All Commentary
Wednesday, October 18, 2017

The EU Is Still Sweet on Protectionism

Getting rid of sugar quotas was a good first step. However, the European Union now needs to be consequential and eliminate all market distortions.

The European Union has finally put an end to nearly 50-years of quotas on sugar prices. Despite the seemingly good news, the measure is overshadowed by the fact that the EU not only maintains large tariffs on sugar imports, it also recently announced that it will probably continue backdoor-protectionism regardless.

Sugar quotas actually have a long history in Europe.

50 Years of Market Distortion 

Sugar quotas actually have a long history in Europe. Introduced as early as 1968, sugar quotas were instituted to protect European sugar farmers from low prices by setting them considerably above the market price.

In the 1990s the EU decided on a similar solution and substituted the union’s support price for sugar and instituted a direct payment to the farmers. It intended to gain more “market orientation” of sugar producers on the continent. But more “market-oriented” or not, the consumer, after both support prices and large subsidies, still has absolutely no idea what the real price of sugar is.

The end of the EU’s sugar policy came in sight after a negative WTO ruling on a complaint filed by Australia. The WTO agreed that EU import rules for sugar were unfairly giving advantages to local producers.

For consumers, the end of these government quotas is good news. Sugar producers will have to compete with imports from EU free trade partners from all over the world, which will increase choice and price competition in the marketplace.

As to whether or not the prices will fall, this has yet to be seen. In any way, lower prices will incentivize the sugar industry to demand renewed financial help from governments, which is something they already effectively lobbied for.

Many farmers made more money by selling the licenses to make milk abroad than they actually made from producing milk.

But this interference in agriculture by the government is nothing new for the EU.

It Started with Milk

In 1960, the EU’s European Common Agricultural Policy was introduced. This policy, better known under its acronym CAP, organizes the continent’s agricultural subsidies (which in themselves are bad enough) and other programs regulating the industry.

Between 1984 and 2015, for instance, the EEC (and subsequently the EU) put a quota on milk production. This allowed for each member state’s own production, plus one percent.

At first, the European Commission was given a guaranteed price for milk, turning any excess into skimmed milk powder and butter and being put in store. This meant that farmers could produce as much milk as they wanted.

This led the Commission to change course and impose a quota, making any excesses a tradable good. This led to the insane situation in which many farmers made more money by selling the licenses to make milk abroad than they actually made from producing milk.

At the end of the 1990s, the auctioning price for the production of one liter of milk traded at around one dollar. The milk quotas were only abolished as late as 2015.

But as far as sugar is concerned, the EU is not likely to fully remove itself from the equation anytime soon.

The EU Continues to Meddle in the Sugar Business

In a press release distributed by the European Union Commission, it became very clear that the union plans to continue meddling in the sugar business:

Various measures from the Common Agricultural Policy can be used to continue supporting the EU sugar sector to face unexpected disturbances on the market. This includes a substantial EU import tariff (outside preferential trade agreements) and the possibility to give support for private storage and crisis measures that would allow the Commission to take action in case of severe market crisis involving a sharp increase or decrease of market prices. Income support for farmers in the form of direct payments is also available, including the possibility for EU member states to provide so-called voluntary coupled support for sectors in difficulty, including sugar beet production. 

This excerpt loosely translates to: “The WTO busted us on regular protectionist measures, so now we’ll just do it irregularly.”

The European Union now needs to be consequential and eliminate all market distortions.

Several EU members had already gathered financial aid for the sugar beet industry amounting to €174 million prior to the end of the quotas. Strangely, these governments are paying for industry losses that haven’t actually occurred yet. It’s not hard to imagine which industry may have had an interest in convincing them of that.

The EU also continues to put large tariffs on non-EU member states, amounting to €339 per ton on raw cane sugar for refining and €419 per ton on white sugar, while the regular price per ton in Europe is around €500. This prevents imports from most competitive, sugar-producing countries such as Brazil, Thailand, and Australia.

So while many free trade partners might have become more competitive, other countries which did not go through the exasperating process of negotiating a free trade deal with Brussels might be left where they were in the first place.

The hardest aspect for the European taxpayers to digest is not the sugar itself. While supporting sugar farming as a union, many individual member states are simultaneously cracking down on its very consumption.

Countries such as Finland, Hungary or France already impose taxes on sugar-filled products such as soft drinks. In the case of France, this tax raises around €400 million a year. Basically, European countries use tax money to make sugar less expensive, only to use even more tax money to make it more expensive. You’d understand if some European are getting sick to their stomach.

Getting rid of sugar quotas was a good first step. However, the European Union now needs to be consequential and eliminate all market distortions, including those which are irregular payments, in the interests of consumers. It’s time to for the EU to get out of trying to pick winners and losers in the agricultural sector altogether.

  • Bill Wirtz is a Young Voices Advocate and a FEE Eugene S. Thorpe Fellow. His work has been featured in several outlets, including Newsweek, Rare, RealClear, CityAM, Le Monde and Le Figaro. He also works as a Policy Analyst for the Consumer Choice Center.

    Learn more about him at his website