Sugar price reform will lead to ruin, warn poorest countries

Some of the world's poorer nations have said they face ruin over reform of the EU's multibillion-euro sugar subsidies, despite new concessions offered by the European Commission.

Europe's agriculture ministers were deadlocked last night over far-reaching plans to slash the guaranteed price paid for sugar by 39 per cent. Poor countries that rely on preferential access to European markets said that late concessions from the European Commission to phase in changes would help EU producers rather than them.

The row illustrated the complexity of efforts to reform Europe's farm policy, demonstrating how liberalising global trade can produce economic losers in the Third World and Europe.

Largely unchanged since the 1960s, the EU's sugar sector is one of the last unreformed vestiges of Europe's Common Agricultural Policy and is widely criticised for distorting world trade. Sugar has remained notorious since the EU's price support safety net encouraged a host of countries to enter the market to tap subsidies.

Only four of the EU's 25 states produce no sugar and about 320,000 farmers are involved in growing sugar beet, which is subsidised to the tune of €1.7bn (£1.2bn) each year. Most of this goes on supporting a price nearly three times that on the world market, and on ensuring the EU is also a net exporter of sugar, selling about five million tons outside the bloc, as opposed to its 1.9 million tons of imports.

While those exports hit producers of cane sugar in the Third World, the EU also props up the industries in its former colonies. Many of the so-called African, Caribbean and Pacific group of nations have based much of their economies on preferential access to European markets.

The European agriculture commissioner, Mariann Fischer Boel, yesterday outlined her ambition to see prices fall by 39 per cent, but proposed the measures should be phased in over a four-year period starting in 2006 - rather than the two years originally suggested.

But EU countries including Italy, Spain and Ireland demanded a longer phase-in and more aid for refineries and farmers who will lose their production quotas. Greece, Portugal, Slovenia, Hungary, Lithuania and Latvia demanded further concessions, arguing the reform would destroy their sugar beet sectors, and threatened to block a deal.

A compensation package of about €7.5bn is on offer for farmers and other industry companies to get out of the sector.

Riyad Insanally, Guyana's senior trade adviser on sugar, said Ms Fischer Boel's concessions would help beet producers in Europe rather than cane growers in the Third World. He argued that an immediate cut in subsidies for refining would hit cane producers, since processed beet does not undergo refinement.

He said: "It is going to be awful in Guyana, we are talking about a country of 750,000 people with an income of $1,000 (£580) per head. We face a massive 39 per cent cut, which makes our production commercially unviable. We are asking for a much more gradual cut over a longer period."

In Guyana, sugar supports the social infrastructure of the rural economy, enabling education and health clinics to exist. ACP countries say they stand to lose €300m a year in export earnings and want €100m in financial assistance in 2006 and €500m per annum thereafter to adapt and diversify.

The current EU offer is €40m for 2006 - though countries such as non-ACP sugar-producing nations including Ethiopia and Sudan will receive nothing. Arvin Boolell, Agriculture Minister of Mauritius, warned of the "human tragedy the reform proposals will cause in our countries".