Greening the Common Agricultural Policy

Written evidence submitted by Tate & Lyle Sugars (GCAP 14)

EXECUTIVE SUMMARY

1. The CAP Proposals would kill the cane sugar refining industry by liberalising the beet sector whilst continuing to heavily regulate cane.

2. The CAP Proposal is unfair and represents a real and present threat to the 850 high quality manufacturing jobs at our East London cane sugar refinery. It is unfair because it continues to strangle cane refineries like ours by limiting our raw material supply. In stark contrast it would liberalise the beet sector, allowing it to source as much raw material, and sell as much sugar, as it wishes. Our refinery in East London will not be able to compete under these unfair terms created by the CAP Proposal.

3. "Greening" the CAP, equity of payments across Europe, simplification of legislation and young farmers are all critical debates in the context of the CAP. However, the issue at stake for us is survival and the future of those 850 high quality manufacturing jobs in East London. We welcome the opportunity to share our fears with the Committee.

4. The unfairness for us is in allowing one model of European sugar manufacturing business to have far more favourable terms of access to raw material than another. Under the current Proposal, sugar production from sugar beet would no longer be subject to production limits or quotas. That industry would be allowed to buy as much raw material as they wish without interference from legislation. We have no argument with that and would welcome the competition, provided it was fair.

5. It is not. Our cane refineries in Europe would still be limited to buying raw material from a limited number of cane sugar suppliers that cannot fulfil European refining demand. If we want to buy from other suppliers, the CAP Proposal will force us to pay a punitive import duty that effectively doubles our cost and makes us uncompetitive.

6. The result of the Proposal as it stands will not be an increasingly competitive sugar market in Europe. It will lead to an increasingly concentrated sugar market, with cane refiners killed by unfair legislation.

7. All of this would be understandable if the European Commission had a valid policy objective for wanting to kill the cane refining industry in Europe. They don’t. Europe’s cane refiners contribute to food security by allowing European consumers access to an important foodstuff through a different supply chain. They help meet a market demand in Europe for cane sugar and improve competition. They also provide valuable high quality manufacturing jobs in parts of Europe that often suffer from severe deprivation.

8. The Proposal is also perverse as it is a step backwards towards an inward-looking agricultural policy. This is contrary to the need for Europe to look outwards to grow. Killing cane refiners will mean Europe loses that outward link, when it needs to be more open.

9. Our view is that the reason why the European Commission has done half the job in their Proposal – liberalising the beet but not cane sector – is because this is the path of least resistance through the negotiating process. There are very few Member States with cane interests. We argue that the European Commission should recognise this unfairness and make the right Proposal, not the easy one. Cane and beet should be allowed to compete in Europe’s sugar market on fair terms. If the Commission wants to liberalise the beet sector, then liberalise the cane sector as well. The 850 high quality manufacturing jobs in our refinery in East London, and cane refineries all over Europe, depend on it.

THE PROPOSALS AS THEY RELATE TO SUGAR

10. The main element of the CAP Proposal on sugar is that sugar beet and isoglucose quotas would be eliminated from the sugar marketing year 2015/16 (starting October 2015). In stark contrast, cane sugar import arrangements would remain highly restricted and regulated. This means that the beet and isoglucose sector would be liberalised but cane would not. In particular, the CAP Proposal would continue to place very strict limits on raw material supply for cane sugar refineries.

11. The effect of the CAP Proposal would be that beet and isoglucose producers could sell as much as they wish as they would have unlimited access to raw material at the market price. The CAP Proposal does not allow for the same access to raw material to cane refiners.

12. Cane refiners would continue to be limited to buying cane sugar from a small group of preferential suppliers (see annex I ). Raw material supply from these countries can be purchased at zero or reduced import duty, but these countries are not traditionally significant producers and their ability to supply the EU market is in practice seriously limited by a number of factors. Higher volumes can in theory be imported from big producers but are subject to punitive import duties of €339 per tonne. This effectively doubles the market price of the raw material. This restriction would remain under the CAP Proposal.

13. We would very much like the preferential suppliers to be able to supply all of our needs, and are working with many of them to improve their production. But at the moment, and almost certainly for the lifetime of the CAP Proposal, they cannot.

14. Cane sugar refineries are already suffering badly from lack of raw material under the current Sugar CMO, agreed in 2005 and implemented in 2006. Under the current Sugar CMO the EU Commission forecast that cane sugar supplies from EPA and EBA countries would almost double, to 3.3 million tonnes by 2011/12. In fact they are likely to be less than 2 million tonnes, according to the European Commission’s own estimates. (see annex II).

15. This means that refineries like ours are running at 60 percent of capacity. Production at Thames Refinery has fallen from 1.1 million tonnes in 2009, to just 600,000 tonnes this year. This is economically crippling for a sophisticated manufacturing business where a large proportion of costs are fixed, and is not sustainable. Jobs are already at risk.

16. The solutions implemented so far by the EU Commission have provided limited relief and, in all cases, further added to the unfairness that cane refiners face versus beet processors. Tate & Lyle Sugars is currently challenging the actions of the EU Commission in the European General Court [1] .

THE IMPACT OF THE PROPOSALS ON THAMES REFINERY

17. The CAP Proposals would mean that our competitors in Europe, beet and isoglucose manufacturers, could rapidly increase their market share. For instance, in 2011/12, the EU Commission currently forecast that 5 million tonnes of sugar is being produced above quota. This is an extra 35 percent addition to the current EU production quota, and more than double the current production of all of the cane sugar refineries in Europe. All of this could be sold to the European market under the CAP Proposal.

18. We would not be able to compete as Thames Refinery would not be able to expand to compete, and that sugar we could produce would have its cost inflated by the legislation forcing the refinery to run at 60 percent of capacity.

19. Production from our Thames Refinery would be displaced in the marketplace with increased inward trade flows of sugar from other parts of Europe, most likely France and Germany.

20. We could, and would, continue to try to compete by differentiating our sugar in the market place. However, sugar remains a relatively homogenous product in the food manufacturing industry, where typically 70 percent of our production is consumed. Differentiation alone would not be enough to enable us to compete.

21. The inevitable conclusion would be the closure of Thames Refinery and the loss of 850 high quality manufacturing jobs in East London. There would be no offsetting benefit in the UK and arguably neither in the rest of the EU, as our production would simply be displaced by beet sugar production already being produced as out of quota sugar in countries such as France and Germany.

WHY WOULD THE EU COMMISSION PROPOSE THIS?

22. The EU Commission Impact Assessment fails to address the impact on cane sugar refiners of the CAP Proposal. This is despite our request that it should when we responded to the EU Commission consultation on the Reform of the CAP to 2020. On a number of counts our view is that the Impact Assessment fails to meet the EU Commission’s own Impact Assessment Guidelines [2] .

23. Nonetheless, a rudimentary economic analysis of the CAP Proposals would flag that it would destroy the cane refining industry in Europe as it does not provide fair and equal terms of access to raw materials with its competitors. It is hard to believe that the EU Commission did not fully understand this when they made the CAP Proposal.

24. We can only assume that cane refiners are not given equal treatment under the CAP Proposals as they are in a minority in Europe. Just 2 Member States rely solely on cane refining, whilst 18 rely solely on beet processing. Proposing equal treatment for cane refiners would be the right thing to do, but would clearly not be popular with a majority of Member States.

WHY SHOULD EUROPE WANT TO KEEP A CANE REFINING INDUSTRY?

25. Cane refiners are the model of choice for supplying most developed sugar markets with a wide range of innovative and competitively priced sugar products. Beet production generally only exists where historically agricultural and trade policy has protected it from external competition.

26. We are not arguing that cane sugar refineries should be the only model of sugar production in Europe. We believe that cane and beet sugar should co-exist in the European sugar market. There are a number of important reasons why co-existence of cane and beet is good for Europe.

27. Cane refiners contribute to food security goals. The definition and geographical measure of food security is far from being defined, particularly in the context of these CAP Proposals. Notwithstanding that, there can be no doubt that having manufacturing capacity that can produce sugar from a different agricultural production model and supply chain significantly contributes to food security, however that might be defined.

28. Cane refiners satisfy a consumer demand for cane sugar. Consumers are increasingly interested in the provenance and supply chain of their food. Cane sugar is different and there is a growing demand for it. For example, our Fairtrade conversion, announced in 2008, continues to progress well with farmers in Fiji and Guyana joining the original farmers in Belize that benefit from the project. All of this is possible because of a strong consumer demand for the product.

29. Cane refiners are an important part of the EU sugar market. Without them the market structure would be significantly more concentrated. Cane refiners also bring with them a different competitive dynamic through the economic linkage to the world sugar market in their cane sugar supply chains.

30. Cane refiners can help contribute to the climate change and sustainability goals of Europe. For instance, Tate & Lyle Sugars were the first European sugar producer to display our independently assessed full life-cycle carbon footprint on our best-selling sugar retail packs.

31. Cane refiners are important employers within Europe, providing high quality manufacturing jobs often in areas of high deprivation. Highly skilled engineers, chemical engineers and plant operatives are at the heart of the operation, ensuring that the maximum amount of marketable sugar is extracted from the raw material using as little energy as possible.

CONCULSION

32. The CAP Proposals, if enacted, would likely see the end of cane sugar refining in East London, an industry started by Henry Tate and Abram Lyle in the 1870’s.

33. If cane refining was in some way uncompetitive, or contrary to wider policy objectives, one could understand and accept this. But it is not.

34. The threat to our business and employees is purely a result of the CAP Proposal unfairly discriminating against cane refiners by not allowing equal terms of access to raw material. Without that fair treatment, in a highly sophisticated manufacturing business where a large proportion of costs are fixed, there is no way in which refiners will be able to compete with a liberalised beet sector.

35. It is imperative that the CAP Proposals are modified to ensure fair terms of access to raw material for cane refiners. If the EU Commission want to propose a liberalisation of the beet sector, then the cane sector should be liberalises too. The future of 850 high quality manufacturing jobs in East London depends on it.

ANNEX I – PREFERENTIAL SUGAR SUPPLIERS

Least Developed Countries ("LDC")

Access for LDC is unlimited and duty free

Bangladesh

Benin

Burkina Faso

Cambodia

Democratic Republic of Congo

Ethiopia

Laos

Madagascar

Malawi

Mozambique

Nepal

Senegal

Sierra Leone

Sudan

Tanzania

Togo

Zambia

Economic Partnership Agreement Counrtries ("EPA")

Access for EPA is limited by safeguards and duty free

Central Africa EPA Congo

Western Africa EPA Cote d’Ivoire

SADC EPA Swaziland

EAC EPA Kenya

Pacific EPA Fiji

Cariforum EPA Barbados

Belize

Dominican Republic

Guyana

Jamaica

Trinidad & Tobago

CXL Countries ("CXL")

Access for CXL countries is strictly limited by volumetric quota, and is subject to a €98 per tonne import duty

Australia 9,925 tonnes

Brazil 334,054 tonnes

Cuba 68,969 tonnes

Any origin 253,977 tonnes

India 10,000 tonnes

ANNEX II – LDC and EPA cane sugar imports, forecast versus actual

Million tonnes, EU Commission data

	2009/10	2010/11	2011/12	2012/13
EU Commission forecast when designing policy	2.300	2.800	3.300	3.500
Actual	1.469 (actual)	1.783 (actual)	1.800 (forecast)	No forecast yet available

November 2011