EU to cut supports for prices of sugar

[HenryTo]

A good development for world trade in general and for sugar consumers:
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EU to cut supports
for prices of sugar

Reduction of 36% follows
WTO ruling and may end
two countries' production
By JULIANE VON REPPERT-BIS MARCK and SCOTT MILLER
DOW JONES NEWSWIRES
November 25, 2005; Page A3

BRUSSELS -- The European Union will overhaul its 40-year-old sugar-subsidy program, cutting support prices 36% in a landmark deal demanded by a World Trade Organization court ruling.

The agreement among EU countries is intended to drive down European sugar production by more than a third and transform the EU from a net sugar exporter to an importer, and may end the small sugar industries of two countries, Ireland and Finland. It will still leave the set European price at twice the world market price, down from triple that price today, and compensate producers for income they lose.


The move comes at a time when the EU is under world-wide pressure to reduce its agriculture subsidies, which are widely blamed for contributing to a collapse in global trade negotiations known as the Doha Round. European Agriculture Minister Mariann Fischer Boel said the deal would put the EU in a "much better position" when those talks resume in Hong Kong.

But the effect of the deal will fall unevenly on Europe's trading partners and may complicate Doha talks. Agriculture super-power Brazil, which successfully brought the WTO suit against the EU's current sugar subsidies, stands to benefit from a more open market. But a collection of mostly poorer former European colonies said the cut will hurt them the most because it reduces the preferential treatment they long received and vowed to fight the agreement taking force in Hong Kong.

"We have seen the reform with dismay and anger because no concessions at all have been made to us," said Eastern Caribbean States Ambassador George Bullen, who chairs the interest group of 18 former European colonies in Africa and the Caribbean. "Our only hope is now to fight this in Hong Kong because the deal cannot progress at the expense to our countries."

The countries say the lower price will cost them thousands of jobs, and are demanding compensation to help their economies adjust.

So far the EU has offered the 18 countries the possibility of €40 million, or about $47 million, combined in 2006, and is considering €190 million a year after that.

The EU will impose a levy on its sugar producers that will help pay for a number of programs to compensate farmers for lost earnings from the lower price, and compensate producers who get out of the business or diversify into other alternative products such as bioethanol fuel made from sugar beets. All farmers will be paid for 64.2% of their lost income as long as the new system lasts.

Farmers in countries who cut back their industry by more than half, as Italy plans to do, may be eligible for 100% compensation for five years.

In countries that eliminate the industry completely, other programs may give farmers similar benefits. EU savings from the lower price supports will also help pay for the new benefits.

The changes faced fierce opposition from a handful of EU countries, including Greece, Latvia and Poland. Nonetheless, sugar producers said they could live with the deal because of the compensation scheme.

One Austrian sugar maker, Agrana Beteiligungs AG, said the change may force it to close one of its three Austrian production plants and likely another plant in Eastern Europe. But, the company said it could live with the EU agreement. "Basically we welcome these measures," said Agrana Chief Executive Johann Marihart.

The agreement also is expected to benefit European companies who use sugar in their products such as Nestlé SA and Cadbury Schweppes PLC, who will benefit from a lower price. But the candy industry was dissatisified with the size of the cut. The EU initially proposed a cut of 39%. The smaller cut of 36% "gives us serious concern about the future competitiveness of our industry," said David Zimmer, Secretary General of CAOBISCO, the Association of the Chocolate, Biscuits and Confectionery Industries in the EU.

The deal, reached after three days of negotiations by European agriculture ministers in Brussels, will phase in price cuts over four years starting in 2006. It lasts until 2014, when it will again come up for debate.

"This deal will give the EU sugar sector a viable and competitive future," said Ms. Fischer Boel, the agriculture commissioner. "It offers long-term certainty to the sector and generous assistance to help the process of adjustment."

Brazil was supported by Australia and Thailand in bringing the WTO case against the EU, arguing that Europe's subsidies violate trade agreements. Brazilian diplomats in Brussels and Brasilia said they were still studying the deal.

Write to Juliane von Reppert-Bismarck at juliane.vonreppert@dowjones.com and Scott Miller at scott.miller@wsj.com

[nodoodahs]

"Pork" takes on a whole new meaning when applied to farm subsidies, doesn't it?


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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[HenryTo]

If memory serves me correct, however - on a subsidy per full-time farmer basis, the U.S. government actually doles out more money than the Europeans do.

[HenryTo]

Hello Bill,

Good morning, hope you're enjoying your holidays.

Check this out from the article: "The agreement also is expected to benefit European companies who use sugar in their products such as Nestlé SA and Cadbury Schweppes PLC..."

I am not sure how much of a role sugar prices contribute to their cost structures, however - and any ruling would most probably have been discounted into their stock price awhile ago. In fact, if the ruling is "disappointing" then the reaction of the stock price may actually be a negative one.

Going forward, this looks bullish for developing countries who produce sugar. Like you said, the only thing we need now is for the U.S. to end our own policies. Before that happens, I would not be willing to "invest" in sugar futures.

[nodoodahs]

Well, it's a good thing for sugar consumers outside the U.S. Until the U.S. ends their own policies, we will continue to pay twice the going world rate for sugar and will have "high fructose corn syrup" in our Cokes and Pepsis.

Henry, is this information investable in any way? I'm just curious, are there companies that may benefit or be hurt by this?
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[victor]

In the University I had a brilliant professor who used to say:

"The best of the Common Agricultural Policy is that the day it will finish, it will be a great day"

I cannot agree most.