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Dairy Facts 2016

EU Reaches Deal to Reform Sugar Subsidy Program

Dec 05, 2005

EU Reaches Deal to Reform Sugar Subsidy Program

After the World Trade Organization (WTO) deemed the European Union's (EU) sugar subsidy policy illegal earlier this year, European agriculture ministers agreed to a politically sensitive deal last week that cuts the EU's guaranteed sugar subsidy price by 36% over four years. This agreement could reduce European sugar production by more than a third, as well as turn the EU into a net importer of sugar instead of an exporter.

"We commend the EU for moving toward a more market-oriented sugar program and hope that the United States will shortly follow in its footsteps," said Clay Hough, IDFA senior vice president and general counsel.

The sugar price cut is widely seen as an effort to strengthen the EU's negotiating position at next week's WTO Hong Kong Ministerial, since the EU has been roundly criticized by the global trade community for its high domestic agriculture subsidies. Meanwhile, within the EU, the subsidy reduction faced fierce opposition from several members, including Greece, Poland and Latvia.

Under the terms of the deal, the 36% cut in the price of white sugar paid to producers over four years begins in July 2006 and will run until 2015, when the action will be up for renewal. To compensate for the loss of income, sugar producers would be given, on average, 64.2% of the lost amount through a payment that would be linked to environmental and land management standards, rather than to sugar production. In addition, countries that give up more than half of their production quota will be entitled to receive an additional coupled payment of 30% of the income loss for a maximum of five years. A voluntary restructuring scheme will also be established to provide incentives for less-competitive sugar factories to close their manufacturing facilities.

In addition, the EU deal includes special aid for those African, Caribbean and Pacific countries — known as the ACP nations — that traditionally export sugar to the EU under a preferential arrangement. ACP nations will be eligible for an assistance plan for 2006 initially worth 40 million euros, with long-term aid to be further developed.

Questions about the EU sugar deal or the WTO Hong Kong Ministerial can be directed to Helen Medina at 202/220-3507,

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Posted December 5, 2005

Dairy Delivers