The European Commission is almost certain to suggest price cuts as the best way to overhaul the EU's much-criticised sugar regime when it fleshes out its reform intentions in July, diplomats said on Monday.
Sugar is the EU's last key farm regime to survive virtually untouched since its launch in the late 1960s. The Commission is now planning a huge shake-up - something critics of the policy have demanded for many years.
Last year, Brussels floated three reform options - to maintain the status quo, to cut internal prices while gradually abandoning national production quotas eligible for subsidy or a complete liberalisation of the regime.
Farm Commissioner Franz Fischler, due to leave office at the end of October, has pledged to say more on his plans for sugar in July. His successor will be left a challenging task as he or she will have to find common ground among 25 EU governments.
Fischler's favoured option is to cut prices, a view he again confirmed last week.
"Keeping the status quo is not on...equally, total liberalisation is not a real option," he said in a speech last week. "A cut in EU production and probably also in prices seems to me unavoidable."
The EU's support system keeps internal prices at more than three times the international market.
"What everyone is expecting is that the old options one and three...will be eliminated," one EU diplomat said. "So we'll be looking at option two."
The price-cutting path would go some way towards mollifying EU critics such as Australia, Brazil and Thailand, which have together filed a suit against EU sugar policy at the World Trade Organisation (WTO). A ruling is expected in September.
The key questions are by how much to reduce internal prices, when to do it and how much compensation to offer.
Even by EU standards, reaching political agreement to cut internal prices will be a long and bitter battle, with thousands of jobs potentially at stake in the bloc's poorer members.
The Commission says that the deeper the price cut, the more countries will see their sugar industries forced to close. Its own analysis suggests a possible cut of up to 40 percent. Greece, Ireland and Italy are most vulnerable to price cuts, Commission studies show. The next to suffer would be Spain, Finland, Latvia, Lithuania, Portugal, Slovakia and Slovenia.
Sugar is one of the most heavily subsidised sectors under the EU's Common Agricultural Policy (CAP), which eats up close to half the EU's annual budget of some 100 billion euros. It was not included in last year's radical CAP reform.
Most EU governments are reluctant to reveal their hands until the result of the WTO dispute against the EU is known.
Several states led by top producer France have already played down the need for reform before mid-2006, when the current regime is due to expire.
Others, such as Britain, say they are still in consultations with their domestic industries. Denmark and Sweden are standing firm on their demands for full liberalisation, while others such as Spain want to keep the status quo.
"This is a phoney war at this stage. We know what people's positions on sugar are," another diplomat said. "It's largely a question of whether the anti-reform states can put it off."
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