Belgium: EU strikes landmark deal to reform sugar market

The European Union agreed on a major overhaul of its sugar subsidy program Thursday, cutting prices by 36 percent in a landmark deal that the EU said will strengthen its hand in upcoming world trade talks. "I know I'll be in a much better position for the negotiations in December," said EU Agriculture Commissioner Mariann Fischer Boel, referring to the world trade talks in Hong Kong.

She told reporters the agreement reached after three days of arduous talks "complies completely" with World Trade Organization rules and the EU said it would effectively end its dumping of cheap sugar on the world market. However Caribbean producers decried the deal which will phase out their preferential access to Europe's high-price market.

Britain's Farm Minister Margaret Beckett, who chaired the talks, said the decision to overhaul of the EU's 40-year old sugar subsidies marked "a historic day," but acknowledged that implementing the reform would be tough for many countries.

Reform of the sugar sector is a highly sensitive issue and will cause job cuts at refineries and force many farmers to get out of growing sugar beet and sugar cane. There are more than 325,000 sugar beet farmers in the EU. Under the reform, Ireland will be forced to shut down all its sugar beet production due to quota cuts, while Italy will give up half of its production quotas in exchange for millions of euros (dollars) in aid for farmers

Other countries will also have to make deep cuts. Finland will close one of its two refineries, said Finnish Agriculture Minister Juha Korkeaoja. While no vote was taken at the end of the talks, Poland, Greece and Latvia remained vehemently opposed to the compromise, arguing the reform was unfair for their producers.

The EU has come under increasing pressure from its trade rivals to follow through on WTO demands it do away with its protected sugar market pricing system. A successful WTO challenge by Australia, Brazil and Thailand forced the EU into the cuts to its subsidy system.

To persuade nations that opposed the initial reform plan, Beckett and Fischer Boel presented a compromise that boosts compensation to farmers and industry to ease the pain of the cut in prices and quotas. Under the old system, production was supported by generous EU subsidies and import tariffs that guaranteed and inflated price for sugar. That will now be phased out over four years starting in 2006.

Farmers and industry will benefit from a Ђ6 billion (US$7 billion) compensation fund to get out of the sugar business, or to diversify the end use of sugar beets, for such uses as bioethonol for example. EU sugar prices are more than three times higher than the global market rate. Brussels also pays out export subsidies to get millions of tons of sugar a year off its market.

"The dumping of sugar will no longer happen from EU countries as we will no longer be exporting," said Dutch Farm Minister Cees Veerman. He said top world sugar producers like Brazil would benefit most from the reform. The changes will render the EU a net importer of sugar. Most imports will likely come from a group of the poorest African producers, the EU said. They will get tariff and duty free access to the EU's sugar market from 2009, under a separate aid-and-trade deal.

However, other African and Caribbean producers will see their preferred access to EU markets at inflated prices phased out. The EU has offered them Ђ40 million (US$47 million) to help cushion the impact, but Caribbean reaction was furious. Bullen said Caribbean leaders will take the fight to the WTO talks in Hong Kong.

Poverty activists also derided the reform saying it offered meager help to farmers in poorer countries, and would still disadvantage the poorest African producers after 2009. They claimed the reform would set a cap on imports to the EU if they increase by more than 25 percent a year, the AP reports. "Developing countries have been sacrificed," said Luis Morago from Oxfam.

A.M.