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Beeting down the prices

Sugar Policy Reform in the European Union and in World Sugar Markets

©M. Bury/CEDUS

Can cutting down on sugar subsidies lead to healthier trade competition and trimmer prices? The 2005 European Union market reforms aim to thin EU farmers’ sugar subsidies and cut out obsolete sugar mills. Sugar Policy Reform in the European Union and in World Sugar Markets maps out how this might work.

The historic volatility of sugar prices matches the spiky history of the commodity. Once reserved for the rich, and equal in value to musk, pearls and spices, today this kitchen staple can be vilified by health enthusiasts just as it is embraced by top chefs. And it has recently found new supporters and detractors because of its role in making biofuels.

Sugar is certainly one of the most policy-distorted of all agricultural commodities, with high levels of protection of national sugar industries in OECD countries dating from the 1950s. So in 2005, when EU ministers agreed to radically reform the Common Market Organisation for sugar, there were mixed reactions from the industry, notably in Europe. The EU is currently the world’s third largest sugar producer, after Brazil and India, and ranks second in sugar consumption just after India. Three major producers–France, Germany and Poland–collectively account for more than half of the EU’s sugar output.

Sugar might not be the most expensive item in a shopping basket, but by maintaining high tariffs on imports, sugar subsidies have jacked the price in these countries up to three times the international market price. This ratchets up prices of other food produce as well. The EU reform will cut domestic support prices by 36%, from 631.9 per tonne today to 404.4 per tonne by 2010. It also calls for reduced quotas and a voluntary restructuring scheme that has already resulted in consolidation and closures of some of the EU’s surplus sugar producers and sugar beet growers. Rory J. Clarke, Alison Benney

ISBN 9789264040205

Forthcoming: OECD (2008), Agricultural Support, Farm Land Values and Sectoral Adjustment: The Implications for Policy Reform.

©OECD Observer No 266 March 2008