Did you know that the EU is the world's second biggest sugar exporter? Though it does not have the right climate for growing cane sugar, since Napoleon's time Europeans have grown sugar beet instead. They do not, however, do this efficiently: the cost of producing a pound of sugar in the EU is more than six-times higher than in Brazil, says Oxfam (see Chart). Subsidising sugar producers is not just economically stupid, it is morally indefensible, too. For Europe's subsidies are not merely a quaint way to keep a few farmers in business. They cause so much sugar to produced that the stuff is exported to poor countries, hurting farmers who might otherwise earn a living by growing it themselves--and perhaps even exporting it to Europe. European subsidies mean that its excess sugar ends up in places such as Algeria, Ghana, Congo and Indonesia, displacing sugar produced in countries such as South Africa and India. Brazil and Thailand are the hardest hit, Oxfam reckons. On its analysis, Brazil loses around $500m a year, and Thailand about $151m, even though these two countries are the most efficient sugar producers in the world. Mozambique will lose $38m in 2004--as much as it spends on agriculture and rural development. The costs to Ethiopia equal the sums it spends on AIDS programmes. The biggest winners, says Oxfam, are large European sugar refiners. France's Beghin Say, it claims, benefits by €236m a year, Germany's Sudzucker by €201m, and Britain's Tate & Lyle by €158m (The Economist).

From the Oxfam Report:

The ‘three legs’ of the CAP (Crazy Agricultural Policy) sugar regime

• Guaranteed prices are applied to a quota of sugar that is determined each year by the EU Commission. In recent years, quotas have been set at around 14 million tonnes. CAP quotas were designed originally to ensure self-sufficiency, building on the principle established by Napoleon. But they evolved to provide price support for a volume of output far in excess of EU consumption. There is a structural surplus of around 1.5 million tonnes now built into the quota system, making this one important source of the EU surplus. The domestic guaranteed price is usually some three or four times above world prices. EU prices fluctuate in dollar terms but are stable in euro terms, providing a haven of stability in a volatile world market. Currently, the guaranteed price paid to sugar processors is around €632/tonne for white sugar, compared with a world market price of €157 tonne.
• Import restrictions are the counterpart to high guaranteed prices. Even with world prices for sugar locked at very low levels, it is impossible for other exporters to enter the EU market. In addition to a fixed tariff, the EU deploys a ‘special safeguard’ that increases as world prices fall, thereby creating a watertight system of protection. Current import duties create a tariff equivalent to around 324 per cent.
• Export subsidies are the obverse of import tariffs. The surplus built into the guaranteed price quota and preferential imports has to be kept off the domestic market, otherwise it would force down guaranteed prices. Europe’s preferred solution is to dump the surplus on world markets. Export subsidies paid to processors and traders bridge the wide gap between domestic and world prices. At present, the EU pays around €525/tonne in export subsidies on quota sugar. In other words, every €1 in export sales generated by sugar costs the EU €3.30 in subsidies. Total export refunds from the EU budget amounted to €1.3bn in 2002.

BTW, all direct and hidden agricultural subsidies paid to EU farmers annually add up to approximately 120 billion euros. This is enough money to fly Europe's 45 million cows around the world on first-class air tickets*.

*taken from Diane Coyle's splendid book Sex, Drugs & Economics.