Disproportionate effect on UK
of merging 'A' and 'B' quota
60. In an effort to simplify arrangements, the Commission
proposes merging 'A' and 'B' quotas into one single quota. The
distinction between 'A' and 'B' sugar stems from the origins of
the market organisation in the 1960s, when the basic quota allocation
was supplemented by an additional quantity of sugar, known as
'B' quota, intended for export and based on the market disposal
potential of each Member State. Over time, however, this 'B' quota
evolved to become part of the general production, and the export
role initially assigned to 'B' quota was taken over by 'C' sugar.
A price differential between 'A' and 'B' quota still remained
because a higher levy was charged on the 'B' quota sugar beet
to pay for the system of export refunds.
61. The UK imports more sugar than it produces, and
is therefore known as a 'deficit area' within the sugar regime.
This is due to its historic reliance on imports of sugar cane
from its former colonies. These imports meant that, when it joined
the EU, it received a small proportion of 'B' quota in comparison
to its 'A' quota allocation. Consequently, if, as is intended,
the Commission's proposed price cuts are imposed on the merged
quota, countries like the UK, with a smaller 'B' quota, will suffer
some price disadvantage in comparison to other countries. As producer
levies on 'B' quota are currently higher than those on 'A' quota,
the abolition of the distinction between the two is financially
advantageous to those countries with large 'B' quotas, such as
France and Germany.
62. In giving evidence, Defra acknowledged that:
The present regime has a differential pricing structure
that rewards … Member States that are classed as deficit
areas or deficit producers of sugar. The change is to abolish
that distinction, to merge 'A' and 'B' quotas and have a new unified
quota with a unified price. It follows that in changing from the
one system to the other there is a differential impact.[84]
63. The NFU estimates that UK growers are likely
to face "an effective price cut of 2.3% over and above the
42.6% proposed by the Commission". For this reason, the NFU
has called on the Commission to "devise an alternative solution
that is equitable, taking into account the differing proportion
of 'A' and 'B' quota across the EU".[85]
British Sugar suggested that the comparative disadvantage to the
UK could be compensated for in a commensurate increase in the
amount allocated to the UK for grower compensation.[86]
Taking this idea further, the NFU calculated that this envelope
needed to be increased by an additional €14 million in 2007,
if the UK were to receive fair an equitable treatment in comparison
with the other EU Member States.[87]
64. Defra noted that other Member States that are
classed as deficit areas had also been making a similar case on
behalf of their growers, and that this was "one of the issues
that is under active discussion in the negotiations at the moment".[88]
Defra did, however, underline the fact that the Commission's proposal
are "designed to be budget neutral and the overall package
for compensation has to be one that can be accommodated within
the financial ceiling for agricultural expenditure".[89]
65. Joan Noble, an independent consultant, also pointed
out another effect of the new quota arrangements that could disadvantage
Member States, like the UK, that currently have a small 'B' quota.
She noted that if future quota cuts were necessary, then they
would most likely have an equal impact on all Member States whether
they were in surplus or deficit.[90]
This is despite existing provisions that recognise the deficit
status of the UK by implementing any necessary quota cuts using
a low reduction coefficient. This issue was also highlighted by
the 11 dissenting countries that opposed the Commission's proposals
at the October Farm Council. They suggested that production cuts,
if necessary, should be applied initially to regions with a surplus
of production, rather than to all countries.[91]
OUR CONCLUSIONS
66. We
are concerned about the unfair impact on the UK of applying the
proposed price cut to the new unified quota. The Committee regards
this as an important issue and we recommend that the UK Government
negotiate for a change in the proposals, so that the UK's status
as a deficit country is adequately recognised in the compensation
package. It would not be fair if the price cut for UK growers
were amplified by an accident of history. An increase in the amount
of compensation for the UK could go some way to reducing the disproportionately
negative impact of the proposals on the UK beet sector. Since
the proposals are designed to be budget neutral and contained
within the financial ceiling for agricultural expenditure, such
negotiations will require acceptance from surplus countries that
their envelopes will have to be cut by an equivalent amount. Furthermore,
if quota cuts are required in the future, they must be made on
the current basis, so as not to further disadvantage the UK.
Legal ownership of additional
quota
67. The Commission's proposals envisage that "an
additional amount of 1 million tonnes of quota shall be made available
to current 'C' sugar producing Member States".[92]
UK companies would have the right to 82,847 tonnes of that amount,
with a one-off, per-tonne amount being charged, equal to the level
of the restructuring aid in the first year.[93]
68. The NFU raised some questions regarding the legal
ownership of the production rights associated with this additional
82,847 tonnes of sugar quota. The NFU felt that the issue of legal
ownership would have to be clearly established, particularly if
the Government sought to recover the costs of acquiring the additional
quota from the processor or grower.[94]
69. When asked about this issue, the Minister was
unable to answer the question of whether sugar producers would
take legal ownership of quotas they paid for. A Defra official
confirmed that, under the existing regime, quotas were not owned
but were allocated free of charge to processors, so the question
of 'ownership' had not arisen before. He confirmed that the proposals
envisaged that the processors would be the ones to pay, but admitted
that the concept of a processor company paying to acquire new
quota was "a novel idea" and there was no "actual
legal doctrine on this at the moment".[95]
Further changes
QUOTA ABOLITION
