Memorandum submitted by British Sugar
British Sugar, plc is the sole processor of
sugar beet in the UK. As such we are the custodian of the EU sugar
production quota allocated the UK of 1.144 million tonnes white
sugar equivalent (wse) which in statistical terms is half the
UK's annual sugar consumption. British Sugar has nine factories
of which two are in the West Midlands and seven in the East of
England from York down to Bury St. Edmunds. (Attached with this
submission are copies of our annual "Facts book" giving
more detail on British Sugar's factory operations).
Some 8.75 thousand farmers grow sugar beet,
mainly in East Anglia, but also in Yorkshire and Lincolnshire
and the West Midlands. Sugar beet plays a crucial role as it is
virtually the only bankable crop remaining to farmers currently.
As such it is a vital prop for farm incomes at a time when they
are under such great pressure (MAFF estimate that farm incomes
in 2000 will have fallen 72 per cent in real terms since their
peak in 1995, Press Notice dated 30 November). Apart from its
financial benefits, sugar beet is an important break crop before
the growing of cereals and, when processed, provides one of the
major sources of animal feed in Britain.
Research by the University of Reading shows
that the industry supports some 23,000 mainly rural jobs - particularly
in farming, processing and haulage. As a significant proportion
of these are seasonally employed staff counted in terms of full
time equivalents, the number of households dependent on the industry
is much larger.
At the beginning of October the European Commission
published two proposals, seemingly in complete isolation from
each other, but both having potentially profound effects for the
EU's sugar industries and for those of the existing African, Caribbean
and Pacific (the ACP) sugar suppliers to the EU market. The first
proposal deals with the quinquennial review of the EU's sugar
regime (EC Reference 12087/00). It was published on 4 October
and, although later than normal, had been fully expected.
The second proposal deals with an extension
to the EU's Generalised Preferences Scheme to give duty free and
quota free entry to the EU market for all products, except arms,
coming from the 48 least developed countries (EC Reference 12335/00).
This proposal, known as the "Everything but Arms" (EBA)
initiative, was announced in a Commission Press Notice dated 20
September with the proposals themselves being published on 5 October.
The proposal's inclusion of the "sensitive" agricultural
products - sugar, rice and bananas - was completely unexpected.
The European Commission's principal proposal
is that the sugar regime should be renewed for two years (2001/02
and 2002/03) while substantial studies are undertaken as to the
scope for more fundamental reform from 1 July 2003. During this
period there are to be no changes to EU support prices, but the
storage scheme is to be abolished. (Annex I gives a more detailed
commentary on the sugar regime proposals).
Balance of interests
That the Commission is only proceeding cautiously
in proposing changes recognises the delicate balance of interests
involved in the regime and, hence, the complexity and inter-locking
nature of the policy instruments employed. In particular the regime
has to balance the interests of EU beet sugar producers and existing
ACP cane sugar suppliers. It has also to balance the interests
of beet and cane growers with those of EU sugar processors and
refiners, and the interest of taxpayers as against those of sugar
users and consumers. Finally the Commission explicitly recognises
the absolute financial constraint under which it is operating,
with there being no leeway in the CAP budget agreed for the period
2000 to 2006 as part of the "Agenda 2000" settlement
at the Berlin European Council in March 1999.
Need for stability
Ideally we would like a five-year regime as
has applied up to now to recognise the capital intensive nature
of the industry, but if the Council decides on a two-year regime
then we believe no fundamental changes should be made to the regime
during this period. We would class the Commission proposal to
abolish the storage scheme as being a fundamental change which
would alter the regime's balance, as it will hit processors hard
just when the savage rise in energy costs seen in recent months
is already a major issue. We are therefore opposed to the Commission's
proposal to abolish the storage scheme.
Although the Commission is not proposing to
alter support prices during this review period we would point-out
that support prices for sugar were last raised in 1985. Consequently
in real terms they have fallen very sharply. The European Commission
has estimated that, for the EU as a whole, the value of support
prices has fallen by more than 45 per cent in real terms over
the last two decades (Written Answer in the European Parliament,
18 January 1999). In Britain support prices, in pounds sterling,
have fallen by a third since their peak in 1996: a fall which
has not been reflected in the movement of processed product prices
(see RPI price charts attached). While for the quarter of sugar
consumption bought at retail, average per head spending on sugar
in supermarkets in 1998-99 was 20 pence weekly (the Government's
Family Expenditure Survey).
Effects for the Budget
The presentation of the sugar regime in the
EU Budget is highly misleading. It shows gross expenditure of
some 2 billion euro, but ignores the offsetting producer levy
income (of some 1,160 million euro) which is shown under "Own
Resources" in a different part of the Budget. The producer
levy income meets, on an annual basis, the full Budget cost of
disposing of surplus within quota sugar production and so covers
around 60 per cent of gross sugar regime expenditure. As a result
taxpayers do not pay to support domestic EU sugar production.
The EU Budget only has to meet the net cost of the sugar regime
for the re-export of a quantity of sugar equal to ACP importsequivalent
to around 40 per cent of gross expenditure. (Another example of
misleading Budget presentation as this should be a part of the
EU's development policy rather than a cost for the Sugar Regime).
||1999 (million euro)||2000
|(b)||Less income from producer levies
|(c)||Net cost to the EU Budget
|(d)||Expressed as % of (a)
Source: Court of Auditors report on the sugar regime,
But if the EU switches policies towards those applying for
cereals the Commission has calculated the cost of compensation
to growers to be some 1,125 million euro for a 25 per cent support
price cut, with presumably ACP compensation in addition of say
another 250 million euro. Thus there would definitely be created
a large Budget cost for EU sugar production, for only an extremely
uncertain consumer benefit.
In view of these complexities we fully support the Commission's
proposal for studies before further proposals for regime changes
are made. These studies need to be substantial pieces of work
that draw on all the outside expertise available. They will have
to take into account all the interests involved with the sugar
Opportunity for public debate
The study period gives an opportunity for public debate and
an opportunity for those whose livelihoods depend on sugar to
have some input into whatever decisions are ultimately taken.
In this regard we note that the Commission's proposals are made
under Articles 36 and 37 of the Treaty establishing the European
Community, necessitating opinions from both the European Parliament
and the Economic and Social Committee.
While we are sympathetic to the wish to do more for the least
developed countries we do not believe that the Commission's proposal
as formulated is the best way of going about it. We feel the principle
of helping the least developed countries should not be at the
expense of existing jobs in the EU and the ACP. Indeed in the
context of the ACP sugar producers it seems extraordinary the
EU should wish to benefit the very poor at the expense of the
poor (robbing Peter to pay Paul). Furthermore we note that other
developed countries have made no equivalent gesture so that the
impact of the Commission's proposal in terms of increased EBA
sugar exports will be entirely born by the EU.
The inclusion of the "sensitive" agricultural commodities
(sugar, rice and bananas) in the EBA initiative was completely
unexpected as up to its publication we had understood, like other
interested parties, that these products were excluded under a
formulation that the proposals would cover "essentially all
trade". This was the position as late as when the Cotonou
Agreement (successor to the Lome Convention) as signed in June
of this year. Most recently the Council of Agriculture Ministers,
at its meeting on 22 November, repeated this latter formulation
in its adoption of a general framework for the current agricultural
negotiations in the WTO (EC Reference 13656/00).
The initiative provides for duty-free and quota free for
all products, except arms, from the 48 least developed countries
of the world (listed in Annex II) into the EU market. Thirty-nine
of these countries are already ACP States and hence associated
with the EU under the Cotonou Agreement. Nineteen of the ACP States
(listed in Annex III) have preferential import quotas into the
EU already under the Sugar Protocol, but only six of these are
included in the EBA grouping.
For the three "sensitive" agricultural products
it is proposed duty elimination should be phased-in over three
years in four annual steps as follows:
Whether the duty cuts are phased-in, or applied in a single
100 per cent cut, is not the major issue. The fundamental problem
is the incompatibility of uncontrolled access for EBA sugar when
both EU beet sugar producers and the existing ACP cane sugar suppliers
are controlled in order to maintain a balance in the European
This is particularly relevant when it is remembered that
the EU already imports some 1.7 million tonnes of cane sugar from
the ACP States, equivalent to 13 per cent of its consumption,
for which it pays the equivalent of its own support prices. The
European Association of Sugar Processors (CEFS) has calculated
the annual value of the transfer to the ACP States, as a result
of these arrangements, as some 680 million euro annually. These
transfers are particularly effective as they go directly to the
industries themselves and not via Governments or through middlemen.
The implication of uncontrolled access
The result of uncontrolled access to the EU market will be
that it will become much more difficult, if not to say impossible,
to maintain the current balance in the sugar regime. The losers
will be the domestic EU sugar industry (including, of course,
ourselves as the British beet sugar industry), the existing ACP
cane sugar suppliers and the EU Budget. Thus:
(a) cuts in quotas for domestic beet sugar producers and
ACP cane sugar suppliers will be larger than they would otherwise
need to be. Whether the extra imports, as a result of the EBA
initiative, are 5,000 tonnes or 500,000 tonnes or 5 million tonnes
this quantity will have to be cut from quotas. (The mechanism
for quota cuts already exists under the Commission's powers through
the Management Committee procedure, so recourse to the Council
of Ministers will not be necessary). Each extra tonne imported
is an extra tonne off EU production quotas and imports of Special
Preferential Sugar as, under the EU's subsidised export constraints
in the WTO, it will not be able to re-export the EBA sugar.
(b) furthermore if quotas can not be matched with the
extra imports then it is extremely likely there will be large
sales to intervention leading to unplanned and unnecessary extra
costs for the EU Budget. This at a time when the EU Budget is
very fully committed currently and has no scope for extra expenditure.
How much extra sugar?
No one knows how much extra cane sugar the EBA proposal will
induce to be sent to Europe. It is suggested the EBA countries
lack the infrastructure to readily expand their exports, but given
the difference between recorded world prices, in the residual
and generally depressed world market, and EU prices there will
be a strong attraction for EBA sugar to be exported.
In Annex IV are listed the existing EBA sugar producing countries
together with their Sugar Protocol preferential quotas where applicable.
Conclusions to be drawn from this table include:
(i) The figures quoted are highly problematic because
of the large degree of estimation involved in their preparation;
(ii) Even so it is clear that the EBA countries, as a
group, are already significant sugar producers (some 2.2 million
tonnes) and traders (nearly 1.3 million tonnes total trade, of
which 0.2 million tonnes are exports). The point is that facilities
already exist for substantial trade flows;
(iii) These countries have the potential to very significantly
expand their production both from new projects and from reviving
existing industries after civil wars.
Estimates of the extra sugar volumes that may be generated
vary widely, but trade estimates circulating in London suggested
there would be 3.1 million tonnes after three years building-up
to 4.5 million tonnes after five years. An unpublished, internal
estimate within the European Commission suggested the volume could
go as high as 5.7 million tonnes.
Lack of consultation
The proposal is put forward as an extension of the EU's long-standing
Generalised Preferences Scheme. As a result the European Commission
was able to chose to bring it forward under Article 133 (dealing
with the Common Commercial Policy) of the Treaty establishing
the European Community. This procedure has two principal implications:
firstly an opinion from the European Parliament is not required
and second, the Council of Agriculture Ministers does not formally
see the proposal as it is the preserve of Foreign/Trade Ministers
meeting in the General Affairs Council.
So not only was the sugar industry was not consulted or even
given notice of this proposal, but there was no provision for
Parliamentary scrutiny and formally no way for Ministers with
agricultural expertise to be involved. We deplore this procedure
and believe it to be the antithesis of the open style of Government
for which the European Union is striving.
Lack of coherence
We deplore the lack of coherence in EU policy formation whereby
the Commission was able to publish two fundamentally opposing
proposals when self-evidently they should have been considered
together. Accordingly we welcome and support strongly the joint
hearing by the House of Commons which takes both proposals together
insofar as they affect the sugar industry.
Need for a substantial impact study
We deplore the fact that the proposal was put forward without
an impact study. In view of the number of interests involved and
the complexity of the sugar industry it seems to us that a substantial
impact study covering all the implications of this proposal should
be undertaken, to parallel those the Commission has proposed for
the sugar regime. The fact that there is such a wide variation
in the estimates of how much sugar may be involved is indicative
of the need for much more examination than there has been so far.
No pre-emption of the direction for future change in the sugar
While the studies are being undertaken for the sugar industry
and, we hope for EBA, we would wish the implementation for sugar
of EBA to be postponed. Otherwise the direction of future change
in the sugar regime will be-pre-empted. After all if the sugar
industry and the interests of its stakeholders are so complex
that the Commission needs two years to have fundamental studies
undertaken before it can put forward further proposals for change,
then EBA should not be implemented for sugar in the interim until
the implications have been fully explored.
Inclusion in the sugar regime
If the political decision is taken at the end of the day
that sugar should be included in EBA then it is our firm opinion
that such sugar should be included in the sugar regime as, currently,
is sugar imported under the Sugar Protocol and as Special Preferential
Sugar under the sugar balance sheet arrangements. Otherwise the
EU sugar regime will be damaged to no good purpose when it is
only by its maintenance that benefits will accrue to the intended
EBA beneficiaries. This would also prevent middlemen getting involved
who would be likely to cream off much of the benefit for themselves.
Need for proper consultation
Finally we believe that those whose livelihoods are affected
by these proposals should have a say both directly and through
their democratic representatives. It can not be right that proposals
having such potentially profound effects, for the sugar industry
and the existing ACP suppliers, can be implemented without there
having been the opportunity for proper debate and consultation.
14 December 2000
Commentary on the European Commission's detailed proposals
on the sugar regime
The sugar industry is highly capital intensive as it includes
not only farm production, but also a "heavy" industrial
processing sector. (In British Sugar's case we have invested almost
a billion pounds, at 1999 values, since privatisation in 1981).
It was in recognition of the capital-intensive nature of sugar
production and the industry's need to have adequate time horizons
for planning purposes that previous sugar regimes have been for
Ideally we would like a five-year regime as has applied up
to now, but if the Council decides on a two-year regime then no
fundamental changes to it should be made during this period, particularly
where these might preclude the outcome of the Commission's proposed
studies. Even so it must be accepted that with just a two-year
time period investment plans will be affected because of the policy-induced
We support the Commission's proposal to undertake a series
of studies to inform decisions about the future of the sugar regime
from 2003. As mentioned in the main body of this evidence we believe
the studies should be extended to take account of the implications
of EBA. Further we must insist that the studies should be undertaken
in a transparent manner and that the EU sugar industry be involved
with them to ensure that the best information possible is used.
We would class the Commission proposal to abolish the storage
scheme as being a fundamental change to the regime that would
alter its balance as it will hit processors hard just when the
savage rise in energy costs seen in recent months is already a
Furthermore we deplore the one sided nature of the presentation
of the storage scheme abolition proposal as it only deals with
the saving of CAP expenditure. This is one of the problems of
the way the sugar regime is presented in the CAP Budget as expenditure
is shown, but the income from storage cost levies and producer
levies is shown elsewhere as part of "Own resources".
It is grossly misleading to suggest, as the Commission appears
to do, that abolishing the storage scheme will make the EU Budget
300 million euro better off by saving this amount of spending.
As there will be an equal reduction in storage cost levy receipts
the net Budget situation will be unchanged.
Again experience shows that any reduction in sugar prices
is unlikely to be noticed by consumers, as it will be absorbed
into food manufacturers' margins. The two charts attached show
the lack of relation between sugar prices and those for sugar
containing products. In particular, despite the drop of nearly
a third in sugar support prices over the four years since May
1996, prices for soft drinks, chocolates and confectionery have
continued to rise.
The Commission has proposed that the "structural"
surplus should be halved by making a permanent 115,000 tonne quota
cut. This proposal does not change the situation on the ground,
as such a cut would count as the first tranche of the annual 1
October quota cuts to be expected from now on (the cut this year
was some half a million tonnes). Nevertheless we must point-out
that quota cuts discriminate against the British beet sugar industry
as we do not have a quota surplus. As a result quota cuts mean
we have to give-up domestic market share, as our entire quota
is needed for the domestic market. By contrast on the Continent,
where there are large quota surpluses, processors will only have
to reduce their world market exports and need not cut their domestic
sales. (The chart attached shows quota surpluses and deficits
by Member State).
We welcome the inclusion of an article on the environment
in the sugar regime and regard this as a worthwhile innovation.
We are concerned with the drafting of the proposed Article 46,
however, as it seems to us to be over prescriptive and likely
to create unnecessary bureaucracy. Surely all that is needed is
a general requirement to encourage sound environmental practices
in the growing and processing of sugar beet?
We believe the British beet sugar industry has an environmental
record it can be proud of without there having been any provision
in the sugar regime requiring it. Since 1985 nitrogen fertiliser
application to the beet crop has fallen 30 per cent while there
have been general reductions in the use of all crop inputs, particularly
associated with the use of seed coatings incorporating fertiliser
and pesticide applications. Not only are smaller quantities required
as a result, but the need for field spraying is reduced.
British Sugar itself has cut its energy usage by 40 per cent
during the last decade. We have used CHP boilers in our factories
for many years. Most recently we have invested in two new generation
gas turbine CHP boilers (at £30 million each) producing electricity
at around 85 per cent efficiency in terms of energy conversion
from fuel: the very best commercial power stations manage less
than 60 per cent.
We can accept the Commission's other proposals as being non-fundamental
to the regime i.e. abolishing the requirement to hold Minimum
Stocks and the extension of producer levies to cover the first
60,000 tonnes of sugar used by the chemical industry.
THE 48 COUNTRIES COVERED BY THE EUROPEAN COMMISSION'S
A. The African, Caribbean and Pacific (ACP) countries
associated with the EU under the Cotonou Agreement (the successor
to the Lome Convention), signed June 2000.
Sudan, Mauritania, Mali, Burkina Faso, Niger, Chad, Cape Verde,
Gambia, Guinea-Bissau, Guinea, Sierra Leone, Liberia, Togo, Benin,
Central African Republic, Equatorial Guinea, Sao Tome and Principe,
Democratic Republic of Congo, Rwanda, Burundi, Angola, Ethiopia,
Eritrea, Djibouti, Somalia, Uganda, Tanzania, Mozambique, Madagascar,
Comoros, Zambia, Malawi, Lesotho, Haiti, Solomon Islands, Tuvalu,
Kiribati, Vanuatu and Samoa
[39 countries in all]
B. Non-ACP countries
Yemen, Afghanistan, Bangladesh, Maldives, Nepal, Bhutan, Myanmar,
Laos and Cambodia
[9 countries in all]
EXISTING ACP COUNTRIES WITH PREFERENTIAL IMPORT QUOTAS
INTO THE EU UNDER THE SUGAR PROTOCOL*
|ACP countries||Annual quota (tonnes w.s.e.)
|Trinidad & Tobago||43,751.0
[19 ACP countries listed with quotas, of which 4 have nil
amounts, plus India]
* The Sugar Protocol was incorporated with the Lome Convention
until 2000. It is now incorporated in the Cotonou Agreement as
the successor to the Lome Convention. In terms of legal status,
however, the Sugar Protocol is a stand-alone arrangement first
entered into in 1975.
** Kenya, Surinam and Uganda lost their quotas for non-fulfilment
in the past. Zambia was given a quota set at nilin
1995, but which allows Zambia to take part in quota shortfall
reallocations. (They are assured by their fellow ACP States of
a minimum 10,000 tonnes annually under the Special Preferential
LIST OF EBA COUNTRIES WHICH PRODUCE SUGAR TOGETHER
WITH THEIR PREFERENTIAL IMPORT QUOTAS INTO THE EU UNDER THE SUGAR
PROTOCOL WHERE APPLICABLE
[Three-year averages (1997 to 1999) in 1,000 tonnes raw
Source: Calculated from International Sugar Organization
(2000), Sugar Yearbook 1999, London, plus trade estimates.
*Many of the totals shown represent estimates by the
ISO Secretariat calculated from other countries' statistics of
exports to, or imports from, a particular destination which can
not supply the appropriate statistics itself. In this regard the
figures for many African counties look particularly unreliable
as not only are they largely estimated, but they appear also to
fluctuate much more widely than can be explained by between-year
crop fluctuations. Three-year averages are given as a means of
ironing-out some of these fluctuations.
**Figures for Burundi and Nepal are from the London sugar
trade, as the ISO does not list them.