Draft Report on the ADVISORY GROUP ON SUGAR 12th March 2012 CHAIRMAN: Mr MARIHART Item 1: Approval of the agenda and the minutes of the last meeting on 12th December 2012 The agenda and the minutes from the previous meeting on 12th December 2012 were approved. Item 2: Opinion of the Advisory Group on the situation and prospects for the world market for EU sugar exports A representative from ASSUC gave a presentation on the situation on the world market (attached). He looked at the situation in selected sugar producing countries and gave global estimates for production and consumption he expects to see a trade surplus of 3.1 million tonnes of white sugar in 2011/12. He detailed world sugar market futures prices and US domestic raw sugar futures prices and presented the prospects for EU sugar exports, concluding that there appears to be enough sugar on the world market in the short to medium term. Nonetheless, EU exporters will continue to face difficulties due to Proof of Arrival at Destination (PAD) and the WTO restriction and he believes this needs to be addressed. CIUS representative was concerned about the low stocks and stressed the costs involved in importing sugar. In response, the CIBE representative informed stakeholders that CIBE had updated its figures that morning and could confirm that production had been high and would be higher than expected. Combined with the measures taken in December, CIBE believes that for the time being there is sufficient sugar on the market. ESRA s representative said refiners were operating at 60% capacity and facing high premiums. As such he believes refiners are being treated differently (unfairly). CEFS representative reminded stakeholders that all major sugar producing countries have implemented support mechanisms for their domestic industries but continued to export without WTO restrictions. Within this context, she asked the Commission to ensure that the future EU sugar regime was consistent with what other countries do, guaranteeing secure market supplies. The Commission representative asked ASSUC for more information on supplies March 2012 contract deliveries are the second highest on record but what can we conclude from this? Is there a shortage? He also commented on the differences between EU and WMP and said this must make it viable for traders to use swaps. In response, ASSUC said swaps made sense in some countries due to their position on the world market (e.g. Mauritius) whereas in others (e.g. Ethiopia or Sudan) they do not make financial sense. There are various factors to be taken into account, notably inland transport costs. With regards to the delivery of 17,325 lots or 880,000 1
tonnes of raw sugar from the ICE March 2012 futures contract, the sole receiver of which is thought to be Cargill, the representative noted that deliveries were closely watched in the world sugar market as an indicator of demand and possible trade flows. He believes that the trade house taking the delivery expects to find a buyer whereas those making the delivery clearly viewed the market in a different way. Item 3: Presentation by the Commission on the figures for 2010/2011 balance sheet and 2011/2012 and the latest update of the 2011/2012 balance sheet, exchange of views The Commission representative (Mr Golinvaux) presented the latest figures: The EU market price for white sugar has increased from 632 euro/tonne in December 2011 to 683 euro/tonne in January 2012. It is now 604 euro/tonne on London #5. The EU market price for industrial sugar was 380 euro/tonne in January (it has been stable for three months). The EU market price for imports from ACP/LDCs is 710 euro/tonne for white sugar and 465 euro/tonne for raw sugar, down on previous months. The Commission received requests to import 60,000 tonnes from ACP/LDCs in December 2011 and 370,000 tonnes in January and February 2012. Certificates for imports were 800,000 tonnes (up from previous years), 69,000 tonnes below the forecast. 19% of imports from ACP/LDCs came from Mauritius, 18% from Swaziland and 14% from Mozambique. 28% went to the UK, 21% to Germany, 18% to Italy, 13% to Spain and 9% to Portugal. Brazil requested 35,000 tonnes under the CXL quota in January (Cuba, India, Serbia and Croatia made similar requests). Serbia and Croatia also made requests in February. Imports from Brazil fell to 284,000 tonnes at the end of 2011 (twice the amount imported in the same period in the previous year). Overall, imports for the first three months in 2012 were high (more than in the same period in the previous year) with 50% from ACP/LDCs, 28% from Brazil and 16% from the Balkans. EU exports are higher than in previous years. 685,000 tonnes were exported in the first three months in 2012 (about 100,000 tonnes more than in 2011). EU stocks are higher than the same time last year. ASSUC commented on the difficulties in comparing the WMP (FOB prices) with the Commission s prices (bulk white sugar) due to the extra costs which incur between the FOB price and the final price. As a result, when it comes to price reporting, while the Commission mentioned a difference of 200 euro, ASSUC believes this should be 150 euro (to take the FOB costs into account). CEFS representative asked the Commission when it would update the balance sheet because it underestimated the imports from ACP/LDCs by 2 to 300,000 tonnes. CEFS estimates that the end stock will be between 3 and 4 million tonnes (20% of consumption) rather than 2 million tonnes. The Commission representative said the Commission updated the balance sheet on a monthly basis but decided to present January s balance sheet because the changes made last week were minor. The Commission will present the latest figures to the Advisory Group after the next Management Committee. 2
CIUS representative said stakeholders were told there was sufficient sugar on the market in the previous meeting but prices are continuing to rise? CEFS representative explained that manufacturers worked with contracts (not spot prices) which meant prices could change between the time when the contract is signed and the sugar is delivered, i.e. current prices do not reflect the prices agreed in the contracts signed when the market was tight in 2010/2011. She stressed that there was sugar on the market to which CIBE agreed. ESRA reiterated that refiners were operating at 60% capacity. This does not result from a lack of customers but a lack of raw materials to supply customers. The Commission representative then introduced the balance sheet for 2010/2011 (final) and 2011/2012 (forecast) (attached). The COFALEC representative said his members used molasses molasses sales can have an impact on sugar sales but molasses were not accounted for in the figures. Should the Commission not monitor the molasses market? He also asked if the Commission could monitor organic sugar sales; his members find it can be difficult to commit to using organic sugar because they do not know what to expect from the market. The representative of the market unit said the Commission could look into molasses but he was inclined to leave it to the market. When it comes to organic sugar, he outlined the measures available to the Commission to encourage organic sugar production (e.g. promotion and labelling). The representative for environmental non-governmental organisations suggested organic sugar could be addressed in the advisory group on organic farming. A representative for the molasses producers said that the Commission collected some statistics on molasses before the 2006 reforms but had since decided not to (because no duties apply) and his members would be reluctant to revert to the previous system. CEFS asked if the Commission could break down the figures (e.g. imports from ACP/LDCs) and drew attention to the fact that stocks have increased from 1.177 million tonnes in 2009/2010 to 1.921 million tonnes in 2011/2012. This demonstrates that there is no deficit, or risk of a deficit, on the EU market. CIBE said the Commission s production figures were below CIBE s production figures for 2011/2012 and she expected ending stocks to be above 2 million tonnes. She asked how the Commission calculated the ending stocks in the final balance for 2009/10 and 2010/11 and in the forecast balance for 2011/2012 to which the Commission responded. ESRA asked how the Commission converted raw sugar to the refined sugar equivalent to which the Commission replied that he would check the conversion was correct. The CIUS representative asked if there was too much sugar in stocks. The CIBE representative reminded stakeholders that the CIUS position which calls on the Commission to maintain buffer stock levels at high levels was somewhat contradictory. If there is speculation it makes no sense to continue to increase stocks because this will not change the level of prices. CEFS representative seconded the 3
CIBE representative, reminding CIUS of its position from September 2011 which called for a minimum end of season stock level of 1.8 million tonnes of quota sugar (this has been met) to balance the market. Item 4: Information by the Commission on the measures taken on the management of the market for campaign 2011/2012 and exchange of views The Commission representative outlined the market measures which have been taken and said stocks are estimated to be 1.9 million tonnes at the end of the 2011/2012 marketing year. Moreover, Member States were consulted in the Management Committee on 8th March, during which most said there were not too many immediate supply issues and the situation this year is not as bad as last year. Nonetheless, most expect to face problems towards the end of the marketing year. Therefore, the Commission intends to take further measures to add supply to the market from the two sources available import and OOQ sugar. The quantities will be prudent and not made public until the inter-service consultation has finished. He informed stakeholders that the additional supplies would not be free of charge. The Chairman asked the Commission if, when considering new measures, it had taken into account the time the market needed to react to both the changes in prices between when contracts were signed and sugar was delivered, and the measures introduced in December. In particular, he asked DG AGRI to account for the difference between the WMP in 2010/2011 (when current contracts were agreed) and the EU prices now being reported to the Commission. The unit market representative said the Commission believed that the increasing gap between the EU and the WMP is an indication that further supplies are needed. In preparation for the Management Committee on 8th March, the Commission asked MS about spot prices because these responded to the measures introduced more immediately i.e. spot prices did not decrease which suggests the measures did not sufficiently ease the situation on the market. He stressed that the Commission would be cautious; it would use the market instruments available to make small corrections. ESRA said that when the Commission introduced the measures in December it said there would be no more. It then suspended licences. Refiners are asking the Commission to introduce measures which do not give preference to one production method over another. CIUS asked the Commission about the rationale behind the zero levies to which the Commission responded with fairness. CEFS seconded concerns about the levies and asked the Commission to limit exceptional measures to exceptional circumstances. The Commission made it clear that it would not introduce a million tonnes onto the market but aimed to make small corrections at the margins. The Commission could have done more in December due to production uncertainties and uncertainties on imports decided not to and Member States have now agreed, in the light of recent information, to the new measures which main aim is to address availability. CIUS recommended that the Commission used the market instruments available to balance the market in the short term, to ensure users do not continue to face sourcing difficulties, before the current EU sugar regime is reformed in 2015. The unit market representative said the Commission had hoped the measures introduced in December would suffice for the whole marketing year but the 4
Commission could not foresee all eventualities there are various factors which influence the market. The Commission will continue to monitor the market and take measures when necessary. In response, COFALEC noted that certain industries depend on OOQ sugar and asked the Commission to take this into account when it considers transferring out of quota to quota sugar. Item 5: Comments by stakeholders on EU commitments as regards out of quota sugar The Chairman began by asking the Commission to assess whether the WTO ruling on EU export subsidies applied to the current regime. The ASSUC representative gave an overview of the DSB ruling on EC export subsidies (DS 265, 266 and 286), highlighting the implementation measures already taken by the Commission (e.g. changes to the quota system removing the obligation to export surplus sugar, the denunciation of the ACP-EU Sugar Protocol, etc.) to put forward the argument that the limit of 1.374 million tonnes per annum should no longer apply to OOQ sugar exports. He repeated the concerns voiced by CEFS under the second item on the agenda that all major sugar producing countries supported their domestic industries and continued to export without WTO restrictions. The Commission representative said he was unable to comment on the content, given the sensitivity of the issue; the Commission was assessing the situation and would present its results when available. The AAF representative asked the Commission to take isoglucose separately. When AAF discussed the limits with the Commission, it was told they do not apply to the sector. The CEFIC representative said the Commission and the Management Committee should not maintain the market balance he called for a market-based approach. While he realises the chemicals and biofuels industries have not used all the sugar available to them, industries are less inclined to invest based on the current situation. Removing restrictions would attract more bio-based investment to Europe. CIBE commented that the chemical industry should be satisfied with a sugar CMO which offered industrial sugar at price equivalent and even lower than world prices and with duty free access for a quantity which had never been fulfilled. CIBE wondered how CEFIC s request for greater competition between food, export and chemical outlets would improve the chemical industry s situation in the future. CIBE also asked the Commission when it would have more information as regards any legal analysis on the WTO restrictions. CIUS asked the Commission to consider what future measures might be needed to bring the current regime in line with the WTO ruling, for example should the EU remove minimum beet prices? Again, the Commission representative said he could not comment on the content but that the Commission has been considering this for some time and was now in the early stages of its assessment. ASSUC asked the Commission whether it felt there were inconsistencies in its argumentation when it came to ending the quotas will it enable the industry to export freely? In response, the Commission representative made it clear the 5
Commission would analyse the current regime not a future regime which has not been decided on and an eventual abolition of the quota would certainly affect the WTO ruling panel somehow. Item 6: Information by the Commission on the situation on negotiations with: 1) Mercosur The Commission representative told stakeholders that the situation remained the same as in the previous meeting. The Commission now aims to set a date to exchange offers in the summer. CEFS asked if the Commission was aware of a recent press release announcing that Brazil would subsidise its cane-refining industry with $35.4 billion over the next four years. CEFS director asked if the public investments that the Brazilian government were making in cane sugar production were being taken into account in the negotiations. The Commission said discussions were still in the early stages. CIBE requested that the EU does not grant additional market concessions to countries which support domestic production in particular e.g. Mercosur. 2) India and Pakistan With regards to India, the Commission representative said the Commission had hoped for a breakthrough in February but this had not been the case. There will be a ministerial meeting in the summer and the Commission aims to exchange offers before then. India is interested in sugar (as well as rice) and the Commission cannot avoid concessions but it can limit the risks. In relation to Pakistan, a waiver was requested at the WTO which was lifted in February. The Member States and the European Parliament now need to consent to this. A representative for the molasses producers said its members could agree to India s request in relation to molasses. However, it is concerned about the 80,000 tonnes of bio ethanol which has been agreed with Pakistan. CIBE highlighted the contradiction between the Commission s justification for granting market concessions on ethanol to Pakistan (i.e. emergency aid) and the time the concessions lasted. ASSUC asked whether the modest concessions to India would be incorporated into the TRQ or kept separate and therefore be subject to a different management of import licences. With regards to India, the Commission said the details have still to be discussed. Some concessions cannot be avoided and the Commission aims to minimise them. The duty-free imports of 10,000 tonnes of sugar currently granted to India are likely to be integrated in the TRQ. CEFS invited the Commission to exclude sugar from the agreement with India. To which the Commission replied that it was difficult to exclude sugar because a FTA should look at all aspects and, while there are sensitivities on both sides, there was also give and take on both sides. 6
The CEFIC representative said that, when negotiating trade agreements, the Commission must ensure access to all (agricultural and non-agricultural) raw materials. The CEFS representative drew attention to the fact that the Indian and Pakistani markets have been volatile (sometimes the two countries are net exporters, sometimes net importers). As a result, she asked whether it was wise to grant concessions. The Commission took note: It aimed to limit the concessions for this reason and believed the industry would not be too disappointed. Commenting on the relationship between the EU s internal and external policies, ESRA s representative said the refiners wanted fair access to sufficient raw materials. 3) Ukraine The Commission representative said little progress had been made since the last meeting. The negotiations are now entering difficult waters; they are becoming highly political. 4) Canada CIBE asked the Commission to provide an update on negotiations with Canada and rules of origin. CIBE pointed out that the technical discussions on rules of origins may have strong political implications and requested that this be on the agenda of the next Advisory Group on Sugar. Next meeting: Disclaimer "The opinions expressed in this report represent the point of view of the meeting participants from agriculture-related NGOs at Community level. These opinions cannot, under any circumstances, be attributed to the European Commission. Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the information presented here above." 7