Panic over reforms unjustified
Panic over reforms unjustified
What will be the shape of future support for sugar beet? Gilly Johnson reports
BEET has been a good earner in recent years, and so its understandable that the industry should have reacted violently against the "Everything But Arms" (EBA) proposal, which threatened to cut "A" quotas by 25-40% in a shake-up of the European trade rules, designed to assist least developed countries.
But the panic is not justified, suggests Robert Gooch, policy analyst with Eurinco. There is change ahead – but it will be phased in gradually. And he believes sugar beet growers will be able to accommodate the shift in direction.
To recap, the EBA treaty reduces duties on imported sugar from 48 least developed countries in stages, going to 50% in 2006, and eliminated completely by 2009. This opens the door to cheap sugar from world markets.
However, the EBA cannot come about without a reform of the EU sugar regime first, a fact which delayed the EBA process. Rather than fret unduly about the EBA, the industry should instead be focusing on the first stage – the reform of the EU sugar regime. This is now timed to happen in 2003, so that it coincides with the next round of CAP reform, says Mr Gooch.
"The French are objecting to this date, and are proposing that reform of the sugar regime is rolled over until 2005, but the commission is resisting. The big question is what will happen with this reform. I think it is inevitable that sugar will be caught up in the overall CAP reform net."
Sugar has escaped so far, because the US also has a highly subsidised sugar system, and does not want to rock the boat. However, the WTO consensus is now that the needs of the less developed countries must be taken into account more, and so the battle lines will be drawn with the subsidised sugar producers of the EU and the US ranged on one side, and the other smaller sugar producing countries on the other.
"I believe the sugar regime will have to be reformed," says Mr Gooch. "But what will be the mechanism for change? Will it follow the model that every other commodity has – that is, some form of compensation to producers, and price cuts? As yet, no-one has addressed this issue."
There are three possible scenarios, he suggests. "One is for the EU to maintain the "A" quota, but keep trimming it back to the level of domestic demand, in order to eliminate subsidised exports completely. So growers might not have as much "A" quota as before, but the price they get for it might in fact go up. However, I suspect this would be unsustainable, because it would depend on consumers being willing to pay higher prices for domestically produced sugar. Furthermore, cheap cane imports would increasingly undermine this market."
The second option is to reduce quota prices over time, and gradually open them up, with growers being eventually allowed to grow as much as they liked.
Scenario three is to have price cuts, with growers given compensation payments. This follows the pattern set in other sectors. The compensation payment should be above the flat arable rate initially. However, the snag with this scenario is that it would put extra pressure on the EU budget, says Mr Gooch. "The sugar regime costs very little at the moment; it is self-supporting, paid for by the co-responsibility levy.
"However, when money has been needed in the past, somehow it has been found," he argues. "Theres no precedent for price cuts without compensation."
For the immediate future, Mr Gooch suggests growers should attempt to maximise profitability from "A" and "B" quota beet. "Tailor husbandry to grow for that quota, keeping "C" beet as small as possible. But then by 2005, of sugar is taken into IACS and payments are based on increased eligible areas, scaled to relate to production or quota held, then it could pay to have as much "C" beet as possible. After all, in 10 years time, it may be that you are growing for a different market – as "C" beet."
There is time for growers to adjust to changing markets, he concludes. "Nothing will happen overnight, and I dont believe we will see reform until 2005."
• Eurincos report on the future for the sugar regime is available from eurinco@farmline.com at £275.