Examination of Witnesses (Questions 179-199)
11 MAY 2004
LORD WHITTY
AND MR
ANDREW KUYK
Q179 Chairman: Lord Whitty, thank you
for coming. We know you have had a busy day from regional food
into fish and the sugar regime, and that is not even counting
this morning's work. Welcome, yet again, to talk about the sugar
regime. You have brought with you Andrew Kuyk, Head of the Arable
Crops Division.
Lord Whitty: Yes.
Q180 Chairman: Welcome, Andrew. Could
I start by asking about the consultation that the Department undertook?
You had a lot of responses back. What have you made of the responses?
Lord Whitty: We had over 2,000
responses. I have to say some of them were rather similar. There
was a line, from the growers and from the beet sugar industry
that seemed to think that Option One would lead to a stable market—more
or less the status quo—which is not really quite the right
interpretation. We completed the consultation at the end of January
and had a bit of analysis beyond that. But then in March there
was a new proposition from the 49 LDC countries which, raises
an entirely different dimension—not entirely different but
a new dimension—to how the WTO negotiations would go. We
have not yet therefore formally responded to the consultation.
As you will know, we have only just finalised our submission to
yourselves and that does leave open the final position of the
UK in terms of the negotiations in the light of the consultation
but also in the light of the LDC initiative.
Q181 Chairman: Do you think somebody
has been trying to influence the consultation process? If so,
who?
Lord Whitty: I think quite a few
people have. You will no doubt have seen some of them. Broadly,
the NFU and British Sugar took one line; the development NGOs
took another line; the cane sugar producers and the ACP countries
took a further line and, in some cases, they have marginally adjusted
their line as we have gone through the process. It is all fair—I
am not complaining.
Q182 Chairman: You will take that into
account when you are analysing the computation.
Lord Whitty: Indeed.
Q183 Chairman: If you have got standard
letters they do not count as much as original contributions?
Lord Whitty: Anybody that has
bothered to reply is taken seriously. They were not quite standard
letters, but there was a view that, effectively, Option One meant
the status quo (that was the implication) or broadly the status
quo, which I think was probably a misleading one. It is not, as
you know, the position that the NFU and British Sugar have now
taken formally.
Q184 Mr Wiggin: What aspects of the current
EU sugar regime make it unsustainable?
Lord Whitty: Most of them! It
is unsustainable given all the other changes in the CAP. There
are other parts of the CAP which have gone through various stages
of reform which largely left the sugar regime immune. The latest
stage of reform for the main European crops and livestock—which
sees a decoupling of the subsidy and a Single Farm Payment—is
a change which I think the sugar sector cannot be immune from.
In addition, of course, the European price has long disappeared
from most CAP regimes. The conclusion of the "Everything
But Arms" arrangements does alter the situation of itself
and, in any case, having a European price which is three times
the world price is not an economically sustainable position. In
terms of the environmental effects, the arguments are more balanced
in the sense that clearly beet sugar does have some environmental
advantages in terms of distance to travel. On the other hand,
the cost of saving that carbon take, is very substantial and falls
largely on the European consumer and on those developing countries
and others who are unable to get access to the European market.
Q185 Mr Wiggin: Do you think quotas will
be retained? To what extent should the UK's status as being a
deficit producer be taken into account when deciding on any quota
reduction?
Lord Whitty: I think it is too
early to say quite how the negotiations will work out. I suspect
that there will be a phased moved towards reform but the precise
stages of that and to what extent quotas will be retained during
that transitional arrangement is not clear. We would want to move,
eventually, to a substantially liberalised regime, but that will
take time.
Q186 Mr Wiggin: To what extent do you
mean—"substantially liberalised"?
Lord Whitty: In the WTO context
and the development context it would be, generally speaking, useful
to move to something which is near to a fully liberalised position
but taking into account the differential effect that that would
have on some of the current suppliers to the European market.
It would also have to take into account the need for European
production and the European market to adapt and for compensation
for the European farmers. So I think whatever happens, however
desirable it might have been to be further ahead in the reform
process by now, it is still going to take some time from the negotiations
to the final point of liberalisation, during which, I suspect,
quotas will play some part and some suppliers may be treated in
different ways. However, all that is a matter for negotiation
and, therefore, it is a bit premature to say how largely quotas
will feature. I think the argument which is put forward in some
circles that the UK is a bigger importer of cane sugar than the
rest of Europe, is not really likely to be a major factor in the
negotiations. We are talking about a single European market and
access to that market; the fact that special arrangements were
made for our historic Commonwealth preference for sugar is not
a hugely convincing argument to the rest of Europe. The position
of those suppliers is a different matter.
Q187 Mr Wiggin: You sound like you are
moving towards Option Two, which is the price reduction scenario.
To what extent do you think Option Two can be regarded as a viable
option for reform?
Lord Whitty: I do not think any
of the options, as they stand, are fully viable. But I think price
reductions will clearly need to be a significant part of the package
to be negotiated.
Q188 Mr Mitchell: You say you do not
think any of the options are viable, but clearly price reductions
have got to play a part. A major part?
Lord Whitty: A major part, yes.
I think the major trade distortion effect is the differential
European price and the way that is sustained in the arrangements.
Q189 Mr Mitchell: The sugar policy sticks
out like a sore thumb in the CAP. The rest of it is changing from
high to low price support, and producer support to low price support.
To what extent is it going to be feasible for changes in the sugar
regime to follow the changes in the CAP generally?
Lord Whitty: I certainly do not
accept the argument that is put from some sugar interests that
sugar is different in essence from everything else; it is a root
crop and it is an arable option, it is also a widely world-traded
option like rice and so on, and that has big development implications.
We have reached a substantial degree of reform on rice. So I do
not think there is anything about sugar that makes it forever
different from anything else. How quickly we can move, because
sugar is behind all the earlier reforms as well as this latest
reform, is obviously a matter of negotiation and how we can get
there. But I do think that eventually sugar would need to be integrated
into a decoupled model and that the Single Farm Payment would
need to eventually subsume the sugar beet sector. Getting there
may be slightly complicated.
Q190 Mr Mitchell: British Sugar seems
somewhat frightened of market forces. Do you think the EU sugar
regime can be opened up to market forces?
Lord Whitty: Over time, yes.
Q191 Mr Mitchell: Would you prefer that
to be a slow opening up or a quick and brutal process?
Lord Whitty: I think the decision
on where we intend to end up at the end of these negotiations
must be clear. The time it takes to get there, I think, does have
to take into account the disruption to Europe, to some extent,
but, also, the impact on the countries which have historically
supplied us and those countries that would be most likely to gain
from some liberalisation of the market. So I think there is a
degree to which there is bound to be a staged movement. How long
and how fast that operates depends not only on the speed of negotiations
within the EU but, also, what happens on the WTO Panel, where
the regime is currently under challenge, and in the WTO negotiations
more generally when they resume.
Q192 Mr Mitchell: Is it not true it is
one of those crops which it is less logical to produce in this
country, in the sense that for Caribbean countries, South America
and, even, Australia, climatically—and in terms of alternatives—it
is a natural crop? It is not natural in this country and it may
be one of those we would be better to let go for the benefit of
the developing countries.
Lord Whitty: I think it is probably
not sustainable. The level of European beet production as it currently
operates is not sustainable in any open or more significantly
open—
Q193 Mr Mitchell: That level is a product
of protection, effectively.
Lord Whitty: Yes. Everybody says
sugar beet was invented by Napoleon faced with a cut-off of France's
traditional supplies of cane sugar. I am not entirely sure whether
that is true or not, but it was brought about for those geo-political
reasons and is, therefore, in that sense, not natural. However,
I would not say that when we opened up the markets there would
automatically be a complete wipe-out of European sugar beet. I
think some of the more efficient parts of the European sugar beet
industry would survive, albeit at probably a lower level and,
of course, there may be new markets for sugar based on sugar beet,
including, as we have discussed in this Committee before, bio-ethanol,
for example
Q194 Mr Mitchell: Are those more efficient
parts in this country or outside it in Europe?
Lord Whitty: I think the processing
in this country is probably extremely efficient. The growing is
not bad; it is certainly competitive. I am not necessarily saying
it is the most efficient but it is pretty efficient.
Q195 Mr Mitchell: Do you think world
prices could form a sufficient basis for future policy?
Lord Whitty: Again, I am not seeing
all this happening overnight, and clearly the present world price,
in a sense, is artificially low. So if you are moving from the
European price, which is roughly 720 euros, to the world price,
which is roughly 190 euros, that is not going to happen that way.
The world price will come up and the European price will go down
and, eventually, there will be an equilibrium world price. But
it may take time to get to that and there will be some distortions
as we do so.
Q196 Chairman: So you tell us there is
going to be change, the present policy is unsustainable and there
are negotiations to be gone through over a period of years. However,
there will be consequences for British farmers. They have told
us that if there were a change they would want compensation. What
is your view on that?
Lord Whitty: I think for all regimes
hitherto that have been reformed under the CAP there has been
at least some transitional compensation, and I suspect that will
be the case—being politically realistic about it. Whether
that is morally or economically justifiable one can argue about,
but I suspect it will happen.
Q197 Chairman: Is it too early to think
about how that compensation might be paid? Could it be phased
into area payments?
Lord Whitty: Yes. If we were designing
a position that would suit the way we are approaching area payments
and farm support in England as a whole, then we would merge it
into the Single Farm Payment on an area basis. Certainly over
time that is where we would want to end up.
Q198 Chairman: But you would expect there
to be an end to compensatory payments; that there would be a time
limit on it?
Lord Whitty: It depends what you
mean. The value of a dairy enterprise, for example, if you evolved
that into the area payment, would mean that, eventually, the area
payment is that much higher. So it would appear somewhere in the
system as a decoupled payment. It would not be specific to ex-sugar
beet producers but it would form part of what made up the area
payment.
Q199 Chairman: So non-sugar growers,
non-beet growers, at the moment, might have the benefit—
Lord Whitty: Put it the other
way: the whole point of having a Single Farm Payment which is
not crop specific or production specific is to give growers and
livestock owners the option of pursuing whatever is profitable
for them, subject to various environmental constraints.
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