Oxfam Policy Papers - August 02

The Great EU Sugar Scam

How Europe's sugar regime is devastating livelihoods in the developing world

European consumers and taxpayers are paying to destroy livelihoods in developing countries. Under the Common Agricultural Policy (CAP), the EU has emerged as the world's largest exporter of white sugar. Subsidies and tariffs generate vast profits for big sugar processors and large farmers - and vast surpluses that are dumped on world markets. Smallholder farmers and agricultural labourers in poor countries suffer the consequences. Oxfam is calling for an immediate end to EU sugar exports and improved market access for the poorest countries.

Executive summary

Europe's sugar regime "preserves the interests of all the parties concerned. It was deliberately designed to this effect. It must be maintained" - The European Sugar Manufacturers' Association (CEFS)

"Europe's policies…are putting us at a disadvantage. They are rich and could give us a chance to live". - Sugar cane harvester, Mozambique

European consumers and taxpayers are paying to destroy livelihoods in some of the world's poorest countries. Through the sugar regime of the Common Agricultural Policy (CAP), they are paying for a system that rewards a handful of sugar producers in Europe, while undermining markets and opportunities for farmers and agricultural labourers in the developing world. No agricultural sector is in more urgent need of radical reform. Yet sugar is not even included in the European Commission's latest reform proposals.

This briefing paper highlights the EU's sugar regime as one illustration in Oxfam's campaign against the rigged rules and double standards of international trade. Changing these rules and practices is essential to make trade fair and to make globalisation work for poor people.

Nothing more powerfully demonstrates the insanity of the CAP than sugar, or the blatant hypocrisy of Europe in its dealing with developing countries. Under the sugar regime, quotas and high tariffs set Europe's sugar prices at almost three times world market levels. High guaranteed prices result in huge surpluses that are dumped overseas with hefty subsidies. Each year, consumers and taxpayers foot a bill of €1.6bn ($1.57bn). And each year developing countries - many of whom the EU is encouraging to liberalise under IMF-World Bank auspices - suffer the consequences of the resulting unfair trade practices.

Allegations of export dumping are strongly denied by EU policymakers and the sugar industry lobby: they claim that the regime is self-financing. Yet the facts speak for themselves. According to the World Trade Organisation, dumping is said to occur when a company exports a product at a price lower than the price normally charged in its home market. Europe exports sugar at prices around 50 to 65 per cent less than the high prices guaranteed under the CAP - far below European costs of production. This is only made possible by hidden export subsidies, raised through levies on farmers and processors - levies which they can afford because of the high price they receive for their sugar. Rather than being "self-financing", the regime is ultimately paid for by Europe's consumers. These subsidies slip through the net of the World Trade Organisation's rules. During the Uruguay Round agreement, the EU and the US succeeded in writing in the loopholes they needed to allow the continued use of hidden export subsidies to dispose of domestic surpluses on world markets.

The EU likes to justify the sugar regime as an investment in rural development and as an environmental benefit. Such arguments hide the real impacts. As in other areas of the CAP, sugar subsidies are reinforcing the gap between rich and poor farmers, encouraging inefficient resource use, and supporting environmental degradation. Less visible is the social and economic havoc inflicted on farmers in some poor countries, who have not only seen their exports shut out by EU tariffs but also face EU competition in third markets.

So who are the big winners from the EU sugar regime? Top of the league is the sugar processing industry - one of the most monopolistic sectors in Europe. In each of eight EU countries, just one company controls the entire sugar quota. British Sugar, one of those monopolies, effectively receives an annual golden handshake which, according to Oxfam's calculations, is worth around €123 m (£77m) - accounting for over half of the company's profits and equivalent to winning the UK National Lottery's jackpot seven times over. These hefty transfers from the public help British Sugar to maintain a profit margin exceeding 20 per cent, high above the average for the food sector. Europe's sugar farmers - just 4 per cent of all its farmers - also win. Especially large farmers in areas such as East Anglia, the Paris Basin and Lower-Saxony who reap the biggest gains. In the UK the largest sugar beet farms each receive an estimated € 96,000 (£60,000) subsidy each year - ten times the amount of smaller farms.

In a sane world, Europe would be importing its sugar. But thanks to a bewildering array of open and disguised subsidies, the EU, one of the world's highest cost producers of sugar, is the world's biggest exporter of white sugar, accounting for 40 per cent of world exports last year. Britain and France are the ugly sisters of the show: almost one quarter of their production is surplus dumped overseas.

Developing countries are hit by Europe's sugar policies through four channels:

This briefing paper attempts to reveal the insanity of the CAP sugar regime. It shows that EU Commission and sugar industry claims that the regime is 'self-financing' amount to a misinterpretation at best, and a deliberate act of public deception at worst.

Oxfam supports the full reform of the sugar sector but recognises that this is not likely to take place at least until 2006. Therefore, Oxfam is calling for some immediate reforms:

A 25 per cent cut in EU quota production - in order to make possible the following three measures:

In addition, use farmer and processor levies (currently paid on all quota production to subsidise exports) to help fund the costs of eventual full reform facing small-scale EU farmers and the ACP exporters.

Reforms on this scale will inevitably generate adjustment costs in Europe. However, these costs pale into insignificance against the costs currently inflicted by the EU on developing countries. Policy makers in Europe have public policy responsibilities for rural development and the environment. As representatives of one of the world's richest and most powerful trading blocs, they also have responsibilities to developing countries. That includes a responsibility to make globalisation work for the poor - to make trade fair. Maintaining the current sugar regime is a lose-lose scenario that is bad for both Europe and the developing world.