BBC NEWS | Business | Q&A: Sugar subsidies
Q&A: Sugar subsidies
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?

European sugar beet farmers currently get about 1.7bn euros a year from the European Commission, a sum which maintains the EU price for sugar at about three times the world market price.

Although the system encourages overproduction, it also awards export subsidies to keep the excess off the European market so as to keep the prices high.

And the EU also imposes high import tariffs on most countries wanting to sell their own sugar into the EU.

The system was introduced in 1968 to insure self-sufficiency and give farmers a fair income, and has changed little since.

A few countries, however, have been awarded preferential access and their imports are paid for at the inflated EU price.

That doesn't seem very fair.

The World Trade Organization certainly thinks so.


On 28 April, its Appellate Body - its highest court - ruled in favour of a complaint levelled by Brazil, Thailand and Australia that the EU's system was unfair.

The three, who are among the world's biggest cane-sugar exporters, had already won an initial case in 2004, which the EU appealed.

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

They charge that developing countries find their sugar 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 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.

Quotas would also be cut, although they would remain in place till 2014-15.

By doing so, it says imports from developing countries will increase.

At the same time, it acknowledges that the plan - which still needs to be negotiated by agriculture ministers - could wipe out sugar beet production in several countries, notably Greece, Ireland, Portugal and Italy.

It is offering to buy back production quotas over four years for those who want to get out of the industry.

Doesn't that sound rather familiar?


The 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.

It is now hoping that ministers will sign off by November, allowing the new subsidies to come in during 2006/7.

So is everyone happy?

No.

Pressure groups dismiss the EU's claim that its reforms will benefit developing countries, pointing out that reductions in tariffs will be more than offset by a sharp fall in the guaranteed price offered.

The Africa, Caribbean and Pacific (ACP) grouping of countries have benefited from price support in the past and say the reforms will have a devastating impact upon many economies.

Pressure groups argue that big producers and sugar processing companies will benefit most, rather than poor country farmers.

Likely compensation of about 40m euros is inadequate, they say; producers in poor countries are dependent on the EU guaranteed prices since Europe's export subsidies depress the world market price, and need more time to adjust.


Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/4118448.stm

Published: 2005/06/22 10:43:02 GMT

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