Select Committee on International Development Written Evidence

Memorandum submitted by The Biscuit, Cake, Chocolate & Confectionery Association (BCCCA)

  1.  The evidence session will address key questions. The following comments pertain specifically to question 4 (in the Committee's Terms of Reference):

          After the WTO ruling against the EU sugar regime what can be done to help those ACP states heavily dependent on preferential access to the EU market?

  2.  The Biscuit, Cake, Chocolate & Confectionery Association (BCCCA) represents all the leading and many smaller manufacturers of biscuits, cakes, chocolate and confectionery in the UK—more than 90 companies, accounting for over 90% of the industry's production. The sector as a whole employs some 60,000 people (although this number is falling—see below) and has annual consumer sales of around £8 billion.

  3.  Although the European Commission has appealed against the WTO ruling, it is clear that there will be significant change in the workings of the world sugar market over the next few years. Indeed, the Commission's own draft outline proposals for reform of the EU sugar regime envisage considerable change.

  4.  Unfortunately, the decision to appeal against the WTO ruling and not to take forward reform of the sugar regime until that is resolved has slowed down the process of reform. This is in no-one's interest, including the ACP countries. Almost all stakeholders are agreed that the current regime is unsustainable, and it is therefore in the interests of all participants in the market to ensure an orderly transfer to a new regime, given that there is no enthusiasm for complete liberalisation of the market.

  5.  A newly-agreed, reformed EU sugar regime offers the best chance of an appropriate transitional regime being negotiated with the ACP countries, and in view of the unsustainability of the current regime the more rapidly a new regime can be agreed, the better. The BCCCA supports the idea of a transitional regime and acknowledges the special position of the UK vis-a"-vis many of the ACP countries. The BCCCA is therefore pressing the UK Government to push the EU to move rapidly towards a new regime and to take the lead in developing a protection package for ACP countries during the transition.

  6.  In response to a recent Parliamentary Question, the Secretary of State for International Development pointed out that the EU sugar reform proposals would reduce the volume of EU subsidised sugar exports dumped on world markets. In actual fact, compliance with the initial WTO ruling against EU sugar exports, coupled with the European Commission's intimation of maintaining preferential status for existing ACP suppliers, could result in the cessation of all future EU exports of sugar. This would invariably lead to an improvement in world market prices (from between 2% and 60% depending on whichever economic forecast you believe). However, the question arises as to who will benefit from these improvements in world market prices?

  7.  The WTO ruling and EU sugar reform will mean that EU beet growers will only be supplying the EU market. EU national quotas will be reduced and support prices cut, but EU beet growers and processors are looking to a maintenance of the quota system so as to preserve high internal domestic EU prices. Those ACP cane suppliers with preferential entitlement to the EU market will continue to receive the same prices as EU beet growers.

  8.  The question has to be addressed as to why sugar is grown? In the EU 75% of all sugar goes to industrial usage ie as an ingredient in manufacturing food products. In the UK the figure is around 70%. But what does this mean? Much has been made in the EU sugar reform proposals of possible job losses in the growing and refining/processing sectors. However, with EU sugar prices at three times world levels and UK prices some 10% higher than in other EU member states, BCCCA members have witnessed in recent years an inexorable rise in imports of biscuits and confectionery and a reduction in exports, so that our once healthy positive trade balance has moved into deficit. The result has been the closure of some 15 factories and around 10,000 job losses in our sector in the UK in the past five years and a shift of production eastwards to the borders of the European Union, where sugar costs are far lower. If that trend continues, our traditional sugar suppliers (UK beet farmers and ACP cane growers) will lose their market for industrial sugar—a market which currently accounts for 70% of UK sugar consumption.

  9.  The ACP preferential suppliers want the guarantee of high EU prices for as long as possible, but, as already stated, such high prices seriously impact on the viability of UK/EU industrial sugar users, where jobs are at stake. BCCCA members and EU industrial sugar users need early access to sugar at world prices so as to remain competitively viable. This is in the fundamental interests of ACP sugar cane suppliers.

  10.  ACP cane suppliers should be compensated via the EU Development Budget and not as a direct levy on sugar users and consumers. However, politically ACP growers cannot expect to receive more than EU beet growers. For the latter, there will be decoupled payments and, in the case of ACP cane growers, this principle should be observed and at a similar level of payment. Importantly, there is a need for EU sugar users to gain access quickly to sugar at world prices so as to remain competitive on both domestic and in third-country markets. However, any programme of restructuring for ACP economies will have to be a managed programme over a realistic timescale. This means that the timetables for reform of the EU Sugar Regime and the restructuring of the ACP economies will not be of the same duration, the former hopefully taking place by 2008, whilst the latter will take several years.

  11.  All existing ACP preferential suppliers must be realistic as to their future ability to compete on the world sugar market. If they are able genuinely to compete at world level prices, then they should invest payments from the EU Development Fund to develop their indigenous sugar industry, but if they are not able to compete, then they must take these Development Fund payments and invest in alternative industries. There must be no scope for procrastination and the EU should be convinced that the correct choices have been made by each of the existing ACP supplier countries as to where these payments will be invested.

  12.  For those countries that can remain competitive in the world sugar market, serious consideration should be given to looking beyond sugar cane growing to higher added-value processing and products. For example, there is no reason why major UK and EU processors/refiners should not look to establishing such facilities in the growing countries. Apart from the higher financial returns from selling refined white sugar rather than raw sugar, there could be scope to moving to other added-value production. Consideration should also be given to developing biofuels as an alternative option to food use for sugar. There is undoubtedly a market for biofuels, which can deliver environmental benefits such as reduction in greenhouse gas emissions. We are pleased to note the work that has been commissioned by DFID from the Overseas Development Institute "Forthcoming changes in EU sugar/banana markets: a menu of options for an effective EU transitional assistance package", which will include analysis of alternative uses for sugar. This should prove very helpful in developing realistic proposals for adjustment, because the absence of such robust programmes will render political resolution for all interested parties virtually impossible and, consequently, could be the impediment upon which the whole EU sugar reform proposals will founder.

November 2004

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