REPLY OF THE COMMISSION TO THE SPECIAL REPORT "HAS THE REFORM OF THE SUGAR MARKET ACHIEVED ITS MAIN OBJECTIVES?"
Date: 2010-09-07
Institutions: European Commission
Subjects: World Trade Organisation, common agricultural policy, competitiveness, environmental protection, export, production control, production quota, sugar

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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?" 

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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 market 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 operating in an environment with institutional 
prices reduced by 36%, and production is more concentrated in high profitability regions.  

The key elements of the reform were a substantial reduction of the institutional prices and a 
temporary restructuring fund aimed at compensating 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  made  available  to  EU  operators  in  exchange  for  a  one-off 
payment.  

The reform has been budget neutral in terms of agricultural expenditure. Adjustment needs in 
ACP  countries  signatories  to  the  Sugar  Protocol  were  explicitly  recognized  in  the 
Commission proposal and addressed 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 World Trade Organisation (WTO) ruling on the 
EU sugar regime. The EBA granted Least Developed Countries (LDC) free access to the EU 
market,  including  sugar.  The  WTO  ruling  necessitated  a  reduction  of  subsidized  EU  sugar 
exports. In response, the EU had to cut its sugar production quotas to maintain the appropriate 
market balance. Thus, some of the developments described by the Court (e.g. the reduction of 
production quotas) are ultimately rather a consequence 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 underpinned 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 situation of substantially lower institutional prices. 

The  fact  that  the  reform  simultaneously  offered  the  option  of  abandoning  and  obtaining 
additional  quotas  responded  precisely  to  the  objective  of  achieving  a  smaller  but  more 
competitive EU sugar producing sector. 

As documented in Commission table 1, the renunciation 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 profitability. As a result of this 
process, Member States with high 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).  

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VI.  The  Commission  welcomes  the  Court’s  acknowledgment  that  the  reform’s  objective  of 
stabilising the sugar market and sugar prices has been met. 

The higher reliance on external supplies of sugar is the result of  the trade and development 
policies  of  the  EU,  and  in  particular  the  ‘Everything  but  arms’  initiative  that  has  granted 
unlimited access to the EU market to imports from least developed countries, some of which 
have substantial sugar export potential.  

Moreover,  the  sugar  regime  incorporates  the  necessary  tools  to  deal  with  a  hypothetical 
situation of undersupply of the EU market mainly 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  principle  of  subsidiarity,  the  responsibility  for  addressing  the 
consequences of factory closures (or production reductions), including the implementation of 
the  necessary  diversification  measures,  lies  with  the  Member  States.  Nevertheless,  with  a 
view  to  securing  timely  implementation  of  these  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 initial proposal, is to 
enable these companies to take the necessary measures to improve their competitiveness. 

VIII.  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  guarantee  prices  of  sugar  beet, 
production and export refunds to a system 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 after 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 countries and made an analysis of the 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  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  objective  and  non-discriminatory 
criteria. This approach has also been followed in the reform of the sugar market. 

Second indent - In preparing its proposal for the rules governing sugar after marketing year 
2014/15, the Commission, building on the experience of the past, will examine a whole series 
of options. 

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Third  indent  -  The  Commission  is  of  the  view  that  the  new  sugar  market  balance  emerging 
from the reform, including the level of EU self-sufficiency, is in line with Treaty provisions, 
which do not stipulate that the EU should be self-sufficient with regard to every agricultural 
product. Furthermore, the sugar regime incorporates the necessary tools to deal with situations 
of  undersupply  of  the  market,  mainly  by  converting  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 the subsidiarity principle, the responsibility for implementation of 
diversification  measures  and  for  ensuring  compliance  with  environmental  obligations  lies 
with the Member States, which are better placed to take the necessary decisions in the light of 
the number of specific factors applying in each case.  

INTRODUCTION 

4. The smooth operation of a sugar regime based on quotas requires quotas for isoglucose and 
insulin  syrup  as  well,  since,  as  the  Court  rightly  points  out,  both  products  are  potential 
substitutes  for  sugar.  Quotas  were  introduced  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  corresponded  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 quantitative limit on white sugar exports: 

The  WTO  Panel  and  the  Appellate  Body  recommended  that  the  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 preferential imports from certain ACP 
countries  and  India  did  not  have  the  legal  effect  of  enlarging  or  otherwise  modifying  the 
European Communities’ quantity commitment level contained in the EC Schedule, 

Second indent - the complainants (Australia,  Brazil and Thailand) had provided  prima facie 
evidence  that  producers/exporters  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  European  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 demonstrate that these exports are not subsidised.  

Box 1  

See reply to point 5. 

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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 WTO 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  linked  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  response  to  which  the  Commission  had  to  take  two  sets  of 
measures: on the one hand, extending export refunds into the marketing year 2007/08, and, on 
the other hand, setting a withdrawal percentage of 13.5 % (Commission Regulation (EC) No 
290/2007) in order to preserve the structural balance of the market. 

e) Since the reform involved a reduction of beet prices, it had a direct impact on the income of 
growers,  hence  the  justification  for  compensation.  For  cereal  growers  the  isoglucose  only 
constitutes  a  marginal  outlet  for  cereals  whose  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 would not have been justified.  

OBSERVATIONS 

21.  In  order  to  secure  an  efficient  and  smooth  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 reform. An approach based on targeting specific 
regions  or  individual  producers  would  have  encountered  not  only  major  opposition  by 
Member  States  and  operators  affected  by  quota  cuts  but  also  great  practical  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  objective,  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 transparency, 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, against the background of a future characterised by substantially 
lower  prices.  In  addition,  a  financial  incentive  was  provided  for  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.  Therefore,  the  Commission  did  not 
consider it necessary to collect such data on productivity and efficiency for the model chosen. 
Moreover,  such  an  analysis  would  concern  confidential  aspects  of  private  business,  and 
comparisons between companies based thereon would not be exempt from controversy.  

The gains in competitiveness of the EU sugar industry 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 profitability of the sugar sector in each Member State. In order to 

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secure reliability of results, these analyses are 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 future 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  Member  States,  as  well  as 
contributions from the academic world.  

Accordingly,  the  data  in  table  2  of  the  updated  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 retained by the Commission. 

As documented in Commission table 1, the share of quota held by high-profitability 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 sector are clear. 

26. The rationale for the reform was the voluntary 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 year (0.71 million tonnes), which prompted the 
Commission  to  make  the  necessary  adjustments.  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  the  industry  was  not  a  lack  of 
financial incentives, but rather the uncertainties linked to the part of the aid to be reserved for 
growers and contractors. 

28. The transitional five-year coupled aid to growers 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  estimated  by  the  Commission  is  not  based  on  the 
analysis of the profitability of individual companies but the result of the new macro-economic 
conditions prevailing in sugar economics in the 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 opted 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 balance 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.  

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30.  The  decision  to  cease  sugar  production  was  taken  by  individual  sugar  companies.  Most 
efficient  sugar  producers  are  certainly  better  placed  to  keep  their  activity  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 economic 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  uncompensated  quota  cut  in  2010  if  the  target  had  not 
been met by voluntary renunciations proved instrumental in securing a large uptake from the 
third year of the reform.  

34. As the Court describes in point 27, an essential 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 processor. Moreover, the Commission wishes to stress 
that the total aid amount was not increased during the second phase of the reform in which, 
nevertheless, the objective of total quota renunciation has been achieved. 

35. Decisions on quota renunciation were taken voluntarily by companies on the basis of their 
own  assessment  of  the  current  situation  and  perspectives.  All  operators  in  the  EU  were 
confronted  with  the  same  choice  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 producers had access to the restructuring scheme. The 
final decisions were taken by individual undertakings bearing in mind the likely profitability 
of the company in the new market environment. 

See also the figures presented in the Commission reply 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  rightly  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 States. 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-profitability Member States, this percentage is 81 %.  

38. The Commission is of the view that the objectives of the reform have been fully achieved 
and  remains  persuaded  that  individual  producers  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  additional  quotas  simultaneously  with  incentives  to 
surrender  quota  through  the  restructuring  fund  was  precisely  to  underpin  the  goal  that  the 
Court mentions, namely to facilitate, by increasing their processing capacity, further gains in 
competitiveness for those companies that were already competitive.  

40 (second indent). Whereas sugar processors would benefit from lower beet prices after the 
reform, the price of maize and other raw materials used for processing isoglucose would be 
unaffected.  In  order  to  ensure  that  isoglucose  processors  could  maintain  their  relative 

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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  increase  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  adjustment  tools  for  those  deciding  to  remain  in 
business.  Sugar  companies  in  the  EU  were  called  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 charged for quota purchases and granted for quota 
renunciations was equivalent. 

As to the alleged negative financial consequences, 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 processing isoglucose would remain unaffected. As 
the drop in sugar prices entails a reduction in the price of isoglucose, 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 between 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  price  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 indicated and sugar beet growing continues in substantial areas of 
those Member States referred to in Table 2. 

46-47. By its nature, sugar production requires heavy industrial facilities. It can only remain 
competitive  if  both  beet  production  and  beet  processing  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 the 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  relate  to  the  legal  basis  as  adopted  by  the  Council,  which  the 
Commission is bound to implement. 

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51.  The  reform  has  contributed  to  bridging  the  price  gap  between  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  acknowledgment  that  the  EU  sugar  market  has 
been stable since the start of the reform. 

55. The actual level of imports from these countries 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  sugar  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  future.  Market  developments  seem  to  confirm 
this. 

58. The fact that the EU has become more dependent on imports is the logical consequence of 
opening  the  EU  market  to  third  countries.  Nevertheless,  this  level  of  reliance  on  imports 
would have been much larger if present sugar prices in the EU had remained at the high level 
prevailing before the reform.  

All in all, the level of self-supply within quota maintained 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 situations of undersupply of 
the EU market mainly by converting available out-of-quota sugar into quota sugar. 

59.  

b)  This  greater  reliance  on  imports  depends  essentially  on  the  gap  between  world  and  EU 
sugar  prices.  The  reform  has  been  instrumental  in  bridging  this  gap  and  has  therefore 
contributed to maintaining a robust albeit smaller sugar producing sector in the EU.  

60.  By  substantially  raising  the  overall  competitiveness  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 have satisfactorily implemented these measures 
are entitled to receive payments.  

The  fact  that  EU  sugar  producer  groups  are  also  importing  sugar  into  the  EU  is  not  new. 
Moreover, in a new scenario where the EU is meant to increase its imports of sugar, the fact 
that certain producing facilities are being transformed into refineries would allow part of the 
processing of such sugar to remain in the EU. 

62. The Commission welcomes the Court’s acknowledgement 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  applied  to  the  sugar  sector.  The  evaluation  will 
examine  the  impact  of  CAP  measures applied to the sugar supply chain,  including  the farm 

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sector and sugar producers and refiners, since 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 their competitiveness leads to a certain degree 
of industrial concentration.  

69.  Isoglucose  is  processed  from  cereals  (mainly  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 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 the restructuring aid is 
conditional upon the implementation of a plan presented by the operator to the Member State 
concerned  including  a  detailed  description  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  clearance  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  from  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  deadline  producers  had  to  comply  with  their 
environmental  obligations  was  two-fold:  on  the  one  hand,  the  initial  deadline  was  fixed  in 
2006 and the timetable needed updating to take into 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  (mainly  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,  since  well  before  the  sugar  reform,  as  each 

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production unit was increasing its processing capacity. For instance, between 2000 and 2006, 
67 factories closed down in the EU.  

The  restructuring  fund  has  provided  a  legal  framework  and  financial  support  that  closures 
which occurred before the reform could not benefit from. 

80. Diversification aid was introduced to give Member 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  measures applied to the sugar supply 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  restructuring  should  also  be  examined  in  this 
evaluation (on the basis of case studies).  

Work on the evaluation is expected to begin in the fourth quarter 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 adjustments 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  granting  this  aid,  the  reform  secured  equal  treatment  of  all  sugar 
producers in the Community whether they use 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  was  renounced  and  the  timing  of 
renunciation.  In  reality  more  temporary  restructuring  amounts  were  collected  and  less 
expenditure  was  incurred  under  the  sugar  restructuring  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-financing. The sugar restructuring 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 guarantee prices for sugar beet and production 
and export refunds to a system 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.  

The sugar restructuring fund, which is not a component of the CMO, was designed to be self-
financing, and this has also been achieved. 

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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 production 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 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  to  supporting  the  adjustment  needs  of  privileged 
Sugar  Protocol  countries  and  made  an  analysis  of  the  impact  of  the  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 the Common Agricultural Policy.  

91. See Commission reply to point 90. 

CONCLUSIONS AND RECOMMENDATIONS 

93. The objectives of the reform are directly linked 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 against 
each other. 

94. Companies operating after the reform have to maintain profitability 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 low profitability now account for only 5 % (compared with 
12 % before the reform). 

The  additional  quota  made  available  (in  exchange  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 new 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 reducing) production.  

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12 

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96.  The  rationale  behind  simultaneously  offering  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 smaller but considerably 
more competitive.  

Whereas sugar processors would benefit from lower beet prices after the reform, the price of 
maize  and  other  raw  materials  used  for  processing  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, additional quotas free of charge were granted so that 
they could profit from economies of scale. 

97.  Overall,  EU  growers  are  more  competitive  after  the  reform.  That  being  said,  growers’ 
competitiveness cannot be seen in isolation from that of the factory to which they deliver their 
crops. See also Commission replies to points 46-47. 

98. The Council decided to maintain a regime based on production quotas until 2014/15.  

99.  The  Commission  considers  that  both  objectives,  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 companies 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  objective  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  rules  governing  sugar  after  the  marketing  years 
2014/15, the Commission, building on the experience of the past, will examine 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  sugar  as  a  driver  for  economic  activity  in  least 
developed countries with good production potential.  

Recommendation 3 

The Commission takes the view that the new sugar market balance emerging from the reform, 
including the level of EU self-sufficiency, is in line with Treaty provisions. The Treaty does 
not stipulate that the EU should necessarily be self-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,  mainly  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 transmission in the sugar sector in 
order to shed more light on the issue.  

EN 

13 

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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  sugar  supply  chain,  including  the  farm  sector  and 
sugar producers and refiners, since 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 capacity. For instance, between 2000 and 2006, 
67 factories closed down in the EU.  

The  restructuring  fund  has  provided  a  legal  framework  and  financial  support  that  closures 
which occurred before the reform could not benefit from. 

104.  In  line  with  the  subsidiarity  principle,  the  legislator  has  given  responsibility  for  the 
implementation  and  follow-up  of  the  social  consequences  to  the  Member  States,  which  are 
better placed to perform this task.  

Member State authorities must check that social obligations are implemented in compliance 
with social plans. Clearance of accounts audits 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  from  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. 

105.  In  line  with  the  principle  of  subsidiarity,  responsibility  for  the  implementation  of  the 
diversification measures lies with the Member States. 

106. In December 2009, the Commission amended the legislation to allow for an extension of 
the  deadlines  concerning  environmental  measures  until  September  2011.  The  rationale  for 
extending this deadline was two-fold: on the one hand, the initial deadline was fixed in 2006 
and  the  timetable  needed  updating  to  take  into  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 discussions that, like sugar beet processors, full-time refiners 
had  to  undergo  a  series  of  structural  adjustments  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 

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national  authorities.  By  granting  this  aid,  the  reform  secured  equal  treatment  of  all  sugar 
producers in the Community whether they use beet or raw sugar as a raw material. 

108.  The  Commission  would  also  like  to  stress  that  the  reduction  in  the  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  capacity.  The  restructuring  fund  has 
provided  a  legal  framework  and  financial  support  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 number of specific factors applying in each case. 

Recommendation 6 

In  line  with  the  subsidiarity  principle,  responsibility  for  ensuring  compliance  with 
environmental  obligations  lies  with  the  Member  States,  which  are  better  placed  to  take  the 
necessary decisions in the light of the number 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 Organisation (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 system 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  restructuring  fund,  currently  estimated  at  640  million  EUR,  will  be 
assigned to the EAGF after the financing of the measures under that fund. 

As far as the revenue is concerned, please see Commission reply to point 90 (a). 

The accompanying measures 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 to supporting the adjustment needs of privileged Sugar Protocol 
countries  and  made  an  analysis  of  the  impact  of  the  sugar  reform  on  ACP  countries.  The 
support  provided  to  ACP  countries  falls  outside  the  scope  of  Council  Regulation  (EC)  No 

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1290/2005, as it concerns development aid to the ACP countries and therefore is not covered 
by the expenditure of the Common Agricultural Policy. 

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Level of

combined
profitability

LOW

Total Group
in % of TOTAL

MEDIUM

Total Group
in % of TOTAL

HIGH

Sugar Restructuring
Breakdown of Member States by their combined profitability

MS

QUOTA
2006/2007

Total
renounced
(tonnes)

in %
of initial
Quota

Added
/
Bought

Quota 

2009/2010

in %

of initial
Quota

GREECE
IRELAND
ITALY
PORTUGAL

CZECH REPUBLIC
DENMARK
SPAIN
LATVIA
LITHUANIA
HUNGARY
SLOVENIA
SLOVAKIA
FINLAND

BELGIUM
GERMANY
FRANCE
NETHERLANDS
AUSTRIA
POLAND
SVEDEN
UK

317.502
199.260
1.557.443
69.718

158.800
199.260
1.049.064
69.718

2.143.923
12%

1.476.842
28%

454.862
420.746
996.961
66.505
103.010
401.684
52.973
207.432
146.087

2.850.260
16%
819.812
3.416.896
3.288.747
864.560
387.326
1.671.926,0
368.262
1.138.627

102.473
80.083
498.481
66.505
20.758
301.264
52.973
103.717
65.088

1.291.342
25%
206.066
757.200
683.655
126.547
54.785
366.868,9
92.798
165.000

50%
100%
67%
100%

69%

23%
19%
50%
100%
20%
75%
100%
50%
45%

0
0%

20.070
31.720

8.000
5.000

8.605

45%

73.395
7%
62.489
25%
238.560
22%
351.695
21%
66.875
15%
14%
18.486
22% 100.551,0
17.722
25%
82.847
14%

158.702
0
508.379
0

667.081
5%

372.459
372.383
498.480
0
90.252
105.420
0
112.320
80.999

1.632.313
12%
676.235
2.898.256
2.956.787
804.888
351.027
1.405.608,1
293.186
1.056.474

10.442.461
78%
594.886

50%

0%

33%

0%

31%

82%

89%

50%

0%

88%

26%

0%

54%

55%

57%

82%

85%

90%

93%

91%

84%

80%

93%

87%

Total Group
in % of TOTAL

others*

11.956.156
68%
604.114

2.452.920
47%
9.227

21% 939.225

2%

93%
0

TOTAL

17.554.453

5.230.331

1.012.619

13.336.741

* Azores, Madeira, French overseas departements, RO, BU

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