Estonia sour over 45.6 million euro sugar fine

  • 2006-11-15
  • By Joel Alas

SWEET TOOTH: Shortly before EU accession, Estonians stormed sugar aisles across the country, stocking up while prices were still cheap.

TALLINN - estonia's long-running sugar stockpiling scandal came to a halt on Nov. 13 when the European Commission handed down a massive fine of 712.7 million kroons (45.6 million euros). The bill represents almost 535 kroons for every citizen and will suck up much of the government's proudly earned budget surplus. Estonia's fine far exceeded that given to the four other EU new member states caught stockpiling sugar prior to accession.

The other nations 's Latvia, Cyprus, Slovakia and Malta 's had their fines drastically cut after proving they had made efforts to reduce their sugar surpluses.

However, the EC said Estonia had taken no steps to reduce its sugar stock and fined it accordingly.
"Estonia agreed to a certain set of rules when it signed the accession treaty, and in this instance the rules were not followed," EC Estonian representative Toivo Klaar told The Baltic Times. "This is not about the Commission somehow being mean to Estonia, it is simply about following the rules that were agreed upon."
"The commission gave each country an option to reduce their surplus stock in various ways, including exporting it without subsidies or reprocessing it. But Estonia made no use of these possibilities," he added. "It is for the Ministry of Agriculture to answer why."

The ministry declined to speak with The Baltic Times about the matter.
The scandal began in 2004 when incoming member states were ordered to house only a limited supply of sugar.
Price disparities between non-EU states and member states meant the sugar market would be upset if cheap stockpiles were to be carried into the economic zone by arriving states.

"There was a large discrepancy between import costs prior to ascension and the price in the common EU market. Estonia didn't have any import tariffs, and it was cheaper to import sugar prior to ascension than afterwards," Klaar said.
After ascension, officials discovered that Estonian households and businesses had engaged in a rash of sugar stashing out of fear that the commodity's price would increase.

A total of 91,000 tons of excess sugar was purchased, an estimated 40,000 of which was attributed to private households. The Ministry of Agriculture argued that Estonians used a large amount of sugar in producing home-made jams and syrups.
Blame was also directed to businesses that were accused of snapping up sugar stocks. Estonia's main chocolate producer, Kalev, was the primary suspect, although it denied the claim and recently defeated a court challenge launched by the Tax and Customs Board, which unsuccessfully attempted to force the company to pay duties on 15,600 tons of excess sugar.
Kalev's chairman Oliver Kruuda at the time said his company had purchased large quantities of sugar, but had sold the stock before May 2004.

"The revocation of the ruling confirms that Kalev has in its economic activity adhered to law and speculations to the contrary, which have regrettably been amplified by the press among other parties, are groundless," Kruuda said in October 2006.
Klaar said it was not up to the EC to assign blame for the sugar stockpiling, and refused to single out individual businesses that contributed to the situation.

"In the end, the government is the one that sets the rules," Klaar said.
"It is not for the commission to decide who is responsible, or whether the money should come from government funds or from private businesses. The government is the one who must pay the fine."
The fines were issued according to the amount of excess sugar. For each extra ton, the states were fined 499.5 euros, the highest export amount during the period May. 1, 2004 to Nov. 30, 2005.
Along with Estonia's 45.6-million euro bill, the EC fined Cyprus 20 million euros, Latvia 4.41 million, Slovakia 4.21 million, and Malta 1.22 million.

The Ministry of Finance said it had already prepared for the fine, and would make the payments in installments over the next four years.
Rando Varnik, director of the Institute of Economics and Social Sciences at the Estonian University of Life Sciences, said he did not believe the surplus was the fault of the government.
"It's a problem with the EU system of rules and legislation," Varnik said. "We are currently investigating this sugar surplus to discover the reason we had so much stock."