The European Commission is stepping up efforts to force less competitive sugar processors from the market, with a series of changes to the EU sugar restructuring scheme.
In a report issued this week, the Commission admitted producers had struggled to implement quota cuts imposed when the regulations were brought into effect in 2006 and said it would be introducing a series of measures to put pressure on reluctant companies.
The report stated: "Unfortunately, much less quota has been renounced during the first two years of the scheme than anticipated and changes therefore have to be made to make it more attractive."
The changes, expected to be implemented by October, include fixing the aid offered to growers and machinery contractors at 10 per cent and allowing beet growers to apply directly to the restructuring fund for aid up to a specified limit.
In reforming the sugar CMO, the EC pledged to cut production in the bloc by 6 million tonnes over four years but slow restructuring and surplus supplies have dampened efforts to get the regime fully operational.
Quota cuts fell well below the 5 million target this year - prompting the Commission to withdraw a further 2 million tonnes of quota in March.
Many processors have been wary of the reform as, under the present system, Member States have the freedom to fix the amount of aid granted to farmers above the 10 per cent minimum. Applying to the restructuring fund without knowing exactly how much they will receive is therefore risky.
But the EC has warned that producers failing to comply with quota cuts will merely exacerbate unstable trading conditions and hamper efforts to sustain the system in the long-term.
Agricultural commissioner Mariann Fischer Boel said: "We need to reduce our sugar output dramatically if we are to give the sector in Europe a sustainable future. The restructuring fund is a key element of our reform, offering financial incentives to factories which can't compete at the lower price introduced by the reform.
"Regrettably, it hasn't proved as attractive as we had hoped. But I believe the changes we are proposing today will encourage many more companies to give up quota. I urge them to take this chance. As the price falls, life will get tougher. And after 2010, there won't be any money to help producers who have to bow out."
Under the new regulations, growers will receive an additional €237.5 per tonne of quota cut for the 2008/09 marketing year while beet growers will be able to directly apply to renounce up to 10 per cent of a factory's quota.
The Commission hope the changes will spur processors to actively reduce supplies and allow for a total cut of around 3.8 million tonnes of sugar in addition to the 2.2 million surrendered so far.
If targets are not met by 2010, the EC warned that compulsory quota cuts would be introduced and would vary according to how much each Member State had renounced over the restructuring period.