Cap: Reform of the Sugar Sector

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Matthew Green (Ludlow) (LD): It is a pleasure to serve under your chairmanship, Mr. Forth. The Minister wants to be on secure ground when making decisions on this matter. He has referred to the world price. Does he think that the current world price is genuine, or a dump price?

Alun Michael: I am not sure that it is wise for a Minister to try both to be on secure ground and to second-guess the market. The current European price is about three times the general international price, and is widely regarded as unsustainable in the long term. As for whether the price is genuine, I made the point in my initial contribution that the reduction in price to double the world market price would have an implication for imports to the EU as well as for products from the EU, and would affect the international market. However, I do not feel qualified to speculate about whether it would increase or reduce the prices in the rest of the market and, given that the hon. Gentleman said rightly that Ministers like to be on firm ground, I do not intend to go too far.

There is also the impact of dumping because of EU exports, which would also affect the international price, but as for how far that affects the price and what would happen in the more liberal market that we would like to see develop, I am probably less likely than the hon. Gentleman to be able to predict accurately.

Norman Lamb (North Norfolk) (LD): For me, too, it is a pleasure to serve under your chairmanship, Mr. Forth. The papers before the Committee include an explanatory memorandum about the European Union document by the Minister's colleague, Lord Whitty. Paragraph 23, under the heading ''Regulatory impact assessment'', refers to the initial assessment and says
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    ''This will shortly be updated to reflect the Commission's latest thinking.''

I understand that that document was submitted on 27 September. Has that been done?

Alun Michael: Not yet. That partly reflects the question of assessing the changes that the Commission is making and what further thinking there will be, and the fact that the working level discussion has taken place fairly recently, since the ministerial meeting. The updating has been delayed as a result of those discussions.

Mr. David Drew (Stroud) (Lab/Co-op): I apologise for being a couple of minutes late, Mr. Forth, but I was on my way from a Select Committee. I thank the Minister for what he said about the report from the Environment, Food and Rural Affairs Committee.

Having achieved the reduction in price from the intervention on the reference price, how do we move forward? Is there an implication that eventually EU sugar prices will be at the same level as the reigning world price—given that that may happen at some time in future—or will there always be some attempt to keep EU prices above world prices?

Alun Michael: There are a number of questions that are difficult to answer, which partly reflects the fact that, as I said at the beginning, we are to a degree in an area of speculation. Until we have a specific proposal to consider, it is difficult to quantify, and for that reason it is difficult to go into further detail on the regulatory requirements of the regulatory impact assessment. It is also difficult to predict how a set of proposals that are not yet firm will affect the general market. We feel that it is probably unlikely that prices will fall to world levels as a result of the present approach. There will be a review in 2008, and it is difficult to predict what the impact would be after that date. One of the problems in giving the Committee answers to straightforward questions is the great uncertainty about the details of the proposals. We have had some indications from the Commission, but they are not as firm as the eventual proposal will have to be.

Mr. Paice: During the Adjournment debate introduced by my right hon. Friend the Member for South-West Norfolk (Mrs. Shephard) a few weeks ago, to which the Minister replied, the discussion was about compensation being channelled through the single farm payment mechanism. Can the Minister explain how he envisages that happening? He need not worry about how much, but perhaps he could explain the mechanism. Does he envisage that the compensation will be added to the single farm payment pool—that is, spread across all recipients—or would the mechanism be used and the compensation channelled so that it went only to those who grew sugar beet during the reference period? Would it go to all three regions, or just to the one region that I suspect contains all the sugar beet in this country?
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Alun Michael: Again, those are difficult questions to answer. We said in our response to the Environment, Food and Rural Affairs Committee:

    ''The question of compensation will clearly be a significant issue as negotiations proceed. The Government agrees that any compensation should be fully decoupled as part of the Single Payment to farmers, which will start in other sectors from 2005.''

It is important to remember that compensation must be affordable within the CAP budget. No decisions have yet been taken, and the issue will have to be considered in due course—I am afraid that the Committee will come to recognise those words in response to a large proportion of questions during these exchanges.

Mr. Tony Colman (Putney) (Lab): I apologise for not being here at the beginning of the debate. I only discovered that it was taking place at 3 o'clock.

I have a question about the explanatory memorandum from the Department for Environment, Food and Rural Affairs of 27 September 2004, paragraph 22 of which refers to the World Trade Organisation. Could the Minister bring us up to date on the Commission's view, and on whether there will be an appeal against the ruling by the WTO on the EU sugar regime, and on whether the Commission is particularly taking account of what I understood was a subsidy that the Brazilian Government gives the sugar industry in Brazil, leading to subsidised production of bioethanol and sugar, which means that any changes in the EU sugar regime could enable the Brazilian sugar industry to scoop the pot? Do we need, as part of any appeal, to lobby hard for the subsidies to be removed by the Brazilian Government?

Alun Michael: I did cover the question of the appeal. The Commission has appealed against the finding, and the outcome of that appeal is one of the considerations that has led to the delay in firm proposals coming from the Commission. It is clear that the appeal is proceeding, and we must wait and see what the outcome is.

On Brazil, I fully understand the considerations that arise from the fact that Brazil is undeniably the world's most competitive sugar producer, and because it is capable of expanding sugar production still further, or switching easily, as my hon. Friend said, between production of bioethanol and sugar. In theory, as with all trade reforms, the biggest gain should go to the economy that opens up its market—in this case, the EU—and higher world prices should benefit all low-cost producers, including developing countries. It is difficult to be certain that that would be the effect. Contrary to most press reports, nothing in the current proposals would open up the EU market to Brazilian imports. That is because even if the Commission's proposals—although perhaps I should avoid using the word ''proposals''; it might be more accurate to refer to ''the communication from the Commission indicating what its proposals might be''—are adopted as they now stand, they would still leave EU prices at double world levels, with tariff rates that would allow access for preferential suppliers, which do not include Brazil. We must be a little careful about the extent to which we
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predict outcomes based simply on Brazil's competitive capacity—about which what my hon. Friend says is right.

Matthew Green: I am sure that the Minister can comment on the Government's position and what they are suggesting to the Commission that they would like to see. He will be aware that one of the major areas of contention is the proposed 16 per cent. cut in production across the board, across Europe, and the way in which any proposed cut would be allocated. Ten European countries, including Spain, Ireland, Italy and Portugal, joined I believe by an 11th—Poland—have written to the commissioner stating that there is virtually no possibility of their supporting a change in the current methodology in relation to any reduction in the quota. They would like to see it stay the same. They have 150 votes and could block any suggestion in the Commission. Are the Government with that group of countries, which are similar to this country in that they are deficit sugar producers, or do they oppose that view?

Alun Michael: The hon. Gentleman must remember that the existing sugar regime is a finite piece of legislation, which expires at the end of June 2006. If the Council does not take a decision on what will happen after that, there will be a legal vacuum. The roll-over of the existing arrangement would not be automatic and would itself require a qualified majority in the Council. In the event of a legal vacuum, the Commission would act on its own responsibility to manage the regime until a new Council decision was taken.

The hon. Gentleman is right to indicate that there is considerable opposition to reform within the Commission. Some of that is based on protecting production in particular countries. It has to be said that some of it is about protecting inefficient production. That is not an approach that we think is sustainable in the long term, or that meets international obligations. The way in which the discussion is developing is that we are trying to consider the principles of liberalisation of trade, which this country has long supported, and a practical regime and outcome that will take us in the direction of decoupling, as I mentioned earlier.

There are a range of issues. We hope that other countries will engage with the debate about what should replace the existing regime, and accept that no change is not an option. There have been those in our own industry who have said that it would be good to retain the present system, but we do not believe that that is an option. We agree that we are in a deficit market, but we must move away from the idea of national self-sufficiency in order to look for economic efficiency in the way in which the business proceeds.

I may have omitted part of the answer to my hon. Friend the Member for Putney (Mr. Colman). I am advised that Brazilian subsidies are tiny. It is clear that Brazil is a very competitive sugar and ethanol producer, and still would be even without its small subsidies.
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