Select Committee on International Development Appendices to the Minutes of Evidence


Memorandum submitted by British Sugar Plc


  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.

Support prices

  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 imports—equivalent 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).
1998 1999 (million euro)2000
(a)Total expenditure 1,776.72,112.81,996
(b)Less income from producer levies 1,070.11,203.61,162.7
(c)Net cost to the EU Budget 706.6909.2833.3
(d)Expressed as % of (a) 39.7%43.0%41.7%

Source:   Court of Auditors report on the sugar regime, November 2000.

  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.

Substantial studies

  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 regime.

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.

No warning

  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).

EBA countries

  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.

Duty cuts

  For the three "sensitive" agricultural products it is proposed duty elimination should be phased-in over three years in four annual steps as follows:

    —  0.0.2001  -20%;

    —  0.0.2002  -50%;

    —  0.0.2003  -80%;

    —  0.0.2004  -100%.


  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 market.

  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 regime

  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

Annex I

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 five-year periods.

  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 uncertainty.


  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 major issue.

  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.

Annex II


  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]

Annex III

ACP countriesAnnual quota (tonnes w.s.e.)
Trinidad & Tobago43,751.0
St. Christopher-Nevis15,590.9
Congo [Zaire]10,168.1
Cote d'Ivoire10,186.1
Grand total1,304,682.0

  [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 nil—in 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 Sugar arrangements).

Annex IV


[Three-year averages (1997 to 1999) in 1,000 tonnes raw value*]
ProductionImports ConsumptionExports ACP quota
Angola3183 105nil
Bangladesh153135 290nil
Benin143 43nil
Burkina Faso3115 478
Chad3218 52nil
Congo5039 5728
Ethiopia1939 207nil
Gabon172 18nil
Guinea2368 87nil
Haiti9133 140nil
Madagascar9213 1171311
Malawi2026 1585521
Mali4149 7210
Mozambique4272 8726
Myanmar674 507
Sierra Leone711 16nil
Somalia19182 17317
Sudan5941 42294
Tanzania139104 1921610
Togo348 48nil
Uganda1317 150nil0
Zaire6714 82nil10
Zambia1862 83510
Plus** Burundi242 22nil
Nepal1040 50nil
Totals2,1641,100 2,66832552

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.

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