Memorandum submitted by the Country Land
And Business Association (O74)
1. The Country Land and Business Association
(CLA) represents 40,000 members who between them own and manage
more than half of the rural land in England and Wales. Of our
farming members many who live within the catchment area of the
sugar factories are sugar beet producers.
2. We also recognise the wider contribution
made to the rural economy both in terms of direct employment and
also other business opportunities within the rural area.
3. We are grateful for the opportunity to
submit written evidence to this Inquiry and would welcome the
opportunity of further dialogue.
EXECUTIVE SUMMARY
4. In the UK there are over 7,000 growers
producing 1.1 million tonnes of sugar beet for British Sugar.
This represents only 50% of the UK requirement, the rest being
imported Cane processed by Tate and Lyle.
5. Environmental assessment has shown that
the growing of sugar beet was beneficial for biodiversity and
bird life aided by a reduction in chemical inputs over the last
20 years. Many co-products of processing are also utilised by
UK agriculture.
6. Whilst the EU trade regime may be trade
distorting it is beneficial, particularly to the Less Developed
Countries.
7. Option 3—Liberalisation. This is
potentially the most damaging option which will allow for no mitigation
of damaging impacts. This option will fundamentally damage the
interests of the UK, EU and LDCs.
8. Option 2—Reduction in EU internal
price. This option would accommodate EBA agreement, however on
its own would damage the industry although short term compensation
through the SFP. This will not allay fears of producers over the
disappearance of quotas or the process of market management.
9. Option 1— Stable market. Only this
option gives a real opportunity to retain a viable sugar growing
industry in the UK with any price cuts being compensated through
the SFP.
BACKGROUND
10. In the UK there are over 7,000 growers
of sugar beet concentrated mainly in the East Midlands, East Anglia,
Yorkshire and West Midlands.
11. UK sugar beet production is approximately
1.1 million tonnes with a national consumption of 2.2 million
tonnes the balance being made up of imported cane sugar. The industry
itself is said to support more than 20,000 jobs.
12. Within the last 20 years there has been
significant restructuring of the sugar beet processing industry
with a reduction of factories from 17 to six over the last 20
years. British Sugar claims that the efficiency of the UK processing
sector is the highest in Europe.
13. A recent environmental impact assessment
carried out by DEFRA and NGOs shows that the growing of sugar
beet was beneficial for biodiversity and bird life (eg pink-footed
geese, stone curlew, lapwing and skylark). This is resultant from
spring sowing allowing over-wintering of birds on the stubble
left by the previous crop, the cover the crop provides as well
as the late harvesting date which allows ideal nesting cover throughout
the summer.
14. Over the past 20 years there has been
substantial reduction in all forms of chemical inputs to the crops,
in the case of insecticides by 95%. In addition many of the co-products
of processing the sugar beet are better utilised many of them
within the farming industry eg animal feeds.
The current regime, and worldwide concerns
15. The current EU sugar regime, whilst
trade distorting, confers a number of benefits which we argue
should be set in the balance. In particular, we point to six distinct
factors which suggest that the UK sugar industry is deserving
of particular care.
16. There are few alternative spring sown
arable crops which offer over-wintering stubbles for farmland
birds, and thus the protection of the sugar crop contributes to
Defra biodiversity targets.
17. A significant sector within the rural
economy benefits from the jobs and incomes that growing, transport
and processing UK sugar beet provides. There are very few alternative
jobs in the areas where sugar beet is produced, and job losses
are hard to replace (particularly set against the background of
the recent ongoing job losses in agriculture), thus maintaining
UK sugar production contributes to Defra's rural economy objectives.
18. The transmission of cheaper bulk food
commodity prices through into lower consumer prices is poor. This
is because of the capacity of the highly concentrated, processing
and retailing sectors that are able to capture a large share of
these benefits. Thus the benefits of any reduction in tariff barriers
is likely to be lower than suggested in the consultation, and
will largely be transferred from farming and other rural SMEs
to the shareholders of plc businesses, contrary to Treasury policy
for the protection of SMEs.
19. Some of the poorest countries in the
world in the ACP also benefit from the EU regime, to the extent
that they access and enjoy protected high price markets which
contribute significantly to their national economies, in line
with development objectives.
20. The LDC's have expressed a desire for
access to markets that reward at least the costs of production,
rather than world trade price. They have expressed no interest
in production at current world market prices, and reportedly have
threatened to pass through non LDC sugar through any special access
regime (such as EBA) that may be granted.
21. A pure open market solution benefits
only the cheapest world producer, namely Brazil, where the environmental
impacts of its production methods are questionable.
22. These factors lead us to the conclusion
that, whilst concessions should be made to partially liberalise
the EU sugar regime, to move too quickly, or to fail to take account
of the wider benefits of UK sugar production risks significant
costs, without achieving Government objectives.
23. We have taken the above into account
in suggesting the response below.
The Options
24. The consultation on the reform of the
sugar sector undertaken by Defra dated 21 October 2003 gives three
possible orientations for the EU sugar regime:
— Option 1—an extension of the
present regime beyond 2006.
— Option 2—a reduction in the
EU internal price.
— Option 3—a complete liberalisation
of the current regime.
25. This Defra consultation only gave a
limited amount of information on the three options. The Commission
Staff working paper "Reforming the EU sugar policy"
and Communication "COM(2003) 554 final" gives additional
information, but it also lacks a clear definition of the impact
of each of these options. This makes favouring one option over
another more difficult as the full facts and impacts of each option
is not known. We therefore interpret the options as best we can
and offer the following observations.
26. Where reference is made to the Single
Farm Payment (SFP) the government has now made the decision that
the SFP will progress from a mainly historic basis in 2005 to
a purely regional average basis by 2012 although rates for national
reserve and UK modulation have not yet been announced. There will
two regions SDA and Non-SDA, with the sugar producing areas falling
into the Non SDA region. However it is clear that under the chosen
scheme any "compensation" given through the SFP for
price reduction will mitigate for losses in the first few years
but this benefit will be quickly lost as the payment becomes diluted
across all the eligible land in the non-SDA region.
Option 1
27. In the context of the issues flagged
above we interpret this option emphatically as not maintaining
the status quo as far as price and quotas are concerned.
However it does not apply as much adjustment to prices and quotas
as seems to be implied by Option 2. We consider that it is necessary
to retain a certain degree of regulation, control and protection
of the market, within the UK, between the UK and the rest of the
EU, with the ACP producers and the rest of the world. It is important
that any review of the current regime sets out a long-term sustainable
future for the sugar beet industry taking account of all these
dimensions.
28. The current system does provide considerable
protection for EU producers and encourages 50% of the UK sugar
consumption to be met by production within this country. The regime
also permits, and gives a favourable market for, an equal quantity
of imported cane from certain less developed countries.
29. The proposal under Option 1 does not
explicitly refer to any compensation to producers for reduction
in price and quota. Any price cuts involved in respecting international
commitments (for example on export subsidies) would therefore
be a direct loss to the producer. If this was to be managed by
reducing EU quotas it is also unclear as to exactly what percentage
reduction would be sought from UK production.
30. If these changes are necessary then
to be consistent with previous CAP reforms, we argue that reductions
in guaranteed prices must be compensated.
31. If this approach is taken, and the drop
in guaranteed price and quota are moderate then the UK sugar beet
industry could be maintained. If the reductions are larger then
this will start to force a contraction in UK sugar growing and
processing. ACP countries will also suffer.
32. UK sugar beet producers operate large
efficient well managed units with a diversity of cropping and
have invested substantially in machinery showing commitment to
the industry.
33. Option 1 is also favoured by the Least
Developed Countries Brussels Sugar Group. This is the only option
(save fixed quotas) that allows them to benefit from this important
market.
Option 2
34. This option promotes reduction of the
EU market price for sugar beet significantly; we understand the
criterion is to reduce the internal price sufficiently to reduce
domestic EU production (plus an allowance for ACP sugar) to the
domestic EU utilisation, eliminating the need for any subsidised
exports. In short this is the option to accommodate the EBA agreement.
In the process this would remove the need for production quotas.
Compensation could be paid for the reduction in price through
the SFP under the CAP Reform proposals in the same way as for
the other supported crops.
35. Whilst this proposal for reform appears
to fall in line with the current EU and national government thinking
on decoupled payments, if imposed as it is set out within this
consultation it could have a devastating impact on the industry
in the UK, the EU and the ACP countries.
36. The scale of price reductions, 40% has
been mentioned, will lead growers to abandon sugar beet as part
of their rotation. Those with aging equipment and less friable
soils will cease production first followed by those who are better
equipped. This would quickly have an impact on the economics of
operating the current number of processing factories. There would
be factory closures which then limit the choice of land managers
as to the locations that beet can be grown.
37. The extent of the compensation likely
to be offered is unclear. The precedent from the dairy reforms
is that it would be much less than 100%. It therefore has to be
assumed that the grower will suffer income loss, but is unclear
at what scale. If no compensation under the SFP is offered then
this option could well spell the end for the UK sugar beet growing
sector.
38. The consultation suggests that price
cuts would be managed to the point where the market stabilises,
but does not detail the parameters against which the industry
will be judged to have stabilised.
39. The EU has a poor record of market management
at this level, and there are considerable factors that lie outside
its control, not least of which is the ability under EBA of LDC
countries to act as transhipment points and pass through sugar
from lower cost production areas. Accordingly, whilst the EU claims
that this system would carry a degree of flexibility, in reality
this is significantly limited.
40. Moreover, any such flexibility is further
limited as investment in production requires market stability.
In the absence of such stability very large changes in capacity
can occur at the margin, for instance should a UK sugar factory
close.
41. It is important that those who currently
are sugar beet producers are able to compete economically within
the new regime. The CLA does not consider that Option 2 meets
the requirement for market stability and recommends a solution
based on Option 1.
Option 3
42. This would be the most damaging option
available. The abolition of all production support and quotas
will lead to a very sudden change in the sugar beet producing
regime, in the UK, in the rest of the EU and in the ACP countries.
If this policy is very largely motivated by a desire to help the
poorest producers of sugar in Africa, the Caribbean and Pacific,
then this is not the option to follow. It will simply hand a very
large part of the world's sugar production and trade to Brazil
and, depending on how they react, to the USA. Not only would this
choice not help the worlds poor it could make things in those
developing counties worse.
43. Even if payments were made under the
SFP, Option 3 would cause many UK growers to cease production
as soon as their rotations would allow them to. If no SFP was
offered then no UK producer could produce economically under this
option.
44. The environmental benefits of growing
sugar beet and processing it close to its source of production
are universally seen as beneficial and whilst free trade may be
seen as an overall solution it could at the same time destroy
a well established, highly invested, UK growing and sugar producing
industry without producing any wider global benefits.
45. This option would devastate the economic
sustainability of the sugar beet growing industry, weaken the
processing industry, damage the LDCs and expand without control
the production of sugar using questionable growing techniques
by the advanced developing countries which could have environmentally
damaging affects
RECOMMENDATIONS
46. The CLA recommends the option selected
should:
— Maintain a long term economically
competitive sugar beet growing sector which contributes to a sustainable
agricultural industry within the UK.
— Maintain the existing network of
sugar beet processing factories which each support a large network
of producers and allied businesses.
— Maintain the processing of the UK
sugar beet crop whilst delivering a protected import market for
sugar produced from LDCs without over-exposure to competition
from the advanced developing countries.
— Enhance the ability of land managers
to make long term agricultural and marketing decisions.
47. Only Option 1 gives a real opportunity
to retain a viable sugar growing industry in the UK, any price
cuts that this option involves should be compensated. We would
then expect sugar compensation payments to be integrated into
the Single Farm Payment on the same basis as for other recently
reformed sectors. In addition this option maintains the position
of the LDCs who depend on the revenue from their sugar as an important
part of their overall economy.
5 April 2004
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