Memorandum submitted by Cadbury Schweppes
Plc
1. Cadbury Schweppes are grateful for the
opportunity to be able to respond to this inquiry and welcomes
the interest of the EFRA committee in the proposed reform of the
EU sugar regime. We're particularly encouraged that the committee
continue to include the views of all UK stakeholders in their
inquiries and look forward to hearing its findings.
EXECUTIVE SUMMARY
2. We welcome the European Commission's
reform package but believe that, ultimately, the EU must abolish
all quotas for sugar production. Our main concern remains the
lack of competition in the EU market.
3. Competition in the market is needed,
but we are concerned that it may not materialize from these proposals.
Under the current regime the lack of competition in the EU sugar
industry is clearly demonstrated by the fact that we pay 8% to
22% higher than the institutional price for sugar in spite of
a situation of surplus supply. Effective measures are needed to
increase competition such as increasing alternative supply sources,
in particular sugar imports and isoglucose.
4. While we are grateful the Commission
has finally acknowledged this problem and attempted to address
this issue in Article 37 of its proposed reform, we do not believe
the provision goes far enough. In particular, we have concerns
regarding what the Commission will do if sugar prices remain at
their current (high) level, rather than falling or rising dramatically.
5. We do not support the idea that sugar
users should have to pay for the re-structuring of the sugar regime.
In effect, this means we are being punished twice: firstly by
high sugar prices as a result of the EU quota system for sugar,
and secondly by the levy to initiate the reform process that is
so desperately needed.
6. We are particularly concerned about the
lack of clarity in the Commission's proposals with regard to export
refunds.
WHO WE
ARE
7. Cadbury Schweppes is the leading EU headquartered
beverage and confectionery company. We are number one in sugar
and functional confectionery and the world's third largest soft
drinks company.
8. Our well-loved brands across Europe include
Cadbury Dairy Milk, Orangina, Apollinaris, Hollywood, 7UP, Schweppes,
Halls, Poulain, Trident and Wedel. We have major operations in
the UK, Denmark, France, Germany, Poland, Spain, Belgium, Greece
and Ireland.
OUR CURRENT
SITUATION
9. Industrial users account for 70% of EU
sugar production and are the main customers of EU sugar beet farmers.
10. Cadbury Schweppes purchases sugar on
the EU market in Spain, Greece, Belgium, Germany, Portugal, Ireland,
Italy, France, Poland and the UK. As a result of the sugar regime,
we often pay more than three times the world price for sugar,
making us less competitive.
11. We recognise that changes to the current
sugar regime will have significant impacts on both EU and ACP/Indian
sugar farmers. For this reason, we have always supported an evolutionary
approach to give all parties time to adjust.
THE EXTENT
AND TIMESCALE
OF THE
PROPOSED PRICE
REDUCTIONS
12. The Commission's proposal creates a
reference price at which sugar is expected to be traded in the
future, 39% lower than the present intervention price, but there
is nothing to suggest that this will have any impact on the market
price for sugar—the price we as users pay. At present we
pay on average between 8-22% above the intervention price for
sugar due to the lack of competition in the current regime.
13. Given that the Commission's proposals
maintains the national quota system the proposal therefore needs
further measures to ensure that the proposed reference price level
is actually reflected in the marketplace. Articles 4 and 37 in
particular need greater clarity.
14. We are concerned over the protracted
timetable for the implementation of proposed price reductions.
Effectively, there will be no price cuts before October 2007.
The Commission's original July 2004 communication timetable proposed
real price cuts by July 2006 (rather than October 2007).
THE EXTENT
TO WHICH
THE PROPOSED
REDUCTIONS IN
PRICE WILL
BE TRANSMITTED
TO THE
CONSUMER
15. It is difficult to quantify the extent
to which the proposed reductions in price, to the extent that
they actually materialise, will be transmitted to the consumer.
16. The impact of the reduced sugar reference
price on the price of a sugar-containing product will depend on
many factors, including the cost of other raw materials in the
final product.
17. The confectionery industry is highly
competitive. Following the publication of the European Commission's
proposals in July 2005 some retailers contacted our sales representatives
to renegotiate 2005-06 prices under the belief that our raw materials
prices had been reduced. We operate in this fiercely competitive
market but are not able to buy sugar in a comparably competitive
market.
18. In addition, our UK-manufactured products
are always competing against imported products which benefit from
much lower sugar prices, so there is often downward pressure on
the prices of British-made products.
IMPLICATIONS FOR
UK AGRICULTURE, WITH
PARTICULAR REGARD
TO POSSIBLE
ALTERNATIVE LAND
USES
19. The Commission's proposal represents
an opportunity to increase the competitiveness of the whole of
the European sugar chain, including farmers, but this will depend
on how the proposals are finalised and then implemented.
THE PROPOSED
ARRANGEMENTS FOR
COMPENSATING EU PRODUCERS
20. The EU sugar industry needs support
to restructure, but we do not support the idea that sugar users
should have to pay for the re-structuring of the sugar regime—in
effect, this means we are being punished twice: firstly by high
sugar prices as a result of the EU quota system for sugar and
secondly by the levy to initiate the reform process that is so
desperately needed.
21. The intention of the compensation arrangements
is that inefficient sugar processors will drop out and leave the
efficient in the market. However, it is possible that the efficient
could choose to be "bought out" by the compensation
and leave the inefficient behind, with the possibility of further
buyout funding therefore being necessary in later years.
THE CHANGES
TO THE
QUOTA ARRANGEMENTS
22. We would like to see the abolition of
all quotas and are disappointed that the proposals leave the EU
sugar regime's quota system untouched.
23. Given that the Commission's proposals
maintains the national quota system the proposal therefore needs
further measures to ensure that the proposed reference price level
is actually reflected in the marketplace. Articles 4 and 37 in
particular need greater clarity.
24. The limit of 1 million tonnes to prevent
a sharp cut in production in those countries currently producing
non-quota C sugar, coupled with the provision in Article 10(2)
for the possible downward revision of production volumes in 2010,
presuppose that future EU production will contract. However, whilst
this may be the case, there should be provision to allow for expansion
should there be an increase in production of sugar incorporated
in food products for sale on both the EU and export markets.
THE POTENTIAL
IMPACT OF
THE REFORMS
ON UK-BASED
SUGAR BEET
PROCESSORS AND
CANE REFINERS,
AND THE
LONG-TERM
CONSEQUENCES FOR
THEIR INDUSTRIES
25. 70% of all UK processed/refined sugar
is sold to UK food and drink manufacturers. The fortunes of UK-based
sugar beet processors and cane refiners are therefore inextricably
linked to those of UK industrial sugar users.
26. There is no true competition in the
EU sugar industry. This is clearly demonstrated by the fact that
we are paying 8% to 22% more than the institutional price for
sugar, in spite of a situation of surplus supply. It is crucial
that effective measures are put in place to stimulate competition
such as increasing alternative supply sources, in particular sugar
imports and isoglucose and opening up the market to further supplies
from third countries when Community prices have been substantially
disturbed (recital 34; article 37).
27. More competition in the EU sugar market
should be good for UK sugar processors as well as for sugar users.
Our UK supplier recently stressed to customers that they consider
that the UK sugar processing industry is one of the most cost
efficient and innovative producers in the EU and is well placed
to adapt to change.
28. We are particularly concerned about
the lack of clarity in the Commission's proposals with regard
to export refunds and the effect this could have on our competitiveness.
These refunds are intended to bridge the gap between higher European
and world raw material prices so that EU exporters of sugar-containing
products can remain competitive in third country markets.
29. The proposals do not say much about
the mechanism for export refunds. Although we welcome the recognition
that export refunds for processed foods (Non-Annex I) will be
necessary, it is not clear how they will be calculated. Will the
new reference price act as a trigger in the relationship to world
prices? Furthermore, if this is the case, will the calculation
be on the full reference price or that net of the restructuring
amount? This is particularly significant for us as exporters and
impacts how and where we produce product for non-EU markets.
Cadbury Schweppes plc
September 2005
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