Official Journal of the European Union

C 28/52

Opinion of the European Economic and Social Committee on the

Proposal for a Council Regulation on the common organisation of the markets in the sugar sector

Proposal for a Council Regulation amending Regulation (EC) No 1782/2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers

Proposal for a Council Regulation establishing a temporary scheme for the restructuring of the sugar industry in the European Community and amending Regulation (EC) No 258/1999 on the financing of the common agricultural policy

(COM(2005) 263 final — 2005/0118-0119-0120 CNS)

(2006/C 28/10)

On 25 July 2005 the Council decided to consult the European Economic and Social Committee, under Articles 36 and 37 of the Treaty establishing the European Community, on the abovementioned proposals.

The Section for Agriculture, Rural Development and the Environment, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 7 October 2005. The rapporteur was Mr Bastian.

At its 421st plenary session held on 26 and 27 October 2005 (meeting of 26 October), the European Economic and Social Committee adopted the following opinion by 103 votes with 22 votes against and 18 abstentions.

1.   Introduction


Twenty-one EU countries produce sugar beet. The French overseas departments and Spain are minor sugar cane producers (280 000 tonnes). In general, annual European sugar production fluctuates between 17 and 20 million tonnes, whereas European demand for sugar is estimated at 16 million tonnes a year.


Beet cultivation on crop rotation extends over 2.2 million hectares of land and involves 320 000 farmers (i.e. slightly less than 7 hectares per beet farmer). Beet is processed at 236 sugar factories employing some 75 000 permanent and seasonal workers directly. The European sugar beet/sugar sector accounts directly or indirectly for a total of 500 000 jobs.


The European Union also produces 500 000 tonnes of isoglucose and 250 000 tonnes of inuline syrup and has a refining industry for raw sugar cane (most of which — 1.6 million tonnes — is imported from the ACP countries (1)).


In the sugar, isoglucose and inuline syrup sector, the last roll-forward of the quota system took place in 2001.


On 14 July 2004, the Commission submitted a communication on sugar sector reform (2), on which the EESC adopted an opinion on 15 December 2004 (3).


On 22 June 2005, the Commission submitted three legislative proposals (4), which are the subject of this opinion.

At the same time, the Commission submitted a proposal for a Regulation of the European Parliament and of the Council establishing accompanying measures for Sugar Protocol countries affected by the reform of the EU sugar regime (5).


The Commission's legislative proposal diverges from the communication of 14 July 2004 in:

its duration: the regulation will run until the 2014/2015 marketing year;

a minimum price for sugar beet that is reduced by 42.6 % over two marketing years (to EUR 25.05 per tonne), with a possible further 10 % reduction by way of an agreement within the trade;

a reference price for white sugar that will be cut by 39 % over four years (to EUR 385.5 per tonne), the net reference price being cut over two marketing years (the difference is the levy to be paid to the restructuring fund);

a production charge of EUR 12 per tonne of quota sugar, to be borne equally by growers and manufacturers;

A+B quotas merged to form one production quota, with an additional quota of one million tonnes to be divided between the Member States producing C sugar, in return for a payment of EUR 730 per tonne of additional quota;

a four-year restructuring scheme, with quotas decreasing progressively thereafter;

isoglucose quotas that are increased by 100 000 tonnes per year for three years;

market management provisions consisting of carrying forward out-of-quota sugar, giving the option to withdraw a percentage of quota sugar that is surplus to market requirements and the option of providing support for private storage when the market price falls below the reference price;

the possibility of the chemical and pharmaceuticals industry also buying out-of-quota sugar, as is done in the yeast and alcohol sectors and, in the event that supplies are difficult to obtain, of securing a specific Tariff Rate Quota;

until 2009/2010, a supply guarantee for full-time refiners, in line with their traditional needs;

the proposal does not impose limits on sugar imports from LDCs as of 2009/2010;

where exports are concerned, the proposal prohibits the export of out-of-quota sugar and does not consider the export of quota sugar without refund;

the Commission abandons both the transferability of quotas at European level and the linear reduction of quotas by 2 800 000 tonnes over four years. A restructuring plan will be put in place, to be funded by a levy on sugar, isoglucose and inuline quotas. More than 50 % of the levies on sugar quotas will be paid for by farmers through cuts in the price of sugar beet;

the restructuring fund will grant producers of sugar, isoglucose and inuline who give up their quota, cease production and dismantle their plants degressive aid, which varies according to the year in which they stop;

the Commission proposes that the restructuring fund cover up to 6 160 million quota tonnes, with a total budget of EUR 4.2 billion;

compensation equal to 60 % of the estimated revenue loss arising from the price cut in sugar beet will be granted to sugar beet and chicory growers in the form of decoupled aid, in line with the per-hectare amounts intended for A+B production and with a ceiling set for each Member State;

it will be left to each Member State to decide which reference period to use for distributing aid;

the total financial envelope proposed for direct income support for farmers will be EUR 907 million in 2006/2007 and EUR 1 542 million as of 2007/2008.

2.   General comments


The EESC considers that reform of the CMO in sugar has become necessary. It refers in this regard to its opinion of 15 December 2004 (6), in particular to points 2.1, 2.4, 2.6, 2.7, 2.8, 2.9 and 2.10.


The EESC notes, however, that the proposal for reform goes considerably further than what was announced in the communication of 14 July 2004. The cuts in prices and production are much more drastic and exports will be rapidly abolished. The proposal therefore sends the wrong message to our competitors in WTO negotiations. Furthermore, it does not safeguard the aim of a European sugar industry that is capable of guaranteeing market supply, in particular in regions where restructuring is difficult.


The EESC is concerned about the impact of the proposed cuts in prices and production on farmers' incomes and on employment. In this connection, it emphasises the key role that the sugar industry plays in many regions. The EESC considers that the proposal is out of step with the European agricultural model, with the Council's oft-repeated desire to support traditional farm production in the least-favoured regions or Member States, and with multifunctionality, sustainability and the Lisbon Strategy. Indeed, the proposals for reform would result in the loss of 150 000 direct or indirect jobs.


The EESC does not believe that the Commission's reform scenario — securing market balance by cutting prices — can meet its objective, which is to maintain a strong European beet farming and sugar industry and to treat developing countries supplying preferential sugar with respect. The EESC considers that everything possible should be done to prevent new areas of the global market being opened up — in particular to Brazil — through swaps (triangular trade), which bring no benefit to the development of LDCs. In that connection, the Committee would stress that Brazilian sugar production — which is largely sustained by that country's bio-ethanol policy and monetary policy — is subject to social, environmental and land-ownership conditions which are unacceptable but which nonetheless account for the extremely low production costs and the rise in production during recent years, which has led to increased stocks and thus low prices in the world market. It considers that access to the EU market should be conditioned by compliance with social norms as referred to in the Declaration of the International Labour Organisation Conference held in 1998.


The EESC (7)‘considers that the proposed cuts in prices and quotas are a major step towards full sugar market liberalisation. Such a move cannot therefore provide beet growers, sugar sector workers and European consumers with the prospect of a sustainable future’.


The EESC (8)‘fails to understand why the Commission did not adopt the idea of negotiating preferential import quotas with the LDCs, as those countries themselves are requesting. That would make it possible to satisfy the interests of the poorest developing countries in a more targeted way and to secure a balanced market supply at sustainable prices in Europe. The EESC would highlight the fundamental contradiction in the stance taken by the Commission which, on the one hand, cites the Everything but Arms initiative to justify the radical reform of the sugar CMO, but, on the other, refuses to act on the LDCs' explicit request for a preferential quota system’.


The EESC (9) does not believe that the significant fall in sugar prices would benefit consumers. 70 % of sugar is consumed in processed products; this makes it very difficult to reduce the costs passed on to consumers. Furthermore, in countries where sugar markets have been opened up, the prices paid by consumers have not decreased.


The EESC fails to understand why the Commission is proposing to abolish unprocessed sugar exports so rapidly. Despite losing the dispute at the WTO panel, the European Union still has the right to export 1 273 000 tonnes of subsidised unprocessed sugar, whether this be quota sugar with refund or out-of-quota sugar without refund. Sugar beet yields also vary somewhat and the market will be subject to the variability of import levels. It would therefore be useful if exports could provide some flexibility in managing the fluctuations in the availability of quota or out-of-quota sugar. This flexibility is needed to ensure that production is sustainable and that rational use is made of workers and equipment.


The EESC supports the Commission proposal for a voluntary restructuring scheme, which would make implementation of the restructuring programme considerably easier. It would like to see this plan extended, however, to take account of the interests of sugar beet growers and sugar sector workers.


Overall, the EESC (10) feels that the Commission has failed to gauge the impact of its proposal, which would result in a massive transfer of resources from the rural sector (farming and primary processing) in both Europe and the developing countries to large international food and marketing companies. It would also be the unmaking of much of the European and ACP sugar industry, with the Brazilian sugar industry being virtually the sole beneficiary (11).

3.   Specific comments


The EESC welcomes the fact that the Commission is proposing a regulation for the period from 1 July 2006 to 30 September 2015, as it had requested.


The EESC considers that the proposed price cuts are excessive and will furthermore have no effect on sugar imports through triangular trade operations (the global market, LDCs, the EU) and which will vary in value according to fluctuations in world prices and exchange rates. The EESC therefore calls for price cuts to be restricted to the minimum required — in line with WTO negotiations — and for these to be spread over time, just like the tariff reductions, particularly in order to give the new Member States the time they need to adapt.

The EESC also calls on the Council to pay particular attention to the problems facing farmers in regions with major problems or in regions that offer few profitable alternatives to sugar beet growing.


The EESC is surprised to note the proposal's provision for a charge on production to be met by growers and refiners, since quota levels will clearly be lower than consumption. It is also surprised that the Commission's approach is based on promoting competition between European production and imported sugar. The charge thus discriminates against Community sugar growers and refiners. The EESC therefore calls for it to be abolished or, failing that, extended to all imported sugar.


The Committee believes there can be no effective CMO in sugar unless there is also some power to restrict imports. It therefore recommends including provisions prohibiting sugar SWAPs with Least Developed Countries and, should the Commission decide to withdraw a certain tonnage of quota sugar from the market (withdrawal procedure) or to apply a private storage aid measure (a market price below the reference price), automatically applying a quantitative safeguard clause with respect to imports from LDCs.


The EESC considers the proposal to be unreasonably restrictive as regards exports. It takes the view that all export possibilities authorised under the WTO should be authorised by the regulation, in particular the export of an additional volume of out-of-quota sugar when the quantitative and budgetary limits authorised under the WTO for subsidised exports are not reached by exports of quota sugar with refund.

The regulation should furthermore allow for the export of quota sugar without refund.


The EESC condemns the weakness of the market organisation tools that have been put forward to replace intervention. Indeed, it is possible to foresee, given the irregular and unpredictable nature of imports, resulting in permanent pressure on the market, that private storage and mandatory withdrawal will not ensure that the market price respects the reference price. The EESC thus calls for the intervention arrangements to be maintained.


The EESC takes note of the Commission's proposal to provide 60 % compensation for the loss of beet farming income as a result of the price cuts. It considers that compensation must be equitable and that the percentage must be similar to that of compensation for other crops. It wishes to state that the real drop in beet prices, taking account of the production charge and the risk of a further 10 % cut, could reach 50 %. This being the case, compensation would only amount to 51 %. The EESC thus recommends a lower price cut and a higher rate of compensation, whilst respecting the proposed budget constraints. The EESC stresses that granting compensation for price cuts does not remove the long-term need for effective management tools in order to avoid market collapse and to guarantee farmers' incomes.


The EESC notes that the proposal for compensation envisages decoupled aid, distributed per hectare of beet or chicory for which an A+B sugar or inuline syrup delivery contract has been concluded. It considers that the Member States, by means of appropriate provisions, must have complete freedom to grant beet and chicory growers the maximum aid permitted within the national ceilings set out in the proposal. The EESC recommends that the Commission assess the long-term effects of decoupling.


The Committee finds it illogical that the proposal should advocate a free-of-charge 300 000 tonne increase in isoglucose quotas whilst at the same time establishing a tough restructuring programme with the aim of substantially reducing sugar quotas and that the million tonnes of additional quota sugar that can be allocated has to be paid for.


The EESC notes that, at the beginning of the regulation, the Commission accepts its suggestion to implement a voluntary programme of compensated restructuring, replacing its mandatory quota-reduction mechanism and the transferability of quotas at European level.

The EESC calls for codecision for growers/refiners on the restructuring process, and for appropriate compensation for restructuring to be granted to growers affected by this process.

The Committee notes in this connection that the additional payment of EUR 4.68 per tonne of A+B beet agreed for 2006/2007 for growers affected by restructuring simply represents the early allocation of aid to these growers to compensate for the price cuts that will occur in 2007/2008. It does not, therefore, represent compensation for restructuring.


The EESC considers that the Council should attach the greatest importance to the impact of the Commission proposal on employment in the various regions affected by restructuring in the sugar industry. It calls on Member States and the Commission to improve access to the European Structural Funds and to the European Social Fund, especially in the regions most affected by restructuring and in the new Member States, to help to mitigate the reform's adverse effects on employment by means of social schemes that go considerably further than the mandatory legal framework. Job creation, diversification and reconversion must be promoted.


In this regard, the EESC considers it necessary that, as a matter of urgency, the Commission and the Member States support — with regulatory and financial measures — a proactive policy on the use of biofuels, in which sugar beet should play a major role. The EESC considers that there is an urgent need to further develop the processing of above-quota sugar production in the non-food sector.


The EESC wishes to draw the Commission's and the Council's attention to the highly destabilising effect of sugar imports from the Balkans on the neighbouring countries. The Committee recommends that the necessary safeguard measures be drawn up and implemented (in particular, adherence to the intervention price or the reference price) and urges that Croatia's quota be set in the very near future.

4.   Conclusions


The EESC recognises the need to reform the sugar CMO but believes that the reform proposals go too far as regards cutting production and prices.

Their implementation would have considerable repercussions for the European sugar sector, and would in particular result in the loss of at least 150 000 jobs in regions that are often already struggling and lacking in profitable alternatives to the cultivation of sugar.


The EESC calls on the Council to demonstrate greater ambition than the Commission on the issue of European beet and sugar production, by restricting import volumes and by authorising the use of all export options permitted by the WTO. A production target two to three million tonnes higher than that being proposed by the Commission is indeed possible, in particular by restricting imports. This would help to save 50 000 to 75 000 jobs and around 50 000 beet farms in regions throughout the Community.


The Committee fears that the aims of the Everything But Arms initiative and of the CMO sugar reforms for development policy will not be met and this is why it supports the LDCs' request to negotiate import quotas for sugar with the Union. Swap practices should, under no circumstances, be admitted and automatic safeguard clauses and a code of conduct which meets social and environmental sustainability and food sovereignty criteria should be established for access to the EU market.


The EESC recommends that a flow of quota or out-of-quota sugar exports in line with the tonnages authorised by the WTO be maintained, in order to continue supplying our nearest traditional customer base.


It reiterates that any changes to prices should be spread over time and should comply strictly with international commitments and that, if necessary, sugar must be treated as a sensitive product in the context of the Doha Development Agenda (DDA) negotiations.


The EESC thus recommends that the current intervention mechanism be maintained, and that effective market management tools be implemented on a long-term basis.


It requests that partial compensation to growers for income lost as a result of beet price cuts be increased, insofar as possible, and allocated in full. It stresses the need to ensure that this aid is sustainable and for the sugar budget to be maintained at current levels.


The Committee welcomes the Commission proposal on a restructuring programme, but calls for growers to have a right to codecision and for aid to be granted to growers affected by factory closures to help them to restructure their farms.


The EESC reiterates its view that the European Structural Funds and the European Social Fund should be mobilised in order to give workers affected by the restructuring of the European sugar industry the best opportunities to develop new career paths, as well as the necessary compensation.


The EESC considers that the sugar sector must, as a matter of urgency, be included in the energy debate (a biofuels policy) as a means of helping to offset the reform's more harmful consequences.


The Committee insists that the destabilising effects of sugar imports from the Balkans be corrected without delay.


The EESC calls on the Council to monitor the situation in regions which are facing difficulties or which offer few profitable alternatives within farming.

Brussels, 26 October 2005.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

(1)  ACP countries: developing African, Caribbean and Pacific States, signatories to the Cotonou agreement.

(2)  COM(2004) 499 final.

(3)  OJ C 157, p. 102.

(4)  COM(2005) 263 final.

(5)  COM(2005) 266 final.

(6)  See footnote 3.

(7)  OJ C 157 of 28.6.2005.

(8)  OJ C 157 of 28.6.2005.

(9)  OJ C 157 of 28.6.2005.

(10)  See also OJ C 157 of 28.6.2005.

(11)  See also OJ C 157 of 28.6.2005.