EU case study

11 March 2019

Until 2005, the European Union (EU) operated a protectionist sugar policy as part of the EU’s Common Agricultural Policy (CAP). The sugar regime was the last part of the CAP to be reformed.

EU sugar policy has been largely dismantled in two substantive reforms¹ in 2006 and 2013 which resulted in major restructuring of the industry², cuts in support prices, export restrictions, and elimination of production quotas and most internal controls from 1 October 2017.

At the same time, the EU also adopted a more flexible import policy. Although it still applies high fixed import duties, these have been ameliorated by a series of international agreements including unrestricted duty-free access for African, Caribbean and Pacific (ACP) countries, and Least Developed Countries (LDC) from 2009, semi-preferential ‘CXL’ Tariff-Rate Quotas (TRQs) at reduced duty, and an increasing number of Free Trade Agreements (FTAs) most of which are at zero duty. The net effect of this is that by 2017 preferential import availability to the EU will reach 3.5 million tonnes, of which 2.7 million tonnes will be duty free³.

In addition to this, raw sugar can be imported free of duty, provided it is refined in the EU under customs control and then exported.

The Policy Environment

Following the removal of quotas and most support arrangements from 1 October 2017, the EU sugar sector became substantially deregulated. However, some support measures have remained in place as follows.

Direct support for sugar beet

From 2017 most market measures including quotas and minimum beet prices were abolished, and the majority of production will receive no direct payments. However, some ‘coupled aid’ was agreed for less efficient industries in 11 Member States⁴ paid from national budgets, which provides a beet price top-up averaging about €5/tonne of beet for a designated crop area up to 2019. Although notified to the World Trade Organisation (WTO) as not trade distorting (‘blue box’), this nevertheless represents a direct subsidy for one-quarter of EU sugar production worth about €180m/year. Coupled aid is not available for the more efficient European sugar industries, including the UK’s.

Import protection

Despite the substantial increase in preferential import access, the EU will still maintain its high fixed import duties for non-preferential imports.

General agricultural support

In the 2013 CAP reform agreement, the majority of farm support was switched to decoupled (i.e. delinked from production) area payments under the ‘basic payment scheme’. As an arable crop sugar beet also qualifies for this area payment, worth about €250/hectare up to 2019. Although decoupled aid does not affect crop selection decisions, it is a substantial farm income support subsidy which also benefits beet growers.

Crisis measures

As part of the 2013 CAP reform, ‘market disturbance’ measures were included in the final regulations allowing the Commission to propose market interventions in the event of market failures or crises. These measures, which are not sector-specific, include general provisions and private storage aid⁵. Although neither has been used for sugar, they are available and could be used after 2017.

Bioethanol

The EU has agreed to Directives⁶ which set a mandatory Member State target level of 10% (of which 7% can be derived from crop sources) for the use of renewable energy in transport fuel by 2020. This mandate is proposed to be cut by 3.8% by 2030. Beet-based bioethanol is one of the products which can be used, and was included in the latest CAP legislation for this purpose⁷, although no specific sub-targets have been agreed.

Our Analysis

From 1 October 2017, the EU’s sugar sector became substantially deregulated. General measures will be available to respond to market crises, but these have not yet been used in the sugar sector.

Area payments are available for arable crops, including sugar beet, which are delivered for production. Direct ‘coupled’ support has also been agreed for some less efficient industries, which is capped by area and budget.

Although fixed import tariffs remain in place, substantial preferential imports have been agreed which by 2018 will total 3.5 million tonnes, of which 2.7 million tonnes will be available duty free.

After reform the EU sugar landscape is liberalised and market led. Imports in the future will be determined by market economics.