Memorandum submitted by David Richardson
(O20)
For the information of the committee I am (through
a family partnership) a grower of sugar beet producing some 80
hectares per year. I have for many years made a special study
of sugar both here in Europe and further afield and have regularly
commented on it during 16 years presenting radio and TV programmes
for the BBC and 13 years for ITV. I was for 10 years agricultural
columnist of The Financial Times and still have a column
in Farmers Weekly. My observations should be read against
this background.
1. BACKGROUND
TO THE
WORLD SITUATION
There are few, if any, countries in the world
where sugar can be produced at the current world price. Brazil
may be one of the few exceptions but even there some financial
assistance is provided to add to the intrinsic benefits of a favourable
climate for sugar cane and very cheap labour. The fact that Brazil
has devalued its currency by some 80% over the last few years
has further placed it in a strong export position. Production
of Brazilian sugar has multiplied by a factor of 10 since 1990,
leading to dramatic increases in exports that are now around four
times those of the EU, and this has been a significant factor
in the effective collapse of the world price.
2. EU SUPPLY
AND DEMAND
That the EU produces more sugar than it consumes
is undeniable. The greater part of this surplus is produced by
a small number of member states—France produces the greatest
surplus to its own requirements with Germany, Belgium, Holland
and Denmark making up most of the rest. Meanwhile the UK produces
only a little over half its domestic consumption, the rest being
imported from African Caribbean and Pacific (ACP) countries, a
few of which were French protectorates and most members of the
British Commonwealth before this country joined the EEC. Other
EU countries with quotas to produce less than domestic consumption
include Portugal, Spain, Finland and Sweden.
It should further be understood that while A
and B quota production attracts a subsidised guaranteed price
that reflects the costs of production in EU countries, so called
C sugar (nominally that which is surplus) is sold at world prices
without subsidy.
3. QUOTAS
In theory then the EU quota system should enable
production to match consumption. Two factors militate against
this. The first is politics and the historic and strategic strength
of those countries that produce the greatest surpluses. The second
is ongoing efficiency gains on farms and in processing plants.
I would therefore argue that over production could and should
be controlled by regular reduction of the quotas of those countries
that contribute most to the surplus rather than by liberalising
the entire regime and risking the viability of the entire EU sugar
industry.
4. IMPLICATIONS
OF LIBERALISATION
A collapse in the EU price of sugar beet similar
to that which has occurred on world markets would destroy the
viability of a crop that contributes a great deal to the sustainability
of European farming. In Britain alone it accounts for some 20,000
jobs on farms and in processing and packing plants. Sugar beet
is an excellent rotational crop that helps to ensure plant health
and avoid monoculture. It requires only about half as much nitrogen
fertiliser as, say, wheat and is also economical with pesticides.
The growing crop provides an ideal habitat for ground nesting
birds, especially skylarks, and the RSPB regard sugar beet as
a vital component in its efforts to bring about a national recovery
in their numbers.
5. THE EFFECTS
OF LIBERALISATION
ON COFFEE
Coffee is one of the few world commodities in
which trade has been fully liberalised. In the last 10 years its
retail value has doubled while its farm gate value has halved.
Traditional coffee bean producers in many developing countries,
for whom this is a financial disaster, have now turned to growing
crops for illegal drugs in order to survive.
Oxfam has made a detailed evaluation of the
global coffee situation in its report "mugged" (Oxfam
International 2002). In this study Oxfam concludes that the collapse,
in 1989-90, of the International Coffee Agreement, which helped
regulate world coffee prices, led directly to the current situation.
It also points out that world supplies and by implication, prices,
are controlled by three companies (Nestle«, Kraft and Sara
Lee) which have profited at the expense of producers in developing
countries. Oxfam advocates the introduction of supply controls
for the global coffee market.
Might the above become the future pattern for
sugar if present proposals are adopted?
6. LEAST-DEVELOPED
COUNTRIES
The rationale behind the most strident demands
for radical reform of the EU sugar regime is to provide markets
for the Least-developed Countries (LDCs) where sugar cane is grown.
It appears, however, that nobody bothered to ask representatives
of those countries what they thought. When such conversations
do take place it soon becomes clear that they regard liberalisation
of the sugar regime with horror. I have, for instance, spoken
at length to Rebecca Katowa who represents the LDCs and holds
a senior position in Zambia Sugar.
"We definitely do not want liberalisation,"
she told me. She went on to explain that she believed open competition
for world markets would drive down the price even further. Her
members could not produce sugar as cheaply as Brazil and far from
benefiting from the change they could even be worse off. "What
we need" she continued "is a modest guaranteed quota
entitlement to supply EU markets with sugar for which we need
to be paid a remunerative price". LDC countries could then
make a profit on the deal and use the revenue to invest in improving
the infrastructure of their countries, she concluded.
Jean Claude Tyack from Mauritius, Secretary
of the ACP Countries, asked for precisely the same thing. We cannot
produce profitably at current world prices he told me. We want
the present regime, which guarantees preferential access to EU
markets and substantially the same price for ACP sugar as for
EU sugar, to continue as far as possible the same as it has been.
Liberalisation would destroy us.
7. THE CHOICE
It will be clear from the above that liberalisation
would be a disaster not only for the UK and EU sugar industries
but also for LDCs and ACP countries. This option must be strenuously
rejected. Another option that has been put forward would be to
reduce the guaranteed price of sugar beet to about half its present
value with a view, presumably, to eliminating inefficient growers
and processors and allowing those that can operate at the lower
price to survive. As a grower of many years standing I assure
members of the Select Committee that while this theory may seem
logical it would not work.
The main reasons are that whereas perhaps 10%
of EU growers on the relatively small area of Grade 1, or equivalent,
land may (just) be able to produce at such a price in a good year,
90% could not. They would therefore be forced out of business
leaving processors with insufficient critical mass to maintain
factories. In other words it would amount to death by a thousand
cuts and although it might take a year or two to happen the industry
would still collapse just as it would under liberalisation.
The only viable option, if a sugar industry
is to be maintained in the EU, is to hold prices at levels close
to those ruling at present but to accept that production quotas
must be reduced, particularly in those countries producing the
greatest surpluses. Production could be controlled and, seasonal
variation apart, would match consumption. Capacity could be further
reduced to leave room for guaranteed access for LDCs on the same
terms as ACP members.
This will take strong nerves in negotiations
with some of the most powerful member states with the greatest
agricultural interests. It would, however, deliver a fair deal
to developing countries while maintaining a vital infrastructure
around which EU and UK rural development can continue to be built.
Those who reject the concept on the basis of "what we have
we hold" must have it explained to them that a modest reduction
in quota is better than the elimination of a vital rural industry.
25 March 2004
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