EU Sugar Regime

The reform of the European Union’s sugar policy requires the earlier EU quota sugar production of about 18 million tonnes to be reduced by approximately 6 million tonnes. However, in 2006|07 and 2007|08, the first two sugar marketing years since the implementation of the reform began, only 2.2 million tonnes of quota were voluntarily surrendered to the restructuring fund, delaying the restructuring process through the 3.8 million tonne shortfall.

In order to counteract the sugar quota overhang in the 2007|08 marketing year resulting from the incomplete restructuring process, the European Commission in February 2007 ordered a preventive withdrawal of up to 13.5% of the quota. In countries where quota had already been returned to the restructuring fund, the percentage was correspondingly lower. For the AGRANA Group, on average, the cut amounted to a reduction of 10.5%.

On 26 September 2007 the Council of Agriculture Ministers, at the proposal of the European Commission, therefore approved sugar policy amendments that are to hasten the restructuring process in the 2008|09 sugar marketing year. This policy reform has significantly strengthened the incentive for beet growers and sugar factories to relinquish quota to the restructuring fund in the 2008|09 sugar marketing year. The key changes brought by the adopted Regulation are:

• Of the total restructuring aid of € 625 per tonne of surrendered quota, the share to be received by sugar companies is now fixed at 90% (€ 562.5 per tonne). They receive this amount if their return of quota is accompanied by a corresponding reduction in capacity. Otherwise, this share is reduced to 35% less a fixed (previously variable) 10% share for farmers.
• If the voluntary quota returned equals or exceeds the amount of the preventive quota reduction made in the 2007|08 marketing year, sugar producers are exempted from also having to pay the restructuring levy of € 173.8 per tonne on the preventive quota withdrawal in the 2007|08 marketing year.
• Beet farmers receive a one-time additional top-up premium of € 237.5 per tonne for the 2008|09 sugar marketing year. Combined with the fixed 10% share of the restructuring levy, this represents a maximum of € 300 per tonne of returned quota for farmers.
• Farmers have the right individually to offer for sale up to a collective 10% of the respective sugar company’s quota to the restructuring fund. These individual returns of quota become void, however, where the sugar company itself surrenders more than this 10% of its quota.
• The quota given up will be partly credited against a possible uncompensated quota reduction (a so-called “final cut”) that will be imposed by the EU in the 2010|11 marketing year if the target of 6 million tonnes is not met by voluntary returns of quota.
• A two-step procedure was used to implement the voluntary surrender of quota for the 2008|09 marketing year: Sugar producers that by 31 January 2008 had returned quota at least equal to the amount of the 2007|08 marketing year’s preventive quota withdrawal were given the opportunity to return, by 31 March 2008, additional quota for the 2008|09 marketing year based on the new information then available regarding the total amount of quota surrendered in the EU. Unlike the first round, there is no exemption from the restructuring levy for quota given back in the second round.

Given the changed environment, 2.6 million tonnes of quota were returned by 31 January 2008 for the 2008|09 sugar marketing year. The EU did not plan a preventive quota withdrawal for the 2008|09 marketing year in spring 2008. In the second wave of returns by the end of March 2008, approximately an additional 0.8 million tonnes of sugar quota were surrendered. AGRANA participated in these two rounds by giving back about 117,000 tonnes of sugar quota for the 2008|09 marketing year. In the EU sugar industry as a whole, approximately another 0.4 million tonnes of quota needs to be returned to meet the reform target. In the event that the surrender target of 6 million tonnes is not reached by the reform’s deadline (until 31 January 2009, quota may still be returned in exchange for the restructuring aid of € 520 per tonne), a mandatory uncompensated quota cut across all EU countries will follow in February 2010. Should no further quota be surrendered, this final cut would amount to approximately 2.8% of the AGRANA Group’s total quota based on present circumstances.