BRUSSELS -- The European Union will cut sugar price supports 36 percent in a deal demanded by a World Trade Organization court ruling.
The agreement among E.U. countries is intended to drive down European sugar production by more than a third and transform the federation 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 the income they lose.
The European Union is under worldwide 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 European Union 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 European Union'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 said they would 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 European Union has offered the 18 countries the possibility of $47 million, combined in 2006, and is considering $223 million a year after that.
The European Union 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 bio-ethanol fuel made from sugar beets. All farmers will be paid for 64.2 percent 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 percent compensation for five years. In countries that eliminate the industry completely, other programs may give farmers similar benefits. E.U. savings from the lower price supports will also help pay for the new benefits.
The changes faced fierce opposition from a handful of E.U. 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 E.U. 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 Nestle SA and Cadbury Schweppes PLC, who will benefit from a lower price. But the candy industry was dissatisfied with the size of the cut. The European Union initially proposed a cut of 39 percent. The smaller cut of 36 percent "gives us serious concern about the future competitiveness of our industry," said David Zimmer, secretary general of the Association of the Chocolate, Biscuits and Confectionery Industries in the European Union.
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.