Annex I
MARGIN CALCULATIONS
These calculations and notes show the impact
of the Commission Proposal on margin. It should be noted that
the margin figure is not profit, but the difference between institutional
purchase and sale prices. It has to cover all costs of processing.
The table below details the margin calculations.
Each row is designated a letter. The noted below explain the components
and the calculations, making reference to these letters.
MARGIN CALCULATIONS EXPRESSED IN
PER TONNE WHITE SUGAR EQUIVALENT (WSE)
| | Tate & Lyle
| UK processor |
| |
04/05
| 09/10 to
14/15 |
04/05
| 09/10 to
14/15 |
| A | Price | 725.0
| 385.5 | 725.0 | 385.5
|
| B | Regional Premium |
14.6 | 14.6 | 14.6
| 14.6 |
| C | Raw Material Cost |
-569.2 | -347.3 | -366.7
| -192.7 |
| D | Regional Premium to Farm
| | | -14.6 |
|
| E | Levy From Farmers |
| | 18.8 | 6.0
|
| F | Margin Aid | 29.2
| | | |
| G | Net Raw Material Cost
| -540.0 | -347.3 | -362.5
| -186.7 |
| H | Transport & Reception
| -9.0 | -9.0 | -44.1
| -44.1 |
| J | Beet Molsses Credit
| | | 22.5 |
22.5 |
| K | Levy to RPA |
| | -32.4 | -12.0
|
| L | Margin |
190.6 | 43.8 | 323.1
| 179.8 |
| M | Reduction %
| | 77% |
| 44% |
| | |
| | |
Row A
The comparison is based on commercial selling prices. This
is because
— The Commission have made clear in a number of
documents as the reform process has progressed that the intention
in the new regime is for the market price to be the reference
price.
— Note that the
655 market price expressed in the July 2004 Commission proposal
is after the deduction of production levies and restitution sales.
We have dealt with these separately (rows E and K) in our calculations
for clarity.
Row B
The UK regional premium of
14.60 per tonne (the derived intervention price set for the UK
in the current regulation) is assumed to be achieved in addition
to the sale price pre- and post-reform. This effectively increased
the refiners margin over the base case. It is assumed that this
revenue would continue to be included in the margin calculation
even post-reform. However, the likelihood of this premium being
achievable is under serious question. Removing this premium from
the calculation would further reduce the margin available to refiners.
Row C
Net Raw Material Cost is the guaranteed price. In the case
of Tate and Lyle this is the Raw Sugar price converted to white
equivalent. It is very important that this conversion is taken
into account. Some calculations we have seen have forgotten this
and the result is a suggestion that refiners margins will actually
be around
30 higher than they actually will be. The guaranteed price of
319 is for raw sugar at 96 POL. POL is an indirect measure of
the sucrose content of the raw sugar. Converting this to white
sugar equivalent requires the
319 to be multiplied by 0.92 (2 POL—100). For the beet processors
this is the basic beet price converted to white equivalent. Both
of these costs are shown as negative, ie a cost.
Row D
Any UK premium achievable by the beet processor would not
need to be passed onto the farmer post-reform, as under current
regulations. This premium thus becomes a windfall gain to the
beet processor.
Row E
This row shows the production levy payable by farmers (or
the production charge post-reform). This is shown as an income
to the beet processors, as in effect they simply withhold this
element from the beet payment to farmers. They then make the payment,
together with their share of the levy, to the RPA or national
agency (see Row K).
Row F
This element is included in Tate and Lyle margin calculations
in 2004-05 but not in 2007-08, as per the proposal.
Row G
This row shows the net raw material cost after taking into
account regional premium payable to farmers, production levy received
from farmers, and any margin aid received by refiners. It is made
up of (G = (C + D + E + F)).
Row H
This row shows the institutional transport and reception
costs which the Commission use when moving between the white sugar
intervention price and the basic guaranteed prices for beet and
cane.
Row J
This row shows the institutional beet molasses credit that
the Commission use when calculating the white sugar intervention
price from the basic guaranteed price.
Row K
This row shows the production levy payment made by beet processors
to the Member State intervention agency, which is then passed
on to the Commission. This includes the farmers share detailed
in row E. Row K—Row E is the beet processors share of the
levy. In the UK example, this is
13.6 per tonne.
Row L
This row is the margin available to the business to cover
its processing costs and make a return on the capital employed
in the business. It is A+B+G+H+J+K.
Row M
This row is the percentage change in margin compared to the
current, 04/05 margin.
Tate & Lyle Sugars, Europe
October 2005
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