Memorandum submitted by The Tenant Farmers
Association
INTRODUCTION
1. The Tenant Farmers Association welcomes
the opportunity of providing written evidence to the Select Committee
as part of its inquiry into the reform of the EU sugar regime.
The Tenant Farmers Association exists to support and promote the
interests of tenant farmers in England and Wales. Many of our
members grow sugar beet on their holdings and are greatly concerned
by the proposals that have been tabled by the European Commission
in the wake of the decision of the WTO Appeal Panel.
PRODUCTION, CONSUMPTION
AND TRADE
2. The United Kingdom currently produces
some 1.1 million tonnes of sugar from beet in each year. Domestic
consumption is some 2.2 million tonnes per year and the difference
is made up by imports. It is therefore quite clear that the UK
does not contribute to EU sugar surpluses. It would therefore
be unfair if UK producers were to face a disproportionate cost
as a result of any reforms—particularly in relation to any
future cuts in quotas. EU surpluses are exacerbated by the EU's
commitment to bringing in sugar from the Lomé countries
under a system of preferential tariffs. These African, Caribbean
and Pacific countries obtain great advantage from those export
preferences and there is significant concern about the impact
of reform in the EU on them. Taking into account the Lomé
sugar, total surplus sugar in the EU is some 2.5 million tonnes.
3. It is also essential to consider the
position of other, less developed countries (LDCs) covered by
the WTO's "Everything but Arms" (EBA) commitments. These
countries could also lose out if there is significant change in
the EU regime. All countries with EU trade preference arrangements
have already expressed a clear concern that the price reduction
being proposed by the European Commission would make it economically
impossible for them to produce sugar at a sufficiently competitive
price in comparison to other world market sugar. There is therefore
a high risk that they will react by importuning sugar on the world
market from countries like Brazil, who have considerable cost
of production advantage, and that this sugar will find its way
into the EU market.
4. The TFA recognises that the Commission
is proposing a support package for these countries, but believes
that it would be insufficient to meet the level of need. The EU
will have to find the delicate balance between a rational reform
of the Sugar Regime and ensuring that the floodgates are not opened
to large amounts of world market sugar coming into the EU. The
TFA is concerned that the price cuts being proposed are much too
large to achieve this balance.
EXTENT AND
TIMESCALE OF
THE PROPOSED
PRICE REDUCTIONS
5. The TFA questions both the extent of
the proposed price reduction and the suggested reduction in quota
that will be required in order to bring the EU market back into
better balance. Taking into consideration the sugar imported to
the EU, domestic consumption is around 2.5 million tonnes below
the total amount of sugar available in the EU. It is this 2.5
million tonnes which is exported into world markets. In conversations
with British Sugar in 2004, the TFA was told that a quota reduction
of around 2.5 million tonnes across the EU together with a 20%
price reduction would bring the market back into balance. We are
therefore somewhat at a loss to understand why the Commission
believes that the price cut needs to be double that figure and
that they are looking for a more substantial reduction in the
amount of production. The TFA believes that these figures need
to be examined closely so that an accurate picture can be formed.
IMPACT OF
PROPOSED REDUCTIONS
IN PRICE
UPON CONSUMER
PRICES
6. The TFA is doubtful that the price reductions
proposed by the Commission would be passed to consumers to any
real extent. In other areas it is clear that the price received
by producers represents only a tiny fraction of the total cost
faced by those purchasing items from retail outlets. If we take
for example the milk market, recent research in Scotland (carried
out by the Milk Development Council for the NFU of Scotland) has
shown that only 10% of a recent uplift in the retail price of
1.5 pence per litre filtered through to the producer. Given that
sugar derived from sugar cane and sugar beet already competes
for space on supermarket shelves and that prices are very similar,
the TFA does not believe that there would be any noticeable reduction
in price to consumers as a result of these institutional price
cuts.
IMPLICATIONS FOR
UK AGRICULTURE WITH
PARTICULAR REGARD
INTO POSSIBLE
ALTERNATIVE LAND
USES
7. The TFA has grave concerns about the
impact of these proposals on UK agriculture. Sugar beet is an
important crop in the rotation and it is one of the last remaining,
reasonably profitable crops. It is not easy to grow and requires
specialist management and soil types. If beet prices fall to between
£17 and £20 a tonne which they are likely to do under
these proposals, then the economics of growing sugar beet in England
becomes very marginal. Time and time again producers are expected
to receive prices which are less than the cost of production and
this seems to be no different for the sugar sector. There is a
limit to how much we can go on providing a productive market on
those terms.
8. A significant area which should be exploited
is the production of bio-ethanol from sugar beet for mixing with
oil-based fuels. Currently the UK is exporting raw sugar to Germany
where it is being refined into bio-ethanol and then re-imported
by us. The Government should be working to ensure that more of
the value added in this process remains at home. The Select Committee
should recommended that the Government examine the reasons for
this pattern of trade and ensure that action is taking to provide
greater incentives for the process to be internalised within the
UK.
THE PROPOSED
ARRANGEMENTS FOR
COMPENSATING EU PRODUCERS
9. The TFA agrees that producers should
be compensated for the price cuts that they will experience. However,
we are concerned that the compensation will only be paid up to
60% of the level of the price cut. There does not appear to be
any technical, legal or moral justification for this level and
the TFA would continue to argue that compensation should be paid
for 100% of the price cut.
10. It is important that the price cut compensation
is paid in relation to contract tonnages held by individual producers.
The TFA is adamant that these payments should not in any way be
linked to land. Land linked payments and quotas serve only to
create inefficiencies and to provide benefit for the owners of
those assets rather than producers facing the transition.
11. Whilst the European Commission's proposals
indicate that the compensation should be payable with Single Farm
Payment, the TFA is also concerned to ensure that any compensation
payable remains with sugar producers and does not become dissipated
across all Single Farm Payment entitlement as might be the case
under the system chosen by England to introduce the Single Farm
Payment Scheme. The dynamic hybrid leading to a flat rate payment
would leave sugar producers severely exposed where they have seen
their compensation diluted across all entitlement holders. The
TFA would wish the European Commission to develop a mechanism
to ensure that compensation for sugar price cuts was ring fenced
for those producers who are affected. This must not be an enabling
piece of legislation but a requirement on Member States.
CHANGES TO
THE QUOTA
ARRANGEMENTS
12. The TFA notes that quotas are to be
extended until 2014-15 and that there is to be a voluntary restructuring
scheme to encourage a reduction in the amount of capacity and
associated contract in each country. We have yet to hear exactly
how much of the restructuring scheme money will be available for
payments to producers. We would like DEFRA to come forward with
some guidelines or suggestions as to the split of the compensation
money between producers and factory owners.
CONCLUSION
13. The TFA believes that the sugar reforms
go further and deeper than they need to. There are many issues
to be resolved not least in terms of the payment of compensation
and the way in which the quota buy-up scheme will operate in the
future. It is essential that DEFRA provides a clear view on these
points before it proceeds to negotiate further in Brussels.
Tenant Farmers Association
August 2005
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