Council agrees reform of the sugar reform

The Council agreed yesterday the Commission’s proposals to improve the attractiveness of the sugar industry restructuring scheme in order to meet the Commission’s objective of a reduction in 6 million tonnes of sugar quota by the end of the four year transition period 2006-2010 for the current EU sugar reform. As noted in a previous post, this reform target had been threatened by a much lower renunciation of quota in Year 2 of the reform than the Commission had assumed.

The key elements of the ‘reform of the reform’ are

• The percentage of the restructuring aid to processors which is to be given to growers and processors is fixed at 10 percent, with an additional top-up payment to growers of €237.50 per tonne of quota renounced, payable retrospectively.
• No levy will be charged on the preventative withdrawal 2007/08 if at least this quantity is renounced in 2008/09.
• Beet growers who wish to renounce quota for the first time may now apply directly for aid from the restructuring fund, up to a limit of 10 percent of a factory’s quota.

The Commission hopes that these changes will encourage the renunciation of a further 3.8 million tonnes of sugar quota in addition to the 2.2 million tonnes given up so far.

The restructuring fund was the key mechanism introduced in the 2006 sugar reform to encourage a reduction in quota and EU production. The fund is financed by a levy on quota production in each of the three years 2006/07, 2007/08 and 2008/09, and the fund is used to pay the restructuring amounts to factories (and now growers) who renounce quota, with the size of the amount decreasing over the four transitional years of the reform. The restructuring fund is intended to be self-financing.

The new measures enhance the predictability of the restructuring payment to processors, who can now plan on securing 90% of the restructuring amount, while introducing an additional one-off payment for exiting growers. This increased generosity is possible without breaching the self-financing requirement because the revenues to the fund are much greater than the Commission had originally estimated.

In its 2005 proposal, the Commission estimated total revenue to the fund over three years would be €4.13 billion whereas it is now estimating revenue to be €6.12 billion. The main reason is that the Council agreed much higher restructuring payments in 2005 than the Commission had originally proposed (€126.4/t per tonne of quota in 2006/07, €173.8/t in 2007/08 and €113.30/t in 2008/09, as compared to €126.4/t in 2006/07, €91.0/t in 2007/08 and €64.50/t in 2008/09). The fact that less quota was renounced in the first two years of the scheme than the Commission expected has also contributed to more buoyant revenues.

Whether the new measures will work as the Commission hopes remains to be seen. Agrana, one of the main players in the Central European sugar industry, anticipates that an additional 2.3 million tonnes will be surrendered in 2008/09, requiring a further 1.4 million tonnes of quota to be given up in the final cut without restructuring payments in 2009/10.

If insufficient quota has been renounced by 2010, the Commission will make compulsory quota cuts. The level of these cuts will vary depending on how much quota each Member State had renounced under the restructuring scheme.