainable  market  balance 
consistent  with  the  EU’s  commitments,  with  respect  to  third  countries  and 
international  trade  rules.  These  objectives  must  be  achieved  whilst  ensuring  that 
account is properly taken of producer incomes, consumers’ interests and the situation 
of the processing industry, in particular the need for a period of transition to permit 
the necessary adjustments. These objectives will be reached through a reform based 
on  the  combined  elements  of  significant  price  reduction,  abolition  of  intervention, 
reduction in quotas and quota transferability. 

In concrete terms, the Commission proposes the following: 

•  A  significant  reduction,  in  two  steps,  of  the  institutional  support  price  for  EU 
sugar with the abolition of intervention and the introduction of a reference price. 
This  reference  price  will  serve  in  the  establishment  of  the  minimum  price  of 
sugar  beet  producers,  the  trigger  level  for  private  storage,  the  level  of  border 
protection  and  the  guarantee  price  under  the  preferential  import  mechanism.  A 
price  reporting  mechanism  for  the  EU  market  will  have  to  be  put  into  place 
rapidly. 

•  The  introduction  of  partial  compensation  for  producers  in  the  form  of  a  direct 
decoupled  payment  within  the  CAP  budget  limits,  with  the  same  historical 
reference  period,  as  used  in  the  2003  CAP  reform  (2000–2002).  This  payment 
will be integrated into the single farm payment scheme. 

•  Simplification of the present quota system by merging the A and B quotas into 
one quota and the reduction of the resulting total quota level, in order to reach a 
sustainable balance on the EU sugar market. The C sugar provisions will remain 
as at present. 

•  Restructuring  of  the  EU  sugar  sector  through  transferability  of  quotas  between 
Member  States  and  the  introduction  of  a  sugar  factory  conversion  scheme,  in 
order to facilitate the necessary adjustments and smoothen their impact. 

•  Modification of the import regime for Western Balkans, in order to provide EU 
partners  with  a  clear  framework  which,  while  allowing  the  respect  of  present 
trade  concessions,  prepares  their  sector  for  the  adjustments  needed  to  perform 
within a realistic and economically sustainable environment. 

In  addition,  the  proposal  will  provide  the  basis  for  initiating  a  structured  dialogue 
with EU partners in the developing world on the sugar sector, in order to consider the 
manner  by  which  the  EU  can  best  contribute  to  the  necessary  and  inevitable 

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adjustments  in  sugar  production  in  African,  Caribbean  and  Pacific  (ACP)  countries 
and India. 

Finally,  whilst  the  Commission  is  committed  to  the  fundamental  direction  of  the 
present reform, it is clear that, while some elements such as the Everything but Arms 
(EBA) agreement are fixed, this proposal cannot take full and precise account of all 
possible  future  international  developments  which  could  affect  the  sector.  The 
outcome of the Doha round, the challenge of elements of the present sugar regime in 
a panel before the World Trade Organisation (WTO), the future of ethanol production 
and the prospects for world market price development all indicate that the EU sugar 
market should be re-examined when more is known in these areas of uncertainty. For 
these reasons, the Commission  proposes to review  the price and  quota levels of the 
proposed reform in 2008. 

2. 

PROPOSED REFORM OF THE EU SUGAR REGIME 

The  findings  of  the  Commission’s  Extended  Impact  Assessment  point  to  an 
unsustainable future for the current EU sugar sector. In particular, the maintenance of 
current  high  EU  prices  will  dramatically  increase  sugar  imports  at  the  expense  of 
domestic EU production. The current regime would reduce relatively more the sugar 
production under quota in the EU’s most competitive sugar producing regions, with 
relatively  higher  levels  of  B-sugar,  compared  to  the  less  competitive  ones,  with 
smaller B quotas. 

Such a situation would lead to a gradual attrition of the EU sugar sector and bring it 
into  even  greater  contradiction  with  the  prevailing  direction  of  CAP  Reform,  just 
when  reformed  sectors  would  be  improving  their  competitiveness  and  market 
orientation. 

2.1. 

Providing a clear policy perspective for the EU sugar sector 

The  necessary  steps  must  be  taken  now  to  incorporate  the  EU  sugar  CMO  into  the 
CAP reform process by: 

• 

integrating the EU sugar sector into the sustainable, long-term policy perspective 
established  for  agriculture,  in  line  with  its  present  budgetary  envelope,  the 
ceiling  of  Heading  1a  of  the  current  financial  perspectives,  the  framework  for 
financial  discipline 
agricultural  expenditure  and 
mechanisms; 
improving the competitiveness of the EU sugar sector by reducing significantly 
institutional  support  prices  and  simplifying  the  current  quota  arrangements, 
thereby making way for an economically sustainable EU sugar production base; 
•  giving  priority  to  producer  income  support  by  transferring  part  of  the  current 

the  modulation  and 

• 

support for the EU sugar sector to the single farm payment scheme; 

•  subjecting  these  payments,  as  is  the  case  with  all  CAP  direct  payments,  to  the 
respect  of  the  statutory  EU  environmental  and  food  safety  standards,  through 
cross-compliance, and rules of good agricultural and environmental condition, as 
well as to the modulation mechanism. 

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2.2. 

Promoting a more market-oriented, sustainable EU sugar sector  

2.2.1.  Prices 

Intervention 

In  the  current  sugar  CMO,  intervention  has  hardly  ever  been  an  active  regulatory 
instrument.  It  is  therefore  appropriate  to  move  away  from  a  public  intervention 
mechanism,  as  has  been  done  for  other  sectors  since  1999.  Thus,  it  is  proposed  to 
abolish the intervention mechanism and intervention price for sugar. 

Reference Price 

The intervention price will be replaced by a reference price for sugar. Since the EU 
intervention price has for many years been out of touch with world trends and, at its 
current level of 632 EUR/t, is more than three times the prevailing world sugar price, 
a  reference  price  will  be  set at  a  level  one  third  lower  than  the  current  intervention 
price.  It  will  be  phased  in,  in  two  steps,  over  three  years,  beginning  in  the  2005/06 
campaign. 

The reference price will serve in the establishment of the minimum sugar beet price 
for producers, the trigger level for private storage, the level of border protection and, 
finally, the guarantee price under the preferential import mechanism. 

Minimum Sugar Beet Price 

Currently,  the  average,  weighted  sugar  market  price,  at  which  the  EU  sugar  factory 
sells  its  sugar,  is  estimated  at  655  EUR/t,  that  is,  somewhat  higher  than  the  current 
intervention price of 632 EUR/t. Under the present proposal, the sugar market price is 
projected  to  fall  to  the  level  of  the  new  institutional  price  of  421  EUR/t,  that  is,  an 
effective price reduction of 36%. In order to keep a parallelism between the price cuts 
at farm, factory and refinery level, the minimum sugar beet price, which is the price 
paid to farmers for their sugar beet, has been established taking into account a similar 
percentage reduction in the effective price of both sugar and sugar beet. The schedule 
for the price reductions is given in Table 1.  

Table 1 – Proposed Institutional Prices in the EU Sugar Sector 

Reference 
period 

2005/06  2006/07  2007/08 

Institutional Sugar Price (EUR/t) 

632 

506 

506 

421 

Cumulative reduction in institutional price 

0.0% 

–20.0% 

–20.0% 

–33.0% 

Minimum Sugar Beet Price (EUR/t) 

43.6 

32.8 

32.8 

27.4 

Cumulative reduction in minimum sugar beet price 

0.0% 

–25.0% 

–25.0% 

–37.0% 

Price Reporting 

The Commission will come forward with a proposal for a price reporting mechanism 
for sugar, which will be put into place by the Commission, in time for operational use 
as from the 2005/06 campaign. 

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2.2.2.  Quotas 

Quota Reductions 

Through the functioning of the existing quota arrangements, it has been possible for 
the  EU  sugar  market  to  maintain  a  market  situation  where  production  in  the  EU 
systematically exceeds domestic consumption. While sugar produced under A and B 
quotas benefits from the same institutional price, B quota sugar is subject to a much 
higher  levy  because  it  corresponds  to  that  volume  destined  for  export  with  refund. 
Sugar produced above the A and B quotas is the so-called C sugar, which has to be 
sold on the world market without any support. In the context of the 2003 reform and 
its  emphasis  on  market  orientation,  highly  subsidised  exports  are  no  longer 
economically sustainable.  

Consequently, starting in 2005/06, it is proposed to bring the production quota in line 
with internal consumption, taking into account the impact of the new arrangement for 
the  chemical  and  pharmaceutical  industries  on  their  use  of  sugar  under  quota,  by 
initially  reducing  the  current  sugar  quota  of  17.4  million  t  by  1.3  million  t  and 
subsequently,  from  2006/07,  in  three  annual  linear  reductions  of  0.5  million  t  per 
year, bringing the cumulative reduction of the production quota to 2.8 million tonnes 
by 2008/09. 

Quantities (million tonnes) 

Base year

2005/06 

2006/07 

2007/08 

2008/09 

Consumption 

Quota 

EU production under quota 

Quota Simplification 

C 

Q 

P 

16,3 

17,4 

17,3 

16,1 

16,1 

16,0 

16,1 

15,6 

15,5 

16,1 

15,1 

15,0 

16,1 

14,6 

14,5 

In  this  context,  to  simplify  the  quota  arrangements,  the  A  and  B  quotas  will  be 
merged into one single quota. The C sugar provisions will remain as at present. 

Isoglucose 

Owing  to  the  relationship  between  the  isoglucose  and  sugar  markets,  the  proposed 
price reductions will also impact on the EU isoglucose sector revenue. Therefore, the 
isoglucose sector will need to be in a position to profit from economies of scale, in 
order to have a long-term prospect of economic viability. Under these circumstances, 
a  progressive  and  proportional  increase  of  isoglucose  quotas,  of  100 000  t/year  for 
three years beginning in 2005/06, is proposed. 

2.2.3.  Market Balance Tools 

Abolition of the declassification mechanism 

In view of the overall objective of improving competitiveness and market orientation, 
the current declassification mechanism would no longer be appropriate as a means of 
intervening  to  balance  the  market.  In  fact,  the  declassification  mechanism  of  quota 
sugar into C sugar results in a sharper reduction in B than A quota, thus placing more 
pressure on the most competitive sugar producing Member States, which produce the 
highest  share  of  B  quota.  In  the  presence  of  prospects  for  increased  imports,  this 

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effect would be intensified, contributing to the decline of the EU sugar sector under 
the status quo scenario. It is therefore proposed to abolish this mechanism. 

Private Storage 

A  private  storage  scheme,  implemented  by  a  Commission  tender  procedure  and 
triggered  when  the  market  price  falls  below  the  reference  price,  will  open  the 
possibility of withdrawing sugar from the market. 

Carry-over Mechanism 

In  addition  to  the  private  storage  mechanism,  the  Commission  will  still  have  the 
possibility of dealing with market imbalance by carrying over any surplus volume to 
the  following  campaign,  counting  against  the  quota  of  the  sugar  producer.  Should 
such a situation arise, the Commission proposes that the volume carried over will be 
deducted through a pro-rata reduction in quotas, to be applied across the board. 

2.2.4. 

Specific measures for the chemical and pharmaceutical industries 

It is proposed that the current arrangements for excluding the sugar used for alcohol, 
including  rum,  bio-ethanol  and  yeast  production  from  the  production  quotas  will 
continue  and  will  be  extended  to  those  quantities  of  sugar  used  by  chemical  and 
pharmaceutical industries, for end products with a high utilisation of sugar. Since the 
proposed  arrangement  will  permit  these  industries  to  be  supplied  with  sugar  at  a 
competitive  price  (close  to  world  market  price),  the  refunds  for  use  of  sugar  in  the 
chemical and pharmaceutical industries are no longer needed. Therefore, production 
refunds will be abolished, as from 2005/06 onwards. 

2.2.5.  Restructuring 

Quota Transferability 

In the light of the proposed price reductions, analyses indicate that, in regions where 
the sugar market price remains above the combined costs of growing and processing 
sugar  beet,  sugar  production  will  continue,  albeit  with  some  change  in  investment 
strategy.  However,  factories  operating  in  regions  of  low  competitiveness  will  face 
long-term  negative  margins.  Quota  mobility  is  currently  limited  within  a  Member 
State  and  therefore  impedes  the  relocation  of  sugar  production  from  the  least 
competitive sugar producing Member States to the most competitive. 

Therefore, it is proposed that modifications be introduced in the rules governing the 
sugar  quota  distribution,  permitting  transferability  between  Member  States  of  the 
sugar quotas. In the case of such transfer, the seller of the quota will remain liable for 
the  environmental  condition  of  the  factory  site  and  the  redeployment  of  the 
workforce. 

Conversion Scheme 

For  those  factories,  which,  in  the  light  of  the  price  reductions,  are  no  longer 
economically viable and whose quota is not taken up by another operator, a safety net 
scheme  is  proposed,  to  participate  in  the  financing  of  the  costs  associated  with 

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restoring the good environmental condition of the factory site and the redeployment 
of the workforce. 

Such a scheme will operate at Member State level. It will begin in 2005/06, last for 
five  years  and  the  payment  will  be  paid  once  only.  The  EU  co-financing  of  the 
scheme will be up to 50% (75% in Objective 1 areas) of a unit amount of 250 EUR/t 
of  sugar  processed  under  quota  by  the  beneficiary.  In  this  case,  the  quota 
corresponding  to  the  closed  factory  will  be  cancelled.  The  financial  envelope 
necessary  for  implementing  a  national  programme  under  the  scheme  will  be 
calculated annually on the basis of Member State requests.  

2.2.6.  Direct Income Support for Sugar Beet Producers 

The proposed price cuts will lead to a significant income loss to sugar beet producers. 
In order to offset that loss, at least partially, it is proposed to set up a direct payment 
system in this sector by transferring a part of the EAGGF expenditure for sugar, into 
the  funding  of  the  single  farm  payment  scheme.  The  annual  payment  will  be 
introduced in two steps, one payable in 2005/06 and 2006/07 and one payable as from 
2007/08.  The  payments  will  only  be  granted  to  farmers  who  produced  sugar  beet 
under quota in the  historical reference period  and will  not be affected by any quota 
transfers, which may be made subsequently. 

The  revenue  loss  was  estimated  taking  into  account  the  change  in  the  weighted 
minimum  sugar  beet  price  in  each  Member  State,  which  reflects  the  different 
combinations of sugar produced under A and B quota. The national envelopes for the 
direct  payment,  which  amount  to  60%  of  the  estimated  revenue  loss,  are  given  for 
each Member State in Table 2. In the calculation of the compensation, farmers of all 
Member States are treated in an equal manner. 

Table 2 – Envelopes for Direct Income Support for Farmers (million EUR) 

Payment steps 

in 2005/06 & 2006/07 

from 2007/08 

in 2005/06 & 2006/07 

from 2007/08 

B 

41 

62 

NL 

41 

63 

19 

30 

A 

19 

29 

DK 

D 

EL 

154 

241 

18 

26 

E 

60 

86 

F 
continental 

IRL 

I 

150 

234 

11 

16 

80 

119 

P 
continental

FIN 

S 

UK 

F* 
overseas 

P* 
Azores 

4 

6 

8 

12 

21 

30 

PL 

99 

142 

64 

93 

SK 

12 

17 

27 

39 

1 

1 

SI 

EU-25 

3 

4 

895 

1 340 

CZ 

HU 

LV 

LT 

in 2005/06 & 2006/07 

from 2007/08 

28 

39 

25 

36 

4 

6 

7 

9 

* Includes amounts corresponding to current disposal measures 

Member  States  shall  incorporate  the  direct  payments  into  the  single  farm  payment 
and may do this either on the basis of the sugar beet area, corresponding to the sugar 
beet produced under quota, during the historical reference period, or on the basis of 
the total sugar beet area during the same period. As in the 2003 CAP reform, in cases 

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where the single farm payment has been regionalised, Member States may also apply 
flexibility  in  defining  the  balance  between  individual  payments  and  regional  or 
national averages. 

Furthermore, outermost regions will also benefit from a special treatment, taking into 
account the specific constraints of their agriculture and sugar industry, as well as their 
logistic situation in relation to the EU market, and from the possibility to exclude the 
direct payments from the single farm payment scheme, as is already the case for the 
other reformed sectors3. 

2.3. 

Responding to the EU’s International Commitments 

The challenges posed by the international commitments of the EU sugar regime raise 
complex  questions  because  any  reform  of  the  EU  sugar  CMO  is  bound  to  generate 
both winners and losers, within the developing world. Such questions should not be 
addressed  simplistically  or  hastily  as  they  require  an  open  and  structured  dialogue 
with EU partners, with all relevant parameters discussed. 

The present proposal allows some of the crucial parameters of this dialogue, such as 
the  internal  EU  price  support  or  the  EU  quota  level,  to  be  clarified.  Although  other 
parameters,  including  the  outcome  of  the  Doha  round  and  the  WTO  panel,  would 
only  become  clearer  as  this  dialogue  proceeds,  there  should  be  no  doubt  about  the 
need  to  address  now  the  immediate  challenges  of  the  EU’s  international  sugar 
commitments. 

Already today, world sugar price developments are mainly affected by excess supply, 
with the increase in production and exports of Brazil alone accounting for the bulk of 
the recent decline in world prices and introducing challenges for the competitiveness 
of many other developing countries. While the Everything but Arms (EBA) initiative 
provides  real  prospects  for  significant  sugar  exports  from  some  of  the  poorest 
developing countries to the EU, it has also generated concerns of potential erosion of 
the ACP countries and India preferences. 

Finally,  the  significant  increase  in  EU  imports  from  the  Western  Balkans,  which 
remain net sugar importers, raises questions about the economic sustainability of such 
trade flows, especially with respect to benefits of their local economy, in the light of 
the proposed reform of the EU sugar CMO. 

The  Commission  considers  that,  in  addressing  the  challenges  related  to  the  EU’s 
international commitments on sugar, the implementation of the EBA initiative, and its 
expected  impact,  should  be  a  fixed  parameter  in  the  debate  with  its  ACP  and  India 
partners. 

Within this framework, the Commission takes it as granted that the provisions of the 
current  ACP  sugar  protocol  and  India  agreement,  which  commit  the  EU  to  buy 
annually  at  a  guaranteed  price  an  agreed  quantity  of  1.3  million  t  of  white  sugar 
equivalent, will be retained. To account for changes under the present proposal, this 
commitment will now have to be fulfilled at a lower guaranteed price for white sugar, 

3 

In  the  framework  of  this  reform,  funds  currently  specifically  earmarked  for  support  of  Outermost 
regions’ sugar will be maintained. 

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equal to the EU reference price. At this price level, the implied raw sugar price will 
be  329  EUR/t,  a  level  indicating  that  the  refining  aid  will  no  longer  be  needed  for 
refiners and will thus be repealed. 

In the framework of the debate, which has been launched by the Commission with its 
Green  Paper  on  Preferential  Rules  of  Origin,  the  Commission  will  consider  coming 
forward with a proposal concerning the implementation of rules of origin in the case 
of the sugar trade, in particular to prevent abuse of these rules. 

To  avoid  distortion  of  competition  with  Least  Developed  Countries  (LDCs) 
benefiting  from  the  EBA  agreement,  the  sugar  to  be  imported  within  that  EBA 
scheme will continue to be compulsorily bought by EU operators at a price no lower 
than the guaranteed price for ACP countries and India sugar. 

Finally, in order to uphold the benefits to the Western Balkans of the EU sugar import 
regime, while at the same time providing a sustainable framework for the sugar sector 
of these countries that is consistent with their long-term orientation towards the EU, 
the Commission proposes the introduction of a tariff rate quota at levels that preserve 
their present export levels to the EU and the prospects of an economically sustainable 
balance between their production and consumption. 

The implementation of the Commission proposal would certainly imply adjustments 
in  the  sugar  sector  of  the  ACP  countries  and  India.  The  Commission  will  initiate  a 
dialogue with the Sugar Protocol countries (and India) on the basis of an action plan 
to  be  proposed  before  end  2004,  in  order  to  define  appropriate  accompanying 
measures. These should correspond to both the trade and development measures. As 
regards  trade  measures,  the  Cotonou  Agreement  foresees  the  review  of  the  Sugar 
Protocol  in  the  context  of  EU-ACP  negotiations  on  Economic  Partnership 
Agreements (Article 36.4). The Sugar Protocol should be integrated into the EPAs in 
such  a  way  that  does  not  prejudge  the  EU's  commitment  to  LDCs  for  full  market 
access  for  sugar  from  2009  and  that  ensures  full  compatibility  with  WTO  rules.  As 
regards  development  assistance  measures,  the  Commission  will  propose  the 
introduction  of  specific  measures  to  help  Sugar  Protocol  countries/India  to  adapt  to 
the  new  market  conditions.  Such  programmes  should  focus  on  improving  the 
competitiveness  of  the  sugar  sector  where  economically  viable,  and  on  supporting 
diversification,  where  improvements  in  competitiveness  in  the  sugar  sector  are  not 
sustainable4. 

In the light of these price guarantees and the preferential tariff for ACP countries and 
India,  and  non-limited  access  arrangements  at  zero  tariff  as  from  2009/10  for  EBA 
countries, the Maximum Supply Needs (MSN) instrument will in time no longer be 
needed.  

However, as is currently the case for ACP countries and India, it will be necessary to 
continue monitoring sugar imports and their origin country by country. 

4 

Financing  of  such  measures  will  be  ensured  through  mobilising  the  flexibility  instrument  up  to  end 
2006,  and  then  by  a  thematic  appropriation  within  the  « Development  Cooperation  &  Economic 
Cooperation » Instrument as proposed for the next financial perspectives 2007-2013. 

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3. 

THE IMPACT OF THE PROPOSED REFORM 

3.1. 

Budgetary Impact 

The  annual  costs  of  the  proposed  reform  remain  within  the  status  quo  expenditure 
scenario  established  by  the  Commission  when,  at  the  time  of  the  CAP  Reform 
proposals  of  January  2003,  it  presented  expenditure  forecasts  for  the  CAP  for  the 
period to 2013. The costs for the CAP of the new measures proposed for this sector, 
for  which  the  direct  decoupled  payment  to  producers  represents  the  major  element, 
will  be  offset  by  the  savings  resulting  from  a  substantial  reduction  in  export  refund 
expenditure  and  from  the  abolition  of  the  production  refund  for  the  chemical  and 
pharmaceutical industries and of the refining aid. 

income 

for  direct 

When  the  proposed  measures  for  the  sector  have  been  fully  implemented,  the 
envelopes 
involve  an  annual  cost  of 
support  will 
1 340 million EUR,  whilst  expenditures  in  respect  of  exports  refunds  for  sugar  and 
exports refunds for sugar contained in exported processed products, are estimated at 
about  100 million  EUR  each.  However,  this  latter  figure  would  be  lower  if  the 
conversion  scheme  leads  to  the  cancellation  of  significant  amounts  of  quota  and  a 
corresponding  reduction  in  export  quantities.  Any  costs  in  respect  of  the  private 
storage  scheme  should  be  limited  and  only  arise  if  market  prices  risk  falling 
significantly below the reference price. 

As far as own resources are concerned, 75% of the amounts raised by the system of 
production  levies  accrue  as  revenue  for  the  budget  (360  million  EUR  for  the  2004 
budget).  In  future,  this  revenue  will  be  reduced  sharply  and  even  disappear  as  the 
automatic  consequence  of  bringing  sugar  quota  production  into  line  with  EU 
consumption. 

3.2. 

Economic Impact 

Despite  significant  internal  price  reductions  which  should  benefit  the  consumer,  a 
marginal adjustment to consumption of sugar under quota is expected, as a result of 
the  new  arrangement  for  the  use  of  sugar  by  the  chemical  and  pharmaceutical 
industries. 

Due to the increased competitiveness of EU sugar production, an increase in imports 
of  only  0.5  million  t,  that  is  from  1.9  to  2.4  million  t  of  sugar,  from  preferential 
partners,  is  forecast.  Given  a  stabilisation  of  the  import  regime  for  the  Western 
Balkans, the main driver of the increased level of imports would be the impact of the 
zero tariff arrangements of the EBA agreement for LDCs. 

It is projected that the combined, aggregate effect of the proposals on support price 
and  quota  reduction  would  be  a  significant  reduction  in  the  level  of  EU  production 
under quota, from 17.3 to 14.5 million t per year. Under these conditions, it may be 
expected that sugar beet cultivation will not continue in all production regions of the 
EU. 

Furthermore, as a consequence of the substantial reduction in the overall level of EU 
production, EU subsidised sugar exports are projected to fall by around 2.0 million t. 

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4. 

TIMETABLE AND REVIEW OF THE PROPOSED ARRANGEMENTS 

In this Communication, the Commission has proposed important changes to many of 
the instruments of the current EU sugar regime. 

The Commission considers that, in view of the pressing need to lay the foundations of 
a new sugar regime, to provide a new perspective for the long-term investments in the 
EU sugar sector and to address the already decided trade impacts, the set of proposals 
outlined above must be of immediate application, beginning in the 2005/06 campaign 
for a period of three years. 

However, at this stage, owing to the uncertainty of the outcome of the ongoing WTO 
round and the real effects of the EBA agreement, the Commission proposes to review 
the price and quota levels of the proposed reform in 2008. 

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