Examination of Witnesses (Questions 20-39)
MR MARK
WHITE AND
MS PATRICIA
JAMIESON
19 OCTOBER 2005
Q20 Patrick Hall: Would you therefore
deal, as a business, without the £100 million export subsidy
which your business received last year?
Mr White: We would support the
phasing out of export subsidies altogether and the Commission
has to do that to comply with the WTO rulings. May I try to explain
how the subsidies work today? We are the second player in the
UK and our margin is not as big, so we have the second largest
market share. We are a price follower. We cannot sell all our
products currently today in Europe. What we cannot sell, we sell
onto the world market. The way the export subsidies work currently
is that at today's values we would get about
230 by selling our white sugar onto the world market.
There is a guaranteed intervention price of
630. We get a subsidy of
400 but that does not go into our profits. If we
bought our raw sugar on the world market, we would pay about
130. We actually pay
530. We see ourselves as a bridge to the African,
Caribbean and Pacific (ACP), to be able to pay the ACP a
530. That
400 goes towards the
530 and then we add another
130 from the actual price we get from the world market
and that goes to the ACP countries.
Q21 Patrick Hall: I shall certainly
look forward to the note you have kindly agreed to produce, which
might explain that scene a little more clearly. It does seem that
this is not the way one would wish to design the system from scratch.
It does seem to have built-in waste, although perhaps those who
are involved in producing sugar beet would argue otherwise. What
is your assessment of the balance of the whole situation in terms
of security of supply, sugar beet in Europe and sugar cane producers
and the refining industry, if we stripped away the complex system
of subsidies? Would that lead, in your view, to a major economic
impact, which would also have costs on the taxpayer, through redundancies
and the diminution or reduction or indeed the end of sugar beet
production in Europe.
Mr White: If you look at the demand/supply
balance, there is no doubt that the EU produces five to six million
tonnes too much beet sugar. To comply with the WTO we need to
reduce our beet sugar production. There are major areas of Europe
which really should not be producing beet or making sugar; they
are very inefficient. When you look at the refining sector, destination
refineries are the most economic business models for supplying
refined sugar to a market. If you took away all subsidies, there
would maybe be a small beet sugar industry in the UK and maybe
northern France, which are the most efficient producing areas.
Q22 Patrick Hall: But not as efficient
as the best cane ones.
Mr White: Exactly. Then you would
have more refineries and you would have large-scale refineries
and white sugar coming in from Brazil. If you went to no subsidies,
not much beet would be produced in Europe and if you look at free
markets around the world, when the market is free it is all cane.
Q23 Patrick Hall: But you feel that
you could cope with this over a period of years, you could adapt
to the changes?
Mr White: The issue is that this
current proposal, which is obviously a liberalising proposal,
actually makes it harder for us in this period of the regime than
it would in the totally deregulated market. We get a better margin,
about
60 more, in a totally deregulated market and we could
also buy as much raw sugar as we wanted. We currently buy 1.1
million tonnes and our capacity is 1.5 million tonnes. If you
look at the Commission's cases, the options they originally looked
at, total deregulation was one of the options, but they obviously
saw that as going too far because of the economic effect it would
have on the beet sugar industry, but also the ACP countries as
well. This is a liberalising proposal on the way to deregulation;
we see it that way.
Q24 Chairman: In terms of the ACP
countries and the LDCs which presently are allowed to send to
Europe, are there any of them which, in your judgment, should
not be in the sugar cane industry? Is there a league table of
efficient to least efficient?
Mr White: I have known the ACP
countries and the LDCs in this role for about two years and Patricia
has actually been dealing with them for 35 years, so I am going
to ask Patricia to answer that question.
Ms Jamieson: They are diverse
industries from a wide range of countries. There is no doubt that
they will be impacted very severely by the Commission's proposals,
but the Commission has indicated and is urging them to produce
action plans for the industries. Most of them now are heavily
involved in looking at their industries and a long hard look is
essential. The impact will not simply be on the finance of the
industry itself: there will be social consequences; in one or
two cases one could imagine problems of social cohesion; in a
lot of cases the budget will be adversely affected. Sugar is a
very important net foreign exchange earner, not a gross foreign
exchange earner, but the EU—and quite rightly supported
by the British Government—is looking at this on a country
specific basis. These economies and the sugar industries within
them do differ enormously: they have different histories; some
are old, some are new; some are island economies, some are on
the mainland; some are irrigated, some are rain fed; in some sugar
plays a much bigger role in the economy and in employment than
in others. Yes, there is probably a league table, but the countries
themselves are conducting this examination at the moment and the
Commission and British Government are urging them to come forward
with plans which are bankable and the EU will make funding available
to assist them.
The Committee suspended from 4pm to 4.14pm
for a division in the House
Q25 Chairman: Ms Jamieson was just finishing
off her answer on the subject of the pecking order of countries.
I think we got the message that there was a pecking order. Do
you want to add anything else?
Ms Jamieson: I think that was
it. It is just important to recognise that the circumstances differ
so very greatly amongst the industries and it will be dealt with
on a country by country basis.
Chairman: Lynne, was there anything you
wanted to follow up on that line of questioning, given your interest
in LDC/ACP?
Q26 Lynne Jones: You say that you
would be better off under a completely deregulated market. Yet
you do say in your submission that it is essential for assistance
to the Sugar Protocol countries to be adequate and they are obviously
very concerned. How do you reconcile those two positions and how
would you go about it? The ACP countries say that the proposals
are totally inadequate to ensure their stability.
Mr White: We are better off in
a deregulated market compared with the current proposals. If these
current proposals could be fixed, then obviously we should like
to continue purchasing from the ACP countries and the LDCs. We
have a long-established relationship with these countries and
we do understand the value of them selling the sugar to us at
530. We do also understand that the reduction in
the raw price will affect some of these countries very badly.
Our response to that question is that we need an improvement in
the proposals and then we would be delighted to continue buying
from the ACP and LDC countries.
Q27 Lynne Jones: What are these improvements?
They say they want some help to restructure. You could challenge
them by pointing out that they have had this subsidy since 1970
and they should have diversified, but they have not. What would
you do, if you were the Commission?
Ms Jamieson: The Commission has
come forward with a constructive idea which is looking at these
countries on a country-by-country basis, asking them what it is
they need for the future. Some of them may decide to cease production;
indeed St Kitts has already done that. St Kitts is already now
in discussion with the Commission—this is Directorate-General
(DG) Development not DG Agriculture—about the sort of assistance
which will be available to them. The EU has been unable to put
figures on this yet; of course they have not seen the plans. There
is a slight problem also with the budget as they do not yet have
a budget horizon from 2007 going forwards because that is being
debated in another forum in Brussels. So there is this difficulty
about knowing what money is going to be available, but the EU
is very anxious to start engaging with the countries concerned
to work out the sort of assistance they need. Whether it is diversification,
restructuring, perhaps budget support, perhaps technical support,
a package of everything, perhaps some concessionary financing,
this dialogue is starting.
Q28 Lynne Jones: But the amount which
is going to be proposed to support the ACP countries compared
with the EU's fairly inefficient beet producers is quite small.
Have you, having concern for your historical suppliers, got any
other proposals?
Ms Jamieson: This is a direct
negotiation between the countries themselves and the Commission.
What we have been stressing in every forum we can is that these
packages which are worked out, and I use the wording, must be
wholly adequate for the countries concerned, correctly targeted,
efficiently delivered—and that is important when dealing
with DG Development—and also in a timely way—again
very important when dealing with DG Development. I understand
the British Government is also working through DFID to support
this exercise, to ensure that this is dealt with in an adequate
way.
Q29 Lynne Jones: So you would like
your supplies to be as cheap as possible and for resources to
come from elsewhere to support those countries?
Ms Jamieson: No. We will come
back to this in our paper, but our margin is the difference between
the raw sugar purchase price and the price at which we sell the
white refined sugar. The raw sugar purchase price is a statutory
price; it is set by the EU. There is no market effect on the price
at which we buy our raw sugar, it is a statutory minimum.
Q30 Lynne Jones: But you would like
that to be as low as possible?
Mr White: It is not the raw price,
it is the difference between the raw price and the white; it is
the operating margin. Actually it is irrelevant what the raw price
is and what the white price is: it is the difference between the
two. We should actually like a remunerative price for the ACP.
Q31 Lynne Jones: But if we want to
move towards a deregulated market we should have the supply price
as low as possible in order to protect countries who are sugar
suppliers and to enable them to diversify?
Mr White: If we wanted to move
to a totally deregulated market, some of our current suppliers
would not exist in that.
Q32 Lynne Jones: But we have to move
towards it, which means a reduction in the price at which they
are able to sell to you over time.
Mr White: Which is what the proposal
does.
Q33 Lynne Jones: But it does not
go far enough for you?
Mr White: No, it is not the raw
sugar price, it is the difference.
Q34 Lynne Jones: You want to carry
on having it upped at the other end?
Mr White: No. As a cane refiner,
it is actually the difference between the price at which you buy
the raw sugar and the price at which you sell the white sugar.
We are saying that our issue is that the Commission's proposal,
where we make a margin of
44, is flawed.
Q35 Lynne Jones: I understand that,
but I am saying that the logic of your position is that it should
be support at the other end rather than in the price at which
you are able to sell, support for the suppliers.
Mr White: I think the original
question was: what would we do to help the ACP countries? The
Commission has talked about accompanying measures to try to help
those industries and we really have not seen any figures about
the first year. What we would do differently is make sure, exactly
as Patricia said, that different proposals are designed for different
countries. We do know that a couple of countries have come and
said that they do not want any money, but instead of sending 60,000
tonnes to the EU, even at this new price, they want 250,000 tonnes
and that would compensate them for the effect on the price. That
is one solution. Other countries, as Patricia has mentioned, like
St Kitts, have actually said that at these prices there is no
point making the product and they would like some money, please.
There are different approaches and what we are saying is that
you have to take every country one by one. In our discussions
with the ACP countries, which are very valued suppliers and we
have known for many years—and there are several in the room
to whom we were talking earlier—it is very different by
country. Everybody recognises that we have to reform. What does
reform mean? It means reduced prices.
Q36 David Lepper: Do you have the
impression that there is any discussion, liaison of any kind in
working out the proposals for reform between DG Agriculture and
DG Development? Would it be helpful, to the supplier countries
in particular, if there had been that liaison if it did not exist?
Ms Jamieson: It is important to
look at what the driver was behind this reform. The driving force
is to enable the EU to comply with its WTO obligations and very
quickly, which means taking out a very large tonnage of production
and exports. This is DG Agriculture's responsibility and DG Agriculture
chose the route we are looking at in the proposals now as the
way of achieving this. However, we believe this was prepared in
discussion with DG Development, with full sensitivity for the
problems which would be created for the ACP countries. DG Agriculture
have these international obligations to meet: the EU have obligations,
which they recognise, towards ACP countries. This is why these
country-specific plans to assist in the transition have been devised
by DG Development.
Q37 David Lepper: Is the situation
any different for those supplier countries which are French deépartements
overseas to other supplier countries?
Ms Jamieson: Yes.
Q38 David Lepper: Or are they all
affected in the same way?
Ms Jamieson: The deépartements
d'outre mer, which for the purposes of sugar are really Guadeloupe
in the Antilles and Reéunion in the Indian Ocean, are legally
and constitutionally a part of metropolitan France, so they are
internal producers in the same way that a beet farmer in France
is part of metropolitan France, part of the EU. They are subject
obviously to very different terms and terms of compensation, in
the same way that the beet farmers are being offered different
compensation. Yes, they have a very different compensation package.
Q39 Chairman: Just to try to put
this into context, I think you process 1.3 million tonnes of cane
sugar.
Mr White: One point one million.
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