Foreign Supplier Profile: European Union

For many years, the EU dumped this surplus sugar, 5-6 million metric tons per year, on the world market—a major cause of chronically depressed world market prices.

After formal complaints by Australia, Brazil, and Thailand, the EU export subsidy program for sugar was found to be illegal by the WTO in 2005.

Because of this decision as well as market access commitments made to least-developed countries and other foreign suppliers, the EU instituted a set of radical reforms, to be phased in from 2006 through 2010.

The reforms call for a number of large-scale changes, including:

• The closure of around one-third of the EU sugar industry’s production capacity, ending with production levels of about 13 million metric tons, down from 22 million prior to the reform;
• Reduction of support prices by more than 35%; replaced, in large part, by direct subsidies to EU sugar growers regardless of whether they produce sugarbeets or not.
• A generous buy-out program for quota-holding EU producers willing to leave the industry and renounce their quota.

Those hardest hit by the reforms were not EU producers, but the so-called ACP group of developing countries relying heavily on preferential access to the EU sugar market, in particular: Barbados, Belize, Guyana, Jamaica, St. Kitts, and Trinidad in the Caribbean region and the Congo, Ivory Coast, Fiji, Madagascar, and Mauritius in Africa and the Pacific. The estimated annual revenue loss to these countries, which export 65% of their sugar production and have a GDP per capita of only about $600 per year, resulting from EU sugar reform is $667 million.

Production, Prices, and Support Remain High

In 2007/2008 the European Union produced 17 million metric tons of sugar per year—twice the level of U.S. production, making it the world's third-largest producer. USDA predicts the EU will produce about 17 million metric tons again in 2008/2009. And it will remain well protected from the highly distorted world dump market by tariffs of 170% plus “special safeguards” that allow for the imposition of additional charges.

Moreover, the new support, or reference, price is set at 26.6 cts./lb, still well above the comparable U.S. support (loan rate) of 22.9 cts./lb. But this price is only a part of the support given to EU producers. Direct subsidies paid to growers bring the effective level of support granted to 36.2 cts./lb and, in countries reducing their production by 50% or more, additional subsidies can bring this effective support level to 40.7 cts./lb—only slightly lower than pre-reform support levels.

Wholesale prices averaged 39 cts./lb in the EU last year—far above U.S. price levels. Retail sugar prices—the prices grocery shoppers pay—are about a third higher in the EU than in America. European consumers pay around 58 cents per pound of sugar, greater than the U.S. retail price at any point in decades.