The three sources of change
This section analyses sources of change already agreed or sufficiently certain to allow
conclusions to be drawn. There is at least one other source of potential change: the WTO’s
Doha Round. Were this to result in significant agricultural liberalisation and/or in a change of
the rules affecting the way in which European sugar is supported it could alter the options
available to the EU or the ACP, not least by requiring further change to the measures already
agreed or in prospect. However, the failure of the Hong Kong ministerial to agree the formula
for liberalisation (the ‘modalities’ in the jargon) means that it is not yet possible to determine
whether or not sugar (or any other sensitive product) could be shielded from substantial
liberalisation if there were a deal. Moreover, the Hong Kong failure to make sufficient
progress either on the modalities or on many other important elements of Doha raises serious
doubt over the italicised words. If a package is not agreed by mid-2006, it will be difficult to
get the resulting legislation passed by the US Congress before the President’s fast track
authority expires. Given both the absence of detailed guidance and the distinct possibility
that Doha will not be concluded this decade, the working assumption for the present must be
that it is the changes already agreed or in prospect that will determine the environment for the
ACP. Should this prove to be too pessimistic about Doha, the analysis can always be revised
when the detail is known.
Common Agricultural Policy (CAP) reform
Until recently the sugar sector stayed outside the CAP reform process initiated in 1992. The
pre-existing regime was extended in 2001 until 30 June 2006, but on the proviso that
proposals for reform be submitted by the beginning of 2003.4 In fact, the Commission did not
initially submit proposals as such; rather, it argued that, given the nascent state of sugar
policy reform, it should first initiate a debate within Europe on alternative approaches to
reform. This was done as part of the Commission’s Communication on further CAP reform in
September 2003. Whilst the Commission made specific proposals for the other three crops
included in the Communication (cotton, tobacco and olive oil), for sugar it simply set out four
options for reform together with a summary of an Extended Impact Assessment.
In July 2004 the Commission issued a further Communication which indicated that it had
chosen the option allowing EU market prices (supported by tariffs) to fall to the point where
internal EU consumption is met by EU and preferential supplies. This proposal foresaw the
current intervention price being replaced by a ‘reference price’ which would serve both to
establish the minimum sugar price for producers (and the trigger level for private storage) and
to provide the basis for calculating import protection and the guaranteed price for preferential
imports.
The Communication proposed that the reference price be set at €506 per tonne for 2005/6 and
2006/7 and then cut to €421 per tonne from 2007/8 - a fall of 33 percent from its prevailing
level of €632 per tonne. Implicit in the proposal was that high-cost producers within member
states would exit the market - as would high-cost ACP countries, although their supplies
would be substituted by other ACP states. EU beet farmers would be compensated by an
increase in the single farm payment.
See Chaplin and Matthews 2005 for an authoritative review of the reform process.