Examination of Witness (Questions 220-239)
DR MARK
CARR, MR
CHRIS CARTER,
MS CLARE
WENNER AND
MR SIMON
HARRIS
24 OCTOBER 2005
Q220 Chairman: Can you explain a
little bit to me because one thing I have been struggling to get
to grips with is if you went into cane processing how would you
acquire the raw material?
Dr Carr: The issue as drafted
is that we are not able to do that for at least three years and
then subsequent to that, if there were raw cane feedstock available,
either after the traditional refiners' needs are satisfied or,
alternatively, as a consequence of a substantial increase in LDC
sugars available, then we would have the facility to take raws
on.
Q221 Chairman: Are you actively pursuing
that as a route of procurement?
Dr Carr: I do not think it is
any secret that any European beet processor with the capacity
and capability to incorporate raws to improve the overall efficiency
of their facility has been looking at it, indeed many have, but
clearly that opportunity does not avail itself to us now in the
first three years of this programme.
Q222 Chairman: Do we take it from
that the answer is yes, you have been looking?
Dr Carr: We have been looking.
Q223 Mr Williams: You describe the
Commission's proposed reductions as being "unnecessarily
severe". How much do you think the EU price of sugar needs
to fall in order to bring supply and demand back into balance?
Dr Carr: I think we would all
accept that the price proposals are extremely radical losing 39%
on the institutional prices for white sugar in Europe. I guess
what I would say is that the key to success of the reform is getting
the balance right between setting a price which drives as much
of the inefficient production out, and remember that we are talking
about six million tonnes gross quota reduction, five million after
the quota buyback, and then, secondly, having a price high enough
to provide the minimum beet price at a sufficiently high level
to source all the beet. Indeed, as Mike Blacker said earlier on
today, at
25 a tonne we know from independent studies that
the provision of beet in the UK is extremely challenged. It is
about getting that ideal balance. I think what we have got to
understand is when it comes to the restructuring and getting the
price right for restructuring it is quite a complex area because
it is not just going to be about basic economics, which I can
forecast, it is going to be much more about national, cultural
issues, political issues, et cetera, and for that reason I am
not able to give a view on what I think that price should be.
Suffice it to say that 39% feels extremely radical and is extremely
difficult for us.
Q224 Mr Williams: In the evidence
given by the NFU I think the President said that they hoped, or
expected, I am not sure which, that there would not be a reduction
in the tonnage of beet produced but it might be from a smaller
acreage, yet research by Defra showed that it might be necessary
to pay a premium of 20% on top of the beet price in order to keep
the reduction in beet produced to 20%. Do you recognise those
figures? Will you be willing to engage in those figures?
Dr Carr: I think we recognise
those figures from the reports that have been produced. I guess
what we would say is that historically we have established very
good working relationships with the NFU, and I think that has
been evidenced to some extent today, and we would like to see
that continue to make sure that the provision of beet as part
of the total supply chain allows us to be, and continues to be,
the most efficient producer of sugar in Western Europe. That challenge
is to all parts of the supply chain, quite frankly.
Q225 Mr Williams: Will you be willing
to pay a premium in order to maintain security of supply?
Dr Carr: I think what we have
got to understand is that any premium that is paid over and above
the minimum beet price is potentially a distortion of competitiveness
of the UK industry as a whole and, therefore, we would have to
do that very clearly understanding the implications on that perspective.
Q226 Chairman: Dr Carr, you made
a comment a second ago in reply to Mr Williams' question which
indicated that you could not help us to know whether
385 per tonne, which is the price reduction, is the
right number or not. Did I understand that correctly?
Dr Carr: I think what you have
to bear in mind is what is the Commission seeking to achieve by
setting the price as low as that and what can you achieve as an
outcome in terms of volume reduction procurement.
Q227 Chairman: The reason I ask that
question is because you say very definitely in your evidence that
price reductions to
385 a tonne for sugar and
25 a tonne for beet are unnecessarily severe. You
must have a figure in your mind as to where it starts to go down
to severe, not so severe to acceptable. Can you not give us a
bit of a clue as to where on the spectrum we ought to be if it
is going to have the right effect of taking out the inefficient
and restructure the industry which you support and removing the
sentiment in paragraph 4.2 of your evidence?[19]
Dr Carr: The context specifically
in which we made that statement relates to the fact that we view
it as being an extremely challenging price for beet which is directly
driven off the reference price. In terms of the price level required
to drive the appropriate level of restructuring, frankly I think
we have to look to the Commission for guidance on that. I am not
prepared or in a position to give an indication of what I think
that is.
Q228 Chairman: So you are going to
leave it to the Commission to work it out. You had the intellectual
observation, if you like, to tell us that 385 was unnecessarily
severe, so you knew that to be true otherwise you would not have
written it down.
Dr Carr: From the perspective
of beet suppliers, Chairman, that is a fact. In terms of how the
six million tonnes gross of quota reduction is going to take place
or, indeed, from which Member States, I would not wish to second
guess the Commission's thinking there. Clearly their perspective
is to see that volume balance achieved at the end of regime reform
through pricing in that manner.
Q229 Chairman: The Commission must
have some idea of the relationship between production and price
otherwise they would not have dreamed up this number, or are you
suggesting the number was plucked off the wall?
Dr Carr: No, not at all. I think
we would all recognise that the Commission has done their own
impact assessment of what price will do for the industry across
Europe and the extent to which volume will voluntarily leave the
beet producing sectors across Europe.
Q230 Chairman: You have an involvement
in Poland, have you not? You have got another perspective to work
out whether these numbers are right.
Dr Carr: We have an operation
in Poland. We run the same objectives in Poland as we run in the
UK, which is to try to establish a leadership position in terms
of our cost-efficiency. The price setting is all about getting
the minimum beet price at a high enough level to attract beet
into our industry and at the same time provide sufficient incentive
for elements of the industry to leave and relinquish their quota.
We at no stage are planning to do that unless the competitive
position is distorted through compromise. I can only take my perspective
and say at these prices we will operate, we are planning to operate,
but I cannot second guess what others will wish to do and, therefore,
I cannot say that.
Q231 Chairman: Are you sure in the
UK at these prices you are going to get the quantity of beet you
need to keep whatever number of plants you end up having?
Dr Carr: We have a very clear
recognition that the procurement of beet supplies is a key critical
issue for us. We have been in dialogue with the NFU and all of
our growers to make sure that we are able to make an assessment
of that and an assessment as to what that will mean for us.
Q232 Chairman: Sorry, that is doublespeak.
I did not understand that. I want to know straight forwardly,
do you think at the price of
385 a tonne you will get the sugar beet you need
to keep your plants going?
Dr Carr: Within our grower base
I think there are growers who would find it very difficult to
grow at that level, I think there are a number who would be quite
satisfied to grow at that level and, therefore, in the same way
as we would look at our own operations we will need to look at
the total supply chain to make sure we get sufficient beet.
Q233 Lynne Jones: You are saying
that the price cuts are unnecessarily severe. Are you implying
that the Commission's opener is severe and then it is expecting
to modify those out of negotiations and make them less severe?
If so, will you be providing ammunition for our negotiators?
Mr Carter: In terms of the reform
process and negotiations, the state that we are in at the moment
is that the negotiations in earnest began at the beginning of
last month—September—and they are due to be concluded,
if the timetable is met, by the end of next month—November.
With everybody else who has an interest, as you would expect,
we are making our views known to everybody who has an influence,
which includes our own Government, both as the Government and
as the UK Presidency holder. If I can come back to the question
you were asking, Chairman. I know it is a difficult point to grasp
but the difficulty that the Commission has in this crucial area
of pitching the support price is that it must pitch it sufficiently
low to drive an efficient reform process. If it does not do that
then not enough tonnage will be encouraged out in the restructuring
scheme. That means, inevitably, across the board there will be
mandatory quota cuts. For those of us who are seeking to stay
in as efficient producers, that would be disastrous. As the NFU
said before us, we do not support that. We recognise, although
it hurts us, that a degree of price reduction is crucial and it
needs to be a fairly severe one. Against that, the opposite pole
of the argument, if you like, is that if it is driven down too
low then even the most efficient countries, of which we are probably
one, will struggle to get adequate beet supplies. The trick is
to get the balance just right. You were asking us exactly what
our view is on what that number should be but we cannot put a
figure on it, it depends on a variety of other considerations.
We are saying that in our view it should be a little bit higher
than
25 per tonne of beet as proposed but at this point
we are not able to put a number on it.
Chairman: So what are you going to tell
Defra? You have just told us you are letting all these influential
people know what should be happening, so what are you going to
whisper in the ear of the minister? Are you going to wander up
to Mrs Beckett and say, "Excuse me, this 385 is just a bit
tight, could you do a bit better?" If Defra turn round and
say, "How much better do you think we ought to do",
what are you going to say to them, "We don't know"?
Q234 Lynne Jones: It is the beet
price that is perhaps of more concern than the tonnage because
you make quite high profits out of your sugar, do you not? It
is the beet price that should be of concern to you.
Mr Carter: To answer the Chairman's
question, the answer we give them is very similar to the answer
we have just given you. The price reduction has got to be severe,
we accept that although it hurts our industry and it hurts our
profitability, but we feel that the price reduction as proposed
is just a touch too severe.
Q235 Chairman: What does that mean,
"a touch too severe"?
Mr Carter: We do not put a figure
on it, just as the NFU declined to before us. I am sorry we cannot
be more specific but it depends on a whole variety of other things
which are yet to be agreed.
Q236 Daniel Kawczynski: Our Chairman
stated that you have a factory in Poland and I know that in the
European Union they are trying to make sure that everything is
equal and balanced country by country. Can I ask you, what is
going on in Poland which is different from the United Kingdom
in terms of these reforms? Is the attitude of the Polish Government
different from that of the UK Government? How are you finding
that difference when you are one company straddling both countries?
Dr Carr: Just for the record,
we have four factories in Poland as we sit here today and six
factories in the UK as you will know. In terms of receiving the
Commission's proposals there is no difference, the proposals are
tabled in exactly the same manner across the whole of Europe,
as I think you would expect. I think the Polish industry is rather
different from here in the UK. There is one very big nationalised
Polish sugar producer with many, many sites and then there are
two other German producers in Poland. Clearly the Polish view
is that these current proposals are extremely radical, principally
because the efficiency of many of the factories in Poland is very,
very low indeed. Just to give you an indicative number, and Chris
will have more details, the average daily slice, which is the
tonnes of beet processed in a day, to keep it very simple, is
something like half the rest of the European average in Poland
and that immediately means that your efficiency is substantially
lower. Our focus in Poland is to improve the efficiency so that
we take the same sort of leadership position there that we have
here. That is what we are working on with a significant amount
of investment going in as we speak.
Q237 Daniel Kawczynski: You see Poland
as a major area of investment for you?
Dr Carr: Our plan is to make sure
that wherever we operate, we operate as efficiently as we can
as a total supply chain incorporating clearly the provision of
beet. If we can do that then we think that it is logical for us
to remain in this industry post-reform, and that is what we are
seeking to do across the board.
Q238 Chairman: Mr Kawczynski asked
you a very straight question, are you going to make investments
in Poland, and you said if all the things are right you will stay
in there. Is the answer to his question yes or no?
Dr Carr: I think I stated before
his follow-up question that we are currently investing very heavily
in Poland as, indeed, we are in the UK.
Q239 Chairman: Are you going to carry
on doing that?
Dr Carr: Indeed we will.
Chairman: Good. That is all we need to
know.
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