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EU sugar reform draws sweet and sour response

By: | at 08:00 PM | International Trade  

The world’s top three sugar cane exporters, Brazil, Thailand and Australia, welcomed a radical reform of Europe’s heavily subsidised sugar industry, but Caribbean nations said it would cost them millions of dollars in lost revenue.

The European Union’s executive Commission on Wednesday proposed deep cuts in sugar subsidies and production quotas over two years starting in 2006 and 2007, prompting Europe’s sugar firms to warn of declining profits as rivals grab a larger share of world markets.

The reform would overhaul a sugar policy that has inflated EU prices to three times the global average and follows last year’s successful challenge in the World Trade Organization by the top three exporting nations.

“It’s obviously positive. It’s the first time Europeans have been prepared to significantly start to restructure their sugar industry for 40 years,” Ian White, chief executive of Australian export monopoly Queensland Sugar Ltd. said.

Under the plan, which EU ministers aim to conclude by November, EU white sugar price supports will be slashed by 39% and minimum sugar beet prices by 42%.

“It’s a step in the right direction,” said Angelo Bressan Filho, director of the sugar and agroenergy department at Brazil’s agriculture ministry.

Brazil, the world’s biggest sugar producer with 40% of the free world market, is eventually expected to fill much of the vacuum left by the EU in international trade.

Thailand welcomes cuts

Thailand, the world’s second-ranked exporter, said producers outside the European Union would stand to gain from the overhaul.

“The reform means the EU will export less sugar to the world market. The price should rise as a result,” said Sukhum Vicheanratanapong, deputy general manager of state-owned Thai Cane and Sugar Corp.

However, sugar producers in the Caribbean condemned the proposal, saying the planned cuts could see thousands of jobs disappear.

The 18 sugar-producing states in the African, Caribbean and Pacific (ACP) group have long enjoyed duty-free deals allowing them to send 1.3 million tons of raw sugar at fixed prices to the EU every year. These prices may fall by up to 40%.

“This is indeed a devastating proposal that must be fought tooth and nail,” said Ian McDonald, Chief Executive of the Sugar Association of the Caribbean.

McDonald calculated the proposed EU cuts would cost ACP sugar-exporting nations more than $400 million annually, with the cost to Caribbean producers alone more than $100 million a year.

The EU has said it will compensate ex-colonies, mostly former territories of Britain, France and Portugal, for revenue losses caused by the sugar reforms, and provide more aid up to 2013.

Slow pace of reform

The effects of any reform would take several years to be felt, industry officials in Brazil and Australia said.

“It’s a good start to sugar reform but implementation could take up to 2015,” said Fernando Moreira Ribeiro, Secretary General of the powerful Sao Paulo Cane Agroindustry Union.

He said European consumers were paying $700-$800 a ton compared with world free market prices of $150-$160. Even after the cuts, EU sugar would still be much more expensive, he added.

“In the short to medium term there’s no gain for Brazil and other free market producers,” he said. “I don’t see light yet at the end of a long tunnel.”

With European subsidies at about $0.30 a pound, a 39% cut would still leave prices well above current world prices of about nine cents a pound, Queensland Sugar’s White said. (Reuters)