EU sugar reforms bring mixed blessings

Related tags Sugar European union

The European Union last week announced plans for a radical overhaul
of the EU sugar regime, a resolution that is likely to bring about
both applause and criticism from its New Member States in Central
Europe.

The applause will come on the part of manufacturers of sugar-based products, who, like their western counterparts, are likely to benefit from lower prices for sugar ingredients. However, sugar producers and farmers in the New Member States claim they are facing a rawer deal, due to the fact that they have not had the benefit of a 30 year regime that has led to huge profits for both sugar farmers and processors.

European sugar is currently trading at around three times the price of that found on other world markets. This is due to the fact that the heavily subsidised market is dominated by just a handful of major players. But the EU's latest proposal on the subject will lead to the abolition of all subsidies by July 2005.

"This is a very, very good start,"​ David Zimmer, secretary general at the European chocolate, biscuit and confectionery industries association CAOBISCO said.

CAOBISCO represents an industry that uses some three million tonnes of sugar per year, and 70 per cent of the EU sugar supplies, in a business worth over €40 billion.

Asked if the proposal would mean cheaper sugar ingredients for manufacturers, Zimmer said he "hoped it would lead to competition in the market."

However, the EU sugar regime was originally built around a smaller European Union, consisting 15 Member States. Since the first round of accession was completed in May of this year, the Baltics States, Hungary, Poland and the Czech Republic have helped boost the European Union's numbers up to 25 Members, adding a whole new dimension to European politics and legislation.

For western Europe the sugar regime has continued to hamper manufacturers of sugar-based products for many years, but in the New Member states of central Europe, a different regime has been in effect, with individual governments overseeing subsidies in accord with market conditions.

In Lithuania, the government's response to the proposed sugar reforms has been to request the EU executive to give it more time to implement the overhaul.

"This reform is not good for our farmers,"​ said RimantasKrasuckis, a senior official at the Lithuanian AgricultureMinistry. "We are currently preparing a letter to the EuropeanCommission, in which we are asking it to extend the implementationperiod of the reform to at least eight years."

Lithuania is currently self-sufficient with regards sugar production. However, the EU proposal calls for Lithuania to reduce its production by 16 per cent from 17.4 million tons to 14.6 million tons, while the institutional price will be reduced from €421 to €632 per ton, which will in turn put pressure on the country's sugar supplies and may even necessitate importing sugar.

Meanwhile Hungarian authorities have also rejected the EU's proposals. Despite acknowledging the fact that medium term reform is necessary, the chairman of the country's sugar councile said that the proposals were not acceptable. As in Lithuania, the country has had its own sugar regime in place until joining the European in May of this year.

The Hungarian authorities claim that the new proposals will adversely affect both sugar producers and sugar beet farmers. Zoltán Koczka, chairman of the Sugar Council, said that in the old EU countries, sugar producers and farmers had enjoyed a 30 year period as a protected market, during which time they had become 'capital abundant'. This meant that in the New Member States a catch-up period of four to five years was necessary, he added.

However, the EU has gone some way towards making the reforms a little more balanced for sugar farmers and producers in New Member States. In exchange for cutting the guaranteed price of sugar for producers there, the EU has said that compensation for the industry reform is likely, particularly for farmers and sugar processors in the New Member States. Indeed Poland, which is currently the third largest producer of sugar in Europe is likely to receive somewhere in the region of €99 million in compensation.

Industry experts say that the scheme should go some way to offsetting some of the inbalance. And with the EU savings significant amounts of money on sugar subsidies, the short-term subsidies are not likely to make much of an impact on EU spending.

Related topics Commodities Cocoa

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