Tough sugar reform inevitable as EU loses appeal at WTO

- Last updated on GMT

Related tags: Sugar, European union, British sugar

Moves to reform the European sugar regime will accelerate after the
EU loses its appeal against a World Trade Organisation decision
that its handouts to sugar farmers are illegal, reports Lindsey
Partos.

Following complaints from sugar producers Brazil, Australia and Thailand, the WTO had ruled in 2004 that EU farm subsidies were unfair.

On average, the European bloc exports over 5 million tonnes of sugar a year and spends around €1.3 billion annually on export subsidies.

Quashing an appeal from the EU, the WTO Appellate body ruled yesterday that Europe must limit its subsidised exports of sugar to 1.273 million tonnes a year, and reduce its annual spending on export subsidies to €499 million a year.

"Removing up to 4 million tonnes of subsidised sugar from the world market will make a significant difference to Australian sugar producers who compete on the world stage,"​ Australia's trade minister Mark Vaile said yesterday after the ruling.

For Europe, the WTO decision will stimulate a speedier introduction of reforms already under discussion.

Under current plans, designed by Boel's predecessor Franz Fischler, minimum sugar beet prices would be cut by more than a third, from €43.6 per ton to €27.4, in two steps over three years; and the total EU production quota would come down by 2.8 million tons to 14.6 million by 2008/9.

Commenting on the verdict, farm Commissioner Mariann Fischer Boel said yesterday she was as "determined" as ever to modernise the bloc's sugar regime.

Fischer Boel had been waiting for the result of the appeal before presenting further details of the plan to revamp Europe's €1.7 billion sugar programme on 22 June.

Peter Mandelson, Commissioner for Trade, added: "We will abide by our international obligations on the sugar regime and will work closely with Member States on the necessary reforms ahead of the WTO Ministerial in December."

Although a key player on world sugar markets, the EU is lagging far behind Brazil, which now dominates exports. The EU-15's share of the world market amounts to 13 per cent for production, 12 per cent for consumption, 15 per cent for exports and 5 per cent for imports.

Its share in world production, consumption and exports has declined, whereas southern hemisphere countries have steadily gained importance. Australia, for instance, exports 85 per cent of its crop.

Under the new plans sugar users would no longer be obliged to buy from within national borders and between EU members - as is currently the case - allowing them to source from competitive markets and ultimately buy cheaper sugar.

A move welcomed by the food industry that sees the changes as leading to a much more liberal sugar trading structure.

""As one of the major stakeholders in the reform, we have been encouraged by the willingness of the Commission to consult widely on this dossier,"​ David Zimmer, secretary general at the European chocolate, biscuit and confectionery industries association CAOBISCO recently told FoodNavigator.com​.

In extreme cases, companies using sugar have only one source for their sweet ingredient. In the UK, for example, British Sugar is the key supplier of sugar from beet and Tate & Lyle the equivalent for cane sugar. UK food manufacturers buy the majority of their sugar - 70 per cent - from these two companies. A situation that, critics claim, leaves them vulnerable to pricing from the two sugar giants.

"Competition in the market must be the underpinning principle for reform of the EU sugar market,"​ commented Alain Beaumont, secretary general of the European Sugar Users group CIUS, which has a combined annual turnover of €70 million.

But a handful of European ingredients firms are set to be hit by the reform.

Danish ingredients and sugar giant Danisco and UK firm Associated British Foods, the owner of British Sugar, stand to be knocked by the EU plans because their stocks have the biggest profit exposure to EU sugar: Danisco with 46 per cent and ABF with 34 per cent.

UK sugar and sweeteners supplier Tate & Lyle is also vulnerable, although less exposed because it produces its sugar from imported cane at a lower cost.

Danisco and ABF, by comparison, use EU grown sugar beet which, predicts investment banker Goldman Sachs, will cause sugar earnings at Danisco to fall by as much as 40 per cent.

The potential loss of earnings from sugar has pushed Danisco onto the acquisition trail for ingredients, recently purchasing food ingredients firm Rhodia, a semi-refined carrageenan facility in Scotland, a 80/20 joint venture in China for xanthan gum, and the enzyme business of US biotech firm Genencor.

Related topics: Commodities, Cocoa & Sugar, Ingredients

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