Sugar subsidies. Beet a retreat

The European Union scales down its sugar subsidies

IT IS twice as costly to produce sugar from beets, in the temperate climes where these crops take root, than to make it from cane, which grows tall, year-round, in the tropics. And yet the European Union is one of the world's biggest exporters of sugar.

This is possible only because Europe's sugar farmers are as adept at extracting favours from Brussels as they are at extracting sucrose from beet. The EU is obliged to buy sugar from its beet growers at €632 ($768) a tonne, almost three times the world price. Such high prices attract imports from overseas, and encourage overproduction and underconsumption at home. The EU deters imports by raising tariffs, and it clears its sugar mountains by subsidising exports. EU producers have shipped more than 3m tonnes annually in recent years, accounting for about 10% of world exports.

This sugar regime, untouched since 1968, is now ripe for reform. Despite beet growers' angry opposition, the European Commission on June 22nd unveiled its proposals for a radical overhaul. By 2009, the price it sets for white sugar will be cut by 39%. In partial compensation for their loss, farmers will be given a handout that rewards them for their “respect” for the land, not their output of sugar.

The commission also proposes to pay sugar factories to go out of business. If they quit in the first year of the new regime, they will receive €730 for each tonne of sugar they used to produce. This amount falls in each subsequent year. If factories wait until the fifth year to throw in the towel, they will get nothing.

The proposals must wait until November to secure the approval of ministers, which may not be straightfoward. “The easy option would be to sit on my hands,” admitted Mariann Fischer Boel, the EU's agriculture commissioner. But that is not really an option at all. The World Trade Organisation recently ruled that the EU's subsidised exports of sugar breached legal limits. One way or another, Europe must scale down its sugar industry, either through a painful process of attrition or by inviting the least profitable producers to make a prompt and graceful exit.

Michael Mann, spokesman for Ms Fischer Boel, hopes that America and Japan, both generous sugar daddies in their own right, will now follow the EU's example. The stakes are quite high. In 1999, Brent Borrell, of the Centre for International Economics, an Australian research institution, and David Pearce, now of University College, London, calculated that unhindered and unsubsidised trade in sugar would improve the world's lot by the equivalent of $4.7 billion each year. And according to Donald Mitchell, of the World Bank, net imports by Japan, Europe, America and Indonesia would increase by 15m tonnes a year, creating almost 1m jobs in poor countries. In western Europe, sugar prices would fall by 40%.

But the commission's sugar reform will leave a sour taste in the mouth of 46 African, Caribbean and Pacific-island nations that now enjoy privileged access to the EU's sheltered market. Under the current rules, these countries can sell about 1.3m tonnes of sugar, at a price of €524 a tonne. Under the commission's proposals, this price is due to fall to €303, depriving them of revenues worth about €287m. The commission has earmarked €40m in 2006 to help some of these countries adapt, and may give more once its budget is settled for 2007 and beyond. But this is scant compensation for their loss.

Mr Mitchell reports that the beet industry got started in Europe in the early 1800s only because difficulties in the colonies disrupted the supply of cane sugar. The battle between beet and cane has raged ever since. The Africans, the Caribbean nations and the Pacific islanders are caught in the middle, but the world still has lots to gain from beet's steady retreat.

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