IMPLEMENTING ACT: Commission Regulation (EC) No 247/2007 amending Annex III to Council Regulation (EC) No 318/2006 for the 2007/2008 marketing year.

CONTENT: Annex III to Regulation (EC) No 318/2006 lays down the national and regional quotas for the production of sugar, isoglucose and insulin syrup. For the 2007/2008 marketing year those quotas must be adjusted by the end of February 2007 at the latest.

Adjustments take account of communications sent to the Commission by the Member States before 31 January 2007. They relate, in particular to the additional and supplementary quotas already allocated on the date on which the communications were drawn up.

Undertakings may also request additional sugar quotas up until 30 September 2007. Supplementary isoglucose quotas are allocated in accordance with the conditions laid down by the Member States. The additional and supplementary quotas which are to be allocated for the 2007/2008 marketing year, but which do not appear in the communications sent before 31 January 2007, will be taken into account in the next adjustment of quotas before the end of February 2008.

The purpose of this Commission Regulation, therefore, is to replace Annex III with a new Annex that takes account of revised yearly quotas. The replaced Annex also takes account of the quotas renounced for the 2007/2008 marketing year under the restructuring scheme.

ENTRY INTO FORCE: 12 March 2007.

32007R0247
OJ L 069 09.03.2007, p. 0003

ACT : Commission Regulation 951/2006/EC laying down detailed rules for the implementation of Council Regulation 318/2006/EC as regards trade with third countries in the sugar sector.

CONTENT : this Regulation lays down, in accordance with Title III of Regulation 318/2006/EC, the special detailed rules for the application of the system of import and export licences, the granting of export refunds and the management of imports, including application of additional import duties in the sugar sector.

ENTRY INTO FORCE : 01/07/2006.

32006R0951
OJ L 178 01.07.2006, p. 0024-0038

ACT : Commission Regulation 952/2006/EC laying down detailed rules for the application of Council Regulation 318/2006/EC as regards the management of the Community market in sugar and the quota system.

CONTENT : This Regulation lays down detailed rules for the application of Regulation 318/2006/EC, as regards in particular the determination of production, approval of manufacturers and refiners, the price and quota system, and the conditions for buying sugar into intervention and selling sugar from intervention.

ENTRY INTO FORCE : 01/07/2006. Articles 23 to 38 (Offers for intervention) are applicable only until 30/09/2010.

32006R0952
OJ L 178 01.07.2006, p. 0039-0059

PURPOSE : to enact far-reaching reforms to the Common Market Organisation for sugar in order to enhance the competitiveness and market-orientation of the EU sugar sector, guarantee it a viable long-term future and strengthen the EU’s negotiating position in world trade talks.

LEGISLATIVE ACT : Council Regulation 318/2006/EC on the common organisation of the markets in the sugar sector.

CONTENT : t he Council adopted by qualified majority the three Regulations on the reform of the sugar sector. The Greek, Polish, and Latvian delegations voted against. A set of statements issued by the Council, the Commission and by delegations are annexed to the Regulations. A general approach on the reform of the sugar sector was reached under the United Kingdom Presidency in November 2005. The political compromise was later clarified and confirmed by the Special Committee on Agriculture in December 2005. The European Parliament gave its Opinion on 19 January 2006.

This reform of the sugar sector takes place in the context of the CAP reforms of 2003 and 2004. It is intended to take proper account of farmers’ incomes, consumers’ interests and the situation of the processing industry. It also gives European producers long-term certainty about the rules they have to follow. The reform therefore fixes the economic and legal framework for the European sugar sector until 2014/2015 without foreseeing a review clause.

The main points of the reform are as follows:

- A 36% price cut over four years beginning in 2006/07 to ensure sustainable market balance: -20% for the first year, -27.5% the second year, -35% the third year and -36% the fourth year.

- Compensation to farmers at 64.2% of the price cut (with the compensation calculated on the figure of 36% for the final year.) Inclusion of this aid in the Single Farm Payment and linking of payments to respect of environmental and land management standards.

- Merging of ‘A’ and ‘B’ quota into a single production quota.

- In Member States with a significant reduction of sugar quota sugar beet producers will face particularly severe adaptation problems. In such cases the transitional Community aid to sugar beet growers will not suffice to fully address the beet growers’ difficulties. Therefore, Member States having reduced their quota by more than 50 % will be authorised to grant State aid to sugar beet growers during the application period of the transitional Community aid.

-To buffer the effects of the restructuring process in Member States which have granted the restructuring aid for at least 50 % of the quota, sugar beet and cane producers will be granted an aid for a maximum of five consecutive years.

- Progressive abolition of the intervention system over a period of four years and the replacement of the intervention price by a reference price.

- Introduction of a private storage system as a safety net in case the market price falls below the reference price.

- Voluntary restructuring scheme lasting 4 years for EU sugar factories, and isoglucose and inulin syrup producers, consisting of a payment to encourage factory closure and the renunciation of quota as well as to cope with the social and environmental impact of the restructuring process.

- This payment will be 730 euros per tonne in years one and two, falling to 625 in year three, and 520 in the final year.

- A top-up payment for beet producers affected by the closure of factories.

- Both these payments will be financed by a degressive levy on holders of quota, lasting three years.

- Sugar beet will qualify for set-aside payments when grown as a non-food crop and also be eligible for the energy crop aid of 45 euros/hectare.

- To maintain a certain level of production in the current “C” sugar producing countries, an additional amount of 1.1 million tonnes will be made available against a one-off payment corresponding to the amount of restructuring aid per tonne in the first year.

- Sugar for the chemical and pharmaceutical industries and for the production of bio-ethanol will be excluded from production quotas.

- Increase of Isoglucose quota of 300,000 tonnes for the existing producer companies phased in over three years with an increase of 100,000 tonnes each year.

- Possibility of buying additional isoglucose quote for Italy (60,000 tonnes), Sweden (35,000 tonnes) and Lithuania (8,000 tonnes).

ENTRY INTO FORCE : 03/03/2006. The Regulation is applicable from the marketing year 2006/2007.

Regulation 2006/318
OJ L 058 28.02.2006, p. 0001-0031

SP(2006)0584

Results of vote in Parliament

The European Parliament adopted a resolution drafted by Jean-Claude FRUTEAU (PES, FR) and made some amendments to the Commission’s proposal. It called for a more moderate reduction in the price of white sugar (30% instead of 39%), raw sugar (26% instead of 36%) and quota beet (11% over four years instead of 24% over two years). Parliament felt that the intervention mechanism should stay in place during the four transitional years, to help prevent disruption to the industry.

The key amendments were as follows:

- The common organisation of markets in the sugar sector shall seek to pursue the objectives set out in Article 33 of the Treaty, and notably, to stabilise the markets, to increase the market orientation of the Community sugar regime, and to ensure a fair standard of living for the agricultural community within the sugar sector;

- there are definitions inserted for "exported sugar", "exported isoglucose" and "exported inuline syrup" , and” preferential sugar originating from the least developed countries (LDCs)"

- during the marketing years 2006/2007, 2007/2008, 2008/2009 and 2009/2010, an intervention system based on an intervention price shall be established; as from the marketing year 2010/2011, the intervention system shall be replaced by a system based on a reference price;

- for white sugar, Parliament called for the price reductions to be phased in more gradually between 2006/2007 and 2009/2010 and for the final figure to be higher than proposed by the Commission (EUR 442.3 per tonne as opposed to EUR 385.5 per tonne). It made similar proposals for raw sugar, with a final figure of EUR 366.6 per tonne as opposed to EUR 319.5 per tonne suggested by the Commission);

- Parliament proposed a higher minimum price for quota beet and extended it by another two years (until 2009/2010). They deleted the provision which would have enabled that price to be reduced by up to 10% by way of an agreement within the trade;

- for the quantities of sugar beet corresponding to the quantities of industrial sugar, the sugar undertaking concerned will be required to pay at least the price set by agreements within the trade, bearing in mind the added value of the sugar concerned, the relationship between the institutional sugar prices and quota beet after the restructuring period, and the conventional yield of 130 kg per tonne of beet with 16% sugar content;

- Parliament deleted Article 8 (Additional sugar quota) on the grounds that a restructuring process should not include an additional quota of 1 million tonnes for certain countries which are actually responsible for the surpluses. It also deleted Article 9 (Additional isoglucose quota), arguing that isoglucose manufacturers should not be allowed an increase in quota at a time when beet growers and sugar manufacturers are being required to cut their production by more than 30% within 3 to 4 years;

- all decisions on adjusting production capacities after 2010 should be made by the Council, on a proposal from the Commission and after consulting Parliament;

- Parliament inserted a new clause on the intervention scheme;

- the Commission shall carry out a study in order to identify transitional outlets for sugar surpluses for energy use;

- should imports from one of the LDCs exceed the volumes guaranteeing a net balance between normal internal production capacity and normal internal consumption in the country concerned, the Commission shall suspend such imports from that country;

- preferential imports from the LDCs shall not exceed the quantities of sugar produced locally and shall be separate from the volumes required for internal consumption in the countries concerned;

- Parliament inserted a new article: imports of sugar from LDCs shall be subject to duties under the Common Customs Tariff on the basis of the existing levels until 1 July 2012. Duties under the Common Customs Tariff shall be reduced by 20% on 1 July 2012, 50% on 1 July 2013 and 80% on 1 July 2014. As from 1 July 2015 they shall be completely phased out. Pending the complete phasing-out of duties under the Common Customs Tariff, for each marketing year a zero-rated global tariff quota shall be opened for products corresponding to tariff heading 1701 originating in least developed countries. The initial tariff quota for the marketing year 2006/2007 for products corresponding to tariff heading 1701 shall be 149 212 tonnes, expressed in white sugar equivalent. For each of the following marketing years the tariff quota for products corresponding to heading 1701 shall be raised by 27% as compared to the quota for the previous marketing year. As from the marketing year 2010/2011, should sugar imports from least developed countries be in excess of the levels guaranteeing a net balance between internal production and consumption in one or more of the countries concerned, as determined from its declarations to the International Sugar Organisation, the Commission may suspend such imports, at the request of a Member State or on its own initiative.

- Where the Commission finds that there is sufficient evidence of fraud or failure to provide administrative cooperation as required for the verification of evidence of origin, or that there is a massive increase in exports into the Community above the level of normal production and export capacity, it may take measures to suspend in whole or in part the application of tariff quotas for a period of six months, provided certain prescribed conditions are met.

T6-0023/2006

Debate in Parliament

A6-0391/2005

A6-0391/2005

The committee adopted the report by Jean-Claude FRUTEAU (PES, FR) amending the proposal under the consultation procedure:

- a new clause specified that the aim of the COM in the sugar sector should be "to stabilise the markets, to increase the market orientation of the Community sugar regime and to ensure a fair standard of living for the agricultural community within the sugar sector";

- MEPs believed that, to prevent disruption to the industry, the intervention mechanism should be preserved throughout the period of the reform. They therefore introduced new articles providing for an intervention system for the marketing years between 2006/2007 and 2009/2010, to be replaced by a system based on a reference price as from the 2010/2011 marketing year;

- for white sugar, the committee called for the price reductions to be phased in more gradually between 2006/2007 and 2009/2010 and for the final figure to be higher than proposed by the Commission (EUR 442.3 per tonne as opposed to EUR 385.5 per tonne). It made similar proposals for raw sugar, with a final figure of EUR 366.6 per tonne as opposed to EUR 319.5 per tonne suggested by the Commission);

- MEPs proposed a higher minimum price for quota beet and extended it by another two years (until 2009/2010). They deleted the provision which would have enabled that price to be reduced by up to 10% by way of an agreement within the trade;

- the committee deleted Article 8 (Additional sugar quota) on the grounds that a restructuring process should not include an additional quota of 1 million tonnes for certain countries which are actually responsible for the surpluses. It also deleted Article 9 (Additional isoglucose quota), arguing that isoglucose manufacturers should not be allowed an increase in quota at a time when beet growers and sugar manufacturers are being required to cut their production by more than 30% within 3 to 4 years;

- all decisions on adjusting production capacities after 2010 should be made by the Council, on a proposal from the Commission and after consulting Parliament;

- the committee added a new clause maintaining the option of exporting sugar produced in excess of the quota to third countries, subject to compliance with the WTO's conditions;

- provision should be made to control imports into Europe of sugar from the least developed countries. The committee introduced a new article stipulating that, as from 2010/2011, measures to safeguard the Community market will be triggered if sugar imports from those countries are "in excess of the levels guaranteeing a net balance between internal production and consumption in one or more of the countries concerned";

- a new article was introduced stipulating that preferential imports from the least developed countries shall not exceed the quantities of sugar produced locally and shall be separate from the volumes required for internal consumption in the countries concerned;

- finally , a new article required the Commission to carry out a study in order to identify transitional outlets for sugar surpluses for energy use.

PE365.053

The Council reached a general approach on the three proposals for Regulations - on the CMO in the sugar sector, amending Regulation 1782/2003/EC establishing common rules for direct support schemes, and establishing a temporary scheme for the restructuring of the sugar industry - on the basis of an overall compromise drawn up by the Presidency and which the Commission endorsed. This general approach on the sugar reform was agreed without prejudice to the opinion of the European Parliament expected on 17 January 2006.

The key elements of the general approach agreed are as follows:

• A 36% price cut on white sugar beginning in 2006/07 to ensure sustainable market balance. This cut (from 631.9 EUR/t to roughly 404.5 EUR/t) will be operated over 4 years (2006/2007 to 2009/2010);

• Compensation to farmers at a level slightly above 64% of the price cut. Inclusion of this aid in the Single Farm Payment and linking of payments to respect of environmental and land management standards. The payment will be 100% decoupled. However, during a transitional period of up to 5 years, for Member States reducing their quota sugar by more than 50% a temporary adjustment coupled aid may be granted under the EAGGF Guarantee Section;

• For the 10 New Member States since 1 May 2004, introduction of a Separate Sugar Payment (SSP) in 2006-2007-2008 only for beet growers as an alternative to the Single Area Payment Scheme (SAPS). A new Member State would have either the possibility to opt for the SAPS non-specialised payment and to add national top-ups to provide incentives in regional areas or specific production or to opt for the SSP granted only to beet growers without possibility of national top-ups. The SAPS is a transitional payment before the NMS will benefit from the existing Single Payment Scheme applicable to the "old" Member States since the CAP reform in 2003;

• Validity of the new regime, including extension of the sugar quota system, until 2014/15. No review clause;

• Merging of "A" and "B" quota into a single production quota;

• Replacement of the existing intervention price by a reference price and by a private storage mechanism. However during the transitional period of four years (2006/2007 to 2009/2010), an intervention price is set at 80% of the reference price of the following year for a maximum quantity of 600 000 t per year of white sugar;

• Introduction of a private storage system, instead of the guaranteed price in case the market price falls below the reference price;

• Voluntary restructuring scheme - lasting 4 years - for EU sugar factories, and isoglucose and inulin syrup producers to encourage total factory closure and the renunciation of quota as well as to cope with the social and environmental impact of the restructuring process. The Commission will present a report on the working of the Restructuring Fund by the end of 2008;

• This payment will be EUR 730 per tonne of white sugar renounced in years one and two, falling to 625 EUR/t in year three, and 520 EUR/t in the final year;

• This restructuring aid will be financed by a degressive levy on holders of quotas, through the restructuring amount - production levy - of 126,4 EUR/t the first year, 173,8 EUR/t the second year and

113,3 EUR/t the third year;

• Greater flexibility is added with regard to eligibility for restructuring aid - at a lower percentage -including in the case of partial dismantling of a factory and continued use of the production site excluding products covered by the CMO sugar (75%), partial renouncing of sugar quota and continued use of the facility for products covered by the CMO sugar with the exception of refining raw sugar (35%);

• Regional diversification: 15% of the restructuring aid amount for each 2006/07, 2007/08, 2008/09 and 2009/10 year is earmarked for regions affected by the restructuring process;

• Import regime: statements by the Commission on the automatic triggering of a procedure when sugar imports from an Everything But Arms (EBA) country increase by more than 25% in comparison with the previous marketing year and by the Council on the modification of legislation on rules of origin are added to the compromise;

• To maintain a certain production in the current “C” sugar producing countries, an additional amount of (1 million tonnes) will be made available against a one-off payment corresponding to the amount of restructuring aid per tonne in the first year;

• Additional quotas of 10 000 t per Member State are granted to Greece, Spain, Ireland, Italy, Latvia, Hungary, Portugal, Slovenia, Slovakia and Finland, also against a one-off payment corresponding to the amount of restructuring aid per tonne in the first year;

• Increase of isoglucose quota of 300 000 tonnes for the existing producer companies phased in over three years with an increase of 100 000 tonnes each year (2006-2007, 2007-2008, 2008-2009). The existing figure of the quota is 507 680 tonnes for the EU 25. Additional quotas may be allocated by Member States during the transitional period (2006/2007 to 2009/2010) subject to a one-off payment of EUR 730 per tonne to Italy (60 000 t), Lithuania (8 000 t) and Sweden (35 000 t).

As a reminder, the budget foreseen for the sugar sector in 2004 represented EUR 1721 million, made up for the most part of export refunds (75% of the total). The draft Regulation establishing accompanying measures for the 18 Sugar Protocol countries affected by the reform of the EU sugar regime (COD/2005/0117) is expected to be agreed upon at a later stage, under the co-decision procedure.

2692

PE360.343

2688

PE362.836

CES1251/2005
OJ C 028 03.02.2006, p. 0052-0056

The Council had a very useful exchange of views on the proposals for a reform of the Common Market Organisation (CMO) of the sugar sector, on the basis of a questionnaire giving delegations the opportunity to clarify their positions on the key elements of the reform and providing excellent guidance for further work to be done.

The Council also announced on this occasion that a High Level Working Party will be convened for intensive discussions on the file on 8 and 11 November in order to prepare the Agriculture and Fisheries Council on 22-24 November, where it is expected to adopt a "general approach" on the reform.

Delegations acknowledged the need for sugar reform, several of them urging that a political decision be taken by the Council at its next meeting on 22-24 November. A few delegations stated, however, that the proposal needed to be strongly rebalanced.

As regards the questionnaire submitted by the Presidency:

1. Concerning the key improvements to the proposal needed to ensure market balance and the maintenance of a competitive EU sugar sector:

• delegations expressed concerns about the effectiveness of the market management tools proposed to ensure market stability;

• diverging opinions were expressed on the price cut, with some delegations considering 39% as a minimum and others considering that the aim of reducing production could be attained by a less radical price cut;

• some delegations considered that it would be more appropriate first to cut surplus production (i.e. the current "B quota" and "C" sugar production);

• some delegations considered that there should be scope for flexibility for the Member States so as to allow for the possibility of targeted partial coupling;

• a few delegations underlined the priority of ensuring the budget neutrality of the proposal;

• the question of EBA imports and especially their effective control was a major issue for many delegations in the context of the SWAPs effect, with effective measures to combat fraud, respect for rules of origin and the need for safeguard measures to be taken quickly and effectively called for.

2. Concerning the restructuring fund, it was generally agreed that this was an important tool in the reform proposal. Delegations welcomed the possibility of further definition of the role of the Member State in determining how the restructuring plans should be drawn up, in particular to include conditions on environmental and social requirements, and in monitoring the effective implementation of these plans. A large number of delegations considered that the decision to close a factory should ultimately be taken by the industry.

Most delegations welcomed the possibility of having the restructuring payment extended to cases of partial dismantling of a factory in certain circumstances. The interests of sugar beet growers in particular were considered important in the context of the restructuring scheme, and the possibility of extending a specific restructuring payment to growers was discussed.

Commissioner Fischer Boel reiterated the urgent need for a 39% price cut, as an element essential to the overall balance of the proposal, bearing in mind the large volume of surplus sugar to be taken out of the EU market, and assured the Council that this reform had been proposed for the long term, without a mid term review, with a view to providing security for farmers. She justified the 60% rate of compensation on the grounds that this rate had been the same in past CAP reforms in 2003 and 2004 and respected budgetary limits. Concerning the restructuring fund, she made it clear that the Member States would be authorising and monitoring the restructuring plans. However, she made it clear that the decision to close was for the industry itself. She acknowledged the need for financial compensation in the case of partial dismantling of a factory.

2685

PE362.410

PE362.484

T he Council, having heard the Commission's presentation of the three legislative proposals and the preliminary reactions given by delegations to the three questions on the main principles underlying the sugar reform proposal, invited the Special Committee for Agriculture to conduct a thorough examination of all the issues and to prepare a report which the Council will examine at a future session.

The questionnaire, which had been submitted to the Special Committee on Agriculture (SCA) on 11 July, aimed at getting political guidance from the ministers. The general political orientation following the round table held at the Council could be summarised as follows:

- in general an overwhelming majority of delegations acknowledged the need for a reform of the sugar sector; delegations also recognised the importance of complying with the World Trade Organisation's legal requirements, following the outcome of the WTO Panel. Most of the delegations also supported the introduction of a restructuring scheme in particular in order to alleviate the social effects of the sugar price cuts on sugar producers and beet growers;

- concerning the options proposed, between the voluntary restructuring scheme combined with a larger price cut or the smaller price cut and mandatory quota cuts as proposed in the Commission Communication of July 2004, a large number of delegations could support the first approach included in the proposals. However, several delegations supported reduced price cuts, these cuts being possibly extended for a longer period of time than the two years proposed. Some of these delegations also supported in some cases a reduction of the current B quota (exported sugar at guaranteed prices) and a further reduction of current C sugar (sold outside the EU without export refund) and asked to keep the current distinction between A quota (sugar for domestic use at guaranteed prices) and B quota, in order to protect the EU sugar output for domestic consumption;

- concerning the extension of the reformed regime until the 2014/15 marketing year, most of the delegations supported this long-term perspective which would provide for stability for EU producers and consumers as well as sustainability of the regime for the sugar imports from the African Caribbean and Pacific (ACP) countries and the Least Developed Countries. Nevertheless, some delegations suggested that a mid-term review be inserted in the proposals, possibly after the restructuring scheme in 2010, in order to consider possible further price and quotas cuts;

- as regards the Commission proposals for compensation under the scheme of a decoupled payment and of national envelopes for direct payments that would represent 60% of the estimated revenue loss: although many delegations found this approach in line with recent CAP reforms to be fair and balanced, several delegations asked for an increased rate of compensation while others insisted on sticking to budget neutrality. A few delegations asked to keep part of the payment coupled to production in order to avoid the total ceasing of activity in regions of the EU.

Given that the legal basis for these proposals is Article 37 of the Treaty, the so-called consultation procedure applies - no legally binding Opinion from the European Parliament -: the EP's Opinion is scheduled for 15 November 2005, the adoption of the report by the Committee being expected on 11 October.

2676

PURPOSE : proposal on the reform of the common organisation of the markets in the sugar sector.

PROPOSED ACT : Council Decision.

CONTENT : Following the CAP reforms of 2003 and 2004, the Commission states that the time has come to bring the sugar regime into line with the approach already adopted in other sectors. Sugar reform must take proper account of farmers’ incomes, consumers’ interests and the situation of the processing industry.

There is a clear political consensus that the EU sugar sector must:

- move away from the attrition scenario under the current regime, which would drastically curtail sugar production under quota in both the EU’s most and least competitive sugar producing regions;

- be brought in line with the CAP reform process, in particular the new orientation given with the introduction of decoupling, the single payment scheme and the application of cross-compliance rules;

- develop, without delaying the necessary economic adjustments, within an sustainable market environment, based upon improved competitiveness and greater market orientation;

- attain a sustainable market balance, in relation to domestic production levels and international commitments;

- be provided with a long-term policy framework, not requiring any review in 2008.

In this context, the Commission proposes that:

- the EU institutional price, net of the restructuring amount, will be cut by 39%, over two years, to ensure a sustainable EU market balance, consistent with the EU’s international commitments;

- the national envelopes for the farmer direct payments in each Member State will grant 60% of the estimated revenue loss from this 39% institutional price cut; (please see COD/2005/0119);

- the sugar quota regime will be extended until the end of the 2014/15 marketing year, and there will be no review in 2008.

The main features of the proposed reform of the sugar regime are as follows:

Intervention and start date of the sugar campaign : in order to further the move away from public intervention mechanism for EU market sectors, it is proposed to abolish the intervention mechanism and intervention price for sugar. In order to ease the implementation of the price cuts, it is proposed to change the start date of the sugar campaign from 1 July to 1 October, starting in the 2007/08 campaign.

Reference Price: the intervention price will be replaced by a reference price for sugar. To boost EU competitiveness and lessen the gap with the prevailing world sugar price, the reference price will be set at a level 39% lower than the current intervention price. The price decrease will be achieved within two years, beginning in the 2006/07 campaign. The reference price will serve in the establishment of the trigger level for private storage.

Minimum Sugar Beet Price: the minimum price for sugar beet has been calculated, in line with the proposed reference price cuts, net of the restructuring amount. However, in order to take account of the move away from a rigid price support system, through the abolition of the intervention mechanism, a flexibility clause has been introduced, which would grant sugar beet growers the possibility to negotiate the sugar beet price down to 10% below that guaranteed minimum price.

Price Reporting: a price reporting mechanism for sugar shall be put in place in time for operational use, as from the 2006/07 campaign.

Setting up a Single EU Quota: t he current quota arrangements proposal will be simplified, by merging the “A” and “B” quotas into one single quota. An additional amount of 1 million tonnes of quota shall be made available to current “C” sugar producing Member States. At the time of allocation of that quota to sugar producers, a one-off, per-tonne amount will be charged, equal to the level of the year 1 restructuring aid. A surplus amount mechanism will be established, to bring an overall consistency to the single quota system, distinguishing clearly the different sources of sugar and ensuring the legal security of the system.

Quota Reductions: t here will be no compulsory quota reductions during the restructuring period. Market balance will be ensured by the amounts of sugar quota entering the restructuring scheme and the market balance tools proposed below. At the end of the restructuring period, quota cuts will be applied, if needed, on the basis of a flat-rate, percentage cut in the total quota of each Member State.

Isoglucose: the isoglucose sector will need to be in a position to profit from economies of scale, in order to have a long-term prospect of economic viability. Under these circumstances, a progressive and proportional increase of isoglucose quotas, of 100 000 t/year for three years beginning in 2006/07, is proposed.

Carry forward mechanism: a s in the current regime, sugar factories will be allowed to carry forward any overshoot of quota in a given marketing year to the quota of the following marketing year.

Withdrawal Mechanism: m oreover, the Commission will retain the possibility of dealing with market

imbalance, in a given marketing year, by withdrawing a percentage of quota sugar from the market until the beginning of the following marketing year.

Private Storage: a private storage scheme is proposed, in order to open the possibility of temporarily withdrawing sugar from the market. It will be implemented, as appropriate, by the Commission, should the market price fall below the reference price. Quantities withdrawn will not be eligible for private storage support.

Specific measures for the chemical and pharmaceutical industries: the current arrangements for excluding the sugar used for alcohol, including rum, bio-ethanol and yeast production from the production quotas will continue and will be extended to those quantities of sugar used by chemical and pharmaceutical industries, for end products with a high utilisation of sugar.

An assistance scheme for ACP countries: the Commission considers that the duty-free imports, foreseen for Least Developed Countries (LDC) under the “Everything But Arms (EBA) initiative as from 2009/10, should be maintained and that EBA countries should also be provided with a stable, long-term perspective for the development of their economy. These countries should benefit from the same guaranteed prices as those provided in the ACP sugar protocol.

Under the Sugar Protocol, eighteen ACP countries export sugar to the EU, and may be affected by price reductions on the EU market. A dialogue is currently taking place with ACP countries, regarding the Commission’s Working Paper for an “Action Plan on accompanying measures for Sugar Protocol countries affected by the reform of the EU sugar regime.” These measures aim to help Sugar Protocol countries to adjust to the changing market conditions by enhancing competitiveness of their sugar sectors, by diversifying into other economic activities or by addressing broader social, economic and/or environmental impacts of these changes.

The Commission is also proposing a temporary restructuring scheme for the EU sugar sector, to be implemented over a four-year period. (Please see CNS/2005/0120).

The scheme will provide:

- a high, degressive per-tonne restructuring aid, available to EU sugar factories, isoglucose and inulin syrup producers, which will be granted for factory closure and renunciation of the quota; workers in zones that are particularly hard hit by the consequences of the reform.

- a top-up payment, to ensure sugar beet growers the possibility of receiving the full, final direct payment, as from the first marketing year, in the event that they abandon production, owing to the fact that the factory, with which they have sugar beet delivery rights, has closed under the restructuring scheme.

FINANCIAL IMPLICATIONS:

For the period, the cost of the proposed reform respects the status quo expenditure, as proposed at the time of the CAP Reform proposals of January 2003. The costs of the new measures proposed for this sector, for which the direct decoupled payment to producers represents the major element, will be mainly offset by the savings resulting from a substantial reduction in export refund expenditure and abolition of the refining aid.

When the proposed measures for the sector have been fully implemented, the envelopes for direct income support will involve an annual cost of EUR 1 542 million. Any costs in respect of the private storage scheme should be limited and only arise if market prices risk falling significantly below the reference price.

With regard to the restructuring scheme, an ad hoc restructuring amount will be charged to finance it and will be assigned to a restructuring fund. The amount of EUR 4 225 million will be charged over three marketing years (2006/07 up to 2008/09) and the restructuring aid will be available for four marketing years (2006/07 to 2009/10).

COM(2005)0263
EUR-Lex

COMMISSION’S IMPACT ASSESSMENT

For further information concerning the background to this issue, please refer to the summary of the Commission’s initial proposal COM(2005)0263 of 22 June 2005 concerning the common organisation of the markets in the sugar sector.

Note: This is one of a package of three proposals put forward by the Commission comprising measures to 1) reform the sugar COM (common organization of the market), 2) restructure the EU’s sugar industry (please refer to summary relating to CNS/2005/0120) and 3) provide direct income support to sugar beet producers (please refer to summary relating to CNS/2005/0119).

1- POLICY OPTIONS AND IMPACTS : The Commission initially considered three possible policy orientations for the EU sugar regime, which were analysed in the September 2003 Extended Impact Assessment, taking into account the effects of the internal and external constraints placed on the sector and the dispute that was taking place before the WTO. This impact assessment incorporates new information gathered since the publication of the initial impact assessment.

1.1- Option 1 - No reform: As a reference for the alternative scenarios, the consequences of an extension of the present regime beyond 2006 were assessed. This consisted of keeping intact the current common market organisation, based on flexible quotas, which maintain market balance through the quota adjustment mechanism and price intervention. The EU market would be open to import quantities according to the various international commitments already agreed or agreed in the future.

1.2- Option 2 - Price cut: The second scenario evaluated was a reduction in the EU internal price. Once imports and production levels stabilised, production quotas would be phased out and the internal market price would be allowed to adjust itself to the price of those imports. To smooth the effects of the reduction in the EU sugar price, this scenario also looked at the possibility of introducing the single payment scheme into the sugar sector, in line with the June 2003 CAP reform.

The June 2005 proposal remains based on the “Price cut” option with quota adjustment and consists of the following : the EU sugar regime will be prolonged until the end of the 2014/15 marketing year and there will be no review of price and quota levels in 2008; there will be a significant reduction (39%) of the institutional support price net of restructuring amount for EU sugar, in two steps, with the abolition of intervention and the introduction of a reference price; direct decoupled payments within CAP budget limits will be introduced, with the same historical reference period as used in the 2003 CAP reform (2000–2002).

1.3- Option 3 - Full Liberalisation – removal of price support and quota regime: The third option for reform represented a complete liberalisation from the current regime. This meant that the domestic EU price support system would be abolished and production quotas would be abandoned. In its July 2004 Communication, the Commission discarded two of the three options. The “No reform” option was deemed unsustainable in the medium term while the “full liberalisation” option was considered unbalanced, in terms of its impact on EU producers and trade partners, such that it did not offer realistic prospects for their long-term future.

CONCLUSION : The Commission concluded that option 2 offered the best solution of the three. If the proposal is adopted as it stands, the EU institutional price, net of the restructuring amount, will be cut by 39%, over two years, to ensure a sustainable EU market balance, consistent with the EU’s international commitments; the national envelopes for the farmer direct payments in each Member State will grant 60% of the estimated revenue loss from this 39% institutional price-cut; the sugar quota regime will be extended until the end of the 2014/15 marketing year.

IMPACTS : Starting with actors at the end of the food chain, it is expected that some internal price reductions should benefit consumers but, due to the rigid price elasticity of sugar, the impact on sugar consumption is expected to be low. The most important health impact would not be on the overall consumption level but rather the composition of the intake of sweeteners. Since sugar is an important input for the agri-food industry , lower sugar prices would mean they would benefit from a decrease in their variable costs. Within the starch industry, isoglucose production should remain competitive at the price level envisaged by the current legal proposal. Regarding inulin syrup producers , the less competitive ones would probably find it attractive to take advantage of the restructuring scheme.

Sugar refineries will in time have access to a larger supply at lower prices, while during the transition period their supply needs will be ensured through privileged access to Traditional Supply Needs.

As concerns the ACP countries , any option involving a price reduction will affect the countries benefiting from the Sugar Protocol by reducing the income accruing from exports to the Community. Recognising the need for adjustment due to the reform, the Commission has initiated a dialogue with ACP countries on the basis of an Action Plan in order to define appropriate accompanying measures covering both development and trade.

The Least Developed Countries (LDC) benefit from the EBA initiative, which abolishes quotas and duties for all products except arms exported to the EU, with a transition period for sugar, to be fully implemented from 2009/10 onwards.

For EU sugar beet processors, the future profitability of sugar beet processing will depend on whether processors can keep their margins positive by reducing processing costs per tonne or reducing raw material costs. For EU sugar beet growers, the future maximisation of profit will depend on whether farmers can reduce their sugar beet growing costs per tonne or switch from sugar beet to alternative crop production, should the margin per hectare of sugar beet fall below that for the alternative crops.

The impact on agricultural employment will be much less accentuated than in the processing industry. Reductions in farm employment levels will come mainly from replacing beet production with less labour-intensive alternative crops.

Assessing the specific impact of the proposed price cut, based on estimates of the combined profitability of the industry (growers + manufacturers) the EU-25 sugar-producing Member States fall into three groups, depending on their level of costs compared with the new sugar price (€ 386/t):

- Member States where sugar production is likely to be drastically reduced or even phased out: Greece, Ireland, Italy, Portugal;

- Member States in the border zone: Czech Republic, Spain, Denmark, Latvia, Lithuania, Hungary, Slovakia, Slovenia and Finland. In these countries, production is likely to be maintained but at a significantly lower level;

- Member States where the decrease in sugar production will be limited . It is even likely that overall production would not decrease in some countries: Austria, Belgium, France, Germany, the Netherlands, Poland, Sweden and the UK.

2- FOLLOW-UP: In order to ensure good governance and monitor the management of the sugar CMO, the Commission services will follow, particularly, certain aspects of the EU sugar sector in the planned reform period (2006–2013):

evolution of the sugar market economy (production, imports, exports and consumption, EU and world price trends); development of EU sugar production structures (agricultural holdings, sugar factories, refineries); incorporation of sugar beet growers into the 2003 CAP Reform process, in particular their inclusion in the single payment scheme.

SEC(2005)0808
EUR-Lex

PURPOSE : proposal on the reform of the common organisation of the markets in the sugar sector.

PROPOSED ACT : Council Decision.

CONTENT : Following the CAP reforms of 2003 and 2004, the Commission states that the time has come to bring the sugar regime into line with the approach already adopted in other sectors. Sugar reform must take proper account of farmers’ incomes, consumers’ interests and the situation of the processing industry.

There is a clear political consensus that the EU sugar sector must:

- move away from the attrition scenario under the current regime, which would drastically curtail sugar production under quota in both the EU’s most and least competitive sugar producing regions;

- be brought in line with the CAP reform process, in particular the new orientation given with the introduction of decoupling, the single payment scheme and the application of cross-compliance rules;

- develop, without delaying the necessary economic adjustments, within an sustainable market environment, based upon improved competitiveness and greater market orientation;

- attain a sustainable market balance, in relation to domestic production levels and international commitments;

- be provided with a long-term policy framework, not requiring any review in 2008.

In this context, the Commission proposes that:

- the EU institutional price, net of the restructuring amount, will be cut by 39%, over two years, to ensure a sustainable EU market balance, consistent with the EU’s international commitments;

- the national envelopes for the farmer direct payments in each Member State will grant 60% of the estimated revenue loss from this 39% institutional price cut; (please see COD/2005/0119);

- the sugar quota regime will be extended until the end of the 2014/15 marketing year, and there will be no review in 2008.

The main features of the proposed reform of the sugar regime are as follows:

Intervention and start date of the sugar campaign : in order to further the move away from public intervention mechanism for EU market sectors, it is proposed to abolish the intervention mechanism and intervention price for sugar. In order to ease the implementation of the price cuts, it is proposed to change the start date of the sugar campaign from 1 July to 1 October, starting in the 2007/08 campaign.

Reference Price: the intervention price will be replaced by a reference price for sugar. To boost EU competitiveness and lessen the gap with the prevailing world sugar price, the reference price will be set at a level 39% lower than the current intervention price. The price decrease will be achieved within two years, beginning in the 2006/07 campaign. The reference price will serve in the establishment of the trigger level for private storage.

Minimum Sugar Beet Price: the minimum price for sugar beet has been calculated, in line with the proposed reference price cuts, net of the restructuring amount. However, in order to take account of the move away from a rigid price support system, through the abolition of the intervention mechanism, a flexibility clause has been introduced, which would grant sugar beet growers the possibility to negotiate the sugar beet price down to 10% below that guaranteed minimum price.

Price Reporting: a price reporting mechanism for sugar shall be put in place in time for operational use, as from the 2006/07 campaign.

Setting up a Single EU Quota: t he current quota arrangements proposal will be simplified, by merging the “A” and “B” quotas into one single quota. An additional amount of 1 million tonnes of quota shall be made available to current “C” sugar producing Member States. At the time of allocation of that quota to sugar producers, a one-off, per-tonne amount will be charged, equal to the level of the year 1 restructuring aid. A surplus amount mechanism will be established, to bring an overall consistency to the single quota system, distinguishing clearly the different sources of sugar and ensuring the legal security of the system.

Quota Reductions: t here will be no compulsory quota reductions during the restructuring period. Market balance will be ensured by the amounts of sugar quota entering the restructuring scheme and the market balance tools proposed below. At the end of the restructuring period, quota cuts will be applied, if needed, on the basis of a flat-rate, percentage cut in the total quota of each Member State.

Isoglucose: the isoglucose sector will need to be in a position to profit from economies of scale, in order to have a long-term prospect of economic viability. Under these circumstances, a progressive and proportional increase of isoglucose quotas, of 100 000 t/year for three years beginning in 2006/07, is proposed.

Carry forward mechanism: a s in the current regime, sugar factories will be allowed to carry forward any overshoot of quota in a given marketing year to the quota of the following marketing year.

Withdrawal Mechanism: m oreover, the Commission will retain the possibility of dealing with market

imbalance, in a given marketing year, by withdrawing a percentage of quota sugar from the market until the beginning of the following marketing year.

Private Storage: a private storage scheme is proposed, in order to open the possibility of temporarily withdrawing sugar from the market. It will be implemented, as appropriate, by the Commission, should the market price fall below the reference price. Quantities withdrawn will not be eligible for private storage support.

Specific measures for the chemical and pharmaceutical industries: the current arrangements for excluding the sugar used for alcohol, including rum, bio-ethanol and yeast production from the production quotas will continue and will be extended to those quantities of sugar used by chemical and pharmaceutical industries, for end products with a high utilisation of sugar.

An assistance scheme for ACP countries: the Commission considers that the duty-free imports, foreseen for Least Developed Countries (LDC) under the “Everything But Arms (EBA) initiative as from 2009/10, should be maintained and that EBA countries should also be provided with a stable, long-term perspective for the development of their economy. These countries should benefit from the same guaranteed prices as those provided in the ACP sugar protocol.

Under the Sugar Protocol, eighteen ACP countries export sugar to the EU, and may be affected by price reductions on the EU market. A dialogue is currently taking place with ACP countries, regarding the Commission’s Working Paper for an “Action Plan on accompanying measures for Sugar Protocol countries affected by the reform of the EU sugar regime.” These measures aim to help Sugar Protocol countries to adjust to the changing market conditions by enhancing competitiveness of their sugar sectors, by diversifying into other economic activities or by addressing broader social, economic and/or environmental impacts of these changes.

The Commission is also proposing a temporary restructuring scheme for the EU sugar sector, to be implemented over a four-year period. (Please see CNS/2005/0120).

The scheme will provide:

- a high, degressive per-tonne restructuring aid, available to EU sugar factories, isoglucose and inulin syrup producers, which will be granted for factory closure and renunciation of the quota; workers in zones that are particularly hard hit by the consequences of the reform.

- a top-up payment, to ensure sugar beet growers the possibility of receiving the full, final direct payment, as from the first marketing year, in the event that they abandon production, owing to the fact that the factory, with which they have sugar beet delivery rights, has closed under the restructuring scheme.

FINANCIAL IMPLICATIONS:

For the period, the cost of the proposed reform respects the status quo expenditure, as proposed at the time of the CAP Reform proposals of January 2003. The costs of the new measures proposed for this sector, for which the direct decoupled payment to producers represents the major element, will be mainly offset by the savings resulting from a substantial reduction in export refund expenditure and abolition of the refining aid.

When the proposed measures for the sector have been fully implemented, the envelopes for direct income support will involve an annual cost of EUR 1 542 million. Any costs in respect of the private storage scheme should be limited and only arise if market prices risk falling significantly below the reference price.

With regard to the restructuring scheme, an ad hoc restructuring amount will be charged to finance it and will be assigned to a restructuring fund. The amount of EUR 4 225 million will be charged over three marketing years (2006/07 up to 2008/09) and the restructuring aid will be available for four marketing years (2006/07 to 2009/10).

COM(2005)0263
EUR-Lex