Examination of Witness (Questions 213-219)
DR MARK
CARR, MR
CHRIS CARTER,
MS CLARE
WENNER AND
MR SIMON
HARRIS
24 OCTOBER 2005
Q213 Chairman: Can I move to our final
group of witnesses with just a small preface to remind colleagues
that there will be a vote at approximately seven o'clock so I
am going to draw the session to a close two or three minutes before
then to allow people a chance to get to the division lobbies.
Can I welcome on behalf of British Sugar Dr Mark Carr, the Chief
Executive Officer, Chris Carter, Director of Corporate Affairs,
Mr Simon Harris, their Adviser, and Clare Wenner, their Political
Adviser. Can I thank you for your written submission and for coming
to join us and give us the benefits of your views on sugar. I
gather that you want to make a short opening statement, so it
may well be that it answers the first question I was going to
put to you, which is how content are you with the reform package
which has been put forward by the Commission?
Dr Carr: Thank you for that, Chairman.
Perhaps if I may just make a few opening remarks and then we will
take your questioning directly. Firstly, we would say that the
European Commission's objective on sugar reform repeated in their
most recent note of 14 October established a principle which we
would wish to endorse. It stated that: "The overarching objective
of the proposed reform of the EU sugar sector is to develop a
sustainable future for the EU sugar industry by enhancing competitiveness
whilst attaining a sustainable market balance in relation to domestic
production levels and its international commitments". As
I say, on the basis of that principle, we would fully support
that as an objective for the Commission, but in saying that there
are a number of issues that go with that. If you are going to
have those sort of objectives, it is quite clear to me that a
very progressive reform indeed is required to meet the objectives
and inevitably that will involve some significant and major changes
for the European industry. The second point is we also support
the UK Presidency and the European Commission in their aim of
securing a swift outcome to these reforms. Our view is that delays
will bring further uncertainty to an industry which ultimately
will be extremely damaging. The reform proposals are radical as
we see them structured today and will have a substantial effect
on our British Sugar operations, including our profitability,
despite being one of the most efficient industries across Europe,
as we established earlier on today. There is associated with that
a specific challenge for all European industries, including ours,
which will be how to secure adequate beet supplies at such low
minimum beet prices. We would contest the main focus in moving
these proposals forward is arriving at an equitable solution to
achieve the objectives as laid down. Equitable in terms of the
opportunity and fair terms established for those wishing to leave
the industry but also equitable in terms of providing an opportunity
for those who wish to remain to invest for the longer term. In
the context of the radical proposals presented, British Sugar
are planning to continue to operate and not avail ourselves of
the attractive and predictable restructuring scheme that is available
within them. That is really on the basis that Member State distortions
are not introduced for the sake of compromise in the latter stages
of this programme, unreasonable restrictions are not placed on
the development opportunities of the beet sector and further concessions
are not introduced for the refinery sector which artificially
distort competition between the beet and cane sectors. Our principles
are that we fully support the objectives but we will be looking,
and are looking, for equitable outcomes and equitable application
of the proposals contained therein. If I move to your first question
about how content are we, I think essentially—
Q214 Chairman: It sounds like you
are grumbling and discontented about it from what you have just
said.
Dr Carr: Not at all. If we look
at the Commission's objectives we could see them as extremely
radical. They bring aboute changes for the whole of the industry.
The principles that sit behind them we fully support but there
are some specific issues within that, hopefully that we can expose
during discussion today, that we think need to be addressed in
the final outcome of the proposals. However, we do agree that
speedy conclusion of these proposals must remain a key objective
for the Commission.
Q215 Chairman: You said in your remarks
a second ago that it is going to have a radical effect on your
business and I have searched through your voluminous submission
to us to find some kind of statement of financial impact on British
Sugar of these proposals. You talk about what you have invested
and you talk about the reductions in plants that you have achieved
but I am not seeing much in the way of a forward look. Perhaps
you could fill in the missing bit.
Dr Carr: I think the evidence
we provide in relation to the efficiency improvements in the industry
is important in the context of the fact that we have not been
complacent in the environment that we have operated in over many
years. We have moved the number of plants operating from 17 to
six and we have quadrupled our productivity through the last 20
year period and at the same time invested very substantially,
over one billion pounds. That is the history. Clearly the proposals
as laid down demand further improvements in efficiency and that
is something we will need to address once we see the final outcome
of the proposals. In terms of the financial impact on our business,
we have made public statements at an ABF level in the past in
relation to what that will do to us and I can only reflect those
to the Committee today, which is that we will have a profit impact
of in excess of £40 million in steady state by the assumptions
that we assumed when we made that calculation.
Q216 Chairman: £40 million less?
Dr Carr: That is correct.
Q217 Chairman: Notwithstanding the fact
that you have just said you think there is an opportunity for
more efficiencies to try to claw back some of that?
Dr Carr: I am not at liberty at
this point, because we are in a closed period for our annual results
at an ABF level, to divulge to you the precise details behind
that calculation. All I am at liberty to provide at this stage
is the bottom line number.
Q218 Chairman: Maybe you cannot do
the numbers but where is the potential for efficiency? How are
you going to be more efficient against a £40 million drop
in your profits?
Mr Carter: Let me have a try.
The efficiency improvements that we are going to have to put in
place are similar to the efficiency improvements we have been
driving in all parts of the industry and all parts of the business
for the last 10-15 years. The reason, as the NFU confirmed, that
we are one of the lowest cost processors in the EU and we also
have one of the most efficient beet growing industries in the
EU as well is because of the efficiency improvements we have driven
over the last 10-15 years. That process cannot stop, that is what
Mark is trying to say. The reason it cannot stop is because these
proposals are very much at the most radical end of the spectrum
for any producers in the EU, however efficient they are. It is
radical even for the most efficient in Europe. Therefore, we cannot
stop that process of efficiency improvement; on the contrary,
we have to accelerate it.
Chairman: Mr Vara would like to ask you
some questions that might reflect on part of that exercise that
deal with cane sugar.
Mr Vara: Thank you, Chairman. Can I just
say that the last time I saw Chris Carter and Clare Wenner was
over a cup of coffee in my constituency where, of course, British
Sugar is based with its headquarters. I very much hope that after
this question and answer session that hospitality will be extended
to me again.
Chairman: All this for another cup of
coffee.
Mr Vara: At least.
Mr Drew: I hope you had sugar in it!
Chairman: I suppose if you are facing
a drop of £40 million that is all you can afford, a cup of
coffee.
Q219 Mr Vara: British Sugar has drawn
attention to the provision in the draft regulation which provides
that there should be a restriction on the ability to refine cane
raws to full time users, particularly for the first three years.
When we had Tate & Lyle giving us evidence last week they
felt that it was essential for them to have a guaranteed `base
quantity' of cane to process and they thought it would be unfair
if a company such as British Sugar was able to use its beet processing
margins to cross-subsidise moves into cane refining. I would like
to know are you sympathetic to Tate & Lyle's argument that
it should be granted a guaranteed base quantity?
Dr Carr: Just to pick up in the
broad first and then answer the specific question. If we look
at the proposals as they are tabled today, the refineries get
certain concessions within those proposals. Specifically, they
relate to the fact that the complete magnitude of the quota, the
reductions in European sugar production, are associated with the
beet sector through the restructuring scheme. Today the proposals
carry the exclusivity of supply for those cane raws through to
the existing refiners for a period of three years and then preferential
access to those cane raws for the subsequent years. We believe
there are already fairly clear upfront concessions associated
with the provision of cane for the refiners. That is in contrast
to the European beet sector which is essentially tasked with moving
production from something like a four million tonne surplus at
20 million tonnes of total production to a four million tonne
deficit at 12 million tonnes of production to allow for preferential
imports associated particularly with the Least Developed Countries.
The consequence of that 40% European production drop on the beet
sector is something like 54 factories and 83,000 jobs by the Commission's
estimation. Not by our own but by the Commission's estimation.
I would say that this looks pretty well balanced already in favour
of the refiners and, indeed, many Member States argue that it
is too heavily balanced in favour of the refiners. I think that
would be the perspective that I would put on your question.
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