Select Committee on Environment, Food and Rural Affairs Written Evidence

Supplementary memorandum submitted by Professor Sir John Marsh



  Gross margins provide a starting point to compare the likely impact of a change in the price of sugar on land use.

  Nix shows an average gross margin of sugar of £1,040 per hectare. This is derived from a yield of 52.5 tonnes per ha and a price of £35 per clean tonne of 17.2% sugar content. Implicitly this is equivalent to a price of £203 per tonne for sugar at the farm gate.

  For main crop potatoes the average gross margin is £1,025 per hectare, based on a yield of £42.5 tonnes per ha and a price of £75 per tonne for ware and £12.5 for stock feed.

  If we assume:

    That potatoes and sugar beet occupy a similar role in the rotation.

    That the relative gross margins shown above are of an industry "in equilibrium".

    That there are no major capital costs involved in shifting from sugar beet to potatoes.

  The impact of cuts in sugar price on gross margin would be as shown in the table:
Percentage price cut New sugar
gross margin
Relative gross margin
compared with potatoes

  On this basis there would be an immediate benefit from switching to potatoes, assuming costs remained constant but sugar beet retains a positive gross margin until price cuts exceed 50%. Thus if the fixed costs cannot be avoided, by use for other products, farmers would continue to produce sugar even in the face of substantial price cuts.


  The data set used is old, 2000, whereas reform processes will not start before 2006. They are figures designed for use by UK farm managers but even within the UK, let alone the whole of the EU, would need substantial refinement to present a satisfactory account of the position facing any one farmer. This means they give a broad indication of the direction of effect but must not be confused with a "measure".

  Sugar beet produces by-products in the form of beet pulp for animal feed—so the total return will depend upon the value of this feed.

  The analysis assumes that the costs and returns for each crop remain unchanged apart from the price of sugar. This is unrealistic. Costs per tonne will vary with weather, disease and the price of inputs such as fertiliser and sprays. The price per tonne of main crop potatoes is volatile.

  The analysis is based on average farms but in the "real world" there is a wide spread of gross margins. Nix gives a "low" of £695 and a "high" of £1,385 per hectare. The reality is that those who are least profitable would be likely to abandon production for much smaller price cuts than the best.

  The analysis assumes that beet will continue to find a processor whatever the volume available in a region. This is untrue. Once production cuts in the catchment area for a particular beet factory result in a level of throughput at which the factory fails to cover its costs, the processor is likely to close. As a result, even low cost producers will find they have no outlet for their product and sugar beet production will cease. There is no similar technical bottleneck for potatoes but in so far as profit relates to contracts with major retailers or processors, a parallel situation may occur making it difficult for former sugar producers to transfer land from sugar production to potatoes.

  It is unclear just what proportion of the fixed costs for sugar and potatoes are interchangeable. Labour and tractors, for example, could be used for either product. Seed planting, harvesting and grading equipment probably could not. The more specialist the equipment the more difficult would it be for a farmer to move from sugar to potatoes.


  If we assume that both crops will operate in a "free market" the vaibility will depend not only on what takes place on the farm but the competitiveness of the downstream sectors. For example, there is a threshold effect, referred to above, for sugar beet processing. Once the volume of throughput falls below a critical percentage of capacity the process becomes unprofitable and factories will disappear. For potatoes, the growth area in the market is in processed rather than fresh product. A similar "threshold" effect arises. Processing profitability depends on competitive price of potato raw material, throughput, actual processing costs and final selling price. Processed prices are likely to be related to the success of advertisement campaigns.

  The imposition of new environmental regulations will also impact on the costs of production. It is improbable that these will have similar impacts on sugar beet and potatoes or in the UK and among its competitors within the EU. How serious this might be cannot be determined until the new regulatory system is in operation but past experience suggests that UK governments are unlikely to be as protective of producer interests as those in many other EU countries.

March 2004

56   The data used in this note are based on the John Nix "Farm management pocketbook for 2000." Back

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