Europeans disagree over impact of EU sugar subsidy overhaul
August 10, 2015 |06:30 PM
SANTA ANA PUEBLO, N.M. — A European consultant under contract to American sugar growers and representatives of two European sugar manufacturers disagreed here last week over whether the overhaul of the European sugar program will result in $665 million in subsidies to sugar farmers there, and whether those subsidies will result in production increases that will distort world prices.
Even though the European Union has undertaken a dramatic reform of its Common Agricultural Policy (CAP) to reduce or eliminate the production incentives that resulted in large-scale sugar surpluses and subsidized exports, the EU will still pay sugar farmers $665 million per year after the changes are complete in 2017, Patrick Chatenay wrote in a paper commissioned by the American Sugar Alliance which represents U.S. beet and cane growers.
Chatenay, a former sugar company executive who now runs ProSunergy, a consulting firm in the United Kingdom, presented the paper at the ASA-sponsored International Sweetener Symposium.
“By 2019, estimated total annual decoupled and coupled payments directed to sugar beet and sugarcane amount to $665 million,” Chatenay said here in a speech to present his paper.
Noting that the European Union imports sugar from former European colonies and the poorest countries at low or zero tariffs, but maintains high tariffs on sugar from Brazil and other efficient sugar growing exporters, he added, “The EU sugar market is not and will not be completely open to imports.”
Chatenay explained that since the EU began the process of including sugar in its program of single-farm payments not based on individual crops, the sugar sector in the European Union has shrunk. He noted that sugar production ended in five countries and was cut by more half in five others, resulting in the closure of 83 mills and the loss of 120,000 jobs.
During this time, the European Union shifted from being the world’s second-largest sugar exporter to be the world’s fourth-largest importer, he said.
But Chatenay has calculated that European sugar farmers will get a total of $665 million per year in subsidies and he maintained that, even though most of those payments are not product-specific, the most efficient farmers are likely to continue growing sugar because they have land that is good for it, and because they have made investments in sugar production equipment.
Already growing sugar beets is a thriving industry in Germany, France, the United Kingdom and Poland.
European production is now at 19 million metric tons and the European Commission has forecast that it will stabilize at 17 million metric tons.
But Chatenay maintained that the continuing subsidies will add 1.5 million to 2 million metric tons to EU production, which could further depress already low world prices because “the EU may well return to being a significant net exporter,” he said.
The World Trade Organization has limited EU sugar exports because the subsidized sugar had negative impacts on developing countries’ sales, but the WTO considers the single-farm payments to be non-distorting, and the shift from product-specific subsidies to non-distorting payments would eliminate the WTO restrictions.
Marie-Christine Ribera, director-general of CEFS, the French acronym for the Brussels-based European Association of Sugar Manufacturers, told The Hagstrom Report that Chatenay’s calculations on subsidies and exports are “highly speculative.”
Ribera and Susanne Langguth of Südzucker, AG, a Manheim, Germany-based firm, who both attended the symposium, pointed out that European sugar growers, like other European farmers, are being paid for a wide range of roles they play.
The CAP “provides support to EU farmers whatever arable crop they produce to enhance competitiveness, promote sustainable farming and support growth and jobs including in rural areas,” Ribera said.
“In particular the support takes into account whatever the market does not pay for: the fact that farmers are public good suppliers. They take care of soils, landscape and biodiversity. The EU CAP is solely oriented to farmers, not processors of food chain sectors.”
Ribera noted that “EU sugar manufacturers [beet processors and cane refiners] are not getting any money under the CAP or under the current and future EU sugar program. EU sugar manufacturers will see their sugar program dismantled October 1, 2017. Production quotas and the minimum sugar beet price paid to growers will be fully eliminated.”
Of imports and exports, Ribera said, “The EU sugar market is already so open that it enables sufficient supply whether coming from domestic production or from imports at zero duty. EU tariffs are not preventing the EU market to be properly supplied,” Ribera said.
Langguth added, “EU Sugar manufacturers are preparing as best as possible [for a] highly volatile and unpredictable market in a highly competitive environment. At the same time, other sugar countries around the world including the United States are maintaining or reinforcing their sugar programs generating market distortions.”
Langguth was referring to the U.S sugar program, which allows farmers to forfeit sugar to the government if prices fall below certain levels and get paid for it.
Ribera said in an interview that Brazil is the country that has a major impact on world sugar prices.
“Brazil is the world price-setter, so [their industry] can influence and distort world prices,” Ribera said.
In an interview, Chatenay acknowledged that Brazil plays a far bigger role in distorting world prices than the EU, but said he believes his calculations on European subsidies are accurate and that the money will allow European sugar farmers to increase production.
The ASA last week used Chatenay’s paper as part of its campaign to remind American policymakers that other countries continue to subsidize sugar and distort world markets.
“Europe may be making reforms, but significant subsidies will remain and the EU will continue to distort the global market,” ASA Chief Economist Jack Roney said in a news release.
ASA also said, “While U.S. sugar farmers have some support through tariffs and operating loans, they do not receive government subsidy checks and believe the EU model gives it an unfair advantage.”
Northbridge Communications, ASA’s public relations firm, also highlighted the Chatenay report, in an issue of Farm Policy Facts, a publication financed by ASA and other farm groups that is distributed to congressional offices. ASA maintains that Congress should end the U.S. sugar program only if other countries end their subsidies.
Ribera has long attended the symposium but said she considered ASA’s use of Chatenay’s conclusions to argue that the EU distorts world sugar prices “a little step too far.”
