Memorandum submitted by Agricultural Industries
Confederation
EXECUTIVE SUMMARY
1. Mechanisms used to reform the sugar regime
should tackle, as a priority, EU countries which are currently
producing over quota. Whilst the UK is considered to be one of
the most efficient beet producing member states, the quota system
ensures that the UK imports approximately 50% of its sugar requirements
from ACP countries under existing agreements. As a contrast, France
and Germany produce significantly above quota. Whilst later on
in this submission we argue for no compulsory quota reductions
during the restructuring period, we do believe the imbalance of
consumption and production which currently exists needs to be
addressed as soon as possible.
2. It is also worth noting that the proposed
reform will do little in terms of improving the ability of ACP
and other developing countries to increase their imports to the
EU. By contrast we would expect low cost volume producers, notably
Brazil, to further increase their proportion of imports into the
EU. The environmental and social implications of this are addressed
in a later point.
3. The following demonstrates the importance
of the sugar beet crop to AIC members:
— Variable cost figures from the latest
Farm Management Pocket book by John Nix estimate a £115/hectare
spend on fertiliser, £135/hectare spend on agrochemicals
for the average sugar beet crop. Multiplying this across the 170,000
hectares of sugar beet grown in England gives a total figure for
inputs (excluding seed) of £42.5 million pounds.
— Members currently supply approximately
90% of the UK animal feed, agrochemical and fertiliser market.
— Members in the fertiliser and agrochemical
sectors therefore represent over £38 million of this spend.
Some AIC members represent a proportionately larger amount of
this spend due to the regional variance in sugar beet cropping.
THE EXTENT
AND TIMESCALE
OF THE
PROPOSED PRICE
REDUCTIONS
4. AIC believes that the proposed price
cuts, to
385 (£258) per tonne for sugar and
25 (£17) per tonne for beet, are too severe
and would result in many growers deciding to drop sugar beet from
their crop rotation. Defra's Regulatory Impact Assessment also
reports that these proposed levels are too low to allow production
to continue.
5. Table 1 demonstrates that sugar beet
at £17/t would produce a negative contribution when variable
and fixed costs are deducted from the output. This is for yields
ranging from 40t/hectare to 60t/hectare (Nix average UK yield
55t/hectare). Sugar beet only compares favourably with other arable
crops, in terms of contribution, when the price is £25/t,
or more.
Table 1
SUGAR BEET CONTRIBUTION
| Yield t/ha | 40
| 50 | 60 |
| Price £/t | 30 | 30
| 30 |
| Output | 1,200 | 1,500
| 1,800 |
| Gross Margin | 917 | 1,217
| 1,517 |
| Contribution | 1,284
| 1,584 | 1,884
|
| | |
|
| Yield t/ha | 40 | 50
| 60 |
| Price £/t | 30 | 30
| 30 |
| Output | 1,200 | 1,500
| 1,800 |
| Gross Margin | 803 | 1,103
| 1403 |
| Contribution | 153 |
453 | 753 |
| | |
|
| Yield t/ha | 40 | 50
| 60 |
| Price £/t | 25 | 25
| 25 |
| Output | 1,000 | 1,250
| 1,500 |
| Gross Margin | 603 | 853
| 1,103 |
| Contribution | -47 |
203 | 453 |
| | |
|
| Yield t/ha | 40 | 50
| 60 |
| Price £/t | 20 | 20
| 20 |
| Output | 800 | 1,000
| 1,200 |
| Gross Margin | 403 | 603
| 803 |
| Contribution | -247 |
-47 | 153 |
| | |
|
| Yield t/ha | 40 | 50
| 60 |
| Price £/t | 17 | 17
| 17 |
| Output | 680 | 850
| 1,020 |
| Gross Margin | 283 | 453
| 623 |
| Contribution | -367 |
-197 | -27 |
| | |
|
(For this exercise variable costs are estimated at £397/hectare
and fixed costs are averaged at £650/hectare based on average
UK figures from the Farm Management Pocketbook 2005.)
6. AIC questions the value and effectiveness of a reference
price and private storage mechanism. Private Storage Schemes have
never proved themselves to be successful in the EU and there is
little evidence to suggest this would be the case in the sugar
industry. We would argue that the intervention system should be
retained through the transitional period although its value could
be adjusted to ensure it operates as a safety net and a true market
of last resort.
7. We accept the principle of price reduction and the
role it can play in driving industry re-structuring with the intention
of bringing European supply/demand for sugar into balance. Balancing
of supply and demand however needs to be just that and price levels
need to be sufficient to allow sugar beet to be grown profitably—the
earlier table highlights this point sufficiently clearly.
THE IMPLICATIONS
FOR UK AGRICULTURE
8. AIC is concerned that efficient UK sugar beet producers
will be unduly penalised by an imbalanced reform. These producers
are often the most environmentally aware, invest in a high level
of technical advice and services from our members and are skilled
in resource management. We believe that the environmental impact
of any significant change to sugar production needs to be considered
both from a UK perspective and from the position of those third
countries who would be expanding their sugar exports, principally
from sugar cane.
9. Brazil is cited as one example of a third country
which would be looked to for increased sugar imports. Brazil,
as a country, is making significant steps forward in establishing
itself as one of the foremost agricultural exporters. We can see
however that its drive on soya production is already having negative
environmental impacts through the establishment of new agricultural
land at the expensive of rainforest—with the obvious impact
this has for the climate as well as biodiversity. Similar concerns
are expressed on the increased use of virgin cerrado for an expanded
sugar production enterprise, particularly when one recognises
the nutrient status of this type of soil and therefore the nutrient
input required to generate a viable crop.
10. Worker welfare and safety in another important issue
which both the UK and the EU need to be taking into account when
establishing policies. With concern that many less developed countries
also stand to lose out under the current proposals—a factor
recognised by most participants and commentators—we have
to question the social and environmental credentials of the EU
Commission's proposals.
11. By contrast, we believe that sugar beet production
in the EU, and particularly UK, offers sound environmental benefits
which fit naturally into the wider environmental strategy which
the mid term review has pushed forward. A spring, row crop such
as sugar beet also provides benefits to bird populations. RSPB
report that 50% of the global population of pink-footed geese
over winter in North West Norfolk and the Broads, feeding on left-over
sugar beet tops. Sugar beet also provides valuable nesting and
feeding sites for indicator species such as stone curlew, lapwing
and sky lark.
12. Sugar beet serves as a break crop in the rotation
and as such is a useful tool for the management of weeds and soil
fertility. The loss of this crop, due to economic reasons, would
lead to a reduction in overall farm profitability as the area
of first wheat grown after a break crop would decline. This in
turn would lead to an over reliance on some agrochemicals used
to control grass weeds in cereals if the area of cereals expanded,
which in turn could increase the likelihood of the development
of resistance and an eventual reduction in their activity.
13. One additional area is the impact which a reduction
in the beet area will have on the provision of digestible, fibre
rich raw materials for the feed industry. The UK, through British
Sugar factories, produces just over half a million tonnes of dried
sugar beet co-products each year. Much of this is used by livestock
farmers in the form of sugar beet shreds and pellets. Additionally
there is an annual production of some 80,000 tonnes of moist co-products
and some 10,000 tonnes of beet molasses.
14. Alternative fibre rich raw materials are available
to a point, in the form of citrus pulp and soyahulls. There is
however a great doubt as to whether quantities would be available
to cover all of the lost sugar beet derived product. Neither of
these products could also be taken as a direct replacement, nutritionally.
Sugar beet co-products trade at a premium to these alternatives
because of their nutritional superiority. A reduction in the availability
of sugar beet co-products is most likely to be felt in the dairy
sector with a reduction in the level of digestible fibre and subsequent
impact on milk yields.
15. Finally we believe there is a significant contribution
which sugar beet, as a crop, can make towards alternative energy
production, eg bioethanol. Whilst other contributors will provide
more detail in this area, we do note that the sugar industry is
in an advanced state of readiness for production of bioethanol
and given the increasing price pressure on conventional fuel we
believe the government now has the opportunity to follow up its
verbal support for non-food crop solutions with action by supporting
the continuation of a UK sugar beet industry.
THE PROPOSED
ARRANGEMENTS FOR
COMPENSATING EU PRODUCERS
16. AIC has no specific comment to make on the proposed
measures for direct income support. We do believe however that
the payment system has to be consistently applied across the EU
and entirely decoupled from any payment support regime. Member
States should not be given the option to operate a national coupled
scheme, even as a transitional measure.
A NEW SINGLE
QUOTA
17. AIC supports the current proposals not to introduce
compulsory quota reductions during the restructuring period. Restructuring
of any degree will inevitably result in some growers exiting the
crop and we believe it is sensible to assess the position of quotas
once the effects of restructuring are seen. We believe however
that from a longer term perspective the EU should take steps to
remove quotas as part of a refocusing towards production linked
to market signals—as we have seen for other crops under
the Mid Term Review.
Agricultural Industries Confederation
September 2005
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