|
UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 585-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE ENVIRONMENT, FOOD AND RURAL AFFAIRS COMMITTEE
Monday 24 October 2005 MR WUBBO WAGE MR TIM BENNETT, MR MIKE BLACKER and MS HELEN KIRKMAN DR MARK CARR, MR CHRIS CARTER, MS CLARE WENNER and MR SIMON HARRIS Evidence heard in Public Questions 131 - 259
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Environment, Food and Rural Affairs Committee on Monday 24 October 2005 Members present Mr Michael Jack, in the Chair James Duddridge Patrick Hall Lynne Jones Daniel Kawczynski Mrs Madeline Moon Sir Peter Soulsby Mr Roger Williams ________________ Witness: Mr Wubbo Wage, Board member, Dutch Beet Growers' Federation, examined.
Chairman: Good afternoon, ladies and gentlemen, welcome to the second evidence session of the Committee's inquiry into the European Union's sugar beet regime. I am delighted to welcome Mr Wubbo Wage, the Board Member from the Dutch Beet Growers' Federation, who has very kindly come to talk to us to give us a perspective on this problem from, shall we say, the other side, the southern end of the North Sea or the top end of the Channel, whichever way you care to look at it. I am particularly grateful because, Mr Wage, I gather you have had quite a lot of travelling to do in the last 48 hours, and thank you very much for travelling again to be with us today and also for being brave enough to represent non-UK growers' interests before the Committee. Some of your fellow European colleagues were perhaps a little more reluctant to come, so we are particularly grateful to you for coming. I am going to ask my colleague, James Duddridge, if he would be kind enough to put the first question to you. Q131 James Duddridge: I am interested in your overall reaction to the draft legislative proposals and particularly whether you see them as an improvement on the initial consultation document of July last year. Mr Wage: First of all, it is a pleasure for us to be here in London. The UK has a very important position in the second part of this year especially for sugar. I am a practical farmer and as such it is my duty to be here in this meeting and put our approach about the new sugar regime. First of all, I would like to say that we have a Sugar Platform in the Netherlands. We are working together with our industry and sugar beet growers, so we have a platform and until now we have the same attitude and the same sound to the outside. We had an invitation from our Minister of Agriculture, "There is a lot of comment about the proposals from Brussels, do you have a better plan?" We have written a better plan, where it is placed for the least developed countries, where it is placed for more labour, and we propose a lower price cut for sugar and for beet, because the proposals from Mrs Fischer Boel is really a disaster for the best areas of European beet growers and also for our industry. Our approach is for a price cut for sugar of about 16 to 18 per cent, and for beet of about 20 to 25 per cent. Our approach is also to stop directly the subsidised exports; we will stop subsidised exports. We are in favour of the research based fund, we think it is a very good thing. The period of our new sugar regime must be at least eight years and we have got this in this proposal and we think it is very important. Furthermore, we want no reference price but we want an intervention price. All products from Common Market organisations in Brussels have an intervention price and we also want an intervention price. We had a lot of contact with ACP and LDC countries and also with Oxfam and Novad (?) and NGO organisations, and finally we made a conclusion that it was a better way for the least developed countries and for the ACP countries to ask for a quota system and for a price guarantee. Why do we have an LDC agreement? To help the poorest in the world and if we would like to help the poorest in the world we must guarantee some price. Based on a world market, they do not have a position and our Parliament and our minds are in that direction and, as I said, together with the NGOs, together with Oxfam, together with Novad, we have made a good proposal. Our Parliament underlines totally this opinion. Our Government is still a little bit on the other side but Parliament is controlling the Government. Furthermore, we want compensation for at least 80 per cent and we want a safeguard clause, because the proposal now means in 2008-09 we have market exits totally uncontrolled and it can destroy the whole sugar system, the sugar industry, the sugar beet growers in Europe. We do not know if two million tonnes or four million tonnes are going and we have to wait to see what will the research regime bring in the next three or four years. It is not clear if we take enough quotas out of the business. Furthermore, after the loss of our panel and the argument of the panel for cross-subsidisation, we think with these lower prices that these arguments are gone, and why is it not allowed for Europe to export sugar to the developed markets? Other countries all over the world have higher domestic prices than the world market prices, so why is it not allowed for Europe? Furthermore, we think we must avoid SWAPs, which is really a risk in African countries, because you never know where the sugar has been produced. That is shortly our approach and our vision for the new sugar regime starting next year. Q132 Chairman: Have you had any discussions with colleague organisations who represent farming interests in other parts of Europe about your view on this regime? I am interested in your comments about what I call the politics of the change, because the French may well take a different view from the one you put forward. Have you had any of those discussions? Mr Wage: Yes. We sent our plan, the better future plan for the sugar market, all around Europe, and many people and many organisations underline more or less our view; more or less. So people, many from the sector, say, "Why do we have to stop subsidised exports? We are self-financing." So there are little differences but a lower price cut, market regulation, safeguard compensation and so on are underlined especially by most countries. France think they are strong and perhaps they are the strongest and are not totally on our side, but Belgium, Germany, Austria, Sweden, all the countries' growers' organisations and also the industries are more or less interested in this way of thinking. There are differences but one thing is important for one country and another thing is important for another country. But one thing must be clear, the proposal from Mrs Fischer Boel is at a level that from our point of view the whole European sugar sector is at risk. Q133 Chairman: On a point of information, I gather you have something like 5,700 sugar beet growers in the Netherlands? Mr Wage: Yes. Q134 Chairman: Do I get the impression that a number of these farmers are quite small in the scale of their operation? Mr Wage: Yes. Every year five per cent of the farmers go out of business and inside this figure which you have mentioned are also farmers who deliver to companies, to private companies and to co-operatives, so it could be we have less growers but we try to increase the area per farmer. We know we have a quota system and the quotas have high value in our part of Europe and that is also a barrier to increase the area, but in the future we will increase the hectares per farmer; that is absolutely necessary. On the other side, we have done in the last years a lot of cost reduction. At the weekend I saw my annual financial report and then you see that we grow sugar beet for the last 20 years for the same money. Only by doing things better are we still in business. We have tried to optimalise production and so on and so on. In the future, there will be a lower profit and we will lose in a very fast time many, many growers. Q135 Chairman: Are these growers mixed farmers? They do other things than just grow sugar beet? Mr Wage: Most arable farmers in the Netherlands grow sugar beet. There are several mixed farmers who 20 years ago went in the direction of dairy farming and arable farming, so 80 per cent are arable farmers and sugar beet is a very important crop for the income. Between 12 and 18 per cent of our area on the farm is sugar beet but the income is representing about 25 to 32 per cent of our income, so it is a very important crop for the income and that is also the reason that we are very concerned about these proposals. Q136 Mr Williams: You have talked about bearing down on your costs of production and Dutch beet growers are seen as relatively efficient in Europe although probably the French growers are seen to be the most efficient. Would you agree with that and perhaps you could tell us why the French producers are more efficient? Mr Wage: French growers are very efficient because they have a yield of about 12, 13 tonnes per hectare, the highest in Europe. Perhaps the cost of land is a little bit lower in France. The climate conditions are perhaps the best in Europe. But we also try to reduce costs and we have started at this moment a programme of cost reduction and our farmers are saying to us, "What are you saying about energy? An increase of energy last year reduced all alternatives to reduce cost." So we are looking to the contractors, "Can you harvest more with your engines? Can we work together with using fertilisers and herbicides" and so on. It is a continuing programme of minimising inputs. That is the way of agriculture in this decade. We do not have a correction for inflation and so on, we have to do things cheaper and better, that is our way of life in agriculture. Q137 Mr Williams: I know. Would you think the relative efficiency of French beet growers is anything to do with farm structure and farm size in France or are the size of beet production units about the same? Mr Wage: It is very difficult to say. The French know they are in first place in Europe but they have also their cost increases. I will mention one thing, there is the takeover by the French growers of their industry, so perhaps it is also a little bit outside of the French. Their yield is the highest in Europe after Switzerland, which is the best area for sugar beet growing. I think the investment that the French growers have made in the last four or five years is also very difficult for them. I will say the French in the first year did not get any money from their yields to keep the factories in French ownership. Q138 Mr Williams: Given your relative efficiency and the fact that five per cent of your growers are going out of business every year, what effect will the proposed reduction in sugar price have on your industry and will it survive? Mr Wage: The effect on the industry? Q139 Mr Williams: No, on the beet growers. Mr Wage: That is very difficult to say. Farmers stop production but, on the other side, we have a quota system and we have to take over the quota, and when you take over the quota the first two or three years it has no influence on your income - you use your equipment better and it is an investment for the long-term. So we are thinking how we can reduce the quota costs but the quota costs in our area are very high, ridiculously high. Q140 Mr Williams: You have a relatively inefficient processing sector compared to other European countries. Would you agree with that? Mr Wage: You say our industry is inefficient? Q141 Mr Williams: It is not as efficient as some other countries. Mr Wage: I think that we have perfect extraction rates, I think we have in sugar beet a very low input of labour, we have a high efficiency (?) on energy, but we have a slight incapacity because in the three factories we have about 16,000 tonnes a day. I think, and perhaps I am a little proud of my industry, with this slight incapacity of 16,000 tonnes a day we are there. Q142 Mr Williams: So your processing sector will not have an adverse effect on the whole sugar production in Holland? Mr Wage: We transport sugar beet six and a half days a week, we have optimalised nearly everything, and it will be very difficult to increase profit even a little bit. This is really a problem. What we can do is only on the growers' side to have bigger volumes and so on and so on. Our industry is very, very efficient and they are very disappointed about these high energy prices, so we are throwing away two or three years by these energy prices. So from my point of view we can be proud of our industry and the ability of our industry. I do not have remarks on my industry. Mr Williams: Thank you. Q143 Sir Peter Soulsby: Following on from that, can I ask if you are able to quantify some of your predictions and the effects of the reform of the regime? At the moment, as I understand it, you have about 37,000 hectares of sugar beet production, are you able to give any prediction of what that might reduce down to as a result of the changes? Similarly, you have got, I understand, somewhere in the region of 400 people working in sugar factories and perhaps 9,000 others involved in related employment. Again, are you able to quantify what might be the effect of the changes? Mr Wage: First of all, I heard 37,000 hectares of sugar beet, I think we have 92,000 hectares of sugar beet. Q144 Sir Peter Soulsby: That is a significant difference. Mr Wage: Yes. 92,000 hectares of sugar beet is the figure for this year. We always had 100,000 hectares of sugar beet. Our industry says, and our growers are saying, when we get the beet price of 25 euros, it is not really 25 euros, because we have a production levy, we can discuss lower minimum prices and so on and we can get compensation of 60 per cent. There are many farmers who go out of business, who are stopping with sugar beet growing, because it is not profitable to grow sugar beet for 25 euros a tonne and in our situation we get about 10,500 kilograms of sugar per hectare so we stop with sugar beet growing. Then we get the problem that the industry needs about 30,000 hectares for one factory and we have the problem that we have 20,000 hectares for one factory, and we have a short campaign and then it is over. So this is really a disaster. We are in a strong area, not the strongest but we are in the top five, and then we will have really a problem, and not only for the farmers but also for the jobs in the countryside. For the local economy in the countryside sugar beet growing is very important - for the contractor, for the seed company, for all the people who are involved with equipment and so on. The sugar sector is a very important economy for the countryside. We do not have so many economies in the countryside and the sugar sector in the future has to be sustainable. It is a very important crop because until now it is profitable. Q145 Sir Peter Soulsby: So very broadly what proportion of reduction might you anticipate in the area of sugar beet production? Very broadly? Mr Wage: It is a very good question, but if we want to go on with sugar beet production in Europe we must do it in the best areas, so I think we are in favour of the restructuring fund because then we can stay in production in the best areas. Otherwise we will have to import and so on. It would be a pity if we reduce quotas in the strongest area and I would not like it. We are very much in favour of the restructuring fund and we think it is a very good thing but it is not easy for the people and the employers in the factory and the growers in the industry to take the decision, "We are going out of business"; that is a very difficult decision. Q146 Sir Peter Soulsby: Can I ask about factories. As I understand it, there are currently four factories operating in the Netherlands. Do you expect any of those Dutch factories to close as a result of the reforms? Mr Wage: Yes. Last year we closed a factory and we have now three factories, so we have a campaign length of 100, 105 days, so we have more results from the investment for our industry. So we are moving forward to optimalise slicing capacity. Q147 Sir Peter Soulsby: Would you expect the number of factories to drop still further? Mr Wage: We need finally 85,000-90,000 hectares of sugar beet for three factories, and that means in our situation we need 30,000 hectares around one factory, that is the optimum, with a slicing capacity of about 60-70,000 tonnes a day. That is the optimum from our point of view. Q148 Chairman: Can we ask you about the compensation regime that is proposed under these proposals. The Commission are talking about compensating growers to the tune of 60 per cent of losses as a result of the proposed price reduction. Do you think that is a fair regime of compensation? Secondly, in terms of the Netherlands, how would that compensation package be introduced? Would it be in some way coupled to production or would it just be a free-standing payment to the growers? Mr Wage: Yes, we are also looking to the other products in a Common Market organisation, and I have mentioned rice which has a compensation of 88 per cent, and there are several other products which are highly compensated. We think the 60 per cent is not really 60 per cent. We have our financial discipline, we have our motivation and perhaps other things, and it also disregards the mix between A and B quotas, and there is also a point of discussion on what is part of €47 or €43.9. So we say we need at least 80 per cent compensation in line with other products which are reformed in Brussels. So at least 80 per cent we need to stay in business. The second question is a very interesting question, we want not a calculation based on the period 2000-2002 but on a younger period closer to 2006. We would like to have our reference period as 2004-05 because we have a lot of quota transfer, a lot of farmers are going out of business, and we want that people who grow sugar beet in the future have the right of compensation. So very close to 2006. The discussion on decoupled payments or coupled payments is a very interesting discussion. We have a very good relation with our industry in the Netherlands. The industry needs sugar beet and growers need the industry. We think for €25 our growers will stop sugar beet growing. When we have a decoupled payment, they stop their business, and we are thinking at this moment - and I cannot answer very clearly what we are doing - for a short period of coupling on production but I know that most countries say, "We want to decouple payments" but we are in discussion about it. Q149 Chairman: In discussion with the growers? Mr Wage: With the growers and with the industry saying, "How are we managing the payments?" Finally, I think it becomes decoupled but we are consulting the arguments for a 40 per cent coupling to deliver enough sugar beet to the factory, but we say the money is owned by the growers and at the moment we go direct to decoupling the industry, it is no part of the beet price, it is only an insurance for delivering enough beet. But it is in discussion, and I am being very open here in this meeting, and it could be said on the other side a decoupled payment. But it belongs to the growers who stay in business after 2006. That we will try to arrange. Q150 Lynne Jones: What you are saying then is that you want payments to be based on production but based on recent figures so that those farmers who have already gone out of business would not get any compensation, it is only those who are staying in the business? Mr Wage: There are a lot of farmers in the Fischer Boel proposal in the reference period 2000-2002. We have about 15, 20 per cent of our quota at this moment in 2006 not belonging to other farmers, so we think it is not done to pay growers who have stopped before this new sugar regime to give them compensation because they were growing sugar beet in 2000-2002. So we say very shortly before 2006. Q151 Lynne Jones: Our figures indicated, as was discussed earlier, that your processing industry was not as efficient as in other parts of the EU. You have contradicted that. Is that because our figures are based on you having four factories and you now only have three and therefore you are producing the same amount of sugar from three factories and therefore you are more efficient? Mr Wage: Yes. From my point of view, inefficiency is a low abstraction rate, too much labour, not very efficient with energy and so on and so on. I say we are on a technical very high level and when we visited Eastern Europe - and I was there the week before - they have an abstraction rate much lower. Q152 Lynne Jones: Talking about those most efficient countries though, you say you have a very good relationship with the processors? Mr Wage: Yes. Q153 Lynne Jones: Do you think that the relationship is similar to the relationship within perhaps the UK? The farmers in the UK say that the processors have all the power. Would you say that is not the case in the Netherlands? Mr Wage: No, we have one industry and I deliver to the private industry. We have one industry, there is a co-operative, there are shareholders and there are the people who deliver the sugar beet, but also I deliver to the private company, CSM, and they have a stakeholder mentality. People who work in the factory are very important, the growers are important, also the shareholders are important, and when you make a mix together of these three elements you have people who are proud of their industry. So it is very strong and then you are strong for the future. Q154 Lynne Jones: So do you think having the farmers' co-operatives has made a difference in your relationship with the other processors? Mr Wage: That is a very interesting question. I do not know. I cannot answer because it is very difficult to answer. We have countries with monopoly sugar processors and that is perhaps more difficult than our area where we have a stakeholder mentality. That is very important. Q155 Lynne Jones: It is important that you continue to farm 92,000 hectares in order to keep those three factories open? Mr Wage: Yes, 85-90,000 hectares we need to have a production of around 100 days. We think that is absolutely necessary otherwise when you drop your production to 60-65 days, it is too short and a new factory costs around €500 billion, so you have to use your equipment very well. Q156 Mr Kawczynski: Could I ask about the general position of the Dutch Government in all of this and what their position is? How has your organisation managed to influence their official line? Mr Wage: I said at the beginning that our Minister of Agriculture invited us to do a better proposal. We had a lot of comments about the proposals of Mr Fischler and later Mrs Fischer Boel, so they said, "Come with an alternative." Then we were talking with the ACP and LDC countries and we know those countries have visited all the capitals in Europe and have been in Brussels asking for a price guarantee and a quota system to earn some money for market access. We were discussing with the NGOs, with Oxfam and Novad, and so we made our plan which I have announced here to stop subsidised exports, a quota system for the least developed countries and ACP countries. We could also defend our point of view that we do not like imports but we accept a place from the least developed countries and ACP countries in our new sugar regime. That was a very important approach to our Dutch Parliament. They had never seen before us working together with NGOs, with all actors in the playing field, and they underlined as Parliament our approach, they thought it was fantastic. "We have never seen before so many organisations underlining an alternative plan." They pressed also the Government to follow this line but in the discussions in Government it is not completely clear if they are following the wishes of our Parliament. They say, "Yes, we know about it. Yes, it will be very difficult to come with a new sugar regime in November. We need a little bit of place and don't fix me except on figures." That is the position of our Government. But they also know that our sugar companies and our sugar beet growers are at risk; they know that very well. I cannot understand that when we make a place for the least developed countries and the ACP countries - and this is a little bit of a personal remark - that we destroy the European sugar sector. I cannot understand that. I told you that 20 years ago we had the same amount per tonne of sugar beet in this period and now we are doing things better, and now politicians ask, "Can you work cheaper", it is amazing for me. We do not have inflation correction, we do not have anything, only through increasing the yield and doing things better. If I may make a personal remark, we were also discussing with the unions in the Netherlands that we have to create a win-win situation, that we can stay in business in Europe, look for a place for the least developed countries and the ACP countries, and from our point of view we should think about bioethanol-production, bioethanol in the least developed countries and the ACP countries and probably export to the EU, and then we create a win-win situation, and our labour organisation is very in favour of this idea. Perhaps this idea, to keep local economies in the countryside in Europe at a good level can make a place for the least developed countries and ACP countries. So we create a win-win situation and that is what I would wish. Q157 Mr Kawczynski: As a follow-up, does the Dutch Government see sugar production as a strategic sector? Does it feel agriculture is strategically important and is prepared to subsidise it? Does it have the political will to do that? Mr Wage: Yes, it belongs to the point of view that if your grandfather was involved with agriculture and so on, so when you have a relationship with agriculture you think perhaps that agriculture has a good place in the local economy - especially flowers, vegetables, dairy farming and also arable farming - it is very important for the local economy in the countryside. Our Government has an approach that farmers have to manage the countryside, so it is turning a little bit. When I speak about bird 'flu, when we are importing everything, it is very risky to be completely importing everything all over the world. From my point of view, we must think about the local economy. On the other side, we can create unemployment in Europe but what are we to do with these people? It is better they stay in business and also have workers in the factories and they are fighting to stay in the sugar business. They know they have a good job and they want to keep their good jobs. Also in political meetings with our labour organisations, the workers in the factories say, "Why do I have to go for LDC countries and ACP countries? What do I do wrong?" Then I say, "Why don't we create a win-win situation and perhaps produce bioethanol additional to the sugar market." That would be a good idea. Also our unions said, "That is a good idea, that is a good solution, we will want to support it." So at this moment there is a delegation of consultants in South Africa to bring this idea to the attention of Tanzania, Mozambique, South Africa and so on and so on and to say, "This is a challenge, this is an opportunity, what do you think about it?" I am free to bring it here to say that perhaps we can create a win-win for the European sugar sector. Q158 Chairman: Mr Wage, you have put forward with passion your views and I want to conclude with one political question. You laid out very clearly for the Committee the importance of sugar beet production both from an environmental and agricultural point of view in the Netherlands; you have laid down the fact you thought 80 per cent should be the level of compensation, not 60; you have made it very clear that you wanted to have no reference price mechanism; and you wanted a guaranteed price mechanism for the ACP countries. Those are four very big issues. The politics of the November Council of Ministers will be to try and get an agreement prior to negotiations in the World Trade Organisation at the end of the year in Hong Kong. What is your assessment as to whether the coalition of those countries who presently disagree with the Commission's proposals will hold firm when they have to think about the wider picture of the agreement at the end of the year? Because what you have described is a position which normally results in the Council having to think a few times before the regime is finalised, but the pressure in November is going to be very great for an agreement to be reached. What is your personal assessment about the politics of the November Council? Mr Wage: I know there are many countries who cannot agree with this proposal, so Mrs Fischer Boel and Ministers will look for a little bit of movement in one or another direction. It must be clear when this is going on that without our amendments we will destroy the European sugar market. I cannot believe that all the people who are involved in politics will take this responsibility. I think this goes too far, too deep, too fast and it is unbalanced. There are a lot of things for the future of the sugar sector. That is why I am disappointed, we are lobbying a lot, and day after day we give explanations to agree with us but now it is to make a point and it is politic to make a point. I refuse to believe that in November they will take the decision that they will say it is over in Europe as a sugar industry and only the French can stay in business, and furthermore it is only import. Then we have the responsibility about unemployment, capital, all investments will be destroyed and so on. I cannot believe we will take such a ridiculous decision. Yes, also, you must understand that the ACP countries and the LDC countries are very, very disappointed in this proposal. I think political people have to listen and to calculate more and not take decisions about emotions because everyone likes to help the poor people in the world, everyone, but then they come with a proposal which brings nothing. The poorer people stay poorer and then you have to build a factory for about €400-500 in such a country and you deliver your sugar cane to that factory and you earn nothing. It was the idea to help the poorest in the world but then we have to make a sugar regime where we do what we are saying. It is not in my interest that is on the market but it is a political reality that is occurring in the market. Yes, in the Dutch situation we agree with this, but I would be for a win-win situation, to use bioethanol. Sugar cane is the first product to use bioethanol, it will be a very good approach from my point of view. Chairman: Thank you very much indeed, first of all, again, for coming, and secondly for answering our questions with such clarity and for the passion with which you put your growers' case. I think you already have a friend at the back of the room because I notice, if body language is a communicator, the President of our own National Farmers' Union was smiling at points in your response. Thank you very much indeed, Mr Wage, for coming to give evidence to the Committee. We very much appreciate it. Memorandum submitted by the National Farmers' Union Examination of Witnesses
Witnesses: Mr Tim Bennett, President, Mr Mike Blacker, Chair, NFU Sugar and Ms Helen Kirkman, Chief Sugar Adviser, National Farmers' Union, examined. Q159 Chairman: I would now like to welcome our own National Union of Farmers to the witness stand. They are represented, for the record, by Tim Bennett, their President, Mike Blacker, the Chair of the NFU's sugar committee and Helen Kirkman, who is the Chief Sugar Adviser. Just for the benefit of the Committee, Ms Kirkman and I know each other, not in any personal sense but her father is a leading agriculturalist in my own constituency and we have in the past talked about agricultural matters but nonetheless I hope that is not a detriment to you, and I am sure we will benefit from your expertise in the field of sugar. I would like to start. You can always tell when the NFU are exercised by something because they radically and dramatically go over the 3,000 words that we allow for our evidence. We have got evidence plus about four or five appendices so I can see that the word processors in Agriculture House have been working overtime. I want to start off with the question of efficiency. There appear to be some differences, Tim, between the evidence we have got as to just how efficient British sugar beet growers are. Clearly one of the arguments that underpins the present reform regime is whether, in fact, it is realistic to concentrate production in the hands of the most efficient countries. I suppose those of us who have looked at this exercise before would have thought that Britain was amongst the most efficient, but there is some suggestion that we are not in that particular category. For the record, could you talk about efficiency and our sugar beet industry? Mr Bennett: I will probably pass to Mike for the details on this. I think we are pretty confident as an industry that we are certainly amongst the best in Europe, between the processor and us as farmers. Of course, the effect of the regime change if it goes through anything like as described would drive that efficiency even more. That is why in broad principle the reform as outlined by the Commission is one we would support in terms of the theory of price cuts rather than quota cuts because it is the one way to allow efficiency to develop in terms of the sugar within Europe. We feel that we are up there with the best and we can be part of the survivors post this reform. Mr Blacker: Chairman, first of all, thank you very much for the honour of coming and speaking to you again. I am sorry that we have sent a very lengthy document but I think it proves when you read it the passion we have in what we believe in and what we are trying to fight for, that was really the reason behind it, not just to weigh you down with far too much paperwork. Q160 Chairman: I did read it. It is a good read. Mr Blacker: It is a very good paper. Q161 Chairman: It is cheaper than some novels. Mr Blacker: As far as efficiency is concerned, yes, we pride ourselves with being up towards the top in terms of growers. We are between third and fourth generally within the EU. We have come from quite a lowly base a number of years ago. Q162 Chairman: Let me stop you for a second because you can look at efficiency in one of two ways. You can look at it either in terms of sugar yield or yield of beet per hectare. Just define the terms. When we talk of efficiency, what are we talking about? Mr Blacker: We can talk about either, if you like. Sugar yield, if you want to talk in those terms, last year we did 10.8 tonnes of sugar to the hectare which is well up with the French who are on the edge of 12, that is the target we need to get to. They are the ones we are chasing, the ones who are our prime movers, if you like. We are 10.8 which is very, very good for us. We look like a very good crop this year as well. Efficiency is building up to that point, building up to try to get the best yield per hectare possible. Q163 Chairman: Right. The same, I presume, in terms of production? Mr Blacker: Indeed, one does not go without the other. Certainly our producer, in our opinion, and I think in everybody else's opinion, is probably the best in Europe. It is quite interesting, you asked a question of Mr Wage about that, suggesting that perhaps his industry was not quite as efficient. If you compare the timescale of the two campaigns, theirs along with ours, you heard him talk about 100 days when ours goes into 130/140 days. That obviously means quite a lot of risk from a grower's point of view in having your crop out and looking after it all that period of time but it does give a little bit of grower help towards creating the other side of the industry, the processing side, to be efficient. Q164 Chairman: Put into context for me some of the economics of what we are talking about. Our previous witness indicated that he thought that the price reduction, 39 per cent, which the Commission are proposing is too harsh. You have indicated that there might be further efficiencies to come within the UK industry, or should we say perhaps the English and Welsh industry, and you have indicated that we were "chasing the French", so that gives an optimistic hint. The NFU are never happy when prices of anything are coming down but that is what is on offer, not increases. Can you help us to understand whether this 39 per cent is realistic or whether, in fact, it is too low for our production costs to be met. I want to phrase that into another perspective because can you help me to understand it in terms of the returns per acre from sugar beet. Sugar beet is the most wonderful bit of historic anachronism, it has been left over. It is a wholly artificial mechanism of pricing one root crop compared with all the other root crops that are available. Can you give us some kind of indication in terms of returns per acre? How does sugar beet compare, particularly in East Anglia with the range of vegetable crops that are grown there, and more specifically, for example, in comparison with the potato crop, where does it figure in the hierarchy of returns? Would the returns under the price regime proposed enable efficient producers in the United Kingdom to cover their costs and make a positive return per acre if the agreement was introduced as proposed? Mr Blacker: I will try and answer your questions. I remember on the last occasion, Chairman, you were trying to compare them with swedes, and we felt that was not a very good comparison. That is a very small market. Q165 Chairman: I will try and do better. Mr Blacker: Sugar at the present time ranks very high in the list, probably potatoes are higher but sugar beet comes fairly high up in the scale of returns per acre or hectare. Under this proposal, and let us still call it a proposal because in my opinion there is still quite a long way --- Q166 Chairman: Have you got any numbers to help us understand? You said it comes quite high. Mr Blacker: No, I do not have any numbers on my mind. Mr Bennett: I think what is important here are the price cuts as proposed by the Commission; at the moment we feel they are too harsh. It is not just 39 per cent, it will go beyond that. What the Commission have to do in terms of the reform of the sugar regime is make sure that tonnage, that five million tonnes, goes out of production in terms of Europe. They have had to pitch this, I guess, at a price that would do that. In terms of both the French and ourselves - and we want to compare ourselves with the French in this instance - we feel these price cuts are too severe and would leave a margin, even to the most efficient grower in this country, not necessarily sustainable for them to invest in their business in the future. Q167 Chairman: Hang on! You use language like "not necessarily sustainable", I want this Committee to understand in objective terms. If you are saying it is too harsh, we need some numbers to understand what the language you have just used means. Mr Bennett: We can certainly supply you with numbers on what we mean in terms of that. What we are talking about is the proposal on the price cuts, which we feel is too severe, and of course we have then got to negotiate with our partners in terms of margins post the reform. What we are saying is the price cuts as proposed would damage a lot of sugar producers in this country. Q168 Chairman: I suppose what I was getting at at the back of my mind was if we take the arable sector and the fall, for example, in wheat prices which have taken place over the last few years, you could equally well have said the change in the regime there was deeply damaging but it has not stopped people growing wheat, has it? Mr Bennett: It will be interesting to see. This is the first year in which we have got decoupled payments in terms of wheat and I think the production of wheat in this country will be much allied to what is the price of wheat in a decoupled world. I would like to see the figures on that in about 18 months' time, I think it will be variable. Mr Blacker: Can I come back on that. I do not want to go down the route of where we fit in and numbers per hectare. At the present time I would like to bring you back to where the proposal is and really perhaps answer your question in that direction. I think you have heard a very interesting comment from Mr Wage who said that over the last 30 years they have tried in the Netherlands to keep up with price by trying to improve efficiency all the time, and I guess we are in exactly the same position. This industry has taken massive strides forward in terms of the way it harvests, the way it conducts its work, the seed production that has been developed over the years to create a bigger yield per hectare, et cetera. It is very clear on two issues. Firstly, a known is that the proposal suggests €25 per tonne, that is a known to all of us. €25 per tonne without any complications in there, and sterling as it is today, gives us about £17 per tonne of beet. We know - which is probably the only study that is available publicly - the Defra study or the Cambridge study (whichever one you wish to go by) suggests that cost of production in the UK ranges from £19 to £28 a tonne. Clearly there is a gap, there is a £2 gap between the best person and the £17. I would suggest that even taking it beyond the UK, even taking it over the whole of Europe, there will be very, very few producers in the whole of Europe which could produce at £17 a tonne. I hope that helps in part of the debate. Q169 Chairman: It does. I would still like an answer to my question because I am interested in returns per acre for other root crops because every farmer every year has to make a decision about what to put in the ground based on what is right for their enterprise. This will not be the first time that a price regime has changed, either by virtue of the market or a change in the CAP which has forced people to reconsider what goes into their rotations. I ask these questions because I want to know if there is a viable alternative for farmers who currently grow sugar beet to move to something else if they have to, if the reduction in price is as severe and as damaging as you suggest. Mr Blacker: Can I try and answer that for you? Q170 Chairman: You can. Mr Blacker: Defra did a consultation document a few months ago and because we embarrassed Defra last year, I guess, by getting a lot of farmers to respond, we decided we had better not do that again so we put our own consultation paper out to all the growers, and in fact we have had a lot of responses back. We have tried to analyse those and one of the questions we asked was, "If you do not grow sugar beet what will you grow?" Clearly this was an interesting question because sugar beet is what we call part of a rotation, it is a crop which breaks up mono-cropping, it breaks up having continuous other crops and it breaks a disease pattern, et cetera, so it is very important; equally so are potatoes. We asked that question and, interestingly enough, something like 80 per cent came back to say that they needed either oilseed rape to make another rape crop or it would be winter wheat, so effectively going back into some other form of mono-cropping if you like. The concern around that is, in fact, you are not getting a proper rape crop into the system, although oilseed rape is. Clearly, if they all went down that route, and you took sugar beet out altogether, and removed 150,000 hectares, shall we say, out of the UK, you would finish up then by totally damaging the markets which already exist, so you might finish up with another million and a half tonnes of winter wheat, a million tonnes, if you like, of oilseed rape - those are not quite the right numbers, but you get the impression of where I am coming from - so you would totally destabilise the other markets that already exist. It is quite a frightening proposition. Q171 Mr Vara: The Commission's reform proposals make several references to improving efficiency and to try and ensure that the less competitive producers are encouraged to leave the sector. In fact, I believe the NFU's long term aim is in the same direction. If I may just use a quote from the NFU it says that: "... production must be allowed to gravitate to the most productive regions...". Do you feel that the reform proposals do enough to favour the efficient growers in the European Union? If not, how do you think the proposals could be improved? Mr Bennett: I think it was very important. The thing which worried us the most about the proposals in terms of the reform at the start was would there be quota cuts because that would work against the efficiency. We at the NFU believe that production in the modern world we live in does gravitate towards the most efficient in Europe anyway, this is across all the sectors. If we had gone down the line of the Commission's proposal of quota cuts, I think that would have been the death knell of the European sugar industry because the only way we are going to get a European sugar industry in the world we have got, with tariffs coming down and access from other countries, is to allow the most efficient at least to try to survive within those terms. That is why we think the fundamentals of reform, we would argue with lots of detail, should be there are no quota cuts and we must not allow in any of the negotiations over the next few months for that to come back on to the table; that is absolutely fundamental to make sure that this reform goes in the right direction. Q172 Mr Vara: If I may, Mr Bennett, of course they are proposing the efficient countries be given an additional quota and for Britain it is proposed that there should be an allocation of around 83,000 additional tonnes of quota. Are you happy with that or do you feel it ought to be more? Do you think it is fair? Mr Bennett: First of all, it is inevitable. This reform is not an easy one because inevitably we are talking here about some people going out of sugar production and some people's businesses suffering because you are talking about reducing sugar production in Europe. What we feel in the UK is that if you get the reform right that we are reasonably well-placed to take advantage of that. Yes, take advantage of the quota. Indeed, at the start of this reform process, we were supporters of transferability of quota - full stop - around Europe. If you are genuinely going to have a liberalised market in terms of the European sugar market the next step will be that quota can move to the areas that are best in terms of production. In terms of the 80,000, we would wish to use that because we want to keep our production base up in this country post-reform. Q173 Mr Williams: Do you think that 80,000 tonnes though is a fair amount for the British sugar industry? It is dependent, as I understand it, on the fact that our seed quota is relatively small. Mr Blacker: British Sugar will probably be able to help you a little bit more with that in a few moments. Certainly, as I understand it, it is worked out on a particular equation and that involves the amount of seed quota that you have made in previous years. It is done like that. Q174 Mr Williams: You would basically say it is a fair amount in terms of dividing it up amongst the sugar producers in Europe? Mr Blacker: It reflects the state of the industry as it is at the present time. Q175 Lynne Jones: You have raised and answered questions about the ownership of the additional sugar quota. Since you have submitted your evidence have you received any further information? What is your current understanding of the situation? How important is it that this is resolved before the negotiations take place? Mr Blacker: That is a very important question to us and I guess this came out of the first proposal which came from the Commission where effectively the way it had been written suggested that the quota was owned by the processors. I think one of the things that we argued at great length with the Commission was that part of their original proposal suggested that everybody was part of a co-operative, they had not really thought that there was a monopoly processor or a single processor in any other country which made life rather difficult. We had long debates with the Commission, I can tell you, to get to the next stage. We believe - and I hope British Sugar will say the same - that the Government is the custodian of this quota. We believe that the processor is the person who manages it on a day-to-day basis and as growers we have delivery rights to that and as long as we achieve those delivery rights year-on-year we can maintain those. That has been the case as long as I can remember. That is what I believe most of us in this industry understand it to be and that is what we would like it to be in the future so that it is, in fact, a partnership arrangement in order that no-one can dismember the other. The present situation, if we finish up in a situation where the processor is the owner of the quota then one single board room decision could take the whole industry out, we do not believe that is good. Q176 Lynne Jones: You said you were in favour of transferability, I do not know between whom. What about farmers having some kind of bond which they can then try and sell in terms of the ability to produce? Mr Blacker: If you like you can call a delivery right a bond. I have a delivery right of 1,000 tonnes on my farm, that means that if we come to the point of having another scheme like we had a few years ago in 2001 where we had a reorganisation of our industry, you could trade one bond against another. If you were someone who believed that your cost of production was very good and you were a good producer and I decided that I could not do it anymore then in fact you could buy mine from me. It is a bit more complicated than that but that is the simple answer. Q177 Lynne Jones: At the moment - forgive my ignorance - do individual farmers have these delivery rights? Mr Blacker: All farmers have a delivery right, yes. Q178 Chairman: All those who are contracted? Mr Blacker: Yes, indeed. Q179 Chairman: Not the universal. Mr Blacker: No. They have a contracted agreement with their processor. Q180 Chairman: Can I just follow on from Lynne's line of question because in paragraph 5.11 of your evidence you talk about - and I quote - "Will the government acquire this tonnage ..." that is the 82,847 extra tonnes of sugar quota "... on behalf of the industry, without seeking to recover any of the cost of acquisition from the processor or grower? If not, on what basis will a contribution be sought from the process and/or grower?" Would you like to develop that because it is great the thought of getting some more quota but if the Government is the custodian, the farmer is the producer and British Sugar in this case is the processor, how is the trick to be pulled to acquire it? What happens if the Government says we have not got any pennies in the Government coffers to buy it, what is the solution? Mr Blacker: I guess this is, in my mind, an example of the problem to some degree that we have, the fact that the Commission have chosen for their own reasons not to specifically rule on this in my opinion. I think we know what will happen at the end of the day but clearly there is nothing in this that says who does these things. Therefore we are in a bit of a dilemma, we know that we have this available to us, we know that British Sugar are very keen to have it as part of our portfolio, if you like, of an extra 83,000 tonnes and we believe that at some point somebody is going to have to buy it, and that may well have to be British Sugar. Q181 Chairman: Can I just be clear, when we talk about the extra, this is not an increase in terms of the whole of Europe's production of sugar from beet, it is a reallocation of what they think will be the market effect in the less efficient areas freeing up a total for which some growers who are coming out will get compensated and those fishing in the pool remaining will get some of the benefit. If I have understood it correctly, it is the current regime participators who pay for the people who are leaving, is that right? Mr Blacker: That is around it, yes, it is the current people who pay for it so there is a difference in the middle between the price to the consumer and the price that the growers and the processor gets. Q182 Chairman: Who puts into the compensation pot, where does that money come from? Mr Blacker: Eventually that would come from the consumer. The consumer would still pay the same price for a period of years but the grower, the primary producer, would get his price dropped dramatically over a period of two years, then the processor would get a reduced price as well and then the piece of money in the middle would be going into the pot for the restructuring. Q183 Chairman: There is a compensated restructuring pot. Why is there a need to buy back, in other words a second payment? Why does a second payment have to be made, we have already paid for the compensation once. Mr Blacker: That is not quite the same. That is part of paying some money into the pot because in fact the 83,000 or the one million tonnes has to be bought out of the pot at the same price that the fund is going to be refunding the growers to go out or the processor to go out. It is money that goes into the pot to help refund that as well, so part of that is doing the same as the consumer money. Q184 Chairman: What happens if the Government says to British Sugar "You boys are going to be the direct beneficiaries of 82,000 tonnes a year more of beet to process, you boys pay for it"? Is that feasible? They are on next. Mr Blacker: They are on next so you can hear what they have to say, I am sure you will be able to ask them the question directly. Q185 Chairman: Do you think they ought to pay because no farmer ever wants to pay anything. Mr Blacker: I think the things we put in the document were asking the question because it is a grey area, we do not know the answer to it. Q186 Chairman: I think I know the answer but who do you think ought to pay? Mr Bennett: Chairman, with respect, if it was a really good liberalised economy this should be effectively a market place movement and the people who want to grow the sugar should take on purchasing. In a sense this is an artificial mechanism at this stage of the reform. Finally what we want to do is make sure there is a sugar industry at the end of this in the UK which wants to produce this tonnage, that is the most important thing of all but you are right there has to be a discussion about who effectively dips in their pocket for this extra tonnage. The most important thing for us is that we wish to use it because we have got an industry that we would want to go on between the processor and ourselves to use this tonnage; that is the most important thing of all. Chairman: I can see British Sugar reaching for the company chequebook already. Roger Williams will carry on with the questioning. Q187 Mr Williams: You set out in your written evidence how because of historic reasons Britain has been dependent on cane sugar and we have ended up with less beet quota than some other European countries, but you also went on to say that because of that the price reduction will be discriminatory against the UK. Could you explain that to us? Mr Blacker: It is quite a complicated issue. Here I want to talk in beet terms rather than sugar terms and you know that sugar is going to be reduced by 39 per cent in this proposal and in beet terms it is 42.6 per cent. Clearly what the Commission have done are two or three things. The first one is they have left in place a thing called the Production Levy which was there historically to help manage the system and, if you like, to put surplus sugar on to the world market and restitutions, et cetera. They have left it in place which is €12 per tonne of sugar, which is 70 some pence per tonne of beet. They seem determined not to move that for whatever reason they believe in. Equally, they have decided that they want to merge 'A' and 'B' quotas together. Whilst this might be a logical way of moving forward, within the Community we have different sized 'B' quotas, so the UK has a ten per cent 'B' quota and if you move as far away as Denmark they would have a 29 per cent 'B' quota. By merging these two together and then removing the 42.6 per cent, or them doing a different sum on that figure, we finish up with a smaller 'B' quota, more disadvantaged than countries with a large 'B' quota. I guess part of that comes from the initial Commission document where they suggested rightly or wrongly - we would say wrongly - that countries with large 'B' quotas were in fact more efficient than countries with small 'B' quotas. It all revolves around this package. Those two bits together mean that we are disadvantaged quite dramatically. There is another issue that talks about moving to a reference price rather than an intervention price and if the physical price drops below the reference price then negotiations can be done to allow the processor to claim up to ten per cent of that back again in theory just to keep factories open if money gets very low. Quite where the grower fits in with that I have no idea at this stage. If you were to take all of those things together and add them up we could, in fact, finish up with more than 50 per cent take off. It is quite draconian. Q188 Mr Williams: From the UK point of view, what is the solution? How would you put forward amendments to the proposals to satisfy the UK situation? Mr Blacker: We want a balanced one. We want to be on the same layer as everybody else wherever it might be. If you like, we want to avoid any form of distortion because it is wrong if one country has a massive advantage over another country in my opinion. We have been trying to work on the Commission to change that but have failed at this point. We shall think of other ways of trying to get that to happen. Maybe talking to you guys might help us a little bit. We have to start to employ other ways of doing it, frankly. The European Parliament has obviously taken this cudgel up in the last few weeks and they have put quite a lot of amendments into the proposal which I guess we will see coming out in the next few weeks. Q189 Mr Williams: From the UK point of view, should we just be dealing with the 'A' quota rather than the merge of 'A' and 'B' quotas? Mr Blacker: No. We are saying you can merge them together, we do not have a problem with that, but we do not want to finish up being worse off by that happening, which is effectively what is going to happen. We are going to see a larger price cut than countries with a higher 'B' quota. Mr Bennett: It is a key point that we made to the Secretary of State in earlier negotiations. Q190 Chairman: She is not doing the negotiations, she is chairing the Council. Mr Bennett: But she is still Secretary of State. Q191 Chairman: She is not negotiating. Mr Bennett: The minister who will be sitting in the chair for us will talk to the Secretary of State as we have talked to that minister as well. Q192 Mr Williams: I can understand what you want for the outcome but I am still not clear as to how you would like to change the proposal. Mr Blacker: It is a question of how we do the maths at the end of the day, I suppose. We have to work with the Commission and the Government to work out how that can be done. Mr Bennett: Could I suggest on this particular issue that we write to you with a note about how we feel this could be done in a better way. Q193 Chairman: That would be very helpful. Am I not right, just for the record, that the problem that we have with (a) our total quota and (b) the split between 'A' and 'B' goes back to the history of what happened with growing sugar beet before the regime was established? My memory tells me that sugar beet was not exactly the world's most popular crop prior to the CAP starting, is that right? Mr Bennett: It was a crop that in the late 1970s and early 1980s was still an extremely physical crop. We were still doing things called side hoeing which was going through it mechanically and we were hoeing by hand to take out every other plant or whatever. It was a very, very physical crop. A wonderful thing came on the horizon that painted the whole countryside yellow called oilseed rape that you have all seen, and some hate it and some love it. This crop was going to be a revolution for farming. It came on at a crazy price of about £300 a tonne and everybody thought, "This is fabulous. You can do this off a tractor seat or a combine seat and you do not have to get muddy in the winter" and a lot of people decided to opt out. It was a very short lived experience and one that a lot of people regretted. Frankly, two years after that when a lot of people had got out they were all clamouring to get back into sugar beet growing again. It was a total and utter disaster that did not help our industry, frankly. Chairman: I am afraid not even the powers of this great Committee can rewrite the accidents of history but it is just worth having that information. Q194 Daniel Kawczynski: I would like to ask these questions because I have almost 100 sugar beet producers in my constituency of Shrewsbury & Atcham and it is something that I feel very strongly about. What would be the impact on UK producers of a compromise which allowed other countries to maintain some element of coupling with their sugar payments? Secondly, how much money would a UK beet grower stand to lose from a decision by Defra to spread the sugar compensation monies evenly across all eligible land in England? Mr Bennett: The first one is dead simple. We have to have complete decoupling within this reform. To allow partial coupling where the signal effectively is to produce if you can produce it at a cost where it is profitable, if that gets lost and you have some countries partially coupling then this reform will not work well ultimately. It is one of the key principles that we have asked of our Government, that this has to be fully decoupled. Mr Blacker: We would like to see that extended to all other Member States. Mr Bennett: It has got to be fully decoupled across all the countries involved. Q195 Daniel Kawczynski: So far in your discussions with Defra have you been given assurances that will happen? Mr Bennett: From the Defra point of view, because of their past commitment to decoupling, they would want all of this to be decoupled. It is pretty essential in terms of getting the right signal to the most efficient that it is decoupled right across Europe. We were very, very strong on this with Defra and the Commission, that you cannot reform and effectively send signals to the most efficient to be part of the future of growing sugar if you allow some Member States to have partial coupling. They have allowed that already in my opinion in the flawed reform of the Council of Luxembourg which is already showing distortions and that is not acceptable. Q196 Daniel Kawczynski: What about the second point? How much will my Shropshire sugar beet farmer lose if the compensation monies are not guaranteed in this way purely for them? Mr Bennett: What is absolutely critical in terms of the way that compensation is handed out is when you move from a supported regime to a decoupled regime it is inevitable in the first few years, even if the money is decoupled, that subsidy/support is inevitably still part of their process for one, two, three, four or five years. What is critical about the compensation to British growers is it should not be any less than the most efficient competitors that we would face across the water. Everything we have done in terms of talking to Defra and the Commission, particularly Defra on this issue because it will be a Member State area, is that the French sugar beet producers should not receive any more compensation than the British ones, certainly in the early years, otherwise that is not a genuine reform to allow the most efficient to survive. Your question about how much money is an almost impossible one to answer. We have already had many discussions about this because we are aware of the historic model in some parts of Europe of the regional Single Farm Payment type of model. It is absolutely critical, it is a principle of ours, that our sugar growers will not disadvantaged against their French competitors. Q197 Lynne Jones: Does your position differ from Mr Wage's position and the Dutch beet growers? Mr Bennett: I did not hear what his position was. Lynne Jones: Maybe I misunderstood him but I understood that he did want to have some coupling. Chairman: He wanted some partial early years coupling. Q198 Lynne Jones: But set at recent levels to ensure that farmers who got out of sugar beet growing did not benefit. Ms Kirkman: My interpretation was that initially, and it still may be a position they return to, they supported the principle of decoupled compensation. However, in looking at options of coupling the compensation what they are doing is accepting and acknowledging the inter-dependence there is between producing the crop and processing the crop. Equally, we acknowledge that there is a very close relationship but coupling the compensation in our position is not the way of achieving that. That was my understanding. Chairman: Good. Everybody is nodding. Are you happy? Lynne Jones: Not really. Chairman: If you are not happy, why not? Q199 Lynne Jones: I may have misunderstood Mr Wage's position then. Mr Bennett: Our position is quite clear. We want full decoupling. Effectively, if we are moving into a marketplace then that allows the growers to grow the crop or not. Chairman: Have a think about it. Roger just wants to come in with a quick supplementary. Q200 Mr Williams: If you do not believe that coupling is the way to ensure the delivery of beet into the processing factories, what do you base your policy on? Ms Kirkman: Commercial negotiations. Q201 Lynne Jones: You seem to want some kind of coupling for the additional quota. That is how I understood what you were saying. Ms Kirkman: I am sorry if we have given you that impression. I think the concern we would have is that it is not about acquiring additional quota because we want to keep our quota or possibly increase it. The concern we would have potentially on acquiring new quota is the control of that quota. I do not think we would be in a position now or in the future to be talking about coupling or a separate set of circumstances prevailing over that new quota if and when, as a country, we purchase it or acquire it. Chairman: If you have still got a question we are happy for you to answer it before we produce our report, but I have to say that I did understand the point you were making. Q202 James Dudderidge: I am interested in some of the practical impacts of the proposed legislation if it goes through, and if possible putting some numbers on it. There seems to be resistance to really bolting down some numbers. I understand it is difficult to do but I am particularly interested if the legislation goes through, or the reforms go through, what will be the number of areas that come away from producing sugar, the number of farmers who take a take a decision not to produce sugar? That is the first one. Secondly, among the number of employees who are currently engaged in the cultivation of sugar beet here in the United Kingdom, what would the reduction be? Thirdly, and I think you will have to be less specific on this, will there be a shift in production from existing areas closer to where the beet is actually being processed in the factories? Mr Blacker: Let us start off with how long is a piece of string. I guess in my mind the price will dictate what happens. The price of the crop back to the grower will dictate what happens to this crop. We have our national quota. We have, as you have heard, the opportunity to buy another 83,000 tonnes. Clearly that will only be grown by the people who believe that they can make a margin out of it at the end of the day because if there is no margin there and there is no money for reinvestment there is not a lot of point in doing it, frankly. When I mentioned to you the cost of production earlier on and the Defra figures ranging from £19 to £28, clearly anybody who is in the top bracket of that will not be able to grow sugar beet, let alone want to do it. In the first instance, we shall see a form of restructuring within our own country so that the ones that are good will acquire some more and the ones that are not will want to remove themselves from it. If you were to take the ultimate situation and nobody grew it, then that would be a major, major problem. In the first instance, let us assume that we are going to continue to grow our national quota because we are very bullish, that is where we want to finish up, you will see a quantity of farmers going out, and I do not know the answer to that. You will see labour going out on farms because sugar beet is an integral part of the farmers' life, it helps to balance the year. If you were only growing cereals you would not need any staff necessarily for all of the year, most farmers have all of their corn back in the ground now sewn ready for next year's harvest. If you were purely a cereal farm you would not need any labour from now perhaps through to next harvest, so that is not a problem. With sugar beet still in the game, you have that to harvest through the winter months. It is a very important crop for the balance, if you like, of the labour profile. I cannot give you any numbers because, frankly, I do not know who is going to go out or how many, it depends entirely on the price at the end of the day. Q203 James Dudderidge: Are there any particular regions that are likely to be harder hit in the United Kingdom? Mr Bennett: What we do know - it is basic economics - is that we are of the belief that the tonnage will keep up but the area grown will be less. If you are talking about efficiency, efficiency means less jobs, so right the way through the industry the more you make yourself efficient the more you make labour efficient as well and inevitably there will be less employment. Let us be straight about that. Part of that efficiency gain in terms of being closer to factories is part of the discussion that will inevitably happen post this reform. Sorry to be a bit vox pop on that, but that is one of the fundamentals that we believe this reform will bring. Mr Blacker: If you think down the route that we are not going to grow any sugar beet because we cannot afford to do it anymore then you are probably going to see about 15,000-18,000 jobs disappear, so you will see serious numbers there. Q204 Mr Drew: I just wonder what analysis the NFU has done about diversification from sugar beet. Obviously Tim's predecessor is just about to release his report on biofuels, which we will be looking forward to with great favour. I am interested in the degree of joined-up thinking here. Whatever happens there is going to be a reduction in the amount of sugar beet grown and prices are going to edge down. What diversification is possible? Mr Bennett: I do not necessarily agree with you that the tonnage of sugar beet will go down. The point I have made is with efficiency gains I think the area could change. One thing we are bullish about is biofuels. Bioethanol and biodiesel is a great opportunity for this country and fits in with the climate change beliefs of the Government. We are already some years behind others who do not believe in climate change, such as the Americans. Hopefully we are going to see quite significant moves in terms of that industry in the next few months because an awful lot of people are interested in making sure we do have an area there. I think Ben Gill is going to bring out his biomass report this week but biofuels, which is a separate issue, is a really great opportunity. Although I think bioethanol is mainly going to be wheat, if I may say so, I think this is a great opportunity for diversification of land use. We see this as a major, major land use in the next few years. Mr Blacker: But not in its present form. Mr Bennett: No, not in its present form. That is why we all know that the only way to gain this work is we are looking for a Road Fuel Obligation as other countries do. Chairman: We will pursue that in our next questioning. Q205 Mrs Moon: I am interested in what you have said because, again, I think I have misunderstood what Mr Wage was saying. My understanding from his presentation was that he saw the use of sugar in terms of bioethanol as a win-win situation but you are saying that, in fact, you do not see that the sugar will be used in bioethanol as much as cereal and it is cereal that is going to be the major crop that will be the source for fuel. Given that a lot of pressure is on to reduce our sugar production, why can the move that you suggested earlier into further winter wheat not produce the cash crop that farmers are looking for? Does that make sense? Do you follow my point? Mr Blacker: It makes sense, yes. Mr Bennett: Basically, in terms of bioethanol, we think there might be an opportunity for some sugar but in the way we looked at the costings, we think most of it will go into wheat. In the UK conditions it seems to be the right crop to use. Q206 Mrs Moon: An earlier question was around what are the alternatives and you actually said ---- Mr Blacker: Sugar is not a winter crop. Q207 Mrs Moon: If there is a problem in terms of the volume of sugar that we are producing then a winter wheat crop gives you an alternative. Mr Bennett: I do not think there is a problem about volume. This reform has to take some volume out of the European Union. If the reform is the correct one it should take it away from the least efficient producers. If we are not as good as we think we are we will lose sugar production. If we are, as we believe we are, amongst the best in Europe then we do not particularly want to lose our sugar production and, to be put bluntly, someone else should lose it. We have got plenty of ground also to grow bioethanol crops. We export a lot of wheat and I would like to see us, instead of exporting that wheat, actually producing bioethanol; it is the green future. Mr Blacker: Can I answer the other part of your question which really was why was I suggesting oilseed rape and wheat. This was the result of consultation that we did with growers. That is the mindset they have at the present time because that is where they believe they can get a return on their money. At the present time for sugar into bioethanol there is not a plant available at this moment although British Sugar have one in the pipeline. Equally, we have to add some more money to the farmer's pot in order to persuade him to produce it for that reason. Q208 Lynne Jones: Earlier you said that if the farmers switched into growing winter wheat that would interfere with the balance in those markets, but if it switches to bioethanol that should not be a problem, should it? Mr Blacker: Perhaps not. I am talking about where we are today and bioethanol is still some way away. I feel very saddened that we are not following this debate a lot faster than we are because to me it seems crazy that here we are in a sugar reform arguing throughout the world over one particular cake when, in fact, there is another big cake over here that is going to help an awful lot of other things in the world and an awful lot of other people and we cannot seem to get our head around the second piece of cake. To me, it is a total and utter disaster. Q209 Lynne Jones: Whose responsibility is that then? Mr Blacker: I think you would need to talk to our world leaders, frankly. It is not for me to say. Chairman: We have deliberated on that on many occasions in this Committee and you will find answers to that in many of our reports, I am sure. Mrs Moon: Chairman, could I just ask a further question? Chairman: I am just conscious of the fact that we have one more set of witnesses and we have a vote at seven o'clock. Let Shailesh ask his question and then we will come back to you. Q210 Mr Vara: The National Farmers' Union is critical of what is called the flexibility clause, which allows processors to negotiate a further ten per cent reduction in the price they pay growers for sugar beet. To what extent do you feel that the balance of power at present is skewed in favour of the processor? What do you think Defra can do to improve the position? Mr Blacker: I guess in terms of the ten per cent issue that you are talking about, we believe that the Commission have remained silent on the fact that if it went above ten per cent then the grower could get a share of that. Ms Kirkman: Flexibility both ways, in fact. Mr Blacker: The Commission have remained silent on that issue to the best of my knowledge, which has not helped our thought process in this direction. We are a bit frustrated by that. The balance of power: you heard from Mr Wage earlier on about views from Holland that, in fact, quite a lot of it is co-operatives where there is a sharing out here and a balancing out. As we go forward we have to address that issue very, very closely because if we do not then we are going to be in serious trouble. Our processor cannot manage without the growers; equally, the growers cannot manage without the processor. I would love to form some kind of genuine partnership as we move forward to make sure that the balance of power is equal and the rewards and, equally, the risks are shared a little bit more. Q211 Mrs Moon: I wanted to ask you a question in relation to the agri-environment scheme which in particular the RSPB feels is another way of mitigating against some of the reforms that you are not happy with but which they are for. I wondered what your comment would be. They are suggesting that you could promote spring sewn crops rather than sugar beet production. What would your response be to that? Mr Blacker: At the end of the day it is economics and the farmer is not going to grow something any more if it is not making him any money. There are not any other spring sewn crops at this stage that would replace that. Sugar beet is a spring sewn crop and it is quite valuable to the environment. The quality of life bird indicators that the RSPB does suggests that a lot of birds within that are part and parcel of the sugar beet growing areas, which is very, very important. We did you another attachment on the back of our document showing you the Brooms Barn paper on the environment, which to us is very, very important here. We have not talked about all the other issues. We have made massive strides in terms of the environment going forward. We put all the chemicals and insecticides in little tiny pellets now which has removed 90 per cent of insecticides from the ground, it has targeted them. On my farm we do a thing called precision farming where, in fact, all the fertiliser is applied by global satellite. We are only applying the fertiliser that we need to apply in the area we need to apply it accurate to less than half a metre. All of these things are going on. Our industry is moving on dramatically but it has to be helped. We heard Mr Wage earlier on say - I repeat this again because to me it is very important - that all the time in those 30 years they have managed to keep in the game because they have been able to invest in the industry and to make it more efficient and the same applies today. Q212 Chairman: I now know what the Milky Way is, it is a cloud of these little pellets coming down. That is absolutely fascinating. Can I thank you very much for your evidence and the comprehensive written submission, which was much appreciated. We have benefited from what you have had to say to us, so thank you once again for contributing to our inquiry. Mr Bennett: Thank you, Chairman. I did say there are a couple of notes we will add on to that and we will supply those to you. Chairman: Thank you very much indeed. Memorandum submitted by British Sugar Examination of Witnesses
Witnesses: Dr Mark Carr, Chief Executive Officer, Mr Chris Carter, Director of Corporate Affairs, Ms Clare Wenner, Political Adviser, and Mr Simon Harris, Adviser, British Sugar, examined. Q213 Chairman: Can I move to our final group of witnesses with just a small preface to remind colleagues that there will be a vote at approximately seven o'clock so I am going to draw the session to a close two or three minutes before then to allow people a chance to get to the division lobbies. Can I welcome on behalf of British Sugar Dr Mark Carr, the Chief Executive Officer, Chris Carter, Director of Corporate Affairs, Mr Simon Harris, their Adviser, and Clare Wenner, their Political Adviser. Can I thank you for your written submission and for coming to join us and give us the benefits of your views on sugar. I gather that you want to make a short opening statement, so it may well be that it answers the first question I was going to put to you, which is how content are you with the reform package which has been put forward by the Commission. Dr Carr: Thank you for that, Chairman. Perhaps if I may just make a few opening remarks and then we will take your questioning directly. Firstly, we would say that the European Commission's objective on sugar reform repeated in their most recent note of 14 October established a principle which we would wish to endorse. It stated that: "The overarching objective of the proposed reform of the EU sugar sector is to develop a sustainable future for the EU sugar industry by enhancing competitiveness whilst attaining a sustainable market balance in relation to domestic production levels and its international commitments". As I say, on the basis of that principle, we would fully support that as an objective for the Commission, but in saying that there are a number of issues that go with that. If you are going to have those sort of objectives, it is quite clear to me that a very progressive reform indeed is required to meet the objectives and inevitably that will involve some significant and major changes for the European industry. The second point is we also support the UK Presidency and the European Commission in their aim of securing a swift outcome to these reforms. Our view is that delays will bring further uncertainty to an industry which ultimately will be extremely damaging. The reform proposals are radical as we see them structured today and will have a substantial effect on our British Sugar operations, including our profitability, despite being one of the most efficient industries across Europe, as we established earlier on today. There is associated with that a specific challenge for all European industries, including ours, which will be how to secure adequate beet supplies at such low minimum beet prices. We would contest the main focus in moving these proposals forward is arriving at an equitable solution to achieve the objectives as laid down. Equitable in terms of the opportunity and fair terms established for those wishing to leave the industry but also equitable in terms of providing an opportunity for those who wish to remain to invest for the longer term. In the context of the radical proposals presented, British Sugar are planning to continue to operate and not avail ourselves of the attractive and predictable restructuring scheme that is available within them. That is really on the basis that Member State distortions are not introduced for the sake of compromise in the latter stages of this programme, unreasonable restrictions are not placed on the development opportunities of the beet sector and further concessions are not introduced for the refinery sector which artificially distort competition between the beet and cane sectors. Our principles are that we fully support the objectives but we will be looking, and are looking, for equitable outcomes and equitable application of the proposals contained therein. If I move to your first question about how content are we, I think essentially ----- Q214 Chairman: It sounds like you are grumbling and discontented about it from what you have just said. Dr Carr: Not at all. If we look at the Commission's objectives we could see them as extremely radical. They bring around large changes for the whole of the industry. The principles that sit behind them we fully support but there are some specific issues within that, hopefully that we can expose during discussion today, that we think need to be addressed in the final outcome of the proposals. However, we do agree that speedy conclusion of these proposals must remain a key objective for the Commission. Q215 Chairman: You said in your remarks a second ago that it is going to have a radical effect on your business and I have searched through your voluminous submission to us to find some kind of statement of financial impact on British Sugar of these proposals. You talk about what you have invested and you talk about the reductions in plants that you have achieved but I am not seeing much in the way of a forward look. Perhaps you could fill in the missing bit. Dr Carr: I think the evidence we provide in relation to the efficiency improvements in the industry is important in the context of the fact that we have not been complacent in the environment that we have operated in over many years. We have moved the number of plants operating from 17 to six and we have quadrupled our productivity through the last 20 year period and at the same time invested very substantially, over one billion pounds. That is the history. Clearly the proposals as laid down demand further improvements in efficiency and that is something we will need to address once we see the final outcome of the proposals. In terms of the financial impact on our business, we have made public statements at an ABF level in the past in relation to what that will do to us and I can only reflect those to the Committee today, which is that we will have a profit impact of in excess of £40 million in steady state by the assumptions that we assumed when we made that calculation. Q216 Chairman: £40 million less? Dr Carr: That is correct. Q217 Chairman: Notwithstanding the fact that you have just said you think there is an opportunity for more efficiencies to try to claw back some of that? Dr Carr: I am not at liberty at this point, because we are in a closed period for our annual results at an ABF level, to divulge to you the precise details behind that calculation. All I am at liberty to provide at this stage is the bottom line number. Q218 Chairman: Maybe you cannot do the numbers but where is the potential for efficiency? How are you going to be more efficient against a £40 million drop in your profits? Mr Carter: Let me have a try. The efficiency improvements that we are going to have to put in place are similar to the efficiency improvements we have been driving in all parts of the industry and all parts of the business for the last 10-15 years. The reason, as the NFU confirmed, that we are one of the lowest cost processors in the EU and we also have one of the most efficient beet growing industries in the EU as well is because of the efficiency improvements we have driven over the last 10-15 years. That process cannot stop, that is what Mark is trying to say. The reason it cannot stop is because these proposals are very much at the most radical end of the spectrum for any producers in the EU, however efficient they are. It is radical even for the most efficient in Europe. Therefore, we cannot stop that process of efficiency improvement; on the contrary, we have to accelerate it. Chairman: Mr Vara would like to ask you some questions that might reflect on part of that exercise that deal with cane sugar. Mr Vara: Thank you, Chairman. Can I just say that the last time I saw Chris Carter and Clare Wenner was over a cup of coffee in my constituency where, of course, British Sugar is based with its headquarters. I very much hope that after this question and answer session that hospitality will be extended to me again. Chairman: All this for another cup of coffee. Mr Vara: At least. Mr Drew: I hope you had sugar in it! Chairman: I suppose if you are facing a drop of £40 million that is all you can afford, a cup of coffee. Q219 Mr Vara: British Sugar has drawn attention to the provision in the draft regulation which provides that there should be a restriction on the ability to refine cane raws to full time users, particularly for the first three years. When we had Tate & Lyle giving us evidence last week they felt that it was essential for them to have a guaranteed 'base quantity' of cane to process and they thought it would unfair if a company such as British Sugar was able to use its beet processing margins to cross-subsidise moves into cane refining. I would like to know are you sympathetic to Tate & Lyle's argument that it should be granted a guaranteed base quantity? Dr Carr: Just to pick up in the broad first and then answer the specific question. If we look at the proposals as they are tabled today, the refineries get certain concessions within those proposals. Specifically, they relate to the fact that the complete magnitude of the quota, the reductions in European sugar production, are associated with the beet sector through the restructuring scheme. Today the proposals carry the exclusivity of supply for those cane raws through to the existing refiners for a period of three years and then preferential access to those cane raws for the subsequent years. We believe there are already fairly clear upfront concessions associated with the provision of cane for the refiners. That is in contrast to the European beet sector which is essentially tasked with moving production from something like a four million tonne surplus at 20 million tonnes of total production to a four million tonne deficit at 12 million tonnes of production to allow for preferential imports associated particularly with the Least Developed Countries. The consequence of that 40 per cent European production drop on the beet sector is something like 54 factories and 83,000 jobs by the Commission's estimation. Not by our own but by the Commission's estimation. I would say that this looks pretty well balanced already in favour of the refiners and, indeed, many Member States argue that it is too heavily balanced in favour of the refiners. I think that would be the perspective that I would put on your question. 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 per cent 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 per cent 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 per cent on top of the beet price in order to keep the reduction in beet produced to 20 per cent. 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? 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. Q240 Lynne Jones: The Polish farmers are less efficient than the UK farmers. Presumably because the processors in Poland are less efficient then you have some competitive advantage over them but you might still have difficulties getting supplies. Why are you not concentrating on the UK where our farmers are more efficient? What do you think about what the NFU are saying about the relationship between the processors and farmers as being skewed in your favour notwithstanding there is some element of good relations between the two of you? What should be done? Should Defra be involved in the negotiations on a new Inter-Professional Agreement? Dr Carr: There are a number of questions in that. Firstly, on Poland we have worked at the efficiency of that operation for a number of years and we continue to do so. The premise there is that we can be a highly efficient operator in processing terms able to supply the domestic Polish market, which is largely what we are focused on. There are specific challenges to the grower base in Poland in exactly the same way as there are in the UK and, you are right, their efficiency is lower so they come from a lower base and we will have to work with them on that. In terms of the UK, as I have stated previously, we have had a very good working relationship with the NFU, we have successive Inter-Professional Agreements which we have steadfastly stood by and I think jointly seen the opportunities arising from that and we hope that can continue. We would like to do that clearly directly with the NFU as we have in the past. Q241 Lynne Jones: Do you accept that there is an imbalance? The NFU say that your profit per tonne is no more than the minimum price proposed by the Commission. I know your prices are going to come down but you are making huge profits. Does the Department have any role in trying to redress that balance or do you not accept that it exists? Mr Carter: The Government already has a role in the contract. It is the custodian of the contract between the UK growers and the processor and there is a defined arbitration clause in that where if either party has a grievance it can place that grievance before Defra on behalf of the Government and Defra has to resolve the grievance. Q242 Sir Peter Soulsby: You have told us about your operations in Poland and you have told us about the reductions that you have already made in the number of UK factories you have got, and I think a little earlier you told us that you would not be entering into the restructuring scheme which means that subsequent factory closures will not attract the EU restructuring payment. Can we return to the question that the Chairman asked you earlier on. Is it likely that you will close one or more of your existing UK factories? Dr Carr: What you have to understand is that the challenges laid down in this proposal drive us to be even more efficient than we have been in the past and that efficiency can be achieved through agricultural improvements, through processing efficiencies, through energy reduction schemes and through your operating configuration. On that basis we would not rule out in the future reducing the number of factories that operate in any region that we operate in. Q243 Sir Peter Soulsby: That did not quite answer the question but I think we are getting nearer to it. It does sound to me as if you are saying that it is quite likely that you will have to reduce the number of factories in the UK. Dr Carr: I think it still depends on the final outcome of reform but we do not rule it out. By that I mean that the competitive challenge is there for us and we have got to do things better in the future, as we have done in the past. There is still the option of purchasing quota if we so wish, a point that was raised earlier. When we have put all that together we will make some decisions, but no decisions have been made at this time. Q244 Sir Peter Soulsby: I understand that no decisions have been taken, I understand what you are saying, but it does sound to me as if there is a strong likelihood that you will have to reduce the number of factories in the UK. Is that right? Dr Carr: We will have to look at the configuration we choose to operate as part of a total plan to continue to drive the efficiency forward. Sir Peter Soulsby: I think that probably means yes. Q245 Chairman: Just to be clear, if it comes out as currently proposed can you have the existing number of plants in operation? When you say you will have to look at it, presumably you have done some scenario work already on it. Dr Carr: We have got many scenarios and many outcomes because you will appreciate that there are still many things up for grabs in terms of this final position. As I say, once we have seen the outcome of that we will make that decision. We have not made that decision yet. Q246 Chairman: Heroically if there was an agreement by the end of this year, when do you show your hand? When do you think your calculations will be completed? Dr Carr: We will need to move very quickly on the basis that these reforms are particularly radical and, therefore, particularly challenging for us. Q247 Mr Vara: British Sugar has said: "an inevitable consequence of reform will be greater concentration in the EU sugar industry". This Committee is mindful, as you are no doubt aware, that in 1988 British Sugar was fined a substantial amount of money by the European Commission for fixing prices and rigging the market for granulated white sugar in the latter part of the 1980s. Last week we had Tate & Lyle before us and they assured us that price fixing would not happen again. Can we have the same assurance from you bearing in mind that you are mindful that the number of producers will be concentrated. Can we have an assurance that you will do everything possible to ensure that there is no more price rigging? Dr Carr: I think you have to think about what concentration means. Q248 Mr Vara: A yes or no will do. Dr Carr: If I may, for one moment, concentration essentially means that we will have many bigger producers encircling the UK. There will be huge surpluses in France - the French surplus will be as much as the UK's domestic consumption alone - as there will be surpluses in the Netherlands, Belgium and Germany as well. On that basis we expect the level of competition in the UK market to increase because of those surpluses needing to be placed in Europe and, therefore, I think the competitive stakes are increased, not reduced in any way, shape or form. In terms of price setting arrangements of the past, I was not around at that time, which is nice to be able to say, but of course we would fully support any investigation that was deemed necessary. Q249 Mr Vara: There would be an element of transparency to ensure that there would be no collusion with others on price rigging or whatever. Do you have any such procedures in place at the moment? Dr Carr: Absolutely. We have a full compliance programme within the business, as you would expect, and that is routinely audited both by internal staff and external staff. We have a full compliance programme. Q250 Chairman: Just help me to understand something. You just said a second ago that there are going to be surpluses in the new regime, and you quoted the French specifically, yet earlier you said that the price reduction was pretty well at the severe end of the scale. Help me to understand how, if we have got a severe price reduction, we are still going to end up with surpluses in certain producer countries when I thought the whole reform of the regime was to try to bring some kind of balance into the marketplace? Why would this rebalancing not occur? Dr Carr: I think you have to understand that there is a structural surplus today in many of these states and the restructuring scheme, which is going to take all the quota volume out, will be based on those volunteering to exit and, given the efficiency of the agricultural base and to a lesser extent the efficiency of the processing base in France, really I would not expect any of their quotas to be volunteered for elimination. Q251 Chairman: The message I am getting is you expect to see a European sugar market where the real market price of sugar in Europe could be below the proposed reference price levels. Dr Carr: I am not sure what draws you to that conclusion. Q252 Chairman: If you have got surpluses in markets, and you were talking about us being encircled by lots of efficient producers from elsewhere, the message I am getting from that is somehow it will drive down the market price for sugar in the United Kingdom. Last week we were told that the UK market price was ten per cent above the Continent simply because of the question of the shipping costs of sugar. The message I am getting is that maybe there will be so much sugar around that prices in total will be driven down to very low levels. Dr Carr: No, you misunderstand my point. What I was saying was the restructuring scheme will take eight million tonnes of European beet sugar production out, six million tonnes gross of quota, but that will not be universally spread across every Member State, it will come from those Member States that are particularly inefficient and elect to leave. As there will be big surpluses, and it happens by virtue of efficiency those sit around the UK, certainly Western Europe in the future, there will be substantial deficits in some of the northern Mediterranean states. The overall position will be a net surplus in Europe of beet sugar production of some four million tonnes. Q253 Lynne Jones: You said that there will not be any reduction in efficient countries like the UK and France, yet the NFU were telling us they cannot produce at the €25 price and you seem to be accepting that in terms of your concern about getting adequate supplies. How do you reconcile those? Can I also raise a point that Tate & Lyle raised last week about their margins being cut far lower than beet processing margins and whether you would care to comment on that. If what they are saying is correct, why are you interested in getting into cane which seems to contradict what they were saying? Mr Carter: Taking the quota and European production cut question first: the point here is that it is the European Commission's intention, as Mark has said, to reduce overall production by about eight million tonnes, quota production net by five million tonnes. That is their intention to bring the European market supply-demand into balance for the first time ever and to allow room for imports from developing countries. That is their aim. The whole thesis of the efficiency driving part of the argument is that would not be across the board in every single Member State because some Member States have very efficient industries and some have relatively high cost industries. The idea of the current set of proposals and the restructuring scheme is to target those reductions by voluntary mechanism to those countries which are highest cost and, therefore, will find it hardest. Q254 Lynne Jones: I understand that. Mr Carter: Therefore, some countries will rationalise heavily or disappear altogether. Those countries which are lowest cost will either reduce only a little bit or more or less stay. We are in that latter category, we believe. It just so happens for the same reason that the UK is geographically in one of the best areas of Europe to produce, most of our European competitor and neighbouring countries are in much the same position as we are, so it is very likely that the mid north-west of Europe, that aggregation of countries, will survive. That is the reason why the majority of the ones surrounding us - France, Belgium, Germany, Holland - will be surplus producers post-reform. Q255 Lynne Jones: I understand all that. My question was you were doubting that the UK could supply you with the beet based on the prices that the EU is going to pay them and now you are saying they are efficient and, therefore, they will be able to cope. Mr Carter: This goes back to the Chairman's question right at the beginning. That is the Commission's proposal of €25 a tonne of beet and €385 as the support price for a tonne of sugar. We have already said we think those are a little too low and they should be lifted slightly to achieve the Commission's reform objectives and, secondly, to secure adequate beet supplies in the very same countries that you are referring to. Q256 Chairman: If that four million tonnes of surplus by your calculation is going to come out of this reform programme within Europe we do not seem to be achieving the objectives. Mr Carter: I am sorry, I do not understand why not. Q257 Chairman: Dr Carr said there is going to be a surplus of four million tonnes of beet production ---- Dr Carr: There is today. There is today a surplus in production over European consumption of four million tonnes. There will be a deficit of four million tonnes production to consumption in the future to allow for LDC access and continued ACP access. That will allow the market to come into balance with consumption at the end of this reform. Q258 Lynne Jones: Your assumption must be that if you say that the efficient producers like France, the UK and the Netherlands will not reduce their output, you anticipate that the price will eventually be higher than the €25. Mr Carter: Unless the price lifts somewhat above the €25 production in Europe will be cut so severely that it will be a massive deficit. Q259 Lynne Jones: What about the Tate & Lyle point about the margins? Mr Carter: We have done detailed analysis on this issue and this demonstrates that if you compare efficient refiners with efficient processors under the terms that the European Commission has offered then the result is broadly comparable, broadly similar. We have done a paper on this which we can let you have if you are interested. Indeed, at the high cost end, if you compare high cost refiners with high cost processors, if anything, high cost processors are harder hit. Chairman: I am going to draw our discussions to a conclusion. Lynne Jones: Could we have that information? Chairman: I am going to ask not only for that information, because I would hate our witnesses to go away saying "They do not really understand this business about the surplus, they have not got it". If we have not got it we will put our hands up and apologise. I know Mr Harris has a very clear mind in understanding the way the sugar market operates because he has been involved in this for many years. I am sure between all of you, Mr Harris, you could write us a little clear explanation to make certain that we really understand whether or not there is a big pile of four million tonnes sitting there after the reforms or if we have missed some structural change you can shed a little light into what still is a complex regime as far as we are concerned. May I thank you for your contributions, both oral and written, and we look forward to your further evidence. Thank you very much for coming before us. |