The European Commission took the first steps towards a substantial withdrawal of quota sugar from the market this week.
The move, welcomed by EU agriculture minister Mariann Fischer Boel, is designed to avoid a significant surplus at the end of the season.
"It is clear already today that a substantial withdrawal will be necessary to address the serious market imbalance," said the EC in a statement.
"It is important to announce this initiative to sugar producers and beet growers at this early stage so that the industry can plan for the coming growing season and the contracting process, at a time when decisions on sowing are imminent."
Withdrawal means a temporary reduction in the amount of sugar producers can produce under their quota. The Commission believes that a provisional figure for withdrawal of at least two million tonnes, i.e. corresponding to 12 per cent of the quota, will be necessary.
A definitive figure will be set later this year towards October, once the Commission has a "clearer picture of the harvest and production of sugar".
"On several occasions, and in particular at the Council in November and December, I alerted sugar operators and Member States to the risks arising from a failure to reduce production quotas under the terms of last year's reform," said Fischer Boel.
"My main concern was that the restructuring fund, which was established to help unprofitable producers to leave the sector, was not being allowed to operate as intended and that too few companies were benefiting from its existence. I have been quite clear that unless much more quota was renounced, the consequences would be serious for everyone."
Indeed, Fischer Boel has said that the sugar industry should take greater responsibility to ensure the successful restructuring of the EU market, warning that the Commission would not bail out the sector.
"The quantity renounced so far is far below our expectations when we drew up the reform," she said in November.
"If this is the end result, we will have a surplus of 4.5 million tonnes, corresponding to 25 per cent of the quota for the marketing year 2007/2008."
Following the EC's confirmation this week that the market oversupply for 2007/2008 is expected to be very substantial, the Commission said that it would make use of Article 19 in the basic Regulation 318/2006.
"The main objective must be to avoid a simple linear cut at the end of the restructuring period to the detriment of the sustainability of the whole sector," said the EC.
The new sugar reforms, which came into affect on 1 July last year, follow the general trend in European agricultural policy to decouple financial support from production. The EU also agreed last year to lower sugar production by 6m tonnes over a four-year transition period.