EU Sugar Reform Transferring Billions from Farmers and Taxpayers to Food Processors

After more than a decade of transition, Europe’s sugar policy reform is finally complete, and it is transferring $2.5 billion a year in wealth from farmers and EU taxpayers to food processors, with no discernible benefit to grocery shoppers.

That’s according to Patrick Chatenay, a European sugar market expert from the United Kingdom who spoke at today’s International Sweetener Symposium.

Some critics of America’s no-cost sugar policy point to the EU as a model for change, but Chatenay warns that there are valuable lessons to be considered from Europe’s experience.

“Domestic and foreign subsidies destroy competitive industries,” he said, “Europe is still wrestling with the effects of both and these subsidies are distorting Europe’s market.”

Even after reform, European sugar farmers are still receiving nearly $700 million a year in subsidies to keep production up, and that is fueling some inefficiency, according to Chatenay. He explained that most of these subsidies are going to producers in the least efficient areas, while the most efficient producers are receiving no sugar-specific help and are going out of business.

Meanwhile, Europe is now exposed to the artificially-low sugar prices found on the heavily subsidized world market. Subsidies in Brazil, India, Thailand and elsewhere have generated a glut of surplus sugar that has pushed prices well below average production costs.

That’s imperiling even Europe’s efficient sugar businesses and farms without lowering overall food costs in the region. Plummeting sugar prices are being absorbed by industrial buyers, such as candy and snack companies, without being passed along to EU consumers, Chatenay said.

Europe was forced to overhaul its sugar policies after the World Trade Organization found its use of export subsidies and other programs to be in violation of international trade rules. And the rocky road that Europe experienced transitioning to a liberalized market is also an important consideration, Chatenay told the audience.

“Eighty-three sugar mills were closed, some 150,000 farms gave up growing sugarbeets, and tens of thousands sugar-related jobs were lost with the initial reform,” he said. “The latest reform will increase these losses because of the resulting low-price environment.”

Chatenay’s presentation mirrored a study he published in June about the effects of Europe’s changes.

U.S. sugar producers receive loans that are repaid with interest when their sugar is sold, rather than EU-style direct subsidy payments, and are wary of repeating Europe’s mistakes. They have endorsed a strategy known as the Zero-for-Zero sugar policy, which looks to simultaneously reform subsidies globally instead of unilateral disarmament.