Memorandum submitted by the UK Industrial
Sugar Users Group (UKiSUG) (A6)
REVIEW OF THE EU SUGAR REGIME
1.1 UKiSUG is the organisation which represents
the collective interests of the major industrial users of sugar
in the UK, comprising confectionery, chocolate, cakes, biscuits,
soft drinks and ice cream. These sectors represent combined employment
of 90,000 people and are worth £15.5 billion in consumer
sales per annum. Manufacturers using sugar in processed products
account for about 70 per cent of usage in the UK or nearly 1.2
million tonnes. UKiSUG Members therefore have a direct and vital
interest in the EU's sugar regime.
1.2 UKiSUG has long campaigned for the progressive
reform of the EU sugar regime which artificially maintains internal
prices at an average price level in the EU which in the last 10
years has been between two to four times higher than the world
price. Given the EU's current WTO commitments to reduce export
refunds, further pressure to liberalise trade under the forthcoming
GATT Round, the impending accession of sugar-producing countries
in Eastern Europe and the prospective opening of tariff-free access
for sugar from Least-Developed Countries, the sugar regime cannot
be sustained without reform if EU manufacturers, processors and
producers are to remain competitive.
1.3 UKiSUG welcomes the small first step
taken by the Agriculture Council in May 2001 to introduce a theoretical
element of competition into the regime by abolishing the storage
aid system. However, in practice, the sugar processors have not
passed on the Euro 20 reduction through elimination of the storage
1.4 This demonstrates that the sugar regime
is far from competitive or transparent. In reviewing the regime,
UKiSUG would urge the Commission to focus on these two principles.
1.5 In this respect, UKiSUG draws attention
to the Court of Auditors' Special Report No. 20/2000 on the regime,
which criticises the regime's lack of transparency, anti-competitiveness
and its management. UKiSUG urges that the Report's conclusions
be taken into account when the regime is reviewed.
1.6 EU Governments acknowledged the importance
for agricultural competitiveness of reforming the CAP when the
Agenda 2000 package of measures was agreed in 1999. However, the
sugar regime was ignored leaving manufacturers of sugar-containing
food and drinks vulnerable to increasing competition from manufacturers
in countries where the price of sugar is much lower. UKiSUG members
are not afraid of competition but they must be able to compete
under fair conditions. It is high time that the EU addressed the
lack of transparency and competitiveness in the regime.
2. TRADE IMPLICATIONS
2.1 EU exports of biscuits, cakes, chocolate
and confectionery in 2000 were valued at 3.15 billion Euro (10
per cent of the export of the EU food industry). Exports have
doubled over the last 10 years reaching a level of 1,040,000 tonnes
in 1996 with the sugar content of these products approaching 400,000
2.2 In budget year 2000-01, despite the
Commission removing a range of products from eligibility for Non-Annex
I refunds, the WTO limit was insufficient for requirements and
some manufacturers were forced to export at a loss rather than
lose the export business. This budget year, there appears to be
sufficient funds, mainly because of lower refund rates on milk
products as a result of a narrowed difference between EU and world
prices. This situation is unlikely to continue and such a climate
of uncertainty over refunds is detrimental to growing export markets.
2.3 The launch of the GATT Doha Round adds
to pressure for the EU to adapt its sugar pricing regime to meet
the challenges of further world trade liberalisation. The Round
will no doubt include further cuts in import tariffs and export
refunds which means that EU food and drink manufacturers will
be at a severe competitive disadvantage in comparison to manufacturers
in third countries unless CAP support prices are reduced. Indeed,
producers and processors will also have to confront the fact that
outlets for EU sugar will diminish and they will be forced to
accept contractions in the industry.
2.4 UKiSUG members fully support the principle
of progressive world trade liberalisation through a multilateral
agreement which reduces tariffs, eliminates non-tariff barriers
and opens access to competitively priced raw materials. However,
EU sugar users will be put at a competitive disadvantage and will
be unable to benefit from freer world trade if the EU's sugar
price support remains intact. Such reform would enable the EU
to participate effectively in world trade negotiations without
damaging its own food and drink manufacturing industries.
2.5 UKiSUG wishes to see import tariffs
and export refunds progressively dismantled but they will remain
necessary for as long as the EU supports sugar prices above world
levels. It is vital that in order to permit and develop export
businesses, export refunds are maintained to compensate for the
difference between EU and world prices.
2.6 It is very important that arrangements
agreed under the GATT in relation to agricultural products also
take account of the value-added foodstuffs which contain them
as ingredients. This means that reductions in tariffs must apply
equally to raw materials and to processed products so that manufacturers
can benefit from cheaper raw material imports and not just be
exposed to unfair competition from lower-priced manufactured imports.
Similarly, commitments to reduce export refunds must not result
in discrimination against processed products to the advantage
of agricultural products.
3. AREAS FOR
3.1 The NEI Report of September 2000 on
the Evaluation of the Common Organisation of Markets in the Sugar
Sector provided an analysis of how the COM had affected the trading
and pricing of sugar and generally concluded that this was symptomatic
of any uncompetitive system.
UKiSUG proposes that the following aspects of
the regime should be further analysed:
The lack of cross-border trade in
sugar despite the fact that EU sugar production is in surplus;
The significant divergence of trade
and retail prices between Member States which results from the
lack of trade between Member States;
The levels of border protection required
against imports and the need to provide refunds to EU exports.
The impact of the regime on export businesses and on world trade
need critical review. This should include an assessment of how
much export business could be developed by EU sugar users if they
were not constrained by the declining availability of essential
High profit margins for processors
which indicate a lack of competition but are also attributable
to the level at which support prices are fixed. The processors'
margin should be calculated on a transparent basis of actual cost.
3.2 The role of quotas in controlling supply
must be addressed as they have a fundamental impact on prices.
Not only are they used to maintain prices artificially and prevent
market forces prevailing, they also oblige exporters of sugar-containing
foodstuffs to resort in theory to the cumbersome mechanism of
IPR even though "C" quota sugar is available.
3.3 The quota system, which allocates quotas
on a national and non-transferable basis, does not even permit
a single market for sugar within the EU. The system constrains
supply which means that there is very little to trade between
Member States and thereby stimulate price competition despite
the quantities of B and C Quota Sugar which are exported. In its
Special Report (para 83) the Court of Auditors states that the
quota system means that "normal competitive forces do not
operate and in several cases sugar companies have been fined for
abuses of competition". In addition, the Report concludes
that the allocation of quotas "has had the effect of preserving
sugar production in regions which are not well-suited to it and
which in some cases have required national aids to support production.
Conversely the most efficient production regions have not been
able to obtain increased quotas" (para 89).
3.4 The liberalisation of quotas for alternative
nutritive sweeteners would inject a degree of competition into
the market place. This requires study together with the actual
potential for sales of sweeteners such as isoglucose or inulin.
It is likely that production costs and limited suitability for
use in foodstuffs would militate against any significant substitution
3.5 There are legitimate concerns about
farmers' incomes if the price support mechanism is dismantled.
However, this ignores the ability of a free market to achieve
reasonable prices through a balance between supply and demand.
It should also be considered whether farmers could be more vulnerable
to imports if the regime were not reformed to take account of
the EU's trade commitments. If there is insufficient competition
to align and stabilise prices, then imports will easily be able
to undercut EU prices. The food and drink manufacturing sector
would have the same difficulties if processed products could enter
at world prices.
3.6 UKiSUG's goal is to achieve competitive
sugar prices in an international trading system which provides
a fair deal to all participants from farmers to consumers. If
raw material prices fall, UKiSUG companies are likely to pass
on any cost-savings as they are doing business on a highly competitive
market place. The attached graph shows that the fall in the UK
price of sugar due to the weakness of the Euro has resulted in
lower manufacturing prices for soft drinks and confectionery.