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Napoleon's revenge

Posted by Richard Wednesday, June 22, 2005

It has taken since August last, when EU member states were found to be dumping sugar on the world market, in breach of WTO agreements, for the commission to come up with a “reform” plan for the sugar regime, which it has announced today.

The way the commission has gone about its "reform". however, typifies the way the the EU works, and illustrates quite how bad a deal the UK gets out of the system.

To understand this, however, one has to recall why, in the first place the "reform" was necessary. It arose from a case brought to the WTO disputes body by Brazil, Thailand and Australia against the EU, which found that the EU exports up to four times more subsidised sugar each year than allowed under world trade agreements. The total, amounting to five million tonnes each year, was despite the EU's commitment under the Uruguay round of trade talks to reduce its subsidised exports to just over one million tonnes a year.

At the time, Oxfam estimated that the effect of the EU's dumping had been to depress world sugar prices by 23 percent. In 2002 this led to foreign exchange losses of about 494 million dollars for Brazil, 151 million dollars for Thailand, and 60 million dollars each for South Africa and India – that was over £400 million annually stripped from the economies of these countries alone.

But, to talk glibly, about "EU dumping" is entirely to misrepresent the picture. The main culprit was France. With sugar production in the order of 4.5 to 5 million tons per annum, and a relatively stable consumption of around 2.2 million tons, it was France which was responsible for the larger part of the dumping, accounting for 2.5 and 3 million tonnes a year of the four million surplus.

In fact, with the EU-15 producing just over 17 million tonnes in 2003/4, and consuming slightly over 13 million, French over-production accounted for almost the entire EU surplus and, with no ready internal market for it, the only option was dumping on the world market.

But, while France had created the problem, when it comes to a remedy, everyone suffers. Instead of just cutting back the French quota, and restricting the area used for sugar growing, the commission has opted for an across-the-board cut in the price support regime, which cost European taxpayers nearly €1.5 billion in 2003, down 39 percent to €385/t (£258/t), representing a 43 percent drop in the beet price to €25.5/t (£17/t).

By this means, the commission hopes that reduced profitability will work its way through the system and lead to industry restructuring, supposedly encouraging the EU’s least efficient processors to quit. In fact, what will happen is that in France, where the farming support system is much more generous than in the UK, French beet growers will be least affected.

On the other hand, in the UK, which has been ahead of the game in rationalising payments, and shifting support into rural development and environmental schemes, beet growers are likely to take the full brunt of the price cuts and go out of business in their droves – even though British farmers produce less than 1.5 million tonnes annually, accounting for 55 percent of domestic consumption.

Furthermore, the lower support price is still well above the current world price, at $269.40, so there is still an incentive for the likes of France to dump any surplus.

Interestingly, it is Britain which is partially to blame for the size of the French sugar beet industry. In the early 18th Century, France imported most of its sugar from its colonies, but the British naval blockade during the Napoleonic Wars put paid to that. As an emergency response, Napoleon heavily subsidised domestic farmers to grow beet, and a major industry emerged from there, which exists to this day.

In a way, therefore, you could consider this Napoleon's revenge.