Select Committee on Environment, Food and Rural Affairs Written Evidence

Memorandum submitted by the East of England Regional Assembly (EERA) and East of England Development Agency (EEDA) (O63)


  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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