2205 final report.pdf - Agra CEAS Consulting

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IMPACT OF THE EU SUGAR REGIME ON BCCCA MEMBER COMPANIES compensate EU producers for these price falls, any compensation provided to ACP countries is likely to result in a significant increase in the cost to the Community budget. However, there would also be a budgetary gain from the fact that there would no longer be any need to provide sugar export subsidies, thereby limiting the impact of these increased costs on the Community budget (Table 5.5). For consumers, the impact on the retail price for sugar and sugar containing products is likely to be similar to that of the ‘price reduction’ option. Likewise, the impact on the environment would generally be positive as described in the ‘price reduction’ option, although the extent of the expected reduction and movement in sugar beet production under this reform option would possibly result in greater benefits. In summary, the ‘liberalisation’ option would lead to a significant and rapid change in EU sugar supply conditions that would potentially have important adverse effects in terms of the regularity and consistency of supply. Nevertheless, this reform option is expected to provide industrial sugar users with the ‘lowest’ price for industrial sugar. In terms of economic welfare, econometric analysis has found that the food industry (which includes the industrial sugar using sector), consumers and the EU budget would be better off under this reform option compared to the current regime 28 (Table 5.6). Table 5.5: Impact assessment of the ‘liberalisation’ option for the EU-25 in 2010-2015 Production Current sugar regime ‘Liberalisation’ option • quota (million tonnes) 17.5 0 • total (million tonnes) 20 6 Import • total (million tonnes) 1.9 10 Export • with refunds (million tonnes) 2.8 0 • total (million tonnes) 5.3 0 Price of EU white sugar (€ per tonne) 725 350 Drop in customs duties 0% - Beet prices • under quota (€ per tonne) 48 - • C sugar (€ per tonne) 17 21 Direct aid (producers) No Yes Fall in ACP revenue (€ million) 350 Net expenditure on sugar (€ million) 1,000 – 1,200 1,150 – 1,350 Member States ceasing or substantially reducing production Source: European Commission - All except perhaps UK, France, Germany, Austria and Poland 28 It should be noted, however, that this measurement of ‘welfare gains’ will not include potential costs for the sector arising from supply disruption. 44
IMPACT OF THE EU SUGAR REGIME ON BCCCA MEMBER COMPANIES Table 5.6: Welfare impacts 1 of the ‘liberalisation’ option Baseline ‘Liberalisation’ option deviation from baseline € million € million % change Agriculture 136,353 -3,315 -2.4% Sugar industry 1,438 -1,410 -98.0% Consumers/food industry 631,234 5,713 0.9% EU budget 45,237 1,043 2.3% General welfare - 2,030 - Source: Witzke, H. P. and Kuhn, A. (2003). Assessing reform options for the Sugar Common Market Organisation - quantitative analyses with interlinked models. http://www.eurocare-bonn.de/profrec/sugar/sugar03r.<strong>pdf</strong> 1 where welfare impacts are measured in terms of changes in activity levels, market balances and income in agriculture and in terms of estimated profit for the sugar industry. Consumer and food industry impacts are equivalent variations in percent of total <strong>final</strong> consumer expenditure. Budgetary impacts are mainly savings in export refunds. 5.2. Conclusions Looking at the impact on the supply of industrial sugar for the sugar using industry, only the complete market ‘liberalisation’ option would lead to a significant and rapid change in EU sugar supply conditions. Analysis suggests that ‘liberalisation’ would lead to a reduction in EU production to around one third of present levels and the EU would become a net importer of sugar from countries with a competitive advantage for sugar production (e.g. Brazil). This would potentially have important adverse effects for the sugar-using sector, as the regularity and consistency of supply may be impacted by weather-induced production fluctuations as well as economic and political problems in these countries. Nevertheless, the complete market ‘liberalisation’ option is expected to provide industrial sugar users with the ‘lowest’ price for industrial sugar, as the internal market price would be allowed to adjust itself to the price of non-preferential imports. This would create a level playing field between the UK and both the EU and non-EU industrial users, with regard to the price of sugar. However, under the ‘liberalisation’ option, there would be a greater risk of price volatility for industrial sugar users as the market will no longer be ‘protected’. Under the ‘price reduction’ option, the UK sugar using sector will also benefit from a reduced price for industrial sugar as tariff protection would diminish and the gap between the internal EU price and the world price would close. However, unlike the ‘liberalisation’ option, the EU market would retain some protection from the volatility of industrial sugar prices on the world market. The UK industrial sugar using sector would have most protection against price volatility on the world market in the two policy options with quotas (i.e. ‘status quo’ and ‘fixed quota’ options). But this would come at a high cost to the sugar using sector. This is because the industrial sugar price will be maintained at a relatively high price level, vis-à-vis the world market price, and production quotas will limit the UK’s ability to expand production, even though it is one of the most cost competitive producers of sugar beet in the EU. With the continuation of production quotas, barriers to entry for 45
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2205 final report.pdf - Agra CEAS Consulting

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