Memorandum submitted by The British Starch
Industry Association (BSIA)
INTRODUCTION
1. The British Starch Industry Association
represents the interests of UK producers of cereal starch and
starch products. There is a strong relationship between the starch
sweeteners and sugar markets and the proposal for the reform of
the sugar regime will have a major impact on the industry.
The purpose of this paper is to:
(a) provide a background and context to the
production of starch and starch sweeteners in the UK;
(b) set out the industry's concerns at the
proposals for reforming the regime; and
(c) how the industry would like to see the
proposals amended.
UK INDUSTRY BACKGROUND
2. The BSIA is a member of the European
Cereal Starch Industry Association (AAC), and shares its mission:
". . . to assure a reliable and economic
supply of safe starch-based ingredients developed from renewable,
natural and processed with environmental care for food, health,
industrial and feed applications."
The British starch industry extracts starch
from cereal grains (700,000 tonnes of UK wheat and 750,000 tonnes
of maize, principally from France) and processes it in to a great
many products, from native starches, to physically modified starches,
liquid and solid sugars (principally in the form of glucose syrups
and isoglucose) for food and non-food uses. The bulk of the industry's
production is sweeteners, some 70%.
These starch products are used as ingredients
and functional supplements in food, non-food and feed applications.
It also generates valuable co-products which
are sold into animal feed (eg wheat proteins, corn gluten feed)
and food (eg wheat gluten).
MEMBERSHIP
3. The current membership of the BSIA is:
Cerestar—A Division of Cargill
National Starch & Chemical
Tate & Lyle Food and Industrial Ingredients
Last year there was one other, albeit relatively
small, glucose syrup producer ie Grangestone Grain. The company
ceased production following a review of its operations against
the background of the proposed price effect of the reform of the
sugar regime when
450/tonne was mooted at as the target price level.
UK INDUSTRY CONTEXT
4. UK production of starch and starch products
is in the region of 800,000 tonnes from processing 1,450,000 tonnes
of cereals. This compares with cereal starch production in the
EU of about 7 million tonnes, from processing some 13 million
tonnes of cereals, principally wheat and maize.
5. The UK has a small isoglucose quota (see
attached annex), of 27,000 tonnes (5.3% of the overall quota for
the EU). This is a disproportionately small quota compared to
the size of the UK cereal starch industry. The whole quota is
held by one producer ie Tate & Lyle Food and Industrial Ingredients.
The total quota for isoglucose in the EU (25) is 507,000 tonnes.
6. As the figures show the UK starch industry
is relatively small compared to its counterparts in Europe, essentially
serving a domestic market. This in itself makes the UK starch
industry more vulnerable to the impact of the changes to the Sugar
regime.
INDUSTRY CONCERNS
7. In its communication of July 2004, the
Commission stated:
"Owing to the relationship between the isoglucose
and sugar markets, the proposed price reduction will also impact
on the EU isoglucose sector revenue. Therefore the isoglucose
sector will need to be in a position to profit from economies
of scale, in order to have a long-term prospect of economic viability."
8. This was stated at the time when the
sugar price being considered was
450/tonne as opposed to the level of
385/tonne, as set out in the proposals. At these
price levels the industry comes under much greater pressure. Not
just for isoglucose but starch sweeteners in general. This was
recognised by the Commission in its impact study of 2003, when
it commented:
". . . the price of sugar in the community
governs beet production capacity, preferential import opportunities
and competition with alternative sweeteners . . . however, below
450 per tonne, that [isoglucose] production would
collapse and the industry's starch production activities would
be affected."
9. The sugar price is the benchmark for
most sweeteners and any decrease in price will affect the price
of isoglucose and of most other starch sweeteners. As sweeteners
represent 70% of our production, the whole industry is impacted.
The reductions in the sugar price will mean that the starch industry
will inevitably have to reduce its production costs. The ability
to build economies of scale is denied to it by the limitation
on the increase in isoglucose quota. The granting of a substantial
additional volume of isoglucose, if not the total removal of the
isoglucose quota, is essential to ensure the long term competitiveness
of the starch industry in the EU and UK.
10. The industry will also be negatively
impacted by expanding the outlets of sugar for industrial applications
such as chemical and pharmaceutical (an additional outlet evaluated
by the Commission at 500,000 tonnes), through an out-of-quota
production mechanism.
11. As most of the starch industry's raw
materials are derived from the cereal growers in the EU (wheat
from the UK), the proposals will have a negative impact on the
farming community as well.
ISSUES CONCERNING
ISOGLUCOSE
12. Some specific issues regarding the proposals
concerning isoglucose, identified by the BSIA, are as follows:
(a) It seems illogical to maintain the quota
on isoglucose after the restructuring period of four years. If
quotas were to be removed the isoglucose industry would produce
some 3 million/4 million tonnes of isoglucose to meet demand.
However, to reach these levels would take well over 10 years,
if not more, to achieve due to the necessary capital investment
that would need to be made.
(b) Some UK starch industry producers would
actively consider substantial investment in isoglucose production
should the quota be increased or removed. The UK would benefit
from this additional inward investment.
(c) There would seem to be a disproportionate
risk to the UK starch industry when compared to the continental
European starch industry, due to scale effect. This could lead
to any restructuring of the industry in Europe to have a greater
effect on UK based manufacturing assets, which in turn could lead
to UK consumers becoming dependant on imported products.
(d) The British Starch Industry Association
believes that R&D activity is associated with a successful
developing business and without an industrial presence such research
and development is likely to take place outside the UK.
(f) The UK Government was concerned about
the existence of a competitive UK based starch industry when conducting
its enquiry into the merger of two starch companies in the UK.
The BSIA presumes that the potential reduction in the number of
local manufactures of starch and starch products, as a result
of the reform proposals, is still of concern to the UK Government.
(g) The UK starch industry recognises that
its national political lobby is much less effective than that
of the UK sugar industry, albeit that the size of the starch industry
is not greatly different to the sugar industry. (The starch industry
directly employs some 900 people, with a possible further 3,000
people employed in ancillary industries and in the farming community.)
The starch industry believes that this is clearly to its own detriment,
and will probably adversely affect the outcome of the sugar regime
reform as seen from a starch perspective. The concern of the starch
industry would be that the merits of the economic arguments which
are positive for the starch industry are overshadowed by the sugar
industry's lobby.
(h) The starch industry is the gateway to
many other green technologies and industries. For example the
starch process has many synergies with Bioethanol production,
an industry which will lead to greenhouse gas production reductions.
The starch industry already uses modern efficient energy systems
(Combined Heat and Power) and could lead the way to the development
of others, Biogas, Biomass for electricity generation. With the
prospect of the reduction in local starch production the opportunity
to exploit these energy and environmental advances will clearly
be restricted and in addition there are clearly environmental
penalties from importing the products from overseas.
THE SOLUTION—WHAT
THE STARCH
INDUSTRY NEEDS
TO REMAIN
VIABLE
13. At sugar prices as low as
385/tonne the UK cereal starch industry needs:
(a) An increase in isoglucose production
quota. At the sugar price envisaged, with the continuing constraint
on isoglucose production (even considering the additional quota
allocation of 300,000 tonnes), it will not be possible to compete
with sugar and a number of isoglucose production facilities would
be at risk. The industry wants to see the full removal of quotas
after restructuring. During the restructuring period there should
be no reduction in the proposed increase in the isoglucose production
quota by 300,000 tonnes/year, over four years (ie 1.2 million
tonnes), to be added to the current isoglucose volume of 507,000
tons. This increase will bring total isoglucose production to
1.9 million tonnes (ie 10% of the total sugars market) at the
end of the restructuring period. This level of increase in the
isoglucose production quota would minimise the impact of the sugar
reform on the starch industry, in particular by safeguarding the
current outlets of cereals sweeteners in blends.
(b) There should be no flat rate cut applied
to isoglucose after the restructuring period.
14. In making the above comments the aim
of the UK starch industry is to:
(a) Remain competitive after the reform of
the sugar regime and remain one of the most innovative contributors
in the food industry.
(b) Give customers a real choice between
sweeteners: the natural sweeteners and wide choice of low/no calorie
innovative sweeteners are complementary to sugar and contribute
to the offer of better balanced and diversified products to the
end-consumers.
(c) Support UK agriculture by increasing
its cereal outlets. The starch industry secures farmers an outlet
for different crops as wheat and maize and supplies the European
market with a wide range of products.
(d) Provide an alternative source of revenue
in areas where sugar beet production will decrease or be abandoned.
Isoglucose can be produced in all Member States during the whole
year and can therefore also be an alternative solution for sugar
beet growers who will have to reduce their production. The additional
1.2 million tonnes of isoglucose requested is equivalent to approximately
240,000 ha whilst 1.2 million tonnes of sugar equates to approximately
100,000 hectares of sugar beet.
(e) Be the major factor in the development
of green chemistry in the UK and EU and provide a plentiful supply
of biodegradable ingredients because starch products are a valuable
source of raw materials for the development of green chemistry
in Europe.
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