Two interesting papers on EU sugar policy recently crossed my desk. One is an account of the ‘new’ sugar regime after the 2006 reform by three legal academics from the University of Barcelona, in which they also examine whether the reformed regime is likely to be compatible with any agreement from the Doha Round negotiations. The other is the one of the series of regular reports by the US Foreign Agricultural Service on EU agricultural markets, this time on the likely impact of the EU sugar reform on ACP (African, Caribbean and Pacific) and LDC (least developed country) sugar exporters.
The Barcelona paper provides a good account of the reform. It has a particularly useful table showing the situation with regard to preferential import quotas before and after the reform. The Doha Round compatibility issue is based on examining the Commission’s market forecasts (they use the 2007 version which projects supply and use statistics out to 2014).
The authors take a relatively sanguine view of the possible impact of a Doha Round agreement, based on their assumption that sugar will be declared a sensitive product, and thus will be subject to a tariff cut of around half the projected 73% tariff reduction for products with the highest tariffs. (Their argument here confuses the impact of cutting the internal reference price by 36% with cutting the external tariff by 36% which they erroneously assume to mean the same thing, but this does not change the essentials of their argument).
They do point out that opening a tariff rate quota of 4 to 5% to compensate for declaring sugar as a sensitive product could mean additional tariff rate quota imports of around 700,000 tonnes, which they admit could constitute a threat to the stability of the EU market. However, they point out the reform equipped the Commission with a number of new market regulation instruments, including the possibility of private storage as well as compulsory quota cuts, which give the Commission the means to address this issue.
Whether such drastic measures might be needed now appears unlikely. As the US FAS report points out, in-quota sugar production has fallen by 5.5 million tonnes, close to the 6 million tonnes sought by the Commission. A significant import surge from preferential suppliers could, of course, create market balance difficulties but the FAS report is sceptical that this will happen.
For ACP exporters faced with declining returns from selling sugar on the EU market, there is little sign of a desire to ramp up production for export. Even if there was, a safeguard clause in place until 2015 limits total imports from ACP states to 3.5 million tonnes annually.
For the LDC exporters (some of whom are, of course, also ACP countries), there has been some investment interest particularly in Southern Africa. There is potential for the three largest LDC exporters, Sudan, Mozambique and Zambia, to increase exports to the EU but the Commission already allows for some increases in its market outlook forecasts.
Currently, the EU sugar market is in reasonable balance. The Commission has determined that there is no requirement for ‘preventative withdrawal’ (meaning an additional obligatory cut in quotas if supply is projected to exceed demand) for the 2009/10 marketing year, although this decision can be reviewed in October. While in-quota sugar production has fallen, the use of sugar beet for bioethanol in France and Germany has helped to maintain overall production levels in the more competitive countries. Export subsidies are no longer used and total exports are projected to fall dramatically from 3.2 million tonnes in 2006/07 (including processed products) to just 700,000 tonnes in 2009/10. While we cannot forget that the EU sugar price remains at twice world market levels, the 2006 sugar reform must be deemed a success at least in its own terms.