Examination of Witnesses (Questions 40-59)
26 APRIL 2004
MR MARK
WHITE AND
MS PATRICIA
JAMIESON
Q40 Chairman: Welcome to you both. Let
me start where we left our last witnesses. From Tate and Lyle's
perspective, given that everyone accepts that there is going to
be change, what would be the best outcome for you?
Mr White: Tate and Lyle welcomes
sugar reform. What people have to realise is that this is a beet
sugar regime developed in 1968 to benefit beet sugar suppliers
and processors. When we acceded to the European Union, cane was
bolted on to this regime and is disadvantaged within the regime.
We have two fundamental requirements, whatever the option for
reform is. We would like access to raw sugar so we could run our
refinery. We have come down from six to one refinery as our overall
raw sugar supply has been reduced. We would like fair competition
with the beet industry within the regime. Whatever option, we
just want as much raw sugar as we can get to run our refinery,
because we are currently at 85% of the one remaining refinery,
and we would like fair competition with beet.
Q41 Chairman: I think you are telling
us that this is a bolt on and the present situation is not fair.
Mr White: Yes.
Q42 Chairman: Spell that out for us a
little more.
Mr White: There are two issues.
As a cane refiner, we do not have a quota; we have a maximum supply
need so we have a supply cap. We cannot produce further than the
quota. As the last witnesses suggested, they can produce over
their quota. We have an institutional margin. The beet processors'
margin is 2.3 times the cane refiners' margin. I know cane refining
is more efficient but 2.3 times is unfair.
Q43 Chairman: Suppose there were a more
liberal market. Where do you think your supplies of sugar would
come from?
Mr White: If there was a totally
liberalised market, we would buy from the world market. We would
buy from the cheapest source of production which would currently
be Brazil. If you look at the overall economics of refining sugar,
again the witnesses were absolutely right. Cane versus beet varies,
but the cheapest sugar production is in places like Brazil, in
the right climate, where they process the sugar. They take the
bamboo, as it was called earlier, and squeeze it but they take
it to a state of about 96 or 97% purity, so if anybody looks at
it it looks like brown sugar. The right model is to move that
raw cane sugar to the market and effectively we do the last finishing.
We take out the last 3% impurity to make that product a food grade
product. Of course, we do not just do granulated sugar; we do
milling, icing and specialities. If you look at that across the
world, that is the most efficient way to produce sugar.
Q44 Chairman: Even if we went to a totally
liberalised market, the ACP and LDC countries would be disadvantaged.
What are your views about that? Do you believe that there should
be a transitional process here?
Mr White: In a totally liberalised
market the ACP and LDC countries who are not the most efficient
suppliers would lose out. There is absolutely no doubt about it.
In our discussions with the Commission, although we have worked
very hard to take out costs to know that we can exist and compete
very effectively in a totally liberalised market, the Commission
has said that that option will not happen because it would ruin
the beet industry in Europe and it would really harm the ACP and
LDC countries. That is not an option. Although we can exist in
that option, we are not supporting it.
Q45 Chairman: The Commission told us
that they saw a final price for 2012-15 of about 450 euros a tonne,
which is 38% less than the price at outset. How many of your suppliers
could continue on that kind of price range?
Mr White: About three. They would
be able to supply us about 100,000 tonnes. We currently get 1.1
million tonnes. That is the option. You are talking about price
fall and we are totally against price fall because the price would
come down but we would not be able to get enough raw sugar to
keep our refinery going.
Q46 Mr Wiggin: To what extent is the
security of supply more important or less important than the origin
of supply?
Mr White: Our fundamental reason
for being is to make money for our shareholders. We have a great
relationship with the ACP and the LDCs, burgeoning with the LDCs,
but fundamentally we must have raw sugar to process the sugar
in the refinery. The access to raw sugar is very important to
us.
Q47 Mr Wiggin: To what extent are you
placed to benefit from reforms that lead to a reduced beet production?
Ms Jamieson: We are looking at
increased imports into the EU because of the LDC agreement. We
do not know which form it will take because there is one in existence
at the moment and the LDCs would like that changed. There will
be an increased supply of raw material and we would greatly welcome
having access to that. We have suffered for many years, since
1972, with a shortage of supply and we see this as an opportunity
at long last to put our fixed assets to work. We would welcome
having the extra supply.
Q48 Mr Mitchell: Can you refresh my ageing
memory? I have been here so long that people now ask me what Mr
Gladstone was really like. I seem to remember that when I first
came in we were agitating to stop the reverse of this process—in
other words, get Tate and Lyle to keep open its production units
in Liverpool, bringing sugar in from the West Indies and treating
it here. Is that right? Are we now going through the reverse of
that process?
Ms Jamieson: Continued access
to Commonwealth sugar was one of the three sticking points on
Britain's entry and, yes, it was a very important issue. Unfortunately,
the outcome from our point of view was that the quantity that
was secured was insufficient. Hence the closure of the five refineries
to which Mark referred with the closure also of the Liverpool
refinery to which you referred, the raw sugar from there being
absorbed into the large, London refinery. With the advent of the
agreement with the Least Developed Countries, one would see perhaps
the raw sugar supply being increased again.
Q49 Mr Mitchell: I wonder to what extent
you feel that Europe and particularly us are morally obliged to
continue to source sugar cane from the ACP countries.
Ms Jamieson: I believe, from all
the many exchanges I have been involved in over the years, there
is an historic link which Britain cannot ignore. The links are
there. If they are going to be changed, I think most people would
advocate very close liaison between any countries who would be
adversely affected and the British Government. They will be much
better at talking to you about this, I am sure. You are seeing
the ACP next week. They do very much look to the British Government
to look after their interests at the Council of Ministers. They
have their own methods of communication in Brussels but when it
comes to issues like this it is very much a British minister that
they will look to. I must admit they are doing their job. They
are lobbying other Member States as well and not simply relying
on their historic links with Britain.
Q50 Mr Mitchell: I am slightly partial
as a Committee member, but you are absolutely right. I wondered,
from Tate and Lyle's point of view, whether you prefer to retain
policy frameworks that allow you to be loyal to your traditional
suppliers or have the freedom to source raw sugar at lowest cost
on an open market. Which is your preference?
Ms Jamieson: Mark has probably
referred to this. We can live in a liberalised market, in which
case, yes, ours would change, but the Commission does not give
any signals of a liberalised market, a completely deregulated
one, as being the chosen option.
Q51 Alan Simpson: Mark, you said in one
of your answers that what you were looking for was fair competition
within any new regime.
Mr White: Yes.
Q52 Alan Simpson: One of the criticisms
that has been made of the industry is that about the last thing
that it works on is the basis of fair competition. Oxfam has helpfully
pointed out the seven million ECU fine that you had for rigging
the market in the 1980s and that really what we ought to be arguing
for is a pretty rigorous scrutiny of the workings of the whole
sugar processing market within the EU, that being undertaken by
the competition authorities. Would Tate and Lyle support that?
Mr White: You refer a fine back
in the 1980s which was before my time. I point out that I think
we were fined a small amount, but we could do a technical letter
on that for you.
Q53 Alan Simpson: It was in 1998; it
just took them that long to catch up with what you were doing
in the 1980s.
Mr White: The point you are making
is that we would like fair competition. The access to more raw
sugar from the LDCs is an opportunity for us obviously to produce
and sell more but the fundamental regime is that the beet margin
is 2.3 times the cane margin. That is a big disadvantage. When
more raw sugar comes in, there is nothing stopping beet producers
putting a hole in the side of their processor and bringing in
raw sugar. If they have already covered their fixed costs through
a very good margin on beet, they will be competing against raw
sugar which would make it hard for us.
Q54 Alan Simpson: Under that new regime
on fair competition rules, can I take it that you would not be
objecting to the notion that producers of beet sugar, like British
Sugar, would be entitled to produce and process alongside you
in competition with you?
Mr White: Absolutely.
Ms Jamieson: On equitable terms.
Q55 Mr Wiggin: I did not understand what
you said about putting a hole in the side of the processor. What
did you mean?
Mr White: A cane refiner cannot
use beet to produce sugar but a beet processor can buy raw cane
sugar and, with some adaptations to the processor, can process
raw sugar into white sugar. There are examples of that. There
is a factory in Erstein; there is a factory in Finland and there
are other examples around the world.
Q56 Mr Wiggin: The reason that British
Sugar refused to answer my question earlier was because, quite
honestly, they could adapt that plant and import raw sugar just
like you and compete directly with you.
Mr White: You need to ask British
Sugar that question.
Mr Wiggin: I did.
Chairman: I think that is a political
answer.
Q57 Mr Jack: I want to explore a comment
you made a moment ago about the margin being 2.3 times greater
for beet versus cane. Are you talking about the processor margin
there?
Mr White: Yes.
Q58 Mr Jack: Am I not right that the
amount you get per tonne of process is a fall out of the way that
the pricing formula operates? In other words, it is a given from
the way that the sugar regime is constructed and Tate and Lyle
have either to accept it or reject it.
Mr White: We operate in a market
that is already set. The price we pay for our raw cane sugar is
significantly higher than the equivalent price that the beet processor
pays for their raw material.
Q59 Mr Jack: The amount you get left
over for the processing bit is as a result of what you have just
described?
Mr White: Yes.
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