Select Committee on Environment, Food and Rural Affairs Minutes of Evidence


Examination of Witness (Questions 159-179)

MR TIM BENNETT, MR MIKE BLACKER AND MS HELEN KIRKMAN

24 OCTOBER 2005

@Q159 Chairman: I would now like to welcome our own National Union of Farmers to the witness stand. They are represented, for the record, by Tim Bennett, their President, Mike Blacker, the Chair of the NFU's sugar committee and Helen Kirkman, who is the Chief Sugar Adviser. Just for the benefit of the Committee, Ms Kirkman and I know each other, not in any personal sense but her father is a leading agriculturalist in my own constituency and we have in the past talked about agricultural matters but nonetheless I hope that is not a detriment to you, and I am sure we will benefit from your expertise in the field of sugar. I would like to start. You can always tell when the NFU are exercised by something because they radically and dramatically go over the 3,000 words that we allow for our evidence. We have got evidence plus about four or five appendices so I can see that the word processors in Agriculture House have been working overtime. I want to start off with the question of efficiency. There appear to be some differences, Tim, between the evidence we have got as to just how efficient British sugar beet growers are. Clearly one of the arguments that underpins the present reform regime is whether, in fact, it is realistic to concentrate production in the hands of the most efficient countries. I suppose those of us who have looked at this exercise before would have thought that Britain was amongst the most efficient, but there is some suggestion that we are not in that particular category. For the record, could you talk about efficiency and our sugar beet industry?

  Mr Bennett: I will probably pass to Mike for the details on this. I think we are pretty confident as an industry that we are certainly amongst the best in Europe, between the processor and us as farmers. Of course, the effect of the regime change if it goes through anything like as described would drive that efficiency even more. That is why in broad principle the reform as outlined by the Commission is one we would support in terms of the theory of price cuts rather than quota cuts because it is the one way to allow efficiency to develop in terms of the sugar within Europe. We feel that we are up there with the best and we can be part of the survivors post this reform.

  Mr Blacker: Chairman, first of all, thank you very much for the honour of coming and speaking to you again. I am sorry that we have sent a very lengthy document but I think it proves when you read it the passion we have in what we believe in and what we are trying to fight for, that was really the reason behind it, not just to weigh you down with far too much paperwork.

  Q160  Chairman: I did read it. It is a good read.

  Mr Blacker: It is a very good paper.

  Q161  Chairman: It is cheaper than some novels.

  Mr Blacker: As far as efficiency is concerned, yes, we pride ourselves with being up towards the top in terms of growers. We are between third and fourth generally within the EU. We have come from quite a lowly base a number of years ago.

  Q162  Chairman: Let me stop you for a second because you can look at efficiency in one of two ways. You can look at it either in terms of sugar yield or yield of beet per hectare. Just define the terms. When we talk of efficiency, what are we talking about?

  Mr Blacker: We can talk about either, if you like. Sugar yield, if you want to talk in those terms, last year we did 10.8 tonnes of sugar to the hectare which is well up with the French who are on the edge of 12, that is the target we need to get to. They are the ones we are chasing, the ones who are our prime movers, if you like. We are 10.8 which is very, very good for us. We look like a very good crop this year as well. Efficiency is building up to that point, building up to try to get the best yield per hectare possible.

  Q163  Chairman: Right. The same, I presume, in terms of production?

  Mr Blacker: Indeed, one does not go without the other. Certainly our producer, in our opinion, and I think in everybody else's opinion, is probably the best in Europe. It is quite interesting, you asked a question of Mr Wage about that, suggesting that perhaps his industry was not quite as efficient. If you compare the timescale of the two campaigns, theirs along with ours, you heard him talk about 100 days when ours goes into 130/140 days. That obviously means quite a lot of risk from a grower's point of view in having your crop out and looking after it all that period of time but it does give a little bit of grower help towards creating the other side of the industry, the processing side, to be efficient.

  Q164  Chairman: Put into context for me some of the economics of what we are talking about. Our previous witness indicated that he thought that the price reduction, 39%, which the Commission are proposing is too harsh. You have indicated that there might be further efficiencies to come within the UK industry, or should we say perhaps the English and Welsh industry, and you have indicated that we were "chasing the French", so that gives an optimistic hint. The NFU are never happy when prices of anything are coming down but that is what is on offer, not increases. Can you help us to understand whether this 39% is realistic or whether, in fact, it is too low for our production costs to be met. I want to phrase that into another perspective because can you help me to understand it in terms of the returns per acre from sugar beet. Sugar beet is the most wonderful bit of historic anachronism, it has been left over. It is a wholly artificial mechanism of pricing one root crop compared with all the other root crops that are available. Can you give us some kind of indication in terms of returns per acre? How does sugar beet compare, particularly in East Anglia with the range of vegetable crops that are grown there, and more specifically, for example, in comparison with the potato crop, where does it figure in the hierarchy of returns? Would the returns under the price regime proposed enable efficient producers in the United Kingdom to cover their costs and make a positive return per acre if the agreement was introduced as proposed?

  Mr Blacker: I will try and answer your questions. I remember on the last occasion, Chairman, you were trying to compare them with swedes, and we felt that was not a very good comparison. That is a very small market.

  Q165  Chairman: I will try and do better.

  Mr Blacker: Sugar at the present time ranks very high in the list, probably potatoes are higher but sugar beet comes fairly high up in the scale of returns per acre or hectare. Under this proposal, and let us still call it a proposal because in my opinion there is still quite a long way—

  Q166  Chairman: Have you got any numbers to help us understand? You said it comes quite high.

  Mr Blacker: No, I do not have any numbers on my mind.

  Mr Bennett: I think what is important here are the price cuts as proposed by the Commission; at the moment we feel they are too harsh. It is not just 39%, it will go beyond that. What the Commission have to do in terms of the reform of the sugar regime is make sure that tonnage, that five million tonnes, goes out of production in terms of Europe. They have had to pitch this, I guess, at a price that would do that. In terms of both the French and ourselves—and we want to compare ourselves with the French in this instance—we feel these price cuts are too severe and would leave a margin, even to the most efficient grower in this country, not necessarily sustainable for them to invest in their business in the future.

  Q167  Chairman: Hang on! You use language like "not necessarily sustainable", I want this Committee to understand in objective terms. If you are saying it is too harsh, we need some numbers to understand what the language you have just used means.

  Mr Bennett: We can certainly supply you with numbers on what we mean in terms of that. What we are talking about is the proposal on the price cuts, which we feel is too severe, and of course we have then got to negotiate with our partners in terms of margins post the reform. What we are saying is the price cuts as proposed would damage a lot of sugar producers in this country.

  Q168  Chairman: I suppose what I was getting at at the back of my mind was if we take the arable sector and the fall, for example, in wheat prices which have taken place over the last few years, you could equally well have said the change in the regime there was deeply damaging but it has not stopped people growing wheat, has it?

  Mr Bennett: It will be interesting to see. This is the first year in which we have got decoupled payments in terms of wheat and I think the production of wheat in this country will be much allied to what is the price of wheat in a decoupled world. I would like to see the figures on that in about 18 months' time, I think it will be variable.

  Mr Blacker: Can I come back on that. I do not want to go down the route of where we fit in and numbers per hectare. At the present time I would like to bring you back to where the proposal is and really perhaps answer your question in that direction. I think you have heard a very interesting comment from Mr Wage who said that over the last 30 years they have tried in the Netherlands to keep up with price by trying to improve efficiency all the time, and I guess we are in exactly the same position. This industry has taken massive strides forward in terms of the way it harvests, the way it conducts its work, the seed production that has been developed over the years to create a bigger yield per hectare, et cetera. It is very clear on two issues. Firstly, a known is that the proposal suggests

25 per tonne, that is a known to all of us.

25 per tonne without any complications in there, and sterling as it is today, gives us about £17 per tonne of beet. We know—which is probably the only study that is available publicly—the Defra study or the Cambridge study (whichever one you wish to go by) suggests that cost of production in the UK ranges from £19 to £28 a tonne. Clearly there is a gap, there is a £2 gap between the best person and the £17. I would suggest that even taking it beyond the UK, even taking it over the whole of Europe, there will be very, very few producers in the whole of Europe which could produce at £17 a tonne. I hope that helps in part of the debate.

  Q169  Chairman: It does. I would still like an answer to my question because I am interested in returns per acre for other root crops because every farmer every year has to make a decision about what to put in the ground based on what is right for their enterprise. This will not be the first time that a price regime has changed, either by virtue of the market or a change in the CAP which has forced people to reconsider what goes into their rotations. I ask these questions because I want to know if there is a viable alternative for farmers who currently grow sugar beet to move to something else if they have to, if the reduction in price is as severe and as damaging as you suggest.

  Mr Blacker: Can I try and answer that for you?

  Q170  Chairman: You can.

  Mr Blacker: Defra did a consultation document a few months ago and because we embarrassed Defra last year, I guess, by getting a lot of farmers to respond, we decided we had better not do that again so we put our own consultation paper out to all the growers, and in fact we have had a lot of responses back. We have tried to analyse those and one of the questions we asked was, "If you do not grow sugar beet what will you grow?" Clearly this was an interesting question because sugar beet is what we call part of a rotation, it is a crop which breaks up mono-cropping, it breaks up having continuous other crops and it breaks a disease pattern, et cetera, so it is very important; equally so are potatoes. We asked that question and, interestingly enough, something like 80% came back to say that they needed either oilseed rape to make another break crop or it would be winter wheat, so effectively going back into some other form of mono-cropping if you like. The concern around that is, in fact, you are not getting a proper break crop into the system, although oilseed rape is. Clearly, if they all went down that route, and you took sugar beet out altogether, and removed 150,000 hectares, shall we say, out of the UK, you would finish up then by totally damaging the markets which already exist, so you might finish up with another million and a half tonnes of winter wheat, a million tonnes, if you like, of oilseed rape—those are not quite the right numbers, but you get the impression of where I am coming from—so you would totally destabilise the other markets that already exist. It is quite a frightening proposition.

  Q171  Mr Vara: The Commission's reform proposals make several references to improving efficiency and to try and ensure that the less competitive producers are encouraged to leave the sector. In fact, I believe the NFU's long term aim is in the same direction. If I may just use a quote from the NFU it says that: " . . . production must be allowed to gravitate to the most productive regions . . .".[12] Do you feel that the reform proposals do enough to favour the efficient growers in the European Union? If not, how do you think the proposals could be improved?

  Mr Bennett: I think it was very important. The thing which worried us the most about the proposals in terms of the reform at the start was would there be quota cuts because that would work against the efficiency. We at the NFU believe that production in the modern world we live in does gravitate towards the most efficient in Europe anyway, this is across all the sectors. If we had gone down the line of the Commission's proposal of quota cuts, I think that would have been the death knell of the European sugar industry because the only way we are going to get a European sugar industry in the world we have got, with tariffs coming down and access from other countries, is to allow the most efficient at least to try to survive within those terms. That is why we think the fundamentals of reform, we would argue with lots of detail, should be there are no quota cuts and we must not allow in any of the negotiations over the next few months for that to come back on to the table; that is absolutely fundamental to make sure that this reform goes in the right direction.

  Q172  Mr Vara: If I may, Mr Bennett, of course they are proposing the efficient countries be given an additional quota and for Britain it is proposed that there should be an allocation of around 83,000 additional tonnes of quota. Are you happy with that or do you feel it ought to be more? Do you think it is fair?

  Mr Bennett: First of all, it is inevitable. This reform is not an easy one because inevitably we are talking here about some people going out of sugar production and some people's businesses suffering because you are talking about reducing sugar production in Europe. What we feel in the UK is that if you get the reform right that we are reasonably well-placed to take advantage of that. Yes, take advantage of the quota. Indeed, at the start of this   reform process, we were supporters of transferability of quota—full stop—around Europe. If you are genuinely going to have a liberalised market in terms of the European sugar market the next step will be that quota can move to the areas that are best in terms of production. In terms of the 80,000, we would wish to use that because we want to keep our production base up in this country post-reform.

  Q173  Mr Williams: Do you think that 80,000 tonnes though is a fair amount for the British sugar industry? It is dependent, as I understand it, on the fact that our `C' quota is relatively small.

  Mr Blacker: British Sugar will probably be able to help you a little bit more with that in a few moments. Certainly, as I understand it, it is worked out on a particular equation and that involves the amount of `C' quota that you have made in previous years. It is done like that.

  Q174  Mr Williams: You would basically say it is a fair amount in terms of dividing it up amongst the sugar producers in Europe?

  Mr Blacker: It reflects the state of the industry as it is at the present time.

  Q175  Lynne Jones: You have raised and answered questions about the ownership of the additional sugar quota. Since you have submitted your evidence have you received any further information? What is your current understanding of the situation? How important is it that this is resolved before the negotiations take place?

  Mr Blacker: That is a very important question to us and I guess this came out of the first proposal which came from the Commission where effectively the way it had been written suggested that the quota was owned by the processors. I think one of the things that we argued at great length with the Commission was that part of their original proposal suggested that everybody was part of a co-operative, they had not really thought that there was a monopoly processor or a single processor in any other country which made life rather difficult. We had long debates with the Commission, I can tell you, to get to the next stage. We believe—and I hope British Sugar will say the same—that the Government is the custodian of this quota. We believe that the processor is the person who manages it on a day-to-day basis and as growers we have delivery rights to that and as long as we achieve those delivery rights year-on-year we can maintain those. That has been the case as long as I can remember. That is what I believe most of us in this industry understand it to be and that is what we would like it to be in the future so that it is, in fact, a partnership arrangement in order that no-one can dismember the other. The present situation, if we finish up in a situation where the processor is the owner of the quota then one single board room decision could take the whole industry out, we do not believe that is good.

  Q176  Lynne Jones: You said you were in favour of transferability, I do not know between whom. What about farmers having some kind of bond which they can then try and sell in terms of the ability to produce?

  Mr Blacker: If you like you can call a delivery right a bond. I have a delivery right of 1,000 tonnes on my farm, that means that if we come to the point of having another scheme like we had a few years ago in 2001 where we had a reorganisation of our industry, you could trade one bond against another. If you were someone who believed that your cost of production was very good and you were a good producer and I decided that I could not do it anymore then in fact you could buy mine from me. It is a bit more complicated than that but that is the simple answer.

  Q177  Lynne Jones: At the moment—forgive my ignorance—do individual farmers have these delivery rights?

  Mr Blacker: All farmers have a delivery right, yes.

  Q178  Chairman: All those who are contracted?

  Mr Blacker: Yes, indeed.

  Q179  Chairman: Not the universal.

  Mr Blacker: No. They have a contracted agreement with their processor.


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