Memorandum submitted by Cadbury Schweppes (A19)
Cadbury Schweppes is a major UK-based, international beverage and confectionary company, manufacturing, marketing and distributing our high quality branding products in almost 200 countries. Cadbury Schweppes employ nearly 40,000 people and are the world's third largest soft drinks company and fourth largest confectionery company.
Given this global market Cadbury Schweppes looks to the Government to:
create an effective business environment that encourages and enables growth, investment and fair competition; and
promote the legitimate interests of UK food processing and manufacturing, for example in negotiations on the reform of the CAP, or on WTO access issues.
We therefore welcome opportunities for constructive consultation with government and are pleased to respond to the Environment, Food and Rural Affairs Committee Inquiry, The Future of UK Agriculture: Farming beyond subsidies? Cadbury Schweppes is also a member of the Food and Drink Federation and Support the evidence submitted by the FDF to the Environment, Food and Rural Affairs Committee.
2. REMIT OF THE CADBURY SCHWEPPES' RESPONSE
Given our interests in food processing and manufacturing the evidence submitted focuses on the first part of the Committee's inquiry. "the prospects for production subsidies and quotas, against the backdrop of world trade liberalisation and the mid-term review of the Agenda 2000 reform of the CAP".
Our response is structured around three areas within the remit of the inquiry that we feel are most important to the consideration of farming beyond subsidies. These are:
(i) The reform of CAP and the implications of the potential expansion of the EU.
(ii) Export refunds and the Sugar regime.
(iii) International trade and the sourcing of raw materials.
2.1 REFORM OF CAP AND THE IMPLICATIONS OF THE POTENTIAL EXPANSION OF THE EU
Cadbury Schweppes backs the Government's support for an early review of CAP in 2002 with the aim "to secure a more competitive and sustainable industry with a stronger market orientation".
Cadbury Schweppes believes that industry can only be competitive if raw materials are available at market prices. Whilst appreciating the difficulties of carrying through effective changes to the European agricultural sector, Cadbury Schweppes supports calls for radical reform of CAP post-2006.
Relevant CAP reforms would promote:
(i) Phasing out of price support, quotas and export credits.
(ii) More flexibility from regional and national authorities to manage agriculture and regional development according to local conditions.
(iii) CAP reform that will promote consumer choice. The EU most avoid substituting one set of producer interests for another.
Cadbury Schweppes believe that reform of CAP is also an important element in the success of EU enlargement and we feel that this, along with Germany's reluctance to continue funding CAP, and the growing public concern about food safety, means that prospects for the reform of CAP have rarely been better.
2.2 EXPORT REFUNDS AND THE SUGAR REGIME
The EU sugar regime is of particular relevance to Cadbury Schweppes, as it guarantees high prices for sugar producers through national quotas and barriers to imports. The regime sets the Effective Support Price (made up of the Intervention Price and the Storage Levy) which is set at a rate to give the "producer and refiner" a fair rate of return.
Cadbury Schweppes welcomed the compromise reached in May 2001 by EU Agriculture Ministers and the Commission to make some progress in dismantling elements of the sugar regime. We await with interest Commission studies of the market that will feed in to the review in 2003.
The reform debate is complicated by "Everything but Arms" proposals put forward by Pascal Lamy, EU Commissioner for Trade, in September 2000 to allow the world's 48 poorest countries to export all goods except arms to the EU without paying duty or facing quotas.
Sugar producers successfully argued against the proposals and sought to link them to the wider proposals for reform of the EU Sugar Regime, suggesting that both should be delayed. On 7 February 2001, the Commission formally authorised modifications to the Council of Ministers that delay the start date for the implementation of the EBA proposal for sugar until 1 July 2006, completed by July 2009.
Cadbury Schweppes supports reason and moderation, and is pressing for evolutionary rather than revolutionary reform. The Commission's proposals for reform have been carefully arrived at after considerable discussion and propose incremental and manageable reformsomething which Cadbury Schweppes fully support. They are therefore, the minimum acceptable, proposing limited and long-overdue improvement in the regime whilst ensuring that farmers remain protected.
Whilst being naturally supportive of the "Everything but Arms" proposals to open access to world sugar, put forward by Pascal Lamy, EU Commissioner for Trade in September 2000, Cadbury Schweppes were concerned that this would confuse the issues and distract from the wider issue of reforming the EU Sugar Regime in the next two years. Its amendment is therefore welcome as it removes one of the objections to full-scale reform.
Cadbury Schweppes accepts that both Export Refunds and IPR are necessary at present, but believes that the long-term solution must be to bring down CAP support prices, thus removing the need for such measures. Cadbury Schweppes strongly opposes further reductions in export refunds, which could threaten jobs in the EU confectionery and drinks industry. CAOBISCO, the Association of Chocolate, Biscuit and Confectionery Industries of the EU, has said that the European chocolate industry will be unable to compete with third world countries and has attacked the Commission for targeting the industry unfairly. Cadbury Schweppes believes that IPR is not an adequate substitute for export refunds and is unlikely to make up the corresponding shortfall incurred. It needs to be widened to allow companies the flexibility to redirect their IPR to alternative sectors (eg from milk to sugar) and countries (eg from Ireland to UK).
IPR proposals also discriminate against specific manufacturers such as Cadbury Schweppes who have historically used liquid milk in their products. Cadbury Schweppes will be forced to juggle the availability of export refunds and IPR between raw materials, and this will result in a confused repetition of applications and registrations of recipes with the Intervention Board in order to claim export refunds.
2.3 INTERNATIONAL TRADE AND SOURCING OF RAW MATERIALS
Cadbury Schweppes would also like to raise concerns about EC enlargement proposals that would allow duty free access from Poland into the EU for certain products. We believe that this could destabilise the internal EU market. Imports from Poland have increased by 152 per cent in the two years up to 2000 and are up significantly again this year. 50 per cent of the chocolate imports from Poland are going to the UK.
Currently Polish prices for agricultural raw materials are significantly lower than the CAP prices imposed on EU procedures. In the absence of any tariffs this would allow Polish products to undercut existing EU price structures. Cadbury Schweppes are in favour of liberalisation, but would oppose a situation where the lack of CAP reform results in a destabilisation of the EU market for confectionery products. Given this imbalance in the raw materials market Cadbury Schweppes continues to press to limit the duty reductions and quota increases to reciprocal levels.
Current negotiations have stalled due to the refusal of the EU to make any concessions on sugar and the difficulty for Poland of reducing confectionery import tariffs. However Cadbury Schweppes believe it is vital that progress continues with the impact study, led by CAOBISCO, into the effect of duty free access on EU-based manufacturers. The results of this study can then inform the positions taken by the industry in future discussions.
3. AN INTEGRATED POLICY FOR THE FOOD SUPPLY CHAIN
Whilst addressing the future of farming we would emphasise that the links between the food supply chain must be recognised as a sustainable future for the food producing communities depends on a thriving food processing, manufacturing and retail industry.
13 December 2001