Memorandum submitted by Aubourn Ltd (O58)
1. MY INTEREST
IN THE
SUGAR SECTOR
REFORM
Apart from actively managing 25,000 acres of
farmland in the eastern counties which are growing sugar beet
as part as their arable rotation, my company advises a substantial
number of farmers involved in sugar beet production.
2. IMPORTANCE
OF SUGAR
BEET WITHIN
UK AGRICULTURAL BUSINESSES
During the last 10 years there is clear evidence
to show that UK sugar beet production has not only shifted to
the more efficient producer but also to the most suitable soil
types for production. As a consequence of these consolidation
changes considerable investment has taken place by producers in
order that the most cost effective levels of production can be
maintained. Collaboration and co-operation between producers to
achieve the necessary cost of production has been higher within
the sugar beet sector than any other. Of course this drive to
efficiency is not simply focused on production, it is also relevant
to the processing of beet by British sugar.
Today the UK has one of the most efficient sugar
industries in Europe; it is a vital constituent of the rotation
on many arable farms and the levels of capital investment to achieve
a long term sustainable enterprise is significant. As a consequence
any reform of the sugar sector could have a dramatic impact on
farm profitability, longer-term farm business sustainability and
employment.
3. EEC OPTIONS
FOR REFORM
As I understand it there are three clear options
for reform. These are:
Globalisation/liberalisation.
Creation of a "stable"
market.
While it has been suggested that removal of
all supply controls, ie quotas, would lead to an equilibrium price
within the EU of circa 450 euros per tonne it seems likely that
this would not be achieved. Why? Because:
Firstly isoglucose production would
continue to expand.
Developing countries could undertake
import/export swaps. That is to say they could import from the
world market to supply their own domestic needs and export their
own production to the EU. This activity would produce little benefit
to production from developing countries as the differential between
prices obtained and production costs would be minimal and they
would have no other marketing opportunities. I can't see that
developing countries would want to be put into this position.
The result would be to drive prices
down by up to 100 euros per tonne and in effect would lead to
globalisation/liberalisation of the sugar sector with the potential
result and consequence that both UK and EU production would cease.
This would have financially and socially disastrous consequences
for both stakeholders and the agricultural industry as a whole.
Where other commodities have seen
substantial world price reductions little benefit has been realised
by the consumer. It therefore seems likely that the outcome of
Option 2 would not benefit any party.
The creation of a stable market as an option
for reform involves simplification of the current arrangements
and reductions in both quotas and prices. However it does assume
that supply controls, in addition to price reduction, are required
to achieve a stable market. This is therefore not a continuation
of the status quo.
4. WAY FORWARD
FOR SUGAR
SECTOR REFORM
There are a number of key elements which are
essential for the continuation of a sustainable sugar sector within
the UK and Europe. These can be summarised as follows:
The arrangements which govern the
sugar sector need to be simplified.
The maintenance of supply management
control through quotas for domestic EU sugar and isoglucose production
is essential.
There needs to be flexibility in
production quotas so that overall within Europe production can
be moved to better suited and more efficient areas while the overall
total production is reduced to take account of external pressures.
Sugar prices are reduced to take
account of the EU's commitment to the world trade organisation
requirements.
Compensation should be paid to growers
in line with how the recent CAP reform measures have been applied.
This compensation should be partly coupled to take account of
the interdependent relationship between growers and processors.
While the contentious area of subsidised
quota exports has to be addressed, it should be recognised that
the UK position is one of balance between supply and demand.
Changes must be phased in gradually
to allow the sector time to adjust.
5. EXECUTIVE
SUMMARY
Whilst I believe everyone working within the
sugar sector would support the need for a reform this does need
to be balanced and it does need to lead to a stable market. This
will enable efficient operators within all parts of the sector
to operate and invest in a sustainable manner for the future.
In the UK we have invested significantly in order to achieve such
high levels of efficiency and unlike other European countries
our market is balanced between supply and demand. Creating a balanced
and stable market will overall provide the best deal for all stake
holders in the industry and in particular for producers and consumers
in the UK and also for those developing countries involved in
sugar production.
Philip Wynn
Managing Director
1 April 2004
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