Memorandum submitted by the East of England
Regional Assembly (EERA) and East of England Development Agency
(EEDA) (O63)
EEDA AND EERA
The East of England Development Agency (EEDA)
has a remit to support economic growth and prosperity and to improve
the quality of life for those who live and work in the Region.
The promotion of economic development is underpinned by principles
of sustainable development and good business practice in EEDA's
Regional Economic Strategy.
The East of England Regional Assembly (EERA)
is a designated voluntary regional chamber established under the
Regional Development Agencies Act 1998. Its purpose is to promote
the economic, social and environmental well being of the Region
in accordance with the principles of sustainable development and
in the interests of all those who live and work there.
1. Executive Summary—The East of England
Position
1.1 The Region welcomes the commitment to
reform the sugar regime. Reform is long overdue and needs to reflect
both the changes in the market for sugar and CAP reform. The reform
must take account of the following issues:
1.1.1 The UK is in a unique position within
the EU, having a balance between domestic supply and imports.
The UK does not contribute to the EU export surplus and should
be seen as the model for the EU sugar sector.
1.1.2 UK production is efficient and based
on sound environmental practice, being one of the best arable
crops for biodiversity. In the light of the move to establish
more sustainable farming practices these positive benefits
of the crop must be included in the discussions on the sugar regime.
1.1.3 Given the unique nature of the sugar
market moves to complete trade liberalisation will cause massive
economic damage in most of the developing nations (those that
EBA was designed to assist) as well as the EU. The Region
cannot believe that this was the intended consequence. The EU
must re-consider the impact of any reform on rural development
in the ACP states.
1.1.4 Any reform should be introduced gradually
and should seek to reflect the true economic and environmental
impact of different production systems in different parts of the
World.
1.1.5 Reform should also reflect increasing
consumer demands for traceability and connection with their
food.
1.1.6 UK and EU producers must not be disadvantaged
in the production of sugar by trade distorting differential
environmental, employment or other regulations they have to bear.
1.2 For these reasons the Region's view
on the current reform options is:
1.2.1 The Region does not support either
Option 2 or 3. Both of these options offer few benefits in budgetary
terms to the EU, are based on misleading assessments of the true
World market and have significant negative impacts on sustainability
in the EU and Worldwide.
1.2.2 Whilst Option 1 is a better option
it is still considered to have some significant weaknesses and
is not sufficiently well defined at present for the Region
to be able to support it. Given its balanced market position
it is not logical that the UK should bear the same quota cuts
as elsewhere in the EU.
1.3 Preferred Option
1.3.1 The Region believes that the Government
and Commission need to develop Option 1 further to allow
the reform process to meet the needs of sustainable rural development
both within the EU and in our trading partners in the developing
World. In doing this, the unique position of the UK market
within the EU must be recognised.
1.3.2 In producing a modified Option 1 the
Region would like to see more in-depth analysis of the environmental
and social consequences of the proposed reforms. At present the
reform proposals have failed to accord the same detail of
analysis to the social and environmental issues as they have
to the economic ones. For the reform to be consistent with EU
and UK sustainable development principles this weakness must
be addressed before a final decision is made.
2. Background
2.1 The Region is the largest arable region
in the UK (producing 50% of total UK cereals and 66% of the sugar
beet). The industry's reach is far more diverse than agriculture
and food processing in isolation, providing economic development,
employment and job creation opportunities in numerous supply chain
and support services.
2.2 The Region is one of Europe's premier
food production and processing locations, with concentrations
of food science and research, production, processing and distribution.
2.3 Whilst output from the farming and food
industries in the Region is estimated to grow over the next ten
years, another 10,000 jobs are forecast to be lost over the same
period.
2.4 Whilst farmers have adopted a variety
of strategies to counter falling profits, the majority of revenue
still comes from traditional farming operations. Those who wish
to remain within the industry have already had to make substantial
structural and cultural changes.
2.5 The Region and its food businesses accept
that the structure and cost of the CAP needs to change radically
to meet new demands and to fully align it with economic, social
and environmental sustainable development principles.
2.6 Reforms of the CAP should support and
encourage change that:
2.6.1 promotes the three sustainable development
principles of economic, environmental and social well being;
2.6.2 allows businesses (both in the UK and
other countries) to compete on World markets;
2.6.3 provides sufficient income to support
both quality of life and investment for the future;
2.6.4 meets consumers' increased demands
for affordable food of high and traceable quality which has been
produced in systems which promote environmental protection;
2.6.5 allows World trade to be used as a
force for good throughout the World and allows appropriate trade
to support the development of poorer nations.
3. Sugar in the East of England Region
3.1 For many parts of the East of England's
arable area the sugar beet crop is a key component of farm profitability
and land use. A rotational crop, its importance is not simply
in terms of its own direct contribution, but also as a break crop
and thus its ability to help reduce chemical inputs within the
rotation. It has positive yield benefits on subsequent cereal
crops and many farms, particularly on lighter soils, do not have
viable alternative break crop options. A reduction in the sugar
beet area would tend to create a monoculture of wheat or barley
with consequent losses in landscape and biodiversity.
3.2 Environmentally the crop produces significant
benefits through both its late establishment and late harvest.
Late establishment of the crop in the spring creates winters stubbles
(cover and food source) for many birds and invertebrates and produces
areas of open ground for ground nesting birds into June. The late
harvest of the crop also helps to provide cover through the winter
and the crop residues are increasingly recognised as an important
winter food source for migratory birds. Many species are dependent
for their survival on these factors.
3.3 UK sugar production is one of the best
UK arable crops in terms of its environmental record (Defra 2002
review). UK sugar beet producers have reduced insecticides by
95% since 1980 and substantially reduced nitrogen fertilisers
to below that of any other arable crop.
3.4 The processing and transport of raw
sugar beet and refined sugar creates significant jobs throughout
the rural community where most of the employees live. Sugar factories,
such as the World-class Wissington factory, are often the largest
local employer in the community.
3.5 Based on the UK total estimate for sugar
sector employment (circa 20,000 jobs—University of Reading)
the Region's 2/3 share of the UK total equates to approximately
14,000 jobs within the region being dependent on the crop. If
these jobs disappeared the Region would find it very difficult
to replace them within the rural community.
4. The Sugar Sector
4.1 The Region acknowledges the pressures
being felt in the international sugar market and the fall in World
prices this has created. Whilst the fall in World price has exacerbated
the budgetary pressures in the EU this has largely been caused
by an increase in Brazilian exports (more than 10 fold increase
in 10 years) and Thai exports whilst EU exports have fallen. It
is therefore difficult to argue, as some have, that the current
low World prices are the result of EU action.
4.2 The Region believes if the true environmental
costs of, for example Brazilian as opposed to UK production were
assessed, (including food miles, transport costs, habitat loss
and other inputs and outputs) UK production would be ranked favourably
compared to that in Brazil. If the EU wishes to promote sustainable
development these factors must be taken into account. The extra
costs UK and EU producers have to bear compared to producers in
other parts of the World due to higher environmental and social
costs must be factored into the discussions.
4.3 The reform must be based upon a broad
view of sustainability and not simply on reference to current
World market prices. The quoted "World Market" price
is widely acknowledged as being below the cost of production even
before transport costs are added in (most bulk sea transport also
uses bunker fuel—a waste fuel considered too polluting for
land use). If EU environmental and employment standards were applied
to both the production and transport of the sugar crop in other
parts of the World the break-even price would rise substantially.
4.4 Brazilian prices (which are the major
determinant of World prices) are also at very low levels due to
the 70% reduction in the value of the Real against the dollar
in recent years. In a sector in which production capacity cannot
be developed quickly, reliance on imports based on short-term
fluctuations in currency exchange rates is short sighted.
4.5 It has been argued that consumers would
gain substantially from open markets in sugar. The Region is concerned
that this analysis is not robust because history tends to demonstrate
that where the input represents a small proportion of the final
sales price, price cuts are not normally passed on to consumers.
This is particularly so where the input price varies, as users
will price their goods on the basis of the highest price they
expect to pay for the input, and absorb any periods of lower input
prices as excess margin. Given the fact that 70% of EU sugar consumption
is in processed form this is a significant factor.
5. The Sugar Review Proposals
5.1 In looking at the proposed options for
the reform of the sugar regime the Region believes that a number
of general principles should be applied to the reform, namely:
5.1.1 The promotion of economic and social
well being amongst rural communities.
5.1.2 The encouragement of environmentally
responsible production systems and the promotion of biodiversity.
5.1.3 Security and traceability of supply
to meet consumer demands for safe nutritious foods at reasonable
prices.
5.1.4 A reduction in food miles and reconnection
of consumers with the source of their food.
5.1.5 A greater recognition of the role of
primary food production in stimulating other economic activity
along the food supply chain (and particularly in rural areas).
5.2 Adoption of these principles would allow
the sugar regime to be consistent with the principles set out
in Defra's own Sustainable Farming and Food Strategy (SFFS).
5.3 The UK's historic reliance on imports
from ACP and developing countries for approximately 50% of it
sugar needs, imposes a duty of care on the reform process to safeguard
the fragile economies in many of these countries.
5.4 If substantial reform is to be implemented
it must be introduced in a way that allows producers in the UK,
EU, ACP and LDC states sufficient time to develop new industries
to replace sugar production. In the case of ACP and LDC states
failure to do this would decimate some of the poorest economies
in the World with consequential and severe social and environmental
impacts.
6. The Reform Options
6.1 The Region is concerned that between
the initial proposals (in the 2003 impact assessment) and the
latest EU consultation the options have been reduced from four
to three without a clear rationale for this being advanced. This
is unfortunate in that the fourth option was that favoured both
by many developing country suppliers to the UK market (LDC sugar
group statement of 11 November 2003) and by many in the UK industry.
6.2 The Region is concerned that the options
favoured by the EU Commission and Defra appear to contradict many
of the objectives of broader EU rural policy and the SFFS, in
particular in relation to sustainable development. The options
fail to address the needs of developing countries and therefore
the UK and EU's position in the World. The options seem to be
driven purely in terms of a focus on the sugar price by reference
to a World price, widely acknowledged as being below the cost
of production and delivery to market for any producer.
6.3 Option 3 (a complete liberalisation
of the current regime):
6.3.1 This would produce very fundamental
change not only within the UK market but also in the sugar
industry in many developing nations. At current World Market prices
few if any of the ACP and LDC countries would be able to
continue production of sugar. Given the fact that the ACP and
LDC countries have close to 1/3 million people working in this
sector and the fact that sugar is a crucial export commodity
for most of them, the economic and social consequences would be
very severe.
6.3.2 Within the EU most production would
cease and in the UK this could mean the direct loss of 20,000
jobs, mostly in rural areas. As a Region the East of England would
be particularly badly hit as it is contains approximately
Û of UK production.
6.3.3 The Region would lose one of its most
environmentally benign arable crops which would have a negative
impact on farmland biodiversity and sustainability as farmers
switched to extra winter cereals and oilseeds, with their
higher chemical inputs and increased winter and spring ground
cover.
6.3.4 The Region is also concerned that the
Commission's own impact assessment suggests that Option 3
is the most expensive in budgetary impact terms. In a future EU
budget in which the total CAP budget is capped this extra
cost implies a consequential reduction in other budgets within
the CAP. This is considered to be unhelpful given the large
range of other measures the CAP budget is increasingly being
called upon to support, and is likely in particular to restrict
the budget which can be allocated to important new or expanding
areas such as agri-environment and rural development.
6.4 Option 2 (a reduction in the
EU internal price):
6.4.1 The Region rejects Option 2 (a reduction
in the EU internal sugar beet price to approximately £18/tonne)
because it would effectively eliminate most production in the
EU and virtually all the LDC states. In practice the effect
of this policy would be little different to Option 3 considered
above.
6.4.2 The only beneficiary of Option 2 would
be Brazil who would over time dominate the sugar market so
that effectively they could monopolise the market and fix the
World price. Given the domination of large business ownership
of Brazilian production the benefits of this trade would, even
if this occurred, still not reach those most in need of support
in the Brazilian rural economy.
6.5 Option 1 (an extension of the
present regime beyond 2006).
6.5.1 As it stands Option 1 is also considered
undesirable as proposed in the latest review papers. The Region
accepts the need for a reduction in EU quotas and internal prices.
The Region is however, concerned at how these changes would
be implemented.
6.5.2 The UK is in the unique position within
the EU of importing approximately 50% of its sugar needs
as it has allowed imports of sugar to its domestic market from
developing countries. The UK sugar sector does not therefore
contribute to the export surplus within the EU (and thus the EU
budgetary cost) and should be seen as a model for the EU sugar
sector. The Region is therefore not happy to accept quota
cuts being applied to the UK when the Region (and UK) have
not been contributing to the problem.
6.5.3 Changes in internal EU quotas must
therefore be handled so as to reflect the market position of the
countries concerned. In the case of the UK a fair position would
appear to be no quota cut to reflect its unique market position.
6.5.4 The Region also believes that whilst
internal price cuts are inevitable to reduce the cost of the sugar
regime, care must be taken to ensure that these price cuts do
not either make EU production nonviable or severely affect
poorer nations currently supplying sugar to the EU market.
1 April 2004
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