Memorandum submitted by BCCCA (The Biscuit,
Cake, Chocolate & Confectionery Alliance)
The Biscuit, Cake, Chocolate & Confectionery
Alliance is the trade association for the products in our title
and our members account for in excess of 90 per cent of domestic
manufacture of these products.
The Alliance sector (biscuits, cakes, chocolate
and confectionery) in the UK employs around 65,000 people with
annual consumer sales of £7 billion using over 700,000 tonnes
of sugars (sucrose, glucose, syrups and treacle). UK manufacturers
in our sector contribute significantly to the export of high value-added
food products, despatching 120,000 tonnes (at a value of £
300 million) to non-EU markets in 1999.
REFORM OF THE EU SUGAR REGIME
The Commission's proposals are a step in the
right direction, but no more than that. The proposals are minimal
and the very least required to bring any benefits to industry
and consumers. An immediate start to a real reform of the sugar
regime should have been the first priority of the Commission.
If this cannot be agreed now, there should be a very clear direction
to the Commission to bring forward proposals in 2003 which will
effectively correct the negative economic consequences of the
current sugar regime.
We see no need for a two-year delay to immediate
reform/review of the regime. The European Court of Auditors in
their recent report have expressed dismay at the failure to act
on the recommendation for review made several years ago. Nevertheless,
we support the proposal to include sugar in the scheduled review
of the CAP regimes in 2003 as recognition of the need for the
sugar regime to be brought into line with other agricultural sectors.
The freeze on non-deficit prices for beet, white
and raw sugar at the 2000-01 level for two years is welcome, in
that it should help to keep prices down in real terms. Furthermore,
we welcome the fact that this proposal will not impact upon farmers,
but focus on processors who charge prices considerably higher
(8 to 22 per cent) than the effective support price to industrial
users. However, we see the need for an intervention price reduction
as the real solution to constraints on export refunds for Annex
I and non-Annex I products imposed by the Uruguay Round Agreement.
Unless either the CAP is reformed to bring internal
prices closer to world prices or a satisfactory replacement is
found to compensate for the insufficiency in the budget for non-Annex
I export refunds, many EU jobs will disappear and demand for EU
agricultural materials will be reduced and surpluses will increase.
It must be realised that no exports will mean a reduced demand
for EU agricultural materials, other EU materials and services,
and a loss of jobs at the manufacturing base in the EU. Furthermore,
if exports from the EU are going to become uncompetitive, many
manufacturers will choose to supply these markets from factories
outside the EU. This is already happening. Not only will they
be able to take advantage of world price materials, but in many
countries the costs of labour and transport to destination markets
are lower as well. Such a shift of supply will give sharp reductions
in demand for EU agricultural materials and a transfer of value-added
jobs out of the EU.
There have been allegations that the fall in
the price of sugar (33.7 per cent) in the UK over the last four
years has not been passed on to consumers by users of sugar such
as manufacturers of confectionery. We refute these allegations.
Firstly, sugar prices have fallen because of the strength of sterling
against the euro. Furthermore, sugar represents only 5 per cent
of the cost of manufacturing confectionery, etc, the rest being
other raw materials, labour, energy, transport, packaging, etc.
The fall in the price of sugar has been reflected in the producer
price for confectionery. A fall of 33.7 per cent in the cost of
5 per cent of the ingredients (i.e. sugar) should result in a
reduction of 1-2 per cent in the final cost: the actual fall of
the producer price for confectionery has been around 8 per cent.
Thus, the suggestion that a reduction in the price of sugar has
not been passed on to consumers is without foundation.
We do not favour any cut in the permanent production
quotas. The reduction in production quota is likely to raise the
internal sugar prices (the process of price increases has already
taken place following the quota cut decided for the 2000-01 campaign).
Such a measure will merely restrict supply and artificially hold
up internal prices to the detriment of exporters of manufactured
goods, who will be subject to a restricted export refund budget.
Indeed, the Commission's proposal will put at risk the competitiveness
of both exports of sugar and of products containing sugar.
The Commission contends that price cuts would
have to be significant in order to have any bearing on consumer
prices. However, some member states maintain that a price reduction
of 6 per cent would have the same effect as the proposed quota
cut of 115,000 tonnes.
Storage aid/levy system
We wholeheartedly support the Commission's proposal
to abolish the reimbursement of storage costs, which have isolated
sugar producers from normal business risks and the cost of which
(through the storage levy) have been borne by industrial users.
It is estimated that abolition will result in a saving to the
EU budget of 300 million euro. It is possible that the abolition
of the storage levy will not lead to a reduction of the market
price. Sugar producers will argue that they have to bear storage
costs, which they will pass on in their prices to users. However,
the abolition of the storage system levy would mean that this
cost element would cease to be "institutionally" established
and the sugar producers would have to face normal business risks.
On the other hand, the abolition of the storage
aid will probably result in a reduction of the intervention price,
which means that the export refunds, which are calculated on the
basis of the intervention prices, will be reduced. This could
lead to the anomalous situation whereby sugar users may not experience
any price reduction on the internal market, but be faced by a
cut in export refunds.
We support the proposal to remove the requirement
to hold a minimum buffer stock of 3 per cent of production.
We support the proposals for various reviews
to be undertaken by July 2002. The reviews must not be held up,
even if the existing regime is extended for five years. The Agriculture
Ministers and the European Parliament should ensure that the studies
on the reasons for the gaps between the producer and consumer
prices; the competition in the sugar sector; and the impact study
on the continuation/abolition of sugar quotas are carried out
without further delay so that they are available by mid-2002 at
the latest, in order to provide sound argumentation to the Commission
for a more ambitious reform. There have been sufficient anti-competition
cases taken against sugar processors to demonstrate that EU sugar
producers are not operating in a competitive market.
However, there is a need for such reviews to
be conducted in a transparent manner and for the findings to be
treated in an unbiased fashion. There are too many instances of
independent studies being ignored, when the findings do not deliver
the answers desired by a particular party eg DG Agriculture in
the case of the reports/studies by CEAS on "effectiveness
of the system of export refunds for processed products";
by Netherlands Economic Institute and European Court of Auditors
on the EU Sugar Regime.
(i) The intervention price should be set
up in a transparent way at a level which reflects the real elements
to be considered by the Commission when fixing the intervention
price (processor productivity; reduced energy costs; improved
extraction rates). CIUS has demonstrated that the 2000-01 intervention
price should be 13.5 per cent lower to reflect the real processing
costs. However, this analysis has neither been refuted by the
Commission by an explanation of the components of the institutional
price, nor taken into account by them to reduce the intervention
price on legitimate economic grounds. Sugar processors would not
have to be compensated for any economically justified correction
of the intervention price. Furthermore, a reduction in the intervention
price would make it easier for the EU to respect GATT/WTO commitments.
(ii) The criteria and system of tendering
for export licences should be reviewed so as to remedy the contradictory
situation where the EU is an exporter of sugar, whilst at the
same time having internal prices at 8 to 22 per cent above the
effective support price. Furthermore, even sugar producers based
in "deficit" areas can tender and be granted an export
licence. This can have the effect of pushing prices higher, because
of the "local" market situation.
(iii) The Commission should end the discrimination
between Annex I and non-Annex I export refunds. The difference
of 30 euro/tonne is totally unjustified and detrimental to the
competitiveness of EU processed goods on world markets. This lack
of competitiveness on third country markets not only acts as a
brake on EU sugar consumption, but also on other EU raw materials
in processed goods.
DUTY-FREE ACCESS TO LEAST DEVELOPED COUNTRIES
We welcome the Commission's proposal to open
up access to the least developed countries, which has our full
support. The existing additional import duty should be abolished,
because of the unnecessary further protection it affords EU sugar
producers. This would begin to prepare the latter for the economic
reality of increasing competition in the light of forthcoming
However, this particular proposal must not be
used as an excuse to delay the proposals for reform of the EU