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.
12 Ev 47 Back
| 
