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Last Updated: Monday, 19 September 2005, 14:34 GMT 15:34 UK
Q&A: Sugar subsidies
Sugar beet
Making sugar from beet costs twice as much as making it from cane
The European Union is to reduce the subsidies it pays to sugar producers in the face of criticism from the World Trade Organization and pressure groups.

But its changes are likely to prove controversial in themselves. BBC News looks at the background to the plans.

How big are the sugar subsidies?

The European Union currently pays about 1.5bn euros ($1.8bn, 1bn) per year in support to the sugar sector, by artificially boosting the price of sugar on the European market.

EU SUGAR FACTS
Output: 19-20m tonnes per year
France, Germany and Poland produce about half of that
Only four EU states produce no sugar at all
The EU was the world's fourth biggest sugar exporter in 2003
It imports about 2m tonnes per year
The EU guarantees producers a price of 632 euros per tonne, which is about three times the world price.

Sometimes Brussels buys the sugar from the farmer at this price, and puts it into storage. This is known as intervention buying.

More often, it pays an exporter the difference between the world price and the higher European price. In 2003, the bill for these export subsidies came to 1bn euros.

Meanwhile, countries wanting to export sugar into the EU face huge tariffs.

Is the system fair?

The World Trade Organization says it is not.

On 28 April 2005, its Appellate Body - its highest court - ruled that the EU was breaking agreed limits on export subsidies.

The case was originally brought by Brazil, Thailand and Australia, three of the world's biggest cane-sugar exporters, who argued that the EU was depressing the world price for sugar.

Aid and trade pressure groups, too, have long been unhappy with the EU system.

They say it is unfair that developing countries have their sugar effectively barred from the EU, while heavily-subsidised European sugar exports can price them out of their own home markets.

What is the EU proposing?

The European Commission - the 25-strong executive of the EU - agreed on 22 June 2005 to slash the main subsidised price for white sugar by 39%, and the price for sugar beets by 42%, within two years of 2006-7.

Sugar production
Quotas for sugar production allocated to EU states would also be cut, and intervention buying of sugar would cease.

The EU says this will allow imports from developing countries to increase.

At the same time, it acknowledges that the plan - which still needs to be approved by agriculture ministers - could wipe out sugar beet production where it is least efficient, notably Greece, Ireland, Portugal and Italy.

It is offering some compensation to farmers for the cut in the guaranteed price for sugar, as long as they safeguard the environment.

There are also financial incentives for sugar producers to get out of the industry.

Overall, the plan would be budget neutral, as the cost of compensating farmers would be offset by the reduction in the amount paid out in export subsidies.

Doesn't all this sound rather familiar?

The European Commission did propose a more limited set of reforms, offering a 34% price cut and a quota reduction, last year.

But the WTO case has forced it to revise its plans.

What is the timescale for the changes?

EU Agriculture Commissioner Mariann Fischer Boel says member states must reach an agreement by November, because the current sugar regime lapses in June 2006 and it will take a few months to complete legal formalities.

Sugar cane
Big producers such as Brazil stand to gain from the EU reforms
The WTO ruling also requires changes to be implemented by July 2006.

Furthermore, the EU wants to go to the WTO ministerial meeting in Hong Kong in December with a strong hand.

In the longer term, the EU has agreed that Least Developed Countries (LDCs) will have unlimited access to the EU market, exempt from any tariffs, from 2009 onwards.

This will inevitably lead to an increase in imports from the LDCs, which would necessitate a reduction in the quotas allocated to EU member states.

So is everyone happy?

No. A number of countries within the EU are against the proposals, among them Belgium, France, Ireland, Italy and Spain.

Farmers who protested in Brussels in July said the reform would cost at least 150,000 jobs and lead to the closure of 80 sugar factories.

There is also a group of 20 sugar producers from the African, Caribbean and Pacific (ACP) group of countries, which is unhappy.

They have privileged access to the EU market, which allows them to ship 1.3 million tonnes of sugar per year to the EU, duty free, at 524 euros per tonne.

These countries say the drop in the guaranteed price for their exports will have a devastating impact upon their economies.

They want the reform delayed to give them time to diversify, into ethanol production for example.

Oxfam says that the compensation offered to ACP countries - 40m euros in 200, with a promise of further long-term assistance between 2007 and 2013 - is insufficient.

It says they should get 500m euros per year from 2005.

Who stands to benefit from the reform?

Consumers in the EU would benefit from sugar prices up to 40% lower.

Graph showing main sugar imports
The increase in imports from poor countries also ought to be good for their economies, even though the price is falling for the ACP group.

The World Bank has estimated that a free market in sugar, globally, would create one million jobs in poor countries.

Brazil, the world's biggest sugar exporter by far, should also be a beneficiary. However, unions say the reforms may not make a real impact for years.

Which EU countries produce sugar?

Only four of the 25 member states have no sugar production - Cyprus, Estonia, Luxembourg and Malta.

Overall, production is about 20 million tonnes per year, more than half of which comes from France, Germany and Poland.

The European Commission says that the countries likely to be least affected by the reform are Austria, Belgium, France, Germany, the Netherlands, Poland, Sweden and the UK.

Sugar can be produced from cane in tropical regions for half what it costs Europe to produce sugar from beet.

How much does the EU export?

Between 2000 and 2003, the EU exported between three and six million tonnes of sugar per year.

In 2003, it was the fourth biggest exporter in the world, a long way behind Brazil (on about 14 million tonnes) and also behind Thailand and Australia.

Its share of world exports is close to its share of world production.

Brazil, by contrast, is oriented towards export.


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