The report examines current short- and longer run market projections to ascertain if and how anticipated developments in global sugar markets create economic incentives for an additional round of EU r
THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY
USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT
GAIN Report Number: E60078
Post: Brussels USEU
Post-Reform European Union Sugar - Prospects for the
Stephen Haley/ERS and Yvan Polet/FAS-USEU
With the EU on the eve of a new Common Agricultural Policy “CAP after 2013” reform and a
Commission proposal to abolish the sugar quota, this report looks back at the consequences of the 2006
Sugar Reform as part of the CAP reforms of 2003 and 2008 that decoupled European farm support from
production and exposed EU producers to world market signals. This report analyses the success record
of the sugar reform at a time of volatile world sugar markets and the challenges that lie ahead for the EU
sugar sector in the new CAP.
The European Union (EU) through its Common Agricultural Policy (CAP) has traditionally attempted
to manage the markets and has been successful by and large but at a cost to consumers and taxpayers.
The EU is now faced with markets that are more global and volatile than in the past and is being forced
to adjust to this new reality. Sugar has traditionally been one of the more volatile commodities and
presents a real challenge to the EU to moderate the price volatility while maintaining reasonable prices
for producers, processors and consumers without adding to the CAP budget. This report reviews the
effects of the 2006-09 policy reform on the EU sugar and sweetener industries, post-reform sugar
production capacity and costs of production in the new international setting of projected higher world
Sugar policy in the European Union (EU) is exercised by the European Commission through its control
over the sugar and sweeteners supply-demand balance.  The EU Sugar Regime contains the
principles under which the Commission is governed. The regime was created in 1968 and has been
subject to review at 5-year intervals up through 2006. Until that time, rules governing sugar policy
parameters were distinct from rules governing other commodities under the EU‟s Common Agricultural
Policy (CAP) and the sugar rules witnessed few changes until 2006.
The 2006 reform reduced support prices to sugarbeet growers and processors, and to compensate for
lost revenue, sugarbeet payments became incorporated into the EU‟s Single Farm Payment system. 
Production quota reduction was achieved through buy-outs and some efficiency gains were realized as
efficient producers were allowed to buy renounced quota within member states. Under this system,
support payments to growers became decoupled from production, with the purpose of allowing farmers
more freedom to produce to market demand. Nonetheless, certain items from the earlier regime, such as
minimum sugarbeet prices and production quotas (albeit, at lower levels) were carried over into the new
The Commission relies on various instruments to maintain internal EU sugar prices at or above regime-
based reference levels. Although intervention purchases are no longer part of the regime, the
Commission can force sugar processors to withdraw sugar from the market. Under certain conditions,
the Commission can provide assistance to private storage systems. Trade policies such as providing for
protection against non-preferential imports and the power to review import levels, are considered
effective in managing price outcomes.
The current CAP is set to expire after the 2014/15 marketing year. There is already debate to determine
which elements to change and which to retain. The Sugar Regime, now part of the mainstream CAP, is
also subject to examination. Major adjustments to the new regime could include abolition of production
quotas by 2015. 
This report reviews the differential effects of the last reform of the sugar regime across national
industries within the EU to provide some context for understanding the potential timing, feasibility, and
features of a second round of policy reforms. The report also examines current short- and longer run
market projections to ascertain if and how anticipated developments in global sugar markets create
economic incentives for an additional round of EU reforms.
Current EU Sugar Policy under the 2006 Reform – Internal Support
The current EU Sugar Regime was authorized under Council Regulation No. 318/2006.  This was
subsequently subsumed into Common Market Organization (CMO) Council Regulation No. 1234/2007
as of October 1, 2008.  The covered quota years are 2006/07 through 2014/15. The products covered
by the regime include sugar, isoglucose, inulin syrup (fructose from chicory), sugarbeets, sugarcane,
molasses, maple sugar and syrup, artificial honey, certain sugar syrups, and beet pulp and other waste
products of sugar manufacturer.
Production quotas are defined for sugar, isoglucose, and inulin syrup. Current nation-specific volume
totals are reported in table 1 for sugar (last column), and table 2 (last column) for isoglucose and inulin
syrup. (As can be seen, all inulin syrup quotas were renounced during the reform transition period.)
Quotas are not tradable across member states and transferability within member states is limited as well.
In contrast to the pre-reform regime, there are no intervention prices – they were replaced by reference
prices around which wholesale sugar prices are meant to fluctuate.  The reference price for white
sugar is € 404.4 per tonne, € 335.2 per tonne for raw sugar, and € 26.29 per tonne for sugarbeets. In
order to reach the reference price, the Commission has the authority to require processors to withdraw
sugar from the market and carry it forward to the next market year, where it counts as the first tranche of
quota production in that year. The Commission also has the authority to reduce plantings but any
announcement must be made by March 16, preceding the start of the planting season.
There are provisions for sugar produced over quota amounts. The sugar can be used for certain
industrial purposes, can be carried forward to the next marketing year, exported without subsidy but
within WTO subsidized export volume limits, or destroyed. Out-of-quota sugar not used for these
purposes is subject to a Surplus Levy of € 500 per tonne.
Other measures include private storage aid. If the EU market price is lower than 85 percent of the
reference price and is expected to remain below that level for two months, private storage aid may be
extended to processors of quota sugar. This provision is only effective from November 1 through June
30 of the marketing year in which aid is granted. To date, no private storage aid has been made
The regime provides for a production charge on sugar of € 12 per tonne and € 6 per tonne for
isoglucose. These charges represent a direct contribution to the general EU budget to cover the sugar
regime‟s administrative cost. Reports of sales prices to the Commission are required for processors and
sugar refiners on a monthly basis. The same requirement applies to industrial sugar users for monthly
Current EU Sugar Policy – Trade Measures
The European Union charges import duties on all imports of sugar and isoglucose unless they are
covered under preferential access arrangements. These duties, ranging from €339 per tonne for raw cane
sugar for refining to €507 per tonne for isoglucose, are listed in table 3. These rates are those agreed to
in the Uruguay Round Agriculture Agreement and are bound in the World Trade Organization. There
are additional import safeguards to cover situations when world prices are depressed.
There are two sets of preferential sugar import arrangements. In the first, sugar can be imported duty-
and quota-free under the “Everything-But-Arms” (EBAs) arrangements for the least developed
countries (LDCs) and under the “Economic Partnership Agreements” (EPAs) with certain countries
formerly granted special trade status under the ACP Sugar Protocol.  Countries and other details are
listed in table 4. As seen in the left column, certain ACP countries are among the least developed
countries qualifying for duty- and quota-free entry under the EBA. The non-LDC ACP countries are
covered under the EPAs. Safeguards apply to imports covered by the EPAs. These are applicable when
preferential imports from LDCs exceed 3.5 million tonnes and imports from non-LDC ACPs exceed
regional thresholds, listed in the right column of table 4. When the safeguards apply, the imports from
the non-LDC ACPs are to be limited. The safeguard arrangement applies until 2015, when it will be
replaced by another which is less restrictive. At least through 2011/12, an importer of sugar under these
arrangements pledges payment for the sugar of at least 90 percent of the reference price.
The second set of preferential import arrangements is two-fold. The first is the CXL import quota that
provides import access of 676,925 tonnes at a reduced duty of € 98 per tonne, less than a third of the
€339 duty levied on raw cane sugar from non-EBA countries. This quota consists of pre-existing quotas
that countries that became EU members through enlargement agreements had prior to EU membership
(see top panel, table 5). Also included in this quota is 10,000 tonnes of sugar from India, which earlier
had access under the ACP Protocol. The sugar from India has zero duty. All CXL sugar except that
from India is raw cane sugar meant for refining in the European Union. The Balkan white sugar quota
had its origin in 2000 but went through several transformations before reaching its current form in July
2005. Countries covered and quota allocations are listed in the bottom panel of table 5. The sugar enters
the EU duty-free and there is no requirement for further processing or refining as with the CXL sugar.
There is an additional quota being phased in for imports from Moldova. It started at 15,000 tonnes in
2008 and rises to 34,000 tonnes in 2012. These imports are also duty-free.
Table 5 -- European Union raw and white sugar import quotas 1/
Country Quota (metric tonnes) Import duty (€ per tonne)
CXL raw sugar import quotas 1/
Australia 9,925 98
Brazil 334,054 98
Cuba 68,969 98
Erga Omnes 253,977 98
India 2/ 10,000 -
Balkan and other import quotas for white sugar 3/
Albania 1,000 0
Bosnia and Herzegovina 12,000 0
Croatia 180,000 0
Macedonia 7,000 0
Serbia or Kosovo 180,000 0
Total 380,000 0
Moldova 4/ 34,000 0
1/ Negotiated in the World Trade Organization for existing suppliers
to countries joining the European Union (e.g., Finland).
2/ Import can be either raw or refined sugar, duty is zero as a
carryover from ACP Sugar Protocol.
3/ Sugar does not have to be used for refining.
4/ Provision part of European Policy Action Plan for Moldova. Quota
started at 15,000 tonnes and tops out at 34,000 tonnes in 2012.
Source: CAP Monitor.
Although there exists the authority for the European Union to use export subsidies (subject to the limits
listed in table 3), these subsidies have not been used for sugar since 2008/09. Also discontinued have
been export subsidies for sugar-containing products. Sugar can be exported without refund, but the
volume must not exceed the volume limit set under the WTO.
Effects of Reform on EU Transfers
Both sugarbeet growers that renounced quota and processors that were forced out of business by the
reforms received compensation from the EU budget. From 2008-2010 over 5 billion euros were
distributed to farmers renouncing quota and processors forced out of business due to lack of supply
because of the reform. The EU Commission was forced to enhance the buyout amount as the first
reform was insufficient to reach the lower production level anticipated by the EU. Additional funds
were added and the subsequent renouncement of quota was substantial enough to reach the production
level anticipated – about 1/3 less sugar produced.
Additional funds were transferred to those holding quota to compensate for the lower safety net price
and these payments were incorporated into the single farm payment that had been introduced and
adopted in the overall CAP reform of 2003. Market support fell dramatically from 3.5 billion euros to
zero in 2010 in part because of high world prices and the dramatic drop (36 percent) in the support
price. Nearly all of the previous transfers were from consumers to producers. Costs of the reform were
in part mitigated by payments made by producers who bought up renounced quota.
EU Sugar Supply and Use after Reform
EU sugar reform had many aspects. Production quotas fell 24 percent to 13.3 million tonnes. The new
institutional sugar price fell 36 percent to € 404.4 per tonne, and the minimum sugarbeet price fell 39.5
percent to € 26.29 per tonne. Sugar intervention buying was eliminated. As a result, the number of EU
beet sugar-producing countries fell from 23 to 18 member states, and production is now more
geographically concentrated, with France, Germany, Poland, and the United Kingdom accounting for 70
percent of sugar production in the 2009/2010 marketing year, compared with 50 percent in the 2005/06
marketing year. Italy, Spain, and Belgium produced significantly less sugar over the same period.
In the core EU region of 15 countries, sugarbeet harvested area fell from 1.963 million hectares in
1999/2000 to 1.075 million hectares in 2009/10, a decrease of 45 percent (Fig.1). From 1989/90 through
2005/06, aggregate sugar production in the 27 member states averaged 21.930 million tonnes – this fell
30 percent to 15.264 million tonnes averaged over 2008/09-2010/11 (Fig. 2).
Only Brazil exported more sugar than the EU prior to the reform; but since 2006, annual average
exports fell from 6.528 million tonnes per year from 1989/90 through 2005/06 to 1.663 million tonnes
averaged over 2008/09-2010/11 (Fig.3). As seen in figure 3, the European Union has been a consistent
sugar importer but reform emanating from the WTO panel decision eliminated the EU re-export of
sugar equal to that imported from the ACP countries, about 1.6 million tonnes annually because of the
panel finding that re-exports should be considered as EU subsidized exports.
Immediately prior to reform, out-of-quota production constituted about 13 percent of total beet sugar
production (Fig.4). Post-reform over-quota (2008/09-2009/10) increased to about 20 percent of total
production. Allowed uses for this sugar include unsubsidized exports, sugar carried-forward, sugar for
bio-ethanol, the fermentation industry, and on-farm use (e.g., biogas).  According to beet sugar
production data from Comite Europeen des Fabricants de Sucre (CEFS), French beet sugar production
averaged 4.362 million tonnes in 2008/09-2009/10, about 1.405 million tonnes over quota. For
Germany, beet sugar production averaged 3.923 million tonnes, about 1.025 million tonnes over quota.
EU sugar processing capacity has been much reduced during the reform period. Prior to reform there
were 200 sugarbeet processing facilities and only 102 left at the end of the reform process. Table 6 and
figure 5 show the pre-reform and post-reform slicing capacity distribution of processing plants. The
number of low-capacity plants (slicing capacity of less than 5,000 tonnes per day) fell from 70 to 15. In
Poland alone, the number of these factories decreased by 41. Factories within each size category
decreased significantly, including the large capacity facilities (more than 15,000 tonnes per day) from
20 to 14.
One consequence of fewer facilities is an increase in average processing campaign length (Fig. 6). In the
6 years before reform, the campaign length averaged 90 days. The post-reform average for 2008/09-
2009/10 was 113 days, and 125 days for 2009/10 alone. A longer campaign length entails more risk of
sugarbeet deterioration but could also signal more efficient use of factory assets, lowering overall
average processing costs.
Excludes Bulgaria, Romania, and cane sugar quotas.
Table 6 -- EU sugar factories in countries, by daily slicing
capacity, 2004/05 and 2009/10
Country < 5,000t 5,000t<8,000t 8,000<12,000t 12,000t<15,000t >15,000t Total
2004/0 2009/1 2004/0 2009/1 2004/0 2009/1 2004/0 2009/1 2004/0 2009/1 2004/0 2009/1
5 0 5 0 5 0 5 0 5 0 5 0
Austria 0 0 0 0 0 0 3 2 0 0 3 2
Belgium 0 0 2 0 3 1 0 2 1 0 6 3
Denmark 0 0 0 0 2 2 1 0 0 0 3 2
Finland 0 0 2 1 0 0 0 0 0 0 2 1
France 1 1 4 4 11 9 4 5 10 6 30 25
Germany 1 1 6 4 9 6 5 5 5 4 26 20
Greece 1 1 4 2 0 0 0 0 0 0 5 3
Ireland 0 0 2 0 0 0 0 0 0 0 2 0
Italy 0 0 1 0 7 0 9 4 0 0 17 4
ds 0 0 0 0 1 0 2 0 2 2 5 2
Portugal 0 0 1 0 0 0 0 0 0 0 1 0
Spain 2 0 1 1 8 4 0 0 0 0 11 5
Sweden 0 0 0 0 1 0 0 0 1 1 2 1
Kingdom 1 0 1 0 2 2 1 1 1 1 6 4
Total 6 3 24 12 44 24 25 19 20 14 119 72
Republic 9 5 1 1 1 0 0 1 0 0 11 7
Hungary 0 0 4 1 1 0 0 0 0 0 5 1
Latvia 0 0 0 0 0 0 0 0 0 0 0 0
Lithuania 4 1 0 1 0 0 0 0 0 0 4 2
Poland 47 6 9 11 0 0 0 1 0 0 56 18
Slovakia 4 1 1 1 0 0 0 0 0 0 5 2
Slovenia 0 0 0 0 0 0 0 0 0 0 0 0
Total 64 13 15 15 2 0 0 2 0 0 81 30
Bulgaria 1 0 0 0 0 0 0 0 0 0 1 0
Romania 5 4 0 0 0 0 0 0 0 0 5 4
EU-27 76 20 39 27 46 24 25 21 20 14 206 106
Sugar Production Costs after Reform
The 2006 sugar reform was intended to restructure EU sugar industries, leading to significant reductions
of unprofitable production capacity. Reducing about 6.0 million tonnes of inefficient production was
supposed to improve the competitiveness of the EU sugar industry. Although small capacity sugar
factories were eliminated and production in certain high-cost areas was completely abandoned
(Bulgaria, Ireland, Latvia, Portugal, and Slovenia), it is not clear how efficient the remaining producers
and processors are.
An audit of the reform process found that quota abandonment occurred across all productivity
categories.  Many processors in France, Germany, and Poland indicated the main reason for quota
renunciation was the risk of facing a final uncompensated quota cut. The auditors estimated that 2.4
million tonnes of sugar quota renunciation occurred in regions considered by the European Commission
to be the most competitive. The lack of targeting in the 2007 measures was considered to have been
crucial for the failure to retire more quota by the less productive processors. Political concerns about
domestic sugar supplies and the loss of labor in some member states also prevented further cutbacks by
these less productive processors.
One way to measure the effect of reform on current EU sugar productivity and efficiency is examine
costs of sugar production before and after reform. LMC International provides estimates of world sugar
and high fructose syrup (HFS) costs of production.  The data go back to 1979/80 and extend
through 2009/10, with a preliminary forecast for 2010/11. Field, factory, and administrative costs are
detailed for 35 beet producing countries and for 61 cane producing countries. HFS production costs are
presented for 18 countries. Included in the set of data are estimates for most members of the European
Table 7 shows a beet sugar cost of production ranking of EU member states. The lowest cost areas are
in The Netherlands and the United Kingdom – under $525 per tonne. The three largest producing
countries of France, Germany, and Poland are in the intermediate cost set with costs between $525 and
$625. Those EU countries where processors renounced all of their quotas were either high cost ($625 -
$850 per tonne) or very high cost (over $850 per tonne).
Figure 7 shows EU sugar production across cost categories at the beginning and end of the reform
period. The sum of production in countries having “high cost” and “very high cost” shares of production
decreased from 25.1 percent of total production at the beginning of the reform period to 15.9 percent at
the end. Average production in those countries fell from 4.8 million tonnes to 2.4 million tonnes, about
a 49 percent reduction. Low cost countries increased their share of production from 12.2 percent to 13.2
percent. Likewise, medium cost countries increased their share from 62.7 percent to 70.9 percent. Even
so, the low and medium cost countries were producing 1.4 million tonnes less sugar at the end of the
reform period than at the beginning, about a 10 percent decrease.
Figure 8 shows beet sugar production costs in the European Union and in the United States relative to
the world weighted-average cane sugar production costs. EU costs are higher than those in the United
States but costs in both regions have been declining since 2003/04 relative to cane sugar production
costs. Although the most significant EU cost declines started after the reform began, U.S. costs were
declining as well.
Figure 9 shows two weighted-average comparisons of EU and U.S. production costs. The first
comparison weights costs by each year‟s individual member states share of total annual production. This
is termed “EU-Flexible.” The second uses a fixed weighting by averaging shares over the pre-reform
2000/01-2004/05 period (“EU-Fixed”). The difference in the weighting schemes becomes noticeable
after reform with the flexible cost line lying below the fixed cost line. The difference is attributable to a
greater proportion of production occurring in more cost-efficient countries after the reform. There is not
much difference in the pre-reform period because of reduced production variability in all sets of cost
categories prior to quota renunciation. A calculation of average reduced production costs over 2007/08-
2009/10 attributable to the production shift to less costly producers as a result of the reform is about $35
per tonne, or a reduction of overall costs of about 5 percent.
Figure 10 shows EU member states‟ total and cash costs of sugar production, averaged over 2008/09-
2010/11. The cost lines are drawn such that each member state‟s sugar production is represented on the
horizontal axis. The country ordering is from low cost states to progressively higher cost states. The
costs are represented as proportions of the EU reference price. As can be seen, the EU reference price
exceeds the cash costs of production across most of the European Union. Total costs that include land
rent and depreciation are above the reference price for all but about 3 million tonnes of production. This
would indicate that over the longer term, producers may face some cost-cutting as part of their strategy
to stay competitive. Most total costs and practically all cash costs would have been covered under the
old intervention price.
Table 7 -- European Union sugar producing countries, ranking by costs of production
Low cost: under $525 per metric ton 1/
Netherlands, United Kingdom
Medium cost: $525 - $625 per metric ton
Austria, Belgium, Denmark, France, Germany, Poland
High cost: $625 - $850 per metric ton
Czech Republic, Hungary, Ireland, Latvia, Lithuania, Slovakia, Spain, Sweden
Very high cost: over $850 per metric ton
Bulgaria, Finland, Greece, Italy, Portugal, Romania
1/ white value, Olympic average (excludes highest and lowest cost years):
Source: LMC International.
Prospects for the Future
In 2010/11 the European Union faced sugar supply shortages due to the low level of imports from the
EBA and EPA countries that export to the EU under preferential agreements. World sugar prices during
this period were strong, actually above reference levels for most of 2010 and the first half of 2011.
These higher world prices were a signal to EBA and EPA countries to divert their exports away from
the European Union to more profitable export destinations. Unlike the situation in the United States
during this time period, EU prices were flat and uncorrelated with world prices.   With price
stability being a highly regarded goal in the European Union, most sugar users had followed custom by
negotiating long term sugar pricing contracts with their suppliers. This arrangement leads to very little
sugar available for spot purchases at higher prices.
The European Commission had to gradually step up measures to counter sugar shortages, from
temporarily eliminating CXL quota import duties in November 2010 to agreeing on further emergency
measures as of March 2011. These measures included an additional 300,000 tonnes increase in
reduced-tariff imports, and a release for food of 500,000 tonnes of out-of-quota production originally
meant for industrial uses. An additional 200,000 tonnes of reduced-duty imports were approved in May
2011. Finally, through reduced-duty tenders over 400,000 tonnes of additional sugar were imported.
Because ending year stocks were expected to be very low in spite of these measures, the Commission
attempted to stimulate increased sugarbeet planting for harvest in 2011/12 and expand imports in an
attempt to bring domestic prices down. 
As examined below, it is likely that world sugar prices will remain higher than in the past when the
original reform measures were being considered. Short-term measures such as those made in response to
the 2010/11 high-price are probably too ad hoc to serve as a model for EU policy planning over the long
term. Several perspectives about the factors affecting sugar policy and possible reform are examined
Implications of the OECD/FAO Sugar Baseline Projections for the EU
The Organization for Economic Co-operation and Development (OECD), in partnership with the Food
and Agriculture Organization (FAO), produces world sugar projections of supply and use for major
producing and consuming countries, and prices through 2021.  The OECD forecasts a 30 percent
growth in world sugar production, about 48 million tonnes, through 2020/21. The sugarcane crop in
Brazil is forecast to grow to 1.0 billion tonnes in 2020/21 but with an increasing share being allocated to
ethanol production at the expense of sugar. World sugar consumption is projected to grow at an average
2.2 percent annual rate through 2020/21. Government policies that intervene in sugar markets are
assumed to continue. The Indian production cycle and government policies are the main source
contributing to an expected continuation of world sugar price variability. The world stocks-to-use ratio
is expected to average lower through 2020/21 than in the previous decade. The lower ratio supports
higher real sugar prices through 2020/21 than seen in the previous decade.
Figure 12 shows world sugar prices (contract 407, LIFFE, Oct/Sept nearby averages) from 2000 through
the first half of 2011, and also shows the OECD projections from 2011/12 through 2020/21. The
average OECD projected price is $518.5 per tonne, 48 percent higher than the $349.5 per tonne average
from the earlier period. The figure shows future price volatility, with a low of $464.1 per tonne in
2012/13 and a high of $608.7 per tonne in 2015/16.
Figure 13 draws some implications for the European Union at different euro-dollar exchange rates. The
figure charts the OECD world price against reference price levels denominated in dollars. The OECD
assumed a constant rate of $1.39 per euro. The figure shows the dollar reference price for a 10 percent
euro appreciation (top line = $617.8 per tonne) and for a 10 percent depreciation (bottom line = $505.5
per tonne). Low prices are expected in 2012/13 and 2013/14 that make a case for retaining the quota
system during the period in which quota is being debated. Higher-than-average prices are forecast for
the following three years, probably producing a situation like that in 2010/11 where imports are hard to
attract. An appreciated euro relative to the dollar would ease the potential supply-use imbalance. A
steady-state world price of $507 per tonne is forecast for the last 4 years of the projection period, about
the same reference price level for 10-percent relative-to-the-base depreciated euro.
Another implication of the OECD projections is that sugar consumption in Sub-Saharan Africa, where
most EBA and EPA countries are located, is expected to grow at 3.63 percent against Sub-Saharan
production growth of 2.99 percent. EU exports to the world market in 2020/21 that are projected at
3.006 million tonnes are far below their imports projected at 6.895 million tonnes. The European Union
would be in strong competition for the Sub-Saharan African exports unless the euro appreciates above
projected levels. The suggestion is that nimble changes in additional reduced-tariff imports may be
increasingly called upon to keep available supply close to EU demand.
External Factors Affecting EU Sugar
Price volatility deeply concerns EU policy makers as the current CAP has no risk management policies
analogous to those in other developed countries, such as the Average Crop Revenue Election (ACRE)
Program in the United States. Given that the dispersion of world prices for agricultural commodities,
including sugar, has increased significantly in recent years, the next CAP Reform  will likely
address the price volatility issue as its domestic markets are less insulated from international price
movements than under the more restrictive policy regimes of the past. 
Although many factors directly affect world sugar price volatility, EU policymakers focus on volatility
emanating from hard-to-predict oil prices. Petroleum prices affect the EU directly through domestic
ethanol production derived from sugarbeets and through their effect on world sugar price levels and
price volatility. In the EU sugar is processed into ethanol to help meet the EU‟s Renewable Energy
Directive (RED). The RED mandates that 10 percent of transport fuel (in energy terms) must be
comprised of renewable fuel by 2020. It has been estimated that 250,000 acres of sugarbeets are
dedicated to sugar production outside of the sugar quota regime for industrial use producing ethanol.
Returns from sugarbeet production become more variable through oil prices affecting incentives to
Oil price changes affect world sugar prices by influencing trade-offs in producing either sugar or
ethanol in Brazil. Brazil is the largest sugar producer and exporter in the world as well as the second
largest ethanol producer. Both products are derived from sugarcane. When the world price of oil is
high, Brazil has more incentive to produce ethanol and less sugar. Reduced sugar exports contribute to
higher world sugar prices. Conversely, when world oil prices drop, less ethanol is produced and more
sugar is available to the world, thereby lowering the world price.
Added uncertainty comes from the uncompleted Doha Round of WTO trade negotiations. The Doha
Round was intended to focus on market access, either through increased third-country direct access to
the EU market or through lower over-quota tariff rates. If the EU were to declare sugar a “sensitive
product,” then more flexibility in market access could be allowed through negotiation of a TRQ. If
because of such an action, current sugar exporters to the EU under preferential terms were hurt by a new
Doha Round agreement through lower export quantities or prices (“preference erosion”), the EU could
possibly be required to compensate them for their losses.
Internal Factors Affecting EU Sugar: Industry Perspectives
The principal industry stakeholders in future reform of the EU sugar sector are the beet growers, food
processors, confectioners, and industrial processors. The economic interests of each industry segment
are likely to be affected by future reforms; with some favoring the status quo and others seeking
changes that could further affect industry structure in the EU, as well as opportunities for trading
The beet growers‟ association has stated that the 2006 sugar reform led to the closure of a large number
of processing factories, the loss of over 140,000 sugarbeet farmers who ceased cultivating beets, and the
loss of 16,500 jobs in rural areas.  The structure of the industry has changed dramatically as there
are now only seven sugar manufacturers that control 80 percent of sugar production in the EU. There are
currently about 168,000 growers in 18 EU member states with an average of 1,600 growers per factory.
The seven manufacturers have also built or invested in sugar factories in countries with preferential
trade agreements in sugar with the EU and are thus assured of a supply to their factories.
EU sugar beet growers and processors agree that the 2006 sugar reform has been successful in
increasing the efficiency of EU sugar production and improving the competitiveness of the EU sugar
industry  ,  . However, they also point out that a stable EU domestic sugar market is a major
objective and that supply control remains important in this respect. They insist on keeping the tools to
manage the EU‟s sugar import needs, but at the same time they want to maintain access to exports in
cases where a good crop and favorable world market conditions offer potential for profitable EU sugar
exports, especially for out-of-quota sugar. More importantly, the growers are aware that much of the
EU sugar exports are in the form of confectioner‟s exports that contain a high percentage of sugar and
must compete on world markets and could require export subsidies to compete, albeit within WTO
restrictions. They point out that sugar has traditionally been subject to above-average price volatility and
that Brazil‟s sugar or ethanol choice could destabilize markets quickly. They state that they are in favor
of maintaining the sugar quota at current levels as a prudent way to stabilize prices.
Confectioners and other sugar users would benefit if the price of EU sugar goes down substantially as
the EU sugar price has traditionally been higher than world prices and would certainly favor abolishing
the sugar quota and allow production to go to the least cost producers.  They must compete in world
markets where low-cost producers provide difficult competition if export subsidies are not available.
Hence, their stated preference is that the EU sugar price decline to world price levels.
Industrial sugar users benefitted from the EU quota system through access to lower-priced out-of-quota
sugar and it‟s expected they would benefit by retaining the current quota system.
Internal Factors Affecting EU Sugar: European Parliament and Budget
In previous CAP reforms the principal EU institutions that determined the outcome were the EU
Commission, appointed by the EU heads of state, and the Council of Agriculture Ministers, appointed
by the member states. When the Lisbon Treaty entered into force in 2009, the members of the European
Parliament (EP) were granted co-decision powers with the Council of Ministers on agricultural matters,
including the CAP. The inclusion of the EP in a co-decision role with the Council is intended to help
bridge the “democratic deficit” in the EU.
Whether the change in the EU governance structure for agricultural policy makes further reform more or
less likely remains to be seen. However, the 18 member States that produce sugar have a clear majority
of votes in the Parliament (647 votes of a total of 736) as well as in the Council of Ministers (239 of 345
For the first time in the history of the CAP, a decline in CAP spending in real terms has been proposed
by the EU Commission. This was done with the background of financial crisis in many member states
that has resulted in severe austerity measures imposed by several governments, even those such as
Germany that is not under fiscal duress. It is estimated that the 2014-2020 CAP would amount to
€371.72 billion compared to the current 2007-2013 amount of €416 billion.  Any reform that would
incur high compensation costs, buy-outs, export subsidies, storage costs, and the costs associated with
the likely enlargement of the EU to include Croatia and Serbia  would incur careful scrutiny. While
the CAP would remain a priority in the EU and the only policy carried out and paid for in common by
all 27 member states, the EU budget itself will have less agriculture than ever before despite being the
largest single budget item. Justification of the CAP to EU taxpayers in difficult financial times will be
an issue in the discussion on the CAP reform of 2013, including for the future sugar regime, with our
without the continuation of the sugar quota system.
The 2006 EU sugar reform produced many changes. Production declined significantly and the EU
became a major net sugar importer, reversing its status of being one of the largest net exporters. Out-of-
quota sugar production gained new importance, especially for bio-ethanol and fermentation industries.
Much sugarbeet processing capacity was reduced and completely eliminated in certain member states.
Nonetheless, reduced production quota occurred across all productivity categories with aggregate EU
sugar production costs decreasing only about 5 percent more than what would have occurred otherwise.
Although remaining trade restrictions unaffected by the reform provide protection to EU sugar
producers, internal EU prices could not attract preferential imports to meet demand when world sugar
prices became high. A stable set of domestic prices much favored by EU sugar users do not seem now
compatible with an increased reliance on imports. Looking ahead, the value of the Euro and increased
demand from emerging market economies will likely have strong effects on EU sugar markets that
policymakers cannot afford to ignore.
On October 12, 2011, the European Commission published its proposals  for the CAP reform
scheduled for implementation from January 1, 2014. The proposals are subject to approval by both the
Council of Ministers and the European Parliament. Initial analysis of the proposals suggests that the
reform would largely imply a refinement of the measures introduced by the 2008 CAP Health Check
rather than a radical departure from the current arrangements. The major focus of the up-coming CAP
reform will be on justifying what agriculture is contributing to EU citizens through mitigation of green
house gasses, enhancing the environment, provision of healthy food at reasonable prices, and creation of
jobs in rural areas. Sugar used to produce ethanol will be useful in this endeavor since green house
gasses can be reduced significantly using sugar converted into ethanol. However, the budgetary
restrictions over the 2014-2020 period will limit what can be paid out to the various factions within EU
agriculture and this will define what can be reformed and to what degree. The proposed abolition of the
milk quotas in 2015 is a major undertaking and is another indication that the EU is looking to be more
competitive in world markets.
The Commission‟s proposals are already being criticized for not offering sufficient tools for addressing
price volatility and sugar will be highlighted in this debate as its price is among the most volatile of EU
crops. Because the EU‟s sugar reform has caused supply shortages and increased price volatility, EU
analysts are warning other countries not to rely on the global market for a dependable supply. 
Other EU and world crops have also faced unusual and historic price volatility the last few years that
calls for risk insurance have become more frequent in the EU. This could entail additional costs to the
budget in some form of risk insurance within the CAP.
As mentioned, the sugar reform of 2006-2009 did not always transfer quota to the least cost producers
and this issue will likely be addressed in the context of the 2014 reform. The EU Commission‟s
proposal, which includes abolishing all sugar quotas in 2015, will clearly address this, even if some
mitigating measures may be decided in the final reform agreement. This liberalization proposal for the
sugar regime is likely acceptable to processors, exporters, and consumers as long as supply is sufficient
and prices are less volatile. The EU Commission has proposed that higher storage provisions would be
part of a package to address the sugar shortages that occurred in the 2009/10 marketing year. The major
sugar manufacturers that have invested in the countries that have preferential treatment in the EU
market would be able to provide a sufficient supply of sugar to the EU‟s internal market both
domestically and with raw sugar from abroad.
Another consideration that could affect the EU‟s sugar market in the long run is the likely enlargement
of the EU to include Croatia and Serbia. While neither are large sugar beet producers -- Serbia around
three million tons and Croatia about two million tons -- both are net sugar importers. However, they
have been granted loans to improve their sugar infrastructure and could become more efficient
producers that could add to greater self sufficiency in EU sugar production in an EU of 30 member
states  .
Internationally, the role of Brazil will have to be carefully monitored in both sugar and ethanol exports
as it is the major producer and exporter of sugar in the world and a major producer and exporter of
ethanol made from sugar cane. The EU‟s approach to the sugar regime also takes into account the
current WTO restrictions on support, export subsidies, and market access as well as the most likely
future disciplines imposed by a possible agreement in the multilateral negotiations in the Doha Round.
In the final analysis it is most likely that the EU will produce more sugar domestically and increase
storage levels in part to reduce price volatility and ensure a consistent supply of sugar to the domestic
market. The additional sugar produced will most likely be produced in least cost regions of the EU
which would allow the EU to reduce its safety net price. The ability of the EBA countries to supply
sugar at the lower EU price could also expand as the seven EU manufacturers of EU sugar continue
their expansion into the EBA countries and reduce costs with new facilities that produce raw sugar.
Reform of the sugar program along these lines would thus be compatible with the Commission‟s
announced budget restrictions and vision for a more competitive sector; congruent with the European
Parliament‟s interest in maintaining the capacity for production of sugar for food and energy uses and
sugar-containing products in the EU; and consistent with current and potential WTO rules.
The EU could then become a contributor to slightly more sugar price stability as it produces more sugar
by shifting the quotas from higher cost to lower cost producers and allowing high cost producers to exit
the industry and encouraging low cost producers to increase production by abolishing quotas. Higher
storage payments would also allow producers to hold more stocks until market conditions improve
(higher prices) domestically or on the global market. Effective risk insurance policies against production
losses and low prices is another policy instrument that is being advocated by growers and processors
alike and would be another means to ameliorate farm income losses and provide additional security to
Appendix -- 2006 EU Sugar and Sweetener Policy Reform
The principal factors underlying the reform of the sugar program in 2006 were threefold. First, the CAP
reforms of 2003/04 (that left sugar as the only major commodity unreformed) provided a mechanism to
compensate farmers for income losses due to reform measures. The CAP reforms were designed to
move support from the main EU commodities directly to farmers through direct payments. The core
reform concept was the Single Payment Scheme that provided for payments to farmers independent of
the level of production. The idea was to make farmers‟ production decisions more responsive to market
signals instead of policy interventions.  Although there were provisions for exceptions, payments
were to be made without requirements for the production of any specific crop, only a minimum
requirement to maintain the land in good agricultural condition. The level of direct support was tied to
commodity-based payments made in 2000-02.
The second factor was the World Trade Organization (WTO) Panel ruling that found the EU sugar
regime in violation of WTO export commitments. The Panel held that the EU‟s re-exporting of 1.6
million tonnes of sugar imported from the African, Caribbean, and Pacific (ACP) countries must be
counted against the EU‟s export subsidy commitments made as part of the Uruguay Round Agreement
on Agriculture (URAA). The WTO Panel also ruled that the EU‟s export of over-quota sugar production
(or C-sugar) was cross-subsidized by the high guaranteed prices for A- and B-quota sugar and therefore
should be counted in the URAA export subsidy commitments. At the time of the ruling, these
commitments limited annual EU subsidized sugar export sales to the lesser of a volume binding of 1.254
million tonnes or a value binding of €499 million. (With EU enlargement, these bindings were increased
to 1.374 million tonnes (volume) and € 513 million (value).) Without a substantial reduction in support
pricing, foregone exports forced back onto the domestic market would undermine sugar program
The third factor was the “Everything But Arms” (EBA) agreement, in which the EU agreed to phase out
tariffs by 2009 on imported raw sugar from 48 of the least developed countries (LDC). The EBA
agreement provided for the duty free entry of raw sugar imports into the EU by 2009. Without reform,
high guaranteed sugar prices in the EU would likely attract very large quantities of duty-free EBA
imports that would cause the high-price EU sugar regime to be undermined. By reducing EU support
prices by 36 percent, there would be fewer EBA imports in the EU internal market and this would allow
EU producers to be more competitive.
These factors led to the EU Commission‟s June 2005 proposal to drastically reform the sugar regime.
Intra-EU discussions led to a revised set of proposals in November 2005. The legislative proposals were
designed to incorporate the new sugar regime with the recent reforms of the CAP and to meet its
international obligations. The basic features of the proposal were:
Sugar support price to be reduced by 36 percent from €631.9 to €404.4 per tonne over a 4-year
phase-in period beginning in 2006/07.
Minimum sugarbeet price to be reduced by 39.5 percent to €26.3/tonne over the phase-in period.
Sugar production quotas not to be reduced except through a voluntary 4-year restructuring
program where quota could be sold and retired.
Member states allowed to buy some additional quota. The intention was to move some
production from inefficient producers to efficient producers.
Restructuring to be financed by quota levies on producers and processors who do not sell quota.
Compensation to be made available to farmers at an average of 64.2 percent of the revenue lost
due to the price cuts. The aid is included in the Single Farm Payment and is linked to payments
for compliance with environmental and land management standards.
Establishment of a prohibitive super levy to be applied to unallocated over-quota production.
Other features essential to the proposed reform included phasing out of sugar intervention; merging A
and B quotas and eliminating over-quota sugar exports; elimination of re-exports of sugar imported
under preferential terms; institution of storage and carryover schemes; provision of compensatory funds
to assist high-cost developing countries with diversification or reconversion aid for loss of sugar export
revenue; and an increase in the EU isoglucose quota. 
The phasing-in of reform did not initially meet its intended goal of reducing the sugar quota, leading EU
policymakers to rework the reform for the next year.  Nonetheless, final quotas in 2009/10 were
much lower than at the start of the reform. Table 1 shows the EU production quota transition for sugar
and table 2 shows the transition for isoglucose and inulin syrup. The transition is marked by substantial
quota renunciation and also by additional quota purchased, especially by those countries where
proportionally fewer quotas were renounced. Sugar quotas decrease 24 percent from initial levels to
13.337 million tonnes (figure A-1); isoglucose quotas expanded 20.3 percent to 690,441 tonnes; and
inulin quotas fell to zero.
The EU sugar reform, with its much lower support prices, had a significant impact on the relationship
between the European Union and the African, Caribbean, and Pacific (ACP) countries under the ACP
Sugar Protocol.  Under this agreement dating back to 1975, 77 ACP countries had preferential
access into the EU market at guaranteed prices much higher than world prices. Within the framework,
ACP countries exported about 1.3 million tonnes of sugar to the European Union annually on an
individual quota basis. Many ACP sugar producers would become uncompetitive at the new EU
reference price for sugar.
The European Union withdrew from the Protocol in September 2007. The framework‟s guaranteed
prices and quantities were now inconsistent with new sugar reforms and intervention buying from ACP
countries was being phased out as an integral part of the reform.  Also, WTO special exemption
waivers that permitted the discriminatory access of ACP sugar into the European Union were to expire
at the end of 2007.
The ACP Protocol arrangement is being replaced by WTO compatible Economic Partnership
Agreements (EPAs).  These EPAs are regional trade agreements meant to integrate ACP countries
into the world economy. Although not all EPAs have been fully negotiated, interim EPAs have been
established to cover sugar access into the European Union. There is a three-step transition period. The
first step covered January 1, 2008 through September 30, 2009 that guaranteed prices and allowed for
quotas. The second period lasts from October 1, 2009 through September 30, 2015. During this period,
ACP countries have duty free access but with an automatic volume safeguard clause (discussed earlier
in this report – meant to guard against import surges into the EU). The third stage will be initiated on
October 1, 2015, at which time all imports are duty- and quota-free, with a weaker safeguard provision.
 The EU‟s decision-making process involves three institutions: the European Parliament, the Council
of the European Union, and the European Commission. The Commission drafts proposals for new laws
and manages day-to-day business of implementing EU policies. There are 27 Commissioners from each
of the 27 Member States. For additional information, see: http://europa.eu/about-eu/institutions-
 The Single Payment Scheme was the central element of the June 2003 CAP reform. See:
 The proposals for the CAP after 2013 are at http://ec.europa.eu/agriculture/cap-post-2013/legal-
 Previously processors could sell a standard quality sugar to national intervention agencies at the
intervention price. This measure provided a minimum wholesale sugar price in the European Union.
 See Appendix I for a discussion of the 2006 sugar reform and its effect on preferential access to
African, Caribbean, and Pacific (ACP) countries defined under the Protocol.
 See FAS GAIN report E60026 “Industrial uses of sugar from sugar beet increasing in the EU,” April 2011,
 European Court of Auditors. Has the Reform of the Sugar Market Achieved Its Main Objectives?
Special Report No. 6, 2010. www.eca.europa.eu
 www.lmc.co.uk , See also: “World Sugar and High Fructose Syrup Production Costs: 2000/01-
2009/10,” in Sugar and Sweetener Outlook, April 2011.
 The margin between U.S. and world prices has been variable, depending on expectations of supply to
meet consumption requirements. In 2009/10, the United States imported more than 188,000 tonnes of
sugar at the high-tier tariff to satisfy domestic needs.
 Figure 11 shows the evolution of EU sugar prices since the reform process started. During the phase-
in period, EU prices were close to reference levels. Although the average EU white sugar price showed
some downward movement when the reference price fell to € 404.4 per tonne, prices have since
remained above the reference price by about 20 percent – averaging € 484.1 per tonne through January
2011. These higher prices, however, were insufficiently high to attract the needed imports.
 On March 24, 2011, the EU set out measures which would provide a predictable framework for the
EU sugar sector in the 2011/12 season. The package includes: a quantitative limit for exports of out-of-
quota sugar (650,000 tonnes) and isoglucose (50,000 tonnes), with export certificates valid 1 year from
January 2012; the opening of an import quota of 400,000 tonnes for industrial sugar; and a provision for
expansion of the foregoing quantities once more precise estimates of production and available supply
 The OECD-FAO Agricultural Outlook, 2011-2020 (June 2011) and OECD-FAO Agricultural
Outlook: Sugar Market Outlook (April 2011).
 The proposals for the CAP after 2013 are at http://ec.europa.eu/agriculture/cap-post-2013/legal-
 For more on factors affecting world sugar price variability, see:
www.ers.usda.gov/AmberWaves/September10/Features/WorldSugarPrice.htm . This article concludes
that Brazilian sugar costs of production measured in U.S. dollars and production cycles in Asia most
directly affect world sugar pricing and volatility. In turn, changes in Brazilian production costs are
associated mostly with changes in the Brazilian real – U.S. Dollar exchange rate.
 CIBE.- http://www.cibe-europe.eu/Press/107-2010CIBE_Contribution_CAP_after_2013.pdf
 CIBE.- http://www.cibe-europe.eu/Press/010-11CIBE_2nd_contribution_CAP_after_2013.pdf
 CEFS - http://www.comitesucre.org/userfiles/CEFS%20position%20on%20the%20EU%20sugar%20regime%20after%202014-
 CIUS - CIUS Position Statement on the Sugar Regime post-2015 (July 2010).
 A Budget for Europe 2020 - http://europa.eu/press_room/pdf/a_budget_for_europe_2020_en.pdf
 Currently, Serbia has not yet secured EU candidate status.
 The proposals for the CAP after 2013 are at http://ec.europa.eu/agriculture/cap-post-2013/legal-
“Analysts: Europe‟s sugar reform program leads to sugar shakeup” by Jerry Hagstrom, Special to
Agweek August 16, 2011.
 As of 2011, Croatia, Iceland, The Former Yugoslav Republic Of Macedonia, Montenegro and
Turkey have received EU candidate status. The remaining countries of the former Yugoslav Republic,
including Serbia, and Albania have potential candidate status.
 See: Kelch, David and Mary Anne Normile, CAP Reform of 2003-04. Electronic Outlook Report,
Economic Research Service, WRS-04-07, August 2004,
Isoglucose is the EU term for High Fructose Syrup.
 The EU sugar reform is contained in Regs 318/2006, 319/2006 and 320/2006. Sugar sector
restructuring rules were changed in the next year after too few quotas were renounced in the first year
(Council Reg 1261/2007 and Commission Reg 1264/2007). This change included a possibility for
farmers to give up quota directly through more lucrative buy-outs than before and also introduced the
possibility that the Commission would unilaterally cut quota across-the-board in 2010 if not enough
quotas had been renounced. See: http://www.fas.usda.gov/gainfiles/200709/146292554.pdf and “EU
Sugar Reform” in http://www.ers.usda.gov/Publications/SSS/2008/SSS251.pdf
 See: FAS GAIN E49042 report entitled “Impact of the EU sugar reform on sugar exporters from
ACP and LDCs,” at http://www.fas.usda.gov/gainfiles/200905/146347799.pdf
 The sugar reform had a compensation chapter worth €1.2 billion for ACP countries under
 See: http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/regions/africa-caribbean-