Environment, Food and Rural Affairs CommitteeWritten evidence from UK Industrial Sugars Users Group
1. I am writing in response to the EFRA Select Committee’s inquiry exploring how the Government might implement the reformed Common Agricultural Policy (CAP) in England.
2. UKISUG represents the collective interests of the major industrial users of sugar throughout the UK, including manufacturers of soft drinks, biscuits, cakes, chocolate, confectionery, breakfast cereals, ice cream, yogurts and chilled desserts. These sectors employ in excess of 70,000 people, with a total turnover of more than £12.3 billion and combined they account for around 70% of sugar usage in the UK.
3. The competitiveness of manufacturers of products containing sugar is severely impacted by existing EU sugar policy. The regime limits the availability of an essential ingredient used in many food and drink products, inhibits the ability of manufacturers to compete in key export markets and adds to UK food price inflation.
4. UKISUG welcomed the Government’s prioritisation of wide-ranging reform of the EU sugar regime in the recent CAP negotiations. The agreement reached in trilogue to abolish production quotas with effect from 30 September 2017 was a welcome step in the right direction, but the failure to include any measures addressing protectionist import tariffs on raw and refined cane sugar means that serious concerns remain for end users.
5. It has emerged in recent weeks that without delay, the agreement is set to remove the possibility for end users to tender for imports of white sugar under the “exceptional measures” that aim to address the structural undersupply of sugar. Sugar users are once again at the bottom of the pile in terms of access to world market sugar despite suffering the worst consequences resulting from supply shortages. UK sugar users have been provided with no option other than to rely on EU suppliers providing sugar where, when and to whom they see fit, with no remaining alternative options to proactively mitigate the supply and price risks that such a constrained market creates.
6. Supply shortages have been a continuing feature of the market since 2009 and they will persist in the absence of new measures to address the lack of imports. Import shortages could be alleviated by a change to the EU’s default protectionist position on sugar in Free Trade Agreement (FTA) negotiations, with the Commission instead prioritising EU alignment with the world market by allowing greater access to raw and white sugar from the world market.
7. Beyond 2017, the market situation could be set to deteriorate even further. With quotas ending, the European Commission suggests that existing WTO restrictions on EU sugar exports will be lifted. This would allow increased export opportunities for EU sugar producers which could help to ensure a balanced EU market in the event of overproduction or increased imports. However, an increase in imports is currently unforeseeable due to prohibitively high tariff levels and there is no certainty that investment will take place to increase EU production. The danger is that EU production remains at an insufficient level with exports to the world market increasing, leaving sugar users in an even more precarious position.
8. The Government’s priority should be to ensure that there are sufficient changes to the tariffs applied to imports of sugar from outside the EU to ensure that the EU market, and particularly the UK market, are supplied with adequate quantities of competitively-priced sugar.
8 October 2013
REFORM OF THE EU SUGAR REGIME
The recent agreement on reform of the CAP states that sugar production quotas will expire on 30 September 2017—two years later than agreed in 2006. Quota expiry is an integral part of the reform of the EU sugar regime agreed by the EU institutions and legally enacted in 2006.
Since the 2006 reform, sugar farmers have been fully integrated into the CAP income payments system and €6.2 billion was made available for the restructuring of the sugar sector. This has delivered improved efficiencies and increased beet yields in the EU, but the fundamental EU objectives of fair competition, security of supply and reasonable prices were not met and cannot be met until both market-distorting production quotas are abolished and the EU’s protectionist controls on imports of raw and white sugar are adjusted in parallel.
Until 30 September 2017, production quotas will continue to restrict EU sugar production to only 80% of EU demand. Quotas have driven EU sugar prices up dramatically—the EU white sugar price is now over 50% higher than world market and EU reference prices, even though EU production costs have decreased since the 2006 reform. This has put EU food and drink producers—Europe’s largest manufacturing sector, more than 90% of which are SMEs—at a competitive disadvantage in price-sensitive global markets.
For the European sugar market to be balanced and competitive, it is vital to ensure that it is not distorted by imports or by restrictions on imports. Europe cannot afford to hamper its own competitiveness and lose ground in growing global markets. Yet this is precisely what Europe risks doing if the CAP reform fails to deliver security of supply for end users.
Annex
GRAPH ON THE COMPARISON OF EU AVERAGE MARKET PRICE—WORLD MARKET PRICE
Source: European Commission
The chart illustrates the impact of the 2006 EU sugar reform on prices. Initially the reform delivered the intended results. Both volumes and prices reduced in line with quota cuts and the staged reduction of the reference price. EU dumping of surplus production onto global markets was contained as required by the WTO and world market prices increased. Farmers and sugar processors were compensated through income payments and restructuring funds.
But EU stocks eroded faster than anticipated because duty and quota free import volumes from LDC and ACP countries did not increase sufficiently to fill the gap between tight EU sugar production quotas set at 13 million metric tonnes and EU sugar needs which are about 16.5 million metric tonnes. As import tariffs on sugar from other sources are mostly prohibitive, and alternative sweeteners such as isoglucose are also subject to restrictive quotas, buyers were faced with supply problems.
In 2011, prices on the EU market shot up by more than 40%, in spite of the fact that production costs had decreased. Prices have remained high ever since. As history has proven, centralised market management does not work. The quotas are contributing to food price inflation in the EU. The increase in the cost of EU sugar has caused divergence rather than convergence between EU and world market prices, thus putting EU producers, particularly SMEs, of sugar containing food and drink products at a competitive disadvantage.