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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 550-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE ENVIRONMENT, FOOD AND RURAL AFFAIRS COMMITTEE (REFORM OF THE SUGAR REGIME SUB-COMMITTEE)
Tuesday 4 May 2004 MR J-C TYACK and MR D CLARK MR C TYAS, MS J ARDAGH and MR R LAMMING MR A BRESSAN, MR MANOEL REGIS LIMA VERDE LEAL and MR SERGIO LEITE Evidence heard in Public Questions 114-178 USE OF THE TRANSCRIPT
Oral Evidence Taken before the Environment, Food and Rural Affairs Committee, Reform of the Sugar Regime Sub-Committee on Tuesday 4 May 2004 Members present Paddy Tipping, in the Chair Mr David Drew Mr Michael Jack Alan Simpson Mr Bill Wiggin ________________ Memorandum submitted by ACP London Sugar Group Examination of Witnesses Witnesses: Mr Jean-Claude Tyack, Chairman and Mr David Clark, Secretary, African, Caribbean and Pacific (ACP) London Sugar Group, examined. Q114 Chairman: We are very pleased that Jean-Claude Tyack, Chairman and David Clark, the Secretary of the ACP London Sugar Group have been able to come and join us. Thank you very much for coming. As you know, we are looking at reform of the sugar regime. The European Commission have set out a number of options for change. Perhaps I might be very direct at the beginning and ask which option you prefer? Mr Clark: Our preferred option is for a sugar regime based on quotas in order to balance supply with demand. We have also said in our submission to you that we prefer an option which gives us a guaranteed price in order that there should be an orderly, stable and remunerative market, which in fact will provide a balance between the interests of suppliers, we numbering ourselves among the suppliers, and the consumers. If I may expand on that just slightly, in its paper last September, the Commission considered three options for the reform of the sugar regime, one of which was a total liberalisation. The Commission itself appears to feel that this should be rejected out of hand, so I shall not bother you further with it. The other one was price cuts. The Commission took the view that a balance between supply and demand could possibly be achieved by reducing the price within the EU until supply and demand were in balance and they postulated that might occur at about €450 per tonne. Since then it has become quite clear that that assessment was pretty wildly inaccurate, largely because of the impact of isoglucose on the market, but also because of other factors such as currency and stability, transport costs and so on. The result is that it seems now to be generally accepted and we would say that if price were the only market management option open to the Commission that equilibrium would be achieved only at a price which would be ruinous, not only for the industries we represent, but also for most of the European sugar industry. We are left with a market management system based on quotas, which is the one we prefer and which is favoured by many other stakeholders. Q115 Chairman: You mentioned a price there which you said would be ruinous. What is that price? Mr Clark: We would guess, mainly because of the costs of isoglucose production, that market balance would be achieved somewhere between €350 and €400 per tonne and that price applying to white sugar. For the raw sugar that we supply, the price would of course be considerably lower because of the cost of processing. It would certainly not be above €300 and that is not much more than half the price we are getting now. Q116 Chairman: At that price it would put all your members out of business. Mr Clark: That would not necessarily put all the ACP suppliers out of business, but it would have a ruinous impact on their income from supplying sugar to the EU. Q117 Mr Drew: If we could look at the issue of fairness to the ACP, if we are reading this correctly, the main reason that liberalisation per se has gone on the back burner is because there would be some real losers within the ACP Group. Is this a logical position which you can uphold indefinitely, or is this an interim position which the Sugar Group and the ACP are adhering to until there are wider reforms? Mr Tyack: Various studies carried out by LMC, for example, and other consultants show that there are three groups in our organisation: let us call them group 1, group 2 and group 3. It means simply that 1 is very competitive, usually the southern Africans, not South Africa but the countries in the southern African region; the second group consists of countries like Mauritius, Fiji and Ghana, which would be in the middle; the third group consists mainly of the Caribbean countries. Obviously a sharp price fall would hurt those which are most vulnerable, in other words it would start with group 3, that is the Caribbean, then it would gradually spread over to group 2, Ghana, Fiji and Mauritius. Therefore in our submission we have stressed the fact that we accept first of all that there should be reform; let us be quite clear about that. If there is reform, there should be a transition period which is long enough to give a chance to those who want to restructure their industries to do so and therefore to survive in a new regime. This is the kind of approach we would take. We would need time, a long transition period and we would need a slow gradual decrease in the price of sugar so as to give maximum chances to all our members. Q118 Mr Drew: I suppose what I am really asking is: to what extent, if there is a moral obligation, that can be upheld for an indefinite period of time or for the long-term future, as against the economics which would perhaps have taken a different direction? I think you have answered that. What about the multilateral trade implications? Sugar cannot sit in isolation from other products, other commodities. I suppose the argument would be that if there were some losers in any outcome of the new arrangements regarding the market considerations for sugar, they may be able to do better in other areas and that is right and proper. What is your way of looking at that argument? Mr Tyack: As regards WTO, we have to look at it in several ways. The first aspect would be the agricultural negotiations in WTO. The ACP position is first of all that we are a group of vulnerable countries and in WTO terms this means that we belong to certain WTO groupings. First of all we belong to small island developing states, SIDS, secondly to the net food importing developing countries. Let me first explain that if you are a small island you are very far from your markets, you suffer from certain climatic problems, you do not have economies of scale and you are vulnerable in various ways. We have explained this in our memorandum and if need be I can elaborate on that. If globalisation takes place, the cost of food is going to go up and this is why we belong to this second club, which is for net food importing developing countries. This is another of our groupings. We belong to various clubs like that and what we are aiming at in WTO is to negotiate a special deal, a little bit like the least developed countries (LDCs), not to the same extent but to have special and differential treatment which will be akin to that of the LDCs. This is the first part. The second part concerns the negotiations themselves. On that score we depend on access to the EU and therefore we try to take a position which is not going to threaten our access. This means principally having a model for tariff reduction which will not be too brutal, too aggressive, too steep and which will let us continue to access this market with a certain protection. This also means, if possible, retention of a special safeguard clause, which will continue to protect the EU market and this will also mean, in terms of internal support, a position which would be across sectors and not product by product, say coffee, tea and so on, but across sectors which would help to defend us and protect us. We would also be in favour of a renegotiation of the peace clause which would give certain legal security to all these arrangements. In a nutshell, this is our position in the WTO and what we hope for. A third aspect on which I should like to request the support of the UK Government is the fact that we have managed at last to insert in the last paper, which is called the Dermez text after President Dermez, the Mexican who was chairing the Cancun negotiation, in annex 2A which deals with agriculture, one phrase which says "... but preferences should be maintained". There is a cross-reference there to the text of Mr Harbinson, version 2, where in paragraph 16 there is a very good text about maintaining our long-standing preferences. I appeal to the UK Government because I feel perhaps in this respect the UK could help us more. They tend to be a bit too liberal in this connection. If they could take into consideration our problems and the necessity for us to continue with these preferences, then a more active and proactive support on their part would be tremendously helpful. Q119 Mr Jack: In your evidence to the Committee so far you have put emphasis on maintaining in some way preferential access to European markets. If one looks at the list of ACP countries for whom these benefits currently prevail, you have some significant players with over 100,000 tonnes of production a year and you have a lot of people below that. Is that necessarily the fairest way to have access to these markets based on history as opposed to an analysis of what is right for the economies of each of the ACP sugar producers? Mr Tyack: May I quote Oxfam to start with? Oxfam have said they cannot start with a blank sheet and they have also said that the Realpolitik of sugar has to be taken into consideration if the sugar reform is to be a success. From my point of view, this means that we have to take into consideration an historical perspective on these questions. What history means as far as this is concerned is that we had the Commonwealth Sugar Agreement (CSA) in the 1950s and these quotas were allocated purely on the basis of production capacity, export capacity, quality sugar, refiners' needs. There is no mystery about it; there is no plot or anything like that. It was a very simply, direct thing in fact. As we moved on from the Commonwealth Agreement to the Sugar Protocol, then there was a chance to change these quotas. At that time there were prices of £600 per tonne on the world market and the EU was lacking sugar, therefore there was a problem and the ACP were asked whether they wanted to change the quotas, to increase their quotas. Some of us made a judgment on the future of a world market and said this world market price was going to stay and we did not want to increase our quotas. Others, like Mauritius for example, were rather more pessimistic and said it was £600 but it was going to go down to £6 soon. So we decided to increase our quotas. This is how, over the years, starting with the CSA, continuing to the Sugar Protocol, we had the chance of increasing our quotas and we made a judgment at a certain time. I see what you are aiming at. We have five LDCs in the ACP Group, - this is perhaps something which is not well known; I shall not name them all but Malawi and Mozambique now and countries like that. Secondly, we also have countries which are verging on becoming LDCs, which are not LDCs purely because of non-economic criteria, like the literacy rate, which is one of the criteria for being an LDC. We have a few other vulnerable countries, which are not developed countries or rich countries by any means, just on the edge of poverty and they would be called poor because the developing and least developed countries are poor. Just now, when we talked about WTO, I also talked about our profile of vulnerability, net food importing countries and this kind of thing. Basically on the one hand the explanation for getting these quotas from the historical perspective is quite simple and direct. Secondly, from the poverty angle we have a case for getting help or getting these trade arrangements. In fact the solution is not to rob Peter to pay Paul, as we often say, and in fact this is what happened in the EBA initiative, that is our ACP quota was recycled and given to the EBA, so much so that it was considered a bit of a scandal and we said ourselves that the poor had had to pay for the poorest. The solution is to give more sugar; it is not to take from one to give to the other, but to give more sugar to the poorest. I would say that the poorest are the LDCs. You have this LDC initiative, this EBA initiative and the LDCs themselves are in the process of making a "proposal" to the Commission. We all hope that this proposal is going to succeed. Basically, we must not take from one to give to the other, we must try to give more sugar to the LDCs. We have asked for 1.6 or something like that and this seems to be a reasonable amount; well, we shall not judge whether it is a reasonable amount or not. There is some controversy about that. Q120 Mr Wiggin: To what extent is it realistic to expect 100 per cent compensation for any price reduction caused by reform? Mr Tyack: The "C" word. I must say that I welcome this question of accompanying measures, as we call it. To be frank, I have just phoned Botswana, because the ACP ministers are in Botswana talking about that right now. I said to my contacts there that I was going to give evidence to a committee and I wanted guidance on this. Basically what we should like to say about this is that there will be a loss of earnings if the prices go down and if the prices go down for the EU producers, then whatever accompanying measures are designed for the EU, this could be a criterion for the way of dealing with us. We also say that there should be an effective and simple mechanism to safeguard the accruals to the ACP producers. This is the second criterion as it were. We also say no one-off payment, as in rum and rice, the experience in the Caribbean. I do not know very much about it, but I believe that a lot of what took place in the Caribbean in this context, like rum, rice or bananas, are not precedents which would be quoted in this connection. We also say that it should not be EDF funds but FEOGA, or the English equivalent of FEOGA, in other words not aid but agriculture money to be set aside for these funds. Another point I should like to make is that we have noticed that in the Commission's paper there is a reference to the outermost territories. The chairman of a committee, Mr Alvino Cunha, who wrote a report on this question, said that the outermost territories, in other words the DOMs or whatever, those peripheral territories, are special territories. What applies in terms of CAP reform should not apply to them, therefore there should be no decoupling. We are saying we could perhaps use the precedent of the outermost territories. After all, let us think about it. Let us think about Martinique, let us think about some British West Indies island and Guadeloupe or wherever, islands like that. There would be some difference obviously, but not much and we should like this criterion of outermost territories to pertain if the question of compensation ever arises. I should not use that word. Q121 Mr Wiggin: To what extent do you think deductions from the CAP budget, used to compensate ACP producers, will lead directly to a reduction in support for European farmers? Mr Tyack: Frankly I cannot see the connection. May I explain what our position is on this? Our position is that what the EU producers say is that the equivalent of 1.6 million tonnes is exported. The term they use is "re-exported" and we do not like this term because it is not true. Our l.6 million which we export to the EU market is consumed within the EU market and not exported. What we say is that if ever there were some kind of saving on this 1.6 million, in other words if export subsidies were to be made available on this quantity, then this would provide funds for accompanying measures for the ACP. Obviously, to answer your question more directly, I do not know whether, if we do not use these funds these would be deducted from the sums of money made available to them. Mr Clark: What we can say is that if the EU price is reduced, there would be a saving to the EU budget because there would be a decrease or a complete elimination of the money paid out in export subsidies. It is our case that that money is there partly because of the arrangements between the ACP and the EU and the extent to which those are included in the EU's commitments to the WTO, the Uruguay Round and means therefore that money properly belongs to the ACP, it does not belong to the European farmer. Q122 Mr Wiggin: So why are you insisting that it comes out of CAP rather than any other funding source? Mr Clark: It is clear that if it came out of the European development fund there would be no new money available to the ACP countries, it would merely come out of existing programmes. Q123 Alan Simpson: I just want to switch across to environmental impact. Perhaps I should just say that I am not remotely interested in trade liberalisation nor am I interested in big global monopolies controlling sugar. What I am interested in is the confusing position I find myself in over whether this is a desirable trade to be promoting at all. When the Committee went to Brazil, we saw a great deal about the carbon sequestration which sugar cane production produces, but there was no mention about how water-thirsty sugar is as a commodity. I just want you to talk me through your assessment of the impact on water supplies in ACP countries which expand sugar production. Mr Clark: Neither Jean-Claude nor I are environmental specialists, so you will forgive me for a fairly broad-brush answer. I should like to make the point first of all, that there are several environmental benefits from growing sugar cane relating to prevention of soil erosion, lower use of insecticides compared with alternative crops which could be grown, its general advantages in terms of resistance to extreme weather conditions and its suitability, given the type of soils. To answer your specific point, in the countries I have visited, water management is taken extremely seriously. Water is not diverted from other agricultural products to feed cane plantations; on the contrary in some of the African countries I am familiar with the need of cane plantations for water has resulted in the building of extensive dam systems which have contributed in a very positive way to the local economy and have prevented severe hardship in times of drought. In another country with which I am familiar, Guyana, the whole cane area is based on low-lying ground which was reclaimed by the then Dutch administration in the nineteenth century and the water usage is totally integrated into cane production in a way which is beneficial to the community. I have not visited the cane plantations in Brazil I am afraid, so I do not know what the differences are between water management in Brazil and in the ACP countries, but I think the impact of cane on water management is beneficial and I feel we could probably produce some evidence from experts for you gentlemen, if that were required. Chairman: That would be very helpful. Q124 Alan Simpson: That would be really helpful because Jean-Claude mentioned earlier that the specific position of ACP countries was being identified as a vulnerable group of countries. One of the greatest areas of vulnerability is in terms of water resources. Mr Clark: Indeed. Q125 Alan Simpson: I and the Committee would really welcome whatever information you have about the appraisals made. Mr Clark: Yes, many of the small islands do have very fragile eco-systems. If it were not for sugar cane, there would be substantial soil erosion, there would be a climate change. This has been shown, particularly in the case of Antigua, where the hinterland, which used to produce sugar cane, has now reverted to scrub, with consequent negative impacts on rainfall and negative impacts on tourism for very obvious reasons. Q126 Chairman: Perhaps a short note about the environmental benefits and then Mr Simpson's questions around the availability of water supply would be very helpful. Mr Clark: Indeed. Q127 Alan Simpson: The accusation we were presented with was that the whole nature of this trade is an effective way in which the rich West countries steal water from the developing poor; that sugar cane is a water thirsty product and we ought to have a very serious look at the water economics of this. Mr Clark: You will detect that we are raising an eyebrow at that. Chairman: Perhaps you would reflect on that and let us have a note. Q128 Mr Jack: In paragraph 2.4.2 of your evidence, you comment on the disappointing failure to find alternative crops for sugar beet and I quote "The export of a large variety of fruits and vegetables has failed as such products were not competitive on the EU market". Why the failure and what work is being done, if a quantity reduction in sugar production were to take place, to replace it with other agricultural crops? Or are you looking at alternative diversifications of the respective ACP economies should the volume of sugar start to decline? Mr Tyack: A very interesting question. Some of us have approached the problem in the following way, in other words we have a knowledge competence in growing sugar cane and one of the first things we should do is to try to use its by-products, for example. There are lots of by-products, but there are two main by-products, molasses on the one hand and bagasse. Bagasse is the fibrous residue which is left when the cane is crushed. Let me give you an example. In Mauritius for example we have co-generation plants. These are plants which produce electricity from bagasse during the harvest and from other materials like coal in between the harvests. We call this a form of green energy because it is obviously renewable and it comes from the cane and this is extremely valuable in terms of the balance sheet. However, more specifically, we are now producing something like 40 per cent of the electricity for the public grid. So one area of diversification which can be explored by many of us is this co-generation aspect, which is producing electricity from bagasse for the public grid. The other area which can be explored by some, so long as the economics are right, is ethanol from molasses. I suppose in land-locked countries where transport costs would be very high and the availability of oil would be difficult, it would make sense to produce ethanol from molasses. This is from the sugar plant itself. Some of the strategies we are putting together are in order to maximise the sugar cane plant, all aspects of the sugar cane plant. Regarding other areas of diversification, I must say I have been involved for 30 years in the sugar industry and I have seen many missions of FAO, World Bank and so on come to us and spend a fortnight, explore all possibilities, leave and they usually conclude that it is not just a question of being able to produce something in the agronomic sense, you have to produce something of value, to use Robert Ruark's novel's title. If you want to produce something of value, you have to compare it with the advantages of the cane and this means therefore a good price, reliable marketing, valuable by-products, environmentally friendly and so on and so forth. You try to make a list of all the advantages of sugar, not only agricultural crop but also industrial crop, which is very important in terms of giving skills to the people, engineering skills as opposed to farming skills. When you consider all these aspects of the sugar cane, you come to the conclusion that it very difficult to find alternative crops which can offer the same advantages in our environment. On top of that sugar cane resists cyclones and droughts in an extraordinary way. The most violent cyclones we have had have resulted in a 30 per cent drop in production and I am talking now about cyclones of 200 miles per hour or something like that, real beasts. When you put all these criteria together, it is very hard to find something which will match all these criteria. Chairman: Mr Tyack, Mr Clark, thank you very much indeed. You are going to produce a little note for us on the environmental benefits and on the need for water resources for cane sugar. Thank you very much for coming. Memoranda submitted by UK Industrial Sugar Users Group and Biscuit, Cake, Chocolate & Confectionery Association Examination of Witnesses Witnesses: Mr Chris Tyas, Nestlé UK, Chair of the Biscuit, Cake, Chocolate and Confectionery Association (BCCCA) Commercial Committee, Ms Jill Ardagh, Director General, British Soft Drinks Association and Mr Richard Lamming, UK Industrial Sugar Users Group, examined. Q129 Chairman: Now we are joined by the UK Industrial Sugar Users Group: Chris Tyas, Jill Ardagh and Richard Lamming. Thank you very much for coming to join us today. Which of the Commission's options do you recommend? Mr Lamming: Our concern is that at present the British manufacturing industry is at a competitive disadvantage compared both with its competitors elsewhere in the European Union and with production outside the European Union. That is the concern we bring to you today. What we wish to see is the end of that competitive disadvantage, so we are looking for that to come by a phases and a staged approach with a managed programme, reform of price quota and tariff over a period of perhaps five years. It is probably best described as a variant of option two. Q130 Chairman: So at this stage you do not support a fully liberalised market. Mr Lamming: Our concern is that the reform needs to be in a phased, staged manner. We think that is the best way to balance the interest of all the different stakeholders; an instant switching off of the regime would be very disadvantageous to a number of stakeholders, so we do not recommend that. Q131 Chairman: You were sitting in the audience earlier on and will have heard the figure of a EU price target of €450 per tonne mentioned. What effect would that have on your industry? Mr Tyas: Perhaps what it would be more important to say is that rather than seeking a price target, we just seek a level playing field where British industry with British jobs and British factories can compete on fair and equal terms. We have seen in the last five years something like 10,000 jobs, 15 major factories go; that is not even including some of the recent well publicised announcements and that is a rate which is increasing. We just need a level playing field rather than a target price. Q132 Chairman: But you want that level playing field within five years. Mr Tyas: Yes, within five years. Q133 Mr Jack: Are you attributing all of the downturn to the price of sugar? Mr Tyas: Most of the other conditions which have changed in that time have changed on a similar par, regardless of where the factories are sited. One of the big differences is the price of sugar. Q134 Mr Jack: For the sake of transparency, could you take us through the price of sugar to the people you represent and the disparity against others who are having a more equal slice of the action? When you say you want a level playing field, you want parity, what is the difference? Mr Tyas: At the moment, the difference in the price of sugar between the EU and outside the EU is something like three times. Manufacturers here in the UK face a price three times higher than those outside the EU do. Q135 Mr Jack: Just put some numbers on it so the Committee can understand the comparative numbers. Mr Tyas: We would be talking figures in the region of £500 to £550 per tonne within the EU and something in the region of £150 to £200 a tonne outside the EU. I do not think any of us for a moment believe that in a real world market the price is as low as £150 to £200 per tonne. That is subject to what Oxfam describes in its recent report as dumping of sugar and that clearly depresses the overall world price. We are not seeking a target price, we are just seeking a level playing field for British factories and British jobs to be able to compete. Q136 Mr Jack: Given that most markets in the world supply themselves and the world market is what is left over, are we talking perhaps £300 versus £550 as a fairer comparator? Mr Tyas: I would not be able to comment on what the true world balance is. Q137 Mr Jack: You have just put before us a definitive statement to say that you want a level playing field, you want equality of opportunity, so you must have some idea of what the difference is at the present time between those areas. You said that we had lost business, that plants had closed, and you made it clear that the reason for that was this disparity in price because all things were seen as equal except the price of sugar. How much a difference is the real difference that our people have to cope with versus the competitors? Mr Tyas: The EU proposals refer to €450 per tonne. That is their summary of what they believe would be the equalised price. Q138 Mr Jack: No, you are missing the point, Mr Tyas. I am just trying to get the benchmark as to where we are now, not where we are going to be. You said you wanted equality. You quoted me that the price of sugar within the European Union was about £550 per tonne. You then postulated that outside it was between £150 and £250, but then you said that may not actually be the right price because that is the world market price. So when we are looking at sweet manufacturers, confectionery manufacturers, cake manufacturers in competitive countries, where I presume this business has gone, what are they paying for sugar? Mr Tyas: They are paying between £150 and £250 per tonne today, because it is an artificially depressed price because of dumping. Q139 Mr Drew: Could we build on that and look at the issue of policy in regard to pricing? It would help me to know where you see the dividing lines and how it may be possible to ascertain how we can derive some compromise. We have been told that liberalisation is off the agenda, so one presumes that is the reality of that situation. Can you just tease out for me where you think things will go to with all these complications of a domestic market, a highly complex series of differential demands in world markets, partly based on moral issues, like how we do not want to cut adrift some of the poorest countries in the world? Just give me a quick feel for this. Mr Lamming: By "dividing lines" do you mean in the political sense? Q140 Mr Drew: Where you would be getting involved. Mr Lamming: We look at it not so much as a dividing line but in terms of acknowledging all the interests of stakeholders in the current regime and ensuring that they are legitimately accounted for in the reform which takes place. I understand that is what you are looking for. We would say that the immediate stakeholders we want to have acknowledged are the people employed within the United Kingdom in the industrial use of sugar whose jobs are disappearing and might continue to disappear without reform. That is the first one. Mr Tyas: That is about 90,000. Mr Lamming: By far the largest element of employment in sugar in this country is actually in the industrial users rather than in growing or processing. Secondly, there are people employed in growing and processing in the UK. Thirdly, there are people employed in growing and processing in other parts of the world and we have all these different interests to take into account. What we are saying is that if you want a policy which is intended to support rural communities in this country or to support vulnerable economies in other parts of the world, then do so by all means, but have a policy which is actually designed and intended to have that effect. So, for example, in the context of rural communities in this country, you might decouple payments to farmers to support them as businesses and employers rather than as simple producers of sugar; similarly with vulnerable economies, to have policies which are designed specifically for their needs. What we have at the moment is effectively that those policies are simple by-products of an attempt to interfere in the sugar market rather than things which are designed for them as such. It probably does a disservice to those interests quite frankly. Q141 Mr Drew: How much do you blame the processors for what has gone on? Would you support Oxfam's call for a proper full investigation into their various activities? Mr Lamming: It is not a question of blaming anybody, it is a question of acknowledging where we are and reforming the regime so that everybody's interests are acknowledged in the future. Ms Ardagh: It is a creation of the system. Q142 Mr Drew: But people can use or support a system, even if they did not set up that system. In the evidence sessions I have sat in, this is not dissimilar from what we saw with the milk sector, that there is a degree of living in denial and wanting to blame others, but we do not quite want to do that in public because we have something to lose. If there is going to be reform, we ought perhaps to be open and honest about what has gone wrong in the past and who perhaps should be looking to take that lead in terms of reform. Mr Lamming: In the context of the need for reform and some of the things you are alluding to, there are some things which do need to be borne in mind. The fact that the UK price of sugar is 10 per cent higher than the price you will find in mainland Europe would not be seen in a normally competitive market. That is not to say there is any blame for the fact that it is not a normally competitive market, but the system is designed so that it tends not to be. In our view that is a major reason for reform. We would rather reform the regime than try to blame people for the way that it is right now. Q143 Mr Wiggin: The committee is aware that the contraction in the UK sugar-using sector is directly attributable to the high price of sugar. How much of the UK sugar-using sector will be lost abroad if the EU regime is not substantially overhauled? Mr Lamming: We would hesitate to put an end point on it, but it has contracted in the order of ten per cent in the past five years or so and there is no sign that rate might slow down, depending on exactly what is done in the nature of reform. It is a serious threat to us. Mr Tyas: You can see that within the balance of payments in that just six years ago this industry had a surplus of 200,000 tonnes, probably ten large factories; in 2002 that had shrunk to a trade deficit of nearly 100,000 tonnes and that is a huge change in such a short time. Q144 Mr Wiggin: Where do you think these manufacturers are going to relocate? Mr Tyas: They seem at the moment to be relocating onto the fringes of the EU. Q145 Mr Wiggin: The Ukraine and --- Mr Tyas: Ukraine, Bulgaria, places like that. Q146 Alan Simpson: You are users of sugar and you just want to know where the sugar is coming from. Why would it be unacceptable in extremis for Brazil to be the world's supplier of sugar? You would know where it was coming from. Ms Ardagh: Why would it be unacceptable? Q147 Alan Simpson: Yes. Ms Ardagh: I do not think we would say that it would be unacceptable necessarily. Am I understanding this correctly? We would not say it is unacceptable necessarily, if it is the result of a competitive world trading system. There are many fears that Brazil will take over world supply of sugar if the EU regime is reformed, but I think that if international competition is allowed to flourish - because it is not just the EU which needs to reform its regime but the United States as well and that is another factor which has to be brought in here - in a truly competitive world market there would be more than one player. I think too that the trading system, the chain in the system, would want to encourage that. Q148 Alan Simpson: The BCCCA did make the point in its submission, I quote "It would not be prudent to create a situation where total supply of sugar in the future came solely from one or two non-EU origins". It seems to me that you are making different presumptions there, which we are quite keen to tease out. If you are just using sugar, then why does it matter to you how many sources you get it from? Mr Lamming: In the nature of any manufacture with a critical ingredient like sugar, from the point of view of business sustainability it is probably not a good idea to become too dependent on the single supplier. Any company, any industry which is importing or buying domestic production will want to have a portfolio of potential suppliers rather than a single one; so from a business perspective that would make sense. Secondly, one of the reasons why we started out by saying that we think that whatever reform takes place it should happen over a period of time was precisely to prevent the dominance in the marketplace simply being handed over to one or a small number of suppliers who happened to be in the best position right now. If you think about it, under the current nature of the system, there is a range of different countries and businesses engaged in the system and they can do so in a satisfactory and profitable manner. Under the reform system we should like to see, there would also be a range of countries involved in that process. Getting from A to B, if you did it instantly, a number of businesses which might be able to survive in the reformed regime, might not get the opportunity to get there simply because the way in which the process was done, the transition was done, might simply make them uncompetitive for a time if they did not have the finance or the opportunity to invest, to get through to reform. That is why we say the reform must be a staged and managed process over a period of time rather than instantaneous. If it were instantaneous, one might see a single supplier come to dominate the market. For business reasons, we think that is probably not ideal and certainly our proposal is very definitely intended to ensure that it is possible for other countries to react, given time to adjust. Mr Tyas: At the present time, given some period of time, there is no reason to think that really would occur, although there are concerns about Brazil taking all the production. Today there are other South-East Asian countries like Thailand and others which have similar costs of production and there are even countries in Africa, as the Oxfam report said, like Mozambique, which have similar costs of production to Brazil and would be able to compete in such a situation given a transition period. Q149 Alan Simpson: Does that have ramifications for the UK sugar industry as a whole? It just seems interesting that if you looked at the sugar industry in a UK context, you would hardly describe it as one characterised by open market competition with a multiplicity of small firms, would you? Mr Tyas: No. Ms Ardagh: No, the quota is in the hands of one processor and it is not available. The European Commission did suggest to us once that we could compete by processing our own sugar, but we had to point out that we did not have any quota. Yes, we could export that sugar, but we could not actually use it. It is a bit of a false hope. Q150 Alan Simpson: That was the monopoly position I was just trying to explore in a different context. It seems to me that you are living with one and you are saying another would be undesirable. Mr Lamming: With the one we are living with we have an expectation that reform can be brought about, whereas if a marketplace system produced a single supplier as a result of a regulatory change, an instantaneous change which produced a single supplier, we would then be stuck. Here at least we do have the hope that you will understand our concerns. Q151 Alan Simpson: In terms of the services you get, are there other dimensions which concern you, such as issues to do with traceability, or just-in-time deliveries? Does that figure in your view of the nature of the reforms and the market you want to end up with? Ms Ardagh: Those are important factors: the quality of the product and the quality of the supply service. We think that is all part of the competitive mix and we know that UK interests are very concerned about losing business in a reformed market, but there is always the opportunity to look at added value, at differentiation, at being able to provide equality and the service which customers would like. Mr Tyas: This is why Richard commented earlier that we were looking for option 2 as a managed period of change. Q152 Mr Jack: Consumers figure in paragraph 1.1 of your evidence. You tell us that the regime "... increases the cost to British consumers by some £600 million each year". A very laudable start. But consumers do not appear anywhere else. What can you tell us about the benefits to consumers from the process of reform which you advocate. Put simply, by how much can people expect sugar containing products to go down by virtue of the change in the regime? Mr Lamming: Household expenditure surveys show that the average consumer spends about £200 a year on products containing sugar and the excess cost of the sugar regime is about £10 per person, £600 million per year. Say you might expect to see a five per cent reduction in the cost of the goods containing sugar and your question will be: how do we know that will come through --- Q153 Mr Jack: You used the words "might expect". A scintilla of doubt crept into your statement. Mr Lamming: I was going to explain why that was realistic. It is a question often put to us. British Sugar in their evidence have said that there is no evidence that a fall in the cost of sugar at the production stage would appear on the supermarket shelf. Actually we think that is wrong. There is very clear evidence of exactly this happening. In the period 1996 to 2000, when the pound went up in value against European currencies, because the sugar price is fixed in euros, that corresponded to a 33 per cent fall in the price of raw sugar. From data through national statistics, we can actually identify what happened to the change in the raw sugar price, how that was reflected in the costs of the processed sugar which industrial users bought from processors and the cost of the finished goods which industrial users sold to supermarkets and indeed the cost of the goods on the supermarket shelves. What we find of the relative change in price between the raw sugar at the farm gate and the product on the supermarket shelf is that the biggest element of that price fall in the three stages, the processing, using and retail, was absorbed at the processing stage where it ought to have been smallest. That is where it makes the least difference, where the least value is added to the sugar, but 46 per cent of the difference in the cost of sugar was actually absorbed by the processors whereas a much smaller percentage, over 17 per cent, was absorbed at the industrial user stage, which is consistent with a competitive market amongst industrial users and a non-competitive market amongst processors. To the extent that a price fall is seen by industrial users and by retailers, it gets through, that is what the evidence shows. Q154 Mr Jack: If I asked you to go back to the people you represent and give us one or two instances, just for example the price of a bar of chocolate, the cost of a jar of jam, Victoria sandwich cake or something like that, could you give us some real world examples to show that those prices had gone down. Ms Ardagh: We are obviously talking from the manufacturers' perspective, so we would give you manufacturing prices, which are not necessarily retail prices. Retailers fix the retail price, not manufacturers. Q155 Mr Jack: Being slightly in this world here of the doubting Thomas fraternity, it would be nice to have an actual demonstration that consumers could expect to see some gain. Let me just turn the world on its head. We are currently in a great debate about health, sugar and obesity. Should we really be talking about wanting to reduce the price of sugar as a commodity when a lot of public concern is being expressed about the consumption of this particular commodity? Mr Lamming: The consumption of goods containing sugar, these kinds of things, does not show much price elasticity. If you did reduce the price, you would not see an increase in consumption. That is the evidence we see. With confectionery, in real terms the price is falling, yet consumption is also falling. So it does not have a price elasticity in the way that you and some other people perhaps fear. Mr Tyas: With respect, the purpose perhaps of the argument at the beginning was that people will consume these products; they may consume a little less, they may consume a little more. What we are really trying to concern ourselves with here is that the products people do eat are manufactured in British factories with British employees under British terms and conditions. That is really what we are concerned about. Q156 Chairman: You mentioned a minute or two ago some statistics you have. Mr Lamming: Yes, we can provide that certainly as a demonstration of what has happened. This is not a discussion of what might happen, it is actually a genuine analysis of what did happen. Q157 Chairman: You have been pretty critical of the sugar regime and you are advocating change, but you are not very keen on seeing change in the export refund, because that is in your interests. How do you justify that? Mr Lamming: Understanding the role of the export refund system, what it amounts to is compensation to European manufacturers for the fact that they are having to buy sugar at a price in excess of the world price. Effectively it puts European manufacturers where they otherwise would have been if they had been able to buy sugar at the world price. That is what it does. Our view is that once the regulatory system which artificially inflates the European price is removed and as that price falls, then the export refund should go. The role of the export refund system is simply to attempt to create a level playing field. However, bear in mind at the moment that it is intended to cover the difference between the world price and the European Union's intervention price which is set by the civil servants. In fact the European market price is some 15 to 22 per cent above even that intervention price. It is not perfect even now. Q158 Chairman: Put in simple terms, this is a sweetie that you are prepared to let go. Mr Tyas: If there were a level playing field, which I explained earlier we were seeking, there would be no need for those export refunds and we would not be seeking them. Q159 Alan Simpson: Even if there were no level playing field, would you not accept the sorts of criticisms which were being made by people like Oxfam that the most absurd part of their current arrangements is export subsidy or compensation. Mr Tyas: On raw sugar. Mr Lamming: Yes, on raw sugar. You need to distinguish between the subsidy for raw sugar and the refund for products which are compelled to use sugar at that high European price. There is a difference of kind. The subsidy for raw sugar is simply sugar which has been grown in the European Union. Taxpayers' money is used to subsidise its export. That is the exports of raw sugar which Oxfam are complaining about. The export refunds which manufacturing industry receives are based on the difference between European price and the world price and they are funded by a levy on the people who benefit from the European price for domestic production. It is a different kind of thing. The money comes from a different source and has a different reason. You could abolish subsidised exports of raw sugar and processed sugar if you chose without removing the export refunds which industrial users use. That would be perfectly possible, perfectly consistent. You could do it the other way round, but the price of that would be completely destroyed. A lot of manufacturing jobs in Europe would be forced to buy a major ingredient at three times the price of competitors. Mr Tyas: We would support the Oxfam argument in that case, yes. Q160 Alan Simpson: I would just make the point that Oxfam are quite specific in talking about the damage done in terms of export refunds to the confectionery industry in parts of southern Africa. They recognise that there are two different dimensions to it, but it would be wrong to suggest that they are not critical of both. Mr Tyas: All we seek is a level playing field. Q161 Mr Drew: Is not part of the difficulty, besides the moral issue of whether you should get export subsidies, that this is an incredibly complicated mechanistic formula, the traders in my constituency are anything to by. It is a capped figure and you have to pre-bid for it. This is a very convoluted process and surely if there were any form of competition, this would be outwith that competition. Is that not true? Mr Tyas: We would agree entirely with you. It is a very complex system, as Richard commented earlier, which has grown up over time and complexity has grown on top of complexity, sometimes only to add administration and bureaucracy to it. We just seek a level playing field with the minimum amount of intervention and a transition period to get there. We suggested five years. Chairman: That is a very clear statement of your position. Thank you all very much indeed. Memorandum submitted by The Royal Society for the Protection of Birds Examination of Witnesses Witnesses: Dr Mark Avery, Director of Conservation and Mr Darren Moorcroft, Agriculture Policy Officer, The Royal Society for the Protection of Birds (RSPB), examined. Q162 Chairman: Now we are joined by Dr Mark Avery and Darren Moorcroft from RSPB. Thank you very much for coming. We are going to discard with normal practice. Perhaps you could just give us a snapshot of the positive and negative environmental effects of both sugar cane and sugar beet. Would you make an opening statement about what is good and bad about the growth of both in terms of the environment? Dr Avery: I shall kick off and tell you from our position what the positive environmental benefits of sugar beet production are. We have come to a position where we recognise that sugar beet production in the UK has environmental benefits. So we would support its continuing production in the UK. I should like to say that right at the beginning. There is clearly a benefit, in terms of reducing food miles, to producing sugar within the UK. If I move on to the wildlife benefits, which is where we feel most comfortable, the benefits to wildlife of growing sugar beet in the UK come from two main features of sugar beet production which is that it is a spring grown crop and that it is a broad leaf crop, so it is different from cereals. There are three groups of birds in particular which benefit from the current ways that sugar beet is grown. The first is a group of fairly widespread common but declining farmland birds, birds like the skylark and corn bunting, tree sparrow, linnet, all of which are subject in the UK to Biodiversity Action Plans (BAPs) which were produced several years ago and they all form part of DEFRA's PSA target to reverse the decline in farmland birds. These are birds which benefit from sugar beet production because later in the season sugar beet is quite a weedy crop; it has weeds which are of value to farmland wildlife and it is that value to farmland wildlife which means that the RSPB is very worried about the possibility of GM herbicide tolerant sugar beet being grown in the UK, because we felt that those values to wildlife would disappear. A range of common farmland birds certainly benefit. The second group which we would mention are birds called the stone curlew, which again is a rare species. It is recognised by the UK Government, has its own Biodiversity Action Plan and stone curlews like sugar beet because stone curlews need open ground to nest on; because it is a spring sown crop, sugar beet is often one of the few crops in the landscape where stone curlews can find places to nest. Quite a high proportion of the UK's stone curlews nests on the sugar beet. That is our second worry. The third group of birds which benefit within the UK are birds called the pink footed goose. The pink footed goose visits the UK in the winter; practically the whole world population of this goose visits the UK. They come from Iceland, so we have the responsibility of looking after the whole world population. Many of these birds feed on harvested sugar beet tops, the remains of the crop after it is harvested so no conflict at all with farmers in this, in the autumn from October through to when the sugar beet is used up. Those would be three benefits, we would say. Q163 Chairman: What about the negatives? Water extraction for example, irrigation? Mr Moorcroft: Yes, probably the negative aspects, starting with some of the species my colleague has mentioned, particularly ground nesting birds, are that they are often vulnerable to activities within the field when they are nesting on the ground, so mechanical weeding, irrigation, can all have a negative impact in terms of accidental destruction of eggs. There are the intensive crop protection regimes which occur with sugar beet in the UK. It is well known that the crop does not compete well with non-crop plants and so would receive typically four to five treatments of herbicide in order to get the crop away. That obviously has a potentially negative effect on the non-crop plants which both host invertebrates which birds will feed their chicks on, but also those plants which may produce seeds later on in the season. There is a requirement for irrigation in some areas. We recognise that in the UK, that is perhaps less than elsewhere in the EU and places like Spain and Italy in the EU obviously grow sugar beet in arid areas where irrigation has a much bigger effect on the growth of the crop and that we could see as being a negative environmental impact of the regime. The harvesting mechanisms of sugar beet can lead to soil erosion problems, because of the processes and soil compaction because of winter harvesting when the soil may not be ideal for having large machinery on top of it. Perhaps the biggest issue in the past and which is being addressed within the UK is the use of insecticides. From a breeding farmland bird perspective spraying insecticide is probably the most destructive activity within a particular crop because it knocks out a significant portion of food which these birds rely on. We are aware that seed treatments have allowed a diminishing amount of these insecticides to be applied to the crop; we are also aware that 30 per cent of the crop which is grown in the UK is still sprayed with those insecticides and that can have a major detrimental effect on the farmland bird population. Q164 Chairman: You told us earlier on that there were three bird species which benefited. Surely the RSPB is not arguing for the maintenance of the sugar regime just for their benefit. Surely those benefits could be brought about by other environmental means, by different agri-environment schemes for example. Dr Avery: That would be exactly our position. It is quite interesting how many farmers have contacted us over the last few months to encourage us to make sure that everybody knows about the environmental benefits of growing sugar beet and we do recognise those. Our preferred option for dealing with this would be generally in line with the UK Government's position. We would favour decoupled payments for all agricultural crops. We would move towards a free market, but where a crop has a definite environmental benefit, we would like to see Pillar II payments provided to support farmers growing that crop in order to maintain those environmental benefits and we think that is a safer way of ensuring that the environmental benefits, which at the moment are accidental side effects of growing sugar beet, are maintained in the system. We would wish to see payments being made which are conditional and are carefully designed to maintain those benefits. When it comes to liberalisation of trade as a whole, our position could be criticised as being slightly naïve, but we are an NGO, so we are here to say what ought to happen in time rather than what is just around the corner. In line with what we have argued for in the UK and the EU, we should like to see liberalisation of trade and we are all for level playing fields, but we should like that playing field to be highly influenced by the effects on the environment. We would see the WTO as having really the same big problems that the CAP has had within Europe for many years, that it is focusing on one aspect of production of food and therefore as a result, almost inevitably, it has harmful consequences elsewhere. We would say that the current way the WTO was framed and implemented has harmful impacts on societies across the world and harmful impacts on the environment. In our perhaps naïve but jolly sensible view of how trade liberalisation should go, we should like to see fair trade, which is not the same as free trade and we should like to see the ability to have import tariffs on food brought in, if that food is produced in ways which are harmful to societies or to the environment. That is a million miles away from where we are or are likely to be, but that strikes us as being a sensible way, which is the way we have tried to influence UK and EU policy. Chairman: Now you have given us that international idealistic perspective, it is the point at which to bring in Mr Simpson. Q165 Alan Simpson: I was just about to say that I may not share the enthusiasm for trade liberalisation, but at least the RSPB are consistent in believing in the free movement of labour and their support for migrant birds is much stronger than ours for migrant people. You do not take the same view about sugar cane production, do you? Mr Moorcroft: In terms of sugar cane production and its sustainability, we think that sustainability should be the issue on which imports come into the EU and within world trade. To our mind, we are not experts on the environmental impact of sugar cane; I should say that from the outset. What I would say is that having looked at the relatively limited research which is being carried out in terms of the conservation value of sugar cane in comparison with other crops which are grown in the areas which have been looked at, sugar cane is not given a very good bill of health. It is not seen to be a very good biodiversity crop in itself and the question earlier talked about irrigation and the use of water resources. That is obviously an issue with sugar cane where almost exclusively, as far as I am aware, irrigation is required in the tropics to grow it and water resources are a very significant factor in looking at the environmental impact of anything and that level of irrigation requirement would lead us to believe it would be a negative effect on sugar cane production. Dr Avery: It might be worth adding that both with sugar cane and with sugar beet changes to the regime could lead to loss of pristine habitat internationally. If under complete liberalisation it seemed that Brazil could become the place where sugar beet was produced most economically, if that led to further reduction in rain forest in Brazil, then that strikes us as being a disaster environmentally. It rather depends what either more sugar cane or more sugar beet replaces. If it replaces some other form of agriculture which has its own positives and negatives in terms of the environment, it is quite a difficult equation, particularly for us to judge. If new sugar cane or new sugar beet is produced by reducing rain forest area or even further, that strikes us as a pretty simple equation to work out. Q166 Alan Simpson: Let me come back to the rain forest. In a sense that is my one area of unease about your evidence. In principal terms though, I am taking from what you say that you would agree with the submissions made to us by the Broom's Barn Research Station that in many regions the water consumption necessary for sugar cane production is unsustainable. Dr Avery: We are not experts on that. That might well be true, but I would not wish to comment. Q167 Alan Simpson: Let me then just take issue with the point you make about Brazilian sugar cane production. The issue about the rain forest is of enormous concern to everyone on the Committee and large numbers of people in Parliament. When we went to Brazil, however, the picture we were given was quite different from the one you have just described. They were saying to us that there are issues around the destruction of the rain forest but they are not remotely connected to large-scale sugar production, that their area of land under cultivation is about one third of the available fertile land in the country already and sugar cane production is not related to the destruction of the rain forest. There are other legitimate issues related to the logging and what the land is then used for, but there was a distinct disconnection between the issue to do with sugar cane production and the threat to the rain forest. Are you saying to us that you are now putting these together and that is what the displacement of the rain forest is for? Dr Avery: We would say that we are not experts on this, but that would be something we would be worried about. If Brazil were in the position to be the main sugar producer for the world, then I do not know whether that would lead to a displacement of existing agriculture to sugar production or an increased loss of pristine habitat. Before I would be happy that Brazil leading the world in sugar production would be a good idea, I should want to be convinced that the latter would not happen. Q168 Alan Simpson: You make a very hard point in your submission where you say "... 70% of deforested areas being converted to agricultural land predominantly under permanent systems". I can understand that, but in a sense I just need to separate it. If those permanent systems of agricultural production are not sugar beet, then that point you are making has a validity, but presumably not in relation to the pros and cons of sugar cane or sugar beet. Dr Avery: Although in a more liberalised system in the future, who knows what would happen. So there would be an incentive to grow much larger areas of sugar beet in countries like Brazil under a more liberalised system and that must stand a chance of leading to more habitat destruction. Even if it is not growing sugar beet, it may be growing crops which are displaced from elsewhere in Brazil. Q169 Alan Simpson: I understand that. It is just that what I do not want us to be confused over is that there are quite proper concerns about the destruction of the rain forest. I am just worried that we would end up making a case for the non-destruction of the rain forest on a spurious argument which said that land was, or was likely to be used for intensive sugar cane production. If those two do not connect, then presumably you would not be flagging that up against the sugar cane. Dr Avery: That is a worry which we were right to flag up, but you would probably need to ask other people how close that is to being reality. Q170 Mr Drew: May I just ask you a fairly broad question? In an area like this, where other people may see you as rather marginal players, how much do you see yourself being listened to? We only have to mention the word sugar and there are various lobbyists who would be ringing us as MPs morning noon and night trying to get an interview. Do you feel that you have any sway with the industry at all, or even with government? Do you think this is something which is a good example of how you could be far more influential? Dr Avery: The RSPB has 1,050,000 members, as you probably know, so we have about two per cent of the population consuming sugar products in the UK and we can act through them. I would hope that our track record on understanding agricultural policy within the UK and the EU and because we are a wildlife organisation with some good credentials would mean that we are listened to as having an objective way of trying to balance some of these issues to do with agricultural policy and wildlife. Chairman: Thank you very much indeed. We should have liked a bit more on the Brazilian rain forest. If you want to add anything else, perhaps you would drop us a note. As I understood your position, yes, there is a potential threat here without making any charges, but it needs careful scrutiny. Thank you very much. Witnesses: Mr Angelo Bressan, Director of Department of Sugar and Alcohol, Brazilian Ministry of Agriculture, Mr Manoel Regis Lima Verde Leal, Specialist in environmental issues at the Copersucar Technology Centre and Mr Sergio Leite, Director of Labour Federation of Chemical Industries in Sao Paul, examined. Q171 Chairman: We are joined now by a number of representatives from the Brazilian Ministry of Agriculture. May I welcome you here today and thank you for coming? Let me begin by asking you what Brazil's attitude is to current EU sugar policy? Clearly you want change, what are the reasons for the change? Mr Bressan: [Through an Interpreter] Thank you very much. Before I start I should be very grateful if you would allow me just to say that I have brought two of my colleagues and explain why they are present here. My name is Angelo Bressan and I work for the Ministry of Agriculture in Brazil. I am the head of the Sugar and Alcohol Department within the Ministry. I have brought two specialists with me who are experts in their own areas: one is in the area of environmental protection and the other in labour relations. Both of them represent the private sector. I am a career technocrat of course and I shall be putting a focus which is very much from the government side, whereas they will be able to speak on behalf of their sectors. I should also like to take the opportunity to thank you very much for inviting us and say that Brazil is a country which has been struggling to develop and we have many shades of problems within the area of development in our country. Notwithstanding those, we are of course very keen to work towards the protection of the environment and also to establish friendly and good work relations in the work place and in trade relations. Q172 Chairman: The EU sugar regime is holding back sugar production in Brazil. If the regime did not exist, if there were a liberal market, what would be the growth in sugar production in Brazil and how many jobs would be created? Mr Bressan: [Through an Interpreter] The Brazilian position in terms of all international relations is very clear and of course we do favour all free trade and that is something we should very much want to achieve as our main interest world wide. We should like the markets to be open and indeed Brazil has a very great vocation for agriculture because of the sheer size of the country. Brazil is a very large country, with very large areas which span a fantastic geographical position north to south and within that we have possibly all types of micro-climates you can imagine, from the Equator to the Tropic of Capricorn, hence the possibility for developing agricultural activities is limitless. Indeed our interest is that the markets are open, but we feel that this cannot happen abruptly and very quickly. Of course if that were to happen in a very sudden manner, that would affect demand and price behaviours and this is something which is in nobody's interest. We do feel that the trade liberalisation is something which is absolutely essential, but it needs to be planned and phased. It needs to be phased in gradually so that everybody is prepared and this would also favour an exporting country such as Brazil. Q173 Mr Jack: It has been calculated that if you used only 14 per cent of your available 90 million hectares of uncultivated land for the production sugar, you could provide the entire world with all its sugar needs. Is that an objective of Brazil? Mr Bressan: [Through an Interpreter] No, that is not the case. As a matter of fact Brazil has a very long tradition of growing sugar cane and also producing sugar; it dates back to the sixteenth century as a matter of fact. Brazil has no intention at all of following such a speedy type of approach to the production of sugar and as a matter of fact Brazil has a very broad range of products within its production and it is soya, corn, meat production, wood and eucalyptus, which is useful in salads, for the paper industry. As a matter of fact, if you wanted to use new areas it would be a very expensive process and these areas would have to be deforested first of all. After that the soil would need to be chemically treated so that you would have all the fossil fuels and things like that. It is a very slow, sluggish process and indeed, as you say, Brazil would be very capable of producing enough sugar for the whole world, but it does not. The new areas may be developed in the future, but not at an accelerated pace, as you are suggesting. This will never happen. There is a possibility of course of future exploitation, but this is very far in the future and as a matter of fact sugar production requires other elements to be in place such as the industrial units, the capital to do that, the logistics, the infrastructure, the transport and the ports, which we do not have. Of course if Brazil were to produce so much sugar suddenly that it flooded the whole world with its sugar production this is something that is not feasible either physically or economically. Q174 Mr Jack: You mentioned deforestation in your reply. Does that mean further destruction of the rain forest, if you did expand your sugar production? The Committee suspended from 5.44pm to 5.56pm for a division in the House Mr Bressan: [Through an Interpreter] In truth those 90 million hectares to which you have been referring which can be exploited for agriculture are in a geographical area known as the cerrado which consists of plains, a tropical savannah region, which is very far from the Amazon. I have brought materials here and I can leave you with the handouts, the maps and everything so you can get an idea looking at the map. In any case the Amazon is not a very favourable place for the development of agriculture. First of all it is very humid, the altitude is very low, there are flood plains which appear every rainy season; once the rainy season starts the Amazon floods and therefore it is very hostile to man. The problem is usually not so much for Brazil but for the rest of the world that many of the wood and logging companies do come to Brazil and they come especially to cut down the noble trees, the very special woods. We have many environmentalists in Brazil who keep watch upon these and along with the very strict environmental protection laws we have, we have indeed our own system both in the legislation and with the environmentalists who are the guardians of our forests. A country with 8.5 million square kilometres is a huge area to exploit economically and environmentally, not only for environmental reasons but also economic reasons. There are much better areas for the sugar industry and for agriculture as a matter of fact. The vegetation in the cerrado, in the tropical savannahs, is much better. They are also closer to the markets and to the ports. Obviously those who know Brazil very well will know that the Amazon is a very hostile sort of environment for humans and this issue of the rain forest destruction is usually the rhetoric which appears, it is not in fact the case. I should like to ask my colleague, Manoel Regis, to speak as the environmental specialist in this area. Mr Leal: [Through an Interpreter] As a matter of fact sugar cane is part of the type of crop which needs an area which is not so hot and not so humid, where the temperature is mild. Sugar cane does not grow in areas which are too hot or too humid. Those of you who know the industry know that sugar grows between parallels 20 and 25 and those are the regions which characteristically have mild temperatures and irregular rainfall. In addition to that, I should like to say that there was only one case of an attempt to develop sugar as an industry in the Amazon and one company decided to set up a plant there and that was Coca-Cola. As far as I know that was not successful at all. Q175 Mr Wiggin: What support do Brazilian sugar producers receive from the government? Why is the cost of sugar production in Brazil so low compared with the rest of the world? Mr Bressan: [Through an Interpreter] It is very much the environment where the sugar cane grows, the land where it grows is on the plain, the climate is very good, we do not need any irrigation and the fiscal productivity of our crops is very high; we have 80 or 90 tonnes per hectare and the use of that sugar cane produces 130 to 140 kilograms of sugar per tonne. It is the combination of all these factors, the land which is plain and the climate which is very agreeable to that, along with very good soil, excellent soil without the need for irrigation, which makes the production of sugar in Brazil quite good value as a matter of fact. Q176 Mr Wiggin: So there is no support from the government. Mr Bressan: [Through an Interpreter] I need to explain this quite clearly. As a matter of fact Brazil has no policy for sugar at all. Sugar is a wholly private affair in Brazil. It is left completely alone and we have had this for quite some time. As a matter of fact we have a history of intervention in the sugar industry in our country, but in the 1990s all of that was dismantled. As a matter of fact all of the policies which used to exist no longer exist and no longer apply. There is no policy from the government of the country towards the sugar industry. What we do have, and this needs to be explained, is that sugar cane can also be used for the production of alcohol or ethanol, which is used as a fuel and then we have a specific growth for us within the energy matrix in our country and within that we have 40 per cent of the production which is used in fuel in light vehicles. Within that context we do indeed have some vehicles which run simply on alcohol, on ethanol. Within this area of activity there is indeed a legal regulation which has been approved by our parliament and at the moment there is a rule specifying a mixture of 25 per cent ethanol to petrol for all fuel. The only area where the government has policies because of its strategic importance is within the production of sugar cane for ethanol, to ensure its use as fuel. That is what we have; we have no policy at all within the sugar industry. Q177 Mr Wiggin: Why is sugar excluded from the Mercosur free trade area? Mr Bressan: [Through an Interpreter] This is an issue of regional interest because within Mercosur it is basically an issue we have been discussing with Argentina. As you know Mercosur consists of Brazil, Argentina, Paraguay and Uruguay. With Paraguay and Uruguay we have already pursued negotiations and there is a possibility of a settlement. With Argentina, there is a more serious problem, and this is more a regional issue, because Argentina produces about two million tonnes of sugar and this sugar is produced in regions which are unfavourable to the crops of sugar cane and, particularly because they are situated in the areas where there is quite a lot of unemployment, a very impoverished area of Argentina, the north of Argentina, if the tariff were to be zero, what would happen would be that the Brazilian sugar would immediately dominate the whole of the Argentinian market. This would create other very serious problems and Brazil does not have any interest at all in creating serious social problems within Argentina. We want to create a free market as a matter of fact, but we do not want to generate unemployment because of the free market. Indeed we are discussing this and trying to discover a system, a way in which we can have a gradual replacement of the system so that we can have an opening up or free trade in the area which is sustainable. In addition, Argentina is currently modernising its system so that Argentina can sustain part of its industry, perhaps the whole or part of its industry, and with the modernisation when the market is freed within that common economic area, then of course the Brazilian sugar will enter the market because it is going to be cheaper, but we do not want to generate any unnecessary problems for the region. Q178 Alan Simpson: I am really tempted to ask whether it is possible to get a copy of the recipe for Caipirinha, which I managed to lose when we came back from Brazil. The more serious point is to say that when we were in Brazil, we were given very detailed information about the carbon sequestration associated with the growing of sugar cane. What I should like to know is whether any similar calculations have been done about the water economics of sugar cane production. It may not be a crisis or vulnerable issue for the parts of Brazil which are in sugar cane production, but it would be helpful for us as a committee to know whether you have done any environmental impact studies. I will still settle for the recipe when we have finished. Mr Leal: [Through an Interpreter] The sugar cane industry indeed uses a fair amount of water and there have been studies which have been examining exactly the rate at which water is consumed and this is something which has not yet been resolved. There have been many attempts to try to put this into context, but we have not yet pursued this in detailed analysis of the impact as we did for the carbon sequestration. Studies are being pursued at the moment. There is a committee which is made up of representatives of the sugar producers, representatives from the government, representatives from the environmental agencies, representatives of the trade unions and of the public and these studies are being carried out in order to address the very serious issue of the use of water, particularly within the state of Sao Paulo, not solely, but Sao Paulo is the major producer of sugar and indeed produces 60 per cent of the sugar in Brazil. When we are looking at this issue of water and addressing the concern of the government, what we are visualising is the whole set of users, not only those who are in the sugar industry. It is a major concern for the government. Studies are being carried out right now, but we do not yet have any results. Chairman: I should like to thank you all very much for coming to give evidence today. It has been extremely helpful and put our discussions in a much wider context. Some of us were in Brazil some time ago and look forward to returning. Thank you very much. |