European Council Backs Improved Sugar Restructuring Scheme 

27/09/07 European Union agriculture ministers have backed changes to the sugar restructuring scheme which will make it more effective and thus reduce European Union sugar production to sustainable levels. The restructuring scheme was a key element of the 2006 reform of the Common Market Organisation for sugar, offering producers who would be uncompetitive at the new lower price a financial incentive to leave the sector. Unfortunately, much less quota was renounced during the first two years of the scheme than anticipated and changes therefore had to be made to make it more attractive.

The main changes agreed are that the percentage of the aid given to growers and machinery contractors should be fixed at 10 percent, but growers who renounce quota will get an additional payment. Retroactive payments are foreseen, to avoid penalising those who have already given up their quotas. A new element is that beet growers may apply directly for aid from the restructuring fund, up to a certain limit.

As an additional incentive for companies to participate, those which renounce a certain amount of their quota in 2008/09 will be exempted from paying the restructuring levy on the part of their quota which was subject to preventive withdrawal in the 2007/2008 marketing year. A two step application for renouncing quota for 2008/09 is introduced, where the first step (deadline 31/1/08) as a minimum has to correspond to the preventive withdrawal decided in March this year in order to be able to participate in the second step (deadline 31/3/08). The Commission will let companies know after the first step to what extent they risk an uncompensated cut in 2010 if they do not participate in the second step.

The Commission believes that the changes should allow the renunciation of about 3.8 million tonnes of sugar quota in addition to the 2.2 million tonnes given up so far. If insufficient quota has been renounced by 2010, the Commission will make compulsory quota cuts. The level of these cuts will vary depending on how much quota each Member State had renounced under the restructuring scheme.

Mariann Fischer Boel, Commissioner for Agriculture and Rural Development, said: "I'm delighted that ministers have approved these vital changes to the restructuring fund. It is a key element of our reform, offering financial incentives to factories which can't compete at the new lower prices. I believe that the changes agreed today will encourage many more companies to give up quota. I urge them to take this chance. As the price falls, life will get tougher. And after 2010, there won't be any money to help producers who have to bow out."

The percentage of the aid to be given to growers and machinery contractors will be fixed at 10 percent, with a special top-up for growers, payable retroactively. For the 2008/2009 marketing year, growers will receive an additional payment of €237.5 per tonne of quota renounced.

Beet growers will be allowed to ask directly to renounce quota, up to 10 percent of a factory's quota.

A two step application for renouncing quota for 2008/09, where the first step as a minimum has to correspond to the preventive withdrawal decided in March this year in order to be able to participate in the second step. Companies will know after the first step how much they risk their quotas being cut in 2010 if they do not participate in the second step.

The formula for the final quota cut proposes a high deduction of quota renounced at company level with a view to further incite companies to participate in the voluntary restructuring scheme.

The high level of compensation to growers can be granted also for quota renounced for quota year 2009/10 provided the binding application is made already by 31 January 2008. The important thing is to get the quota renounced and that the commitment is made early, so that everybody is clear about the situation by March 2008. Obviously the restructuring levy in that case will have to be paid for 2008/2009.

For the withdrawal scheme, an initial decision before sowing might be completed by a further withdrawal in October. The withdrawal will not reduce the traditional supply needs for refiners. For the period until the 2009/10 marketing year, Member States where quota has already been renounced will be subject to a lower withdrawal.

AGRANA, the leading sugar producer in Central Europe, said that it expects a rapid implementation of this readjustment. Following the relinquishment of 2.3 million tonnes of quota in the first year of implementation, an additional 2.3 million tonnes is now expected to be surrendered. To achieve the Commission’s target of a reduction of 6 million tonnes will thus require another 1.4 million tonnes of quota to be given up in a final cut, expected for 2009/10. However, this last reduction will be made without restructuring payments. The ultimate size of this final cut still depends in large part on the imports from LDC countries.

As the European Commission’s original expectation calling for the non-competitive countries to withdraw completely from production was ultimately reduced by half as a result of political compromise, the reform target is now only attainable if the more competitive countries also reduce their respective quota by 13.5%.

Based on information currently available, the entire European sugar industry – which applauds this “reform of the reform” – is willing to carry out this reduction. All measures could be rapidly implemented.

The changes to the reform will also affect Austria; the quota would ease from currently 405,000 tonnes of sugar to 351,000 tonnes, corresponding to 2.3 million tonnes of quota beet. However, the reform changes will have no effect on Austria’s sugar industry. With the streamlining of production through the closing of the sugar plant in Hohenau, AGRANA had already anticipated this development and put in place an efficient, cost-optimised facility location structure. The campaign duration in Austria would be 87 days in the future, not counting the processing of ethanol beets or industrial beets for the fermentation industry.