Select Committee on International Development Appendices to the Minutes of Evidence


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.



  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.

Minimum stocks

  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.


  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 WTO negotiations.

  However, this particular proposal must not be used as an excuse to delay the proposals for reform of the EU Sugar Regime.

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