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11.11.2010 Studies
 
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  • Has the reform of the sugar market achieved its main objectives?

Has the reform of the sugar market achieved its main objectives?

European Court of Auditors, Special Report No 6/2010

Background

The main features of the reform were 1) a reduction in production quotas by 6 million tonnes, around 30 % of total quota production, by September 2010; 2) gradual reductions in the prices per tonne of sugar and sugar beet, the latter reductions being partly compensated via direct payments to growers; 3) a temporary restructuring fund, financed via a contribution paid by producers on their quota, totalling 6,2 billion euro.

Findings in the summary

‘overall the reform process did not fully ensure the future competitiveness of the EU sugar industry via a selective reduction of unprofitable production capacity. In the first two years o f the reform, the expected level of voluntary y quota renunciations was not achieved. From the third year of the reform, key modifications were made and the overall 6 million tonnes target was largely achieved although a significant portion of quotas was also abandoned by producers that were not in the least competitive regions. Additionally, the measures introduced had limited impact on increasing the competitiveness of individual growers and the current quota system maintains past rigidities and constraints.’

‘Furthermore, no evidence was available to demonstrate that the transitional aid amounting to 150 million euro paid to traditional refiners of cane sugar was based on objective parameters of the effect s of the sugar reform other than a loss of ‘certain benefits’ previously enjoyed by the affected refiners.’

‘there are significant additional related costs, not directly charged to the agricultural section of the budget, for compensating traditional ACP country exporters for their loss of income, which lead to the overall cost of the reform being 1,2 billion euro higher than the average budgetary support before the reform.’

‘Taking these factors into consideration, the Court recommends that: … the Commission proposes measures to remove the rigidities and constraints in the current quota system which affect adversely the competitiveness of growers and producers’

Findings in the main text

50. In terms of sugar industry processing efficiency, the maintenance of rigidities and constraints incorporated into the current quota system, i.e. such as the establishment of quantitative quotas per individual grower in certain Member States, the absence of tradability of quotas and the limited possibilities for their transferability, results in undue rigidity of production capacity and reduces scope for both growers and producers to increase efficiency. The audit confirmed that in some of the audited Member States, quota restrictions hamper the entry of possible new growers and delivery rights of existing growers may not be changed without their consent. This entails significant constraints in the sugar production market.

51. While certain producers attempted to mitigate this constraint through private initiatives, overall these constraints are a limiting factor in the application of the principle of economic sustainability which the impact assessment considered should be improved by ‘moving away from the principle of the apportionment of the production capacity, currently built into the sugar quota regime, towards a more competitive, more market-orientated sector’.

74. The closure of production facilities also entails serious environmental challenges, hence the governing regulations provide that the closure of production facilities is accompanied by appropriate measures to dismantle production facilities and restore the environmental condition of the factory sites. The audit found, however, that there were cases of serious delays and increasing uncertainty as regards the timely compliance of the producers with those nvironmental obligations. In December 2009 the Commission amended the legislation to allow for an extension of the deadlines until September 2011.

Comments

The auditors show some weird concern with self-sufficiency in sugar. See Allan Matthews for more comments.