The European Commission is keen to discourage a flood of sugar flowing into intervention storage to avoid an unmanageable stockpile in the run-up to next year's planned policy reform, officials said on Wednesday.
Initial ideas to curb the amount of sugar in intervention - the EU's system of buying up commodities from traders and producers at a fixed price and storing it for later disposal - will be floated at Thursday's meeting of EU sugar experts.
While the Commission is unlikely to propose ceilings on sugar offered or accepted by national intervention agencies, it is expected to suggest tightening the rules to discourage offers by making the system less attractive, and maybe more cumbersome. "We don't have the possibility to stop intervention. The idea is to make it more difficult for traders to put sugar into intervention by making the rules more stringent," one Commission official told Reuters.
One possibility would be to delay issuing payments to parties for their sugar after it was accepted into storage, effectively forcing traders to hold onto their sugar for longer.
"It (the idea) would be to discourage (more sugar) by making the payments later, obliging traders to hold onto it for maybe three months," the official said.
At present, EU sugar prices are artificially inflated by subsidies and stand at more than three times the world market. The reform calls for prices to be slashed by some 40 percent.
So it makes financial sense for traders with any surplus sugar on their hands to let the EU carry the cost while prices remain so high. The reform, if adopted by EU agriculture ministers next month, would enter into force from July 2006.
Latest Commission figures show 866,748 tonnes of sugar stored in eight EU countries as of October 14. In February, intervention was used for sugar for the first time since 1986.
While new offers have been scant in recent weeks, the amount in storage has long presented a headache for Commission experts, and not only because it is proving difficult to get rid of.
The EU now has seven separate tenders open to re-sell the sugar into EU domestic markets - two will expire later this month, the rest in December. So far, demand from traders has been pitiful, with five consecutive weeks of no bids.
The next question being asked by traders and analysts is when the Commission will think of holding subsidised export tenders: a highly sensitive issue politically.