CHAPTER 3: Future reforminternal
What is proposed?
22. In October 2011, the European Commission
published a set of proposals to reform the Common Agricultural
Policy (CAP). For the purposes of the sugar regime, the key proposal
related to the Common Organisation of the Markets. It was not
proposed to extend the system of production quotas beyond September
2015. Other measureswhich are mostly linked to the quota
systemthat would also end at that point include: a minimum
price for the purchase of beet; the charge on producers of quota
sugar; withdrawal of quota sugar;
production refunds; and import licences for refiners.
23. A number of aspects would remain in place:
tariffs; additional tariffs; tariff quotas; export refunds (rarely
used any more); aid for private storage;
and a reference price (triggering private storage). The existing
system of tariffs and tariff quotas for imports is set out below
in Box 3. Rules are proposed to regulate sugar sector agreements,
which we explore in paras 44-45.
24. Other aspects of the CAP reform are also
salient. First, the general subsidy regime, offering a Single
Farm Payment to farmers regardless of commodity produced. In exceptional
circumstances, a payment may be granted specifically for the production
of sugar and, in Finland, sugar beet growers may receive 350
per hectare each year. That is a legacy of the Finnish accession
negotiations, during which it was argued that the measures were
needed to support agriculture in difficult climatic and geographic
circumstances. Second, the rural development regulation, which
contains a range of measures, many of which could prove helpful
to sugar growers. These include the risk management toolkit, the
idea of which is to assist producers in managing their activities
against the risks of weather and price volatility.
Tariffs and tariff quotas
Tariffs on imports are set within the framework of
the internationally agreed General Agreement on Tariffs and Trade.
Those applied to imports into the EU are collected by Member States,
which keep 25 per cent of the value of the tariffs to cover administrative
costs and the remainder form part of the EU's own resources. The
Commission estimates that the value to the EU budget of tariffs
on imports of sugar in 2013 will be 123.4 million.
Additional tariffs may be imposed, and exceptions may also be
granted. The EU has several sugar tariff quotas (allowing a quota
of imports at a rate lower than the standard tariff or at a zero
rate) and has introduced more in the last two years in order to
allow more supply on to the EU market. It also allows tariff-free
imports from certain developing countries-see Chapter 4. The standard
tariffs charged on imports are: 339 per tonne for raw cane
sugar and 419 per tonne for refined white sugar and raw
sugar that is not for refining.
Production quota abolition
25. ACP and LDC producers and the beet production
sector (farmers and processors) argued for an extension of EU
beet production quotas until 2020.
Barry Newton, Chairman, EPA/EBA
London Sugar Group, asserted that this would allow ACP and LDC
producers "more time and more investment to achieve the improvements
in productivity ... that would allow us to be competing more openly
in world markets after that period".
The prospect of extending production quotas until 2020 in order
to assure improved competitiveness was shared by other advocates
of quota extension. The National Farmers Union (NFU) told us that,
by 2020, there was a very good prospect of having a competitive
Sugar was concerned that the scrapping of policy arrangements
in 2015 would discourage the further investment that was needed
to make the sector "fully internationally competitive by
confirmed that current uncertainty was causing delays in their
From a UK perspective, British Sugar warned that the UK industry
had rationalised more than elsewhere before the 2006 reform but
had nevertheless had no choice but to rationalise yet more after
2006. This meant that those countries that had only rationalised
after the reform had spare capacity which could be brought into
operation relatively quickly if production quotas were abolished,
although the NFU observed that processing elsewhere was not as
efficient as in the UK, precisely because of the excess capacity.
26. We were keen to assess whether those advocating
an extension of the production quota system were simply asking
for an extension that would then be repeated in several years'
time. The NFU assured the Committee that the industry was not
just looking to postpone by yet another five years and acknowledged
that, if the industry was unable to improve productivity by 2020,
it was "probably time to think about something different".
British Sugar appeared to imply that they would favour an extension
beyond 2020 but confirmed that "we are not expecting and
not asking for the quota system to be continued forever".
27. Others argued for a more liberal approach.
UKISUG observed that: "enough is enough" and "we
no longer need quotas and we should be away from them sooner rather
If isoglucose production quotas
were lifted, the UKISUG observed, there was potential in the market
to move to around 20 per cent of sweetener consumption coming
Sheila Page, Senior Research Associate, Overseas Development Institute
(ODI), argued that further postponement of quota abolition would
be costly to ACP and LDC producers, to the EU and to the rest
of the world. The
Government confirmed that they were opposed to production quotas
as a matter of principle. They offered two main arguments, observing
first that British producers were already highly competitive and,
second, that quotas have an artificially inflationary impact on
28. The inflationary impact of a restrictive
regulatory environment was also recognised by Tate & Lyle
Sugars, who commented that the price paid by consumers would fall
substantially if production quotas and tariffs were removed.
We observe that the average UK consumer price of 1kg of granulated
sugar has risen from 74p to 99p between June 2006 and June 2012,
an increase of one third. This is in line with a very similar
increase in the prices of confectionery goods.
We are very concerned that the 16 per cent net increase in
the EU price for sugar since 2006 has not been reflected in consumer
prices for sugar and related goods, which have risen by over one
third in the UK. We find the argument that the consumer price
could fall if production quotas and tariffs are removed compelling
but this requires monitoring by the European Commission. It is
disappointing that the recent evaluation by the Commission of
Common Agricultural Policy measures applied to the sugar sector
assesses the impact on all groups except consumers. In line with
the objectives of the Common Agricultural Policy as set out in
the Treaty, we urge the Commission to put the consumer much closer
to the heart of its sugar policy and, specifically, to put in
place a mechanism to assess not only the market price of sugar
but the price paid by consumers.
29. We are aware of strong views from the health
sector that sugar is a health hazard for consumers, particularly
for children. Whilst accepting the concerns we consider that control
of sugar consumption on health grounds should be achieved via
Member State taxation and regulation policies rather than justifying
EU level continuation of market distortion.
30. Despite the potential impact on price of
a restrictive regulatory environment, Tate & Lyle Sugars could
accept regulation as long as cane refiners were protected in a
similar manner to beet producers and processors. If production
quotas were abolished, they contended, so restrictive tariffs
on imports of raw cane should be lifted. On the other hand, if
beet production quotas were to remain, then cane refining quotas
should be reintroduced.
They warned that the abolition of production quotas, thus liberalising
the beet production market, without abolition of tariffs "would
swamp the cane refiners in a very short time"
The Government agreed that there was a need to remove import tariffs
on raw cane sugar.
31. We conclude that neither the beet nor
the cane sectors should continue to be protected. We therefore
agree with the UK Government both that production quotas should
be abolished in 2015 as proposed by the Commission and that import
tariffs on raw cane sugar should be eased as appropriate in response
to the world market. The easing of tariffs should, in our view,
be extended to the import of refined cane sugar, bearing in mind
the need to provide some security of supply, world trade discussions
and support measures applied by other countries to support their
sugar markets. The current restrictions on exports from the EU
should be lifted to allow the EU to compete on the world market
and to provide balance in the EU market if imports were to increase
32. The political reality according to the Minister
of State for Agriculture and Food, the Rt Hon Jim Paice MP,
was that the UK and Commission position had very little support
in the Council and European Parliament, with some Member States
which would even like to see production quotas prolonged beyond
2020. Michel Dantin MEP's draft European Parliament amendments
to the Commission's proposal suggest a report in 2018 on progress
and a decision at that point in 2018 on whether to abolish production
quotas in 2020 or extend them further.
While we urge the Government to continue to advocate a more
liberalised approach as early as possible in negotiations, we
recognise the political reality of the agricultural reform negotiation.
However, we would consider a simple continuation of the status
quo to be unacceptable.
33. In the event that a compromise should
be necessary, we would recommend the following elements:
- a clear date for the ending of production
quotas between 2015 and 2020. We would resist any promise of a
future review in order to establish a final date as this fails
to give the industry the certainty that they claim to require
in order to make appropriate investment;
- an immediate recalibration between Member
States of production quotas to recognise changes made both pre-2006
and since 2006; and
- support to remove inefficient production.
34. In the milk sector, a soft-landing has been
introduced in order to assist the market to prepare for the abolition
of production quotas in that sector. The soft landing has included
an increase in production quota each year, so that it becomes
less and less restrictive and therefore more responsive to the
market. From the consumer's perspective, though, funding has
already been used to dismantle some of the sugar quota capacity
and we therefore recognise the lack of consistency in any move
to increase sugar quota gradually. We would not recommend an increase
in sugar quota as a form of compromise.
Risk management and other aspects
of CAP reform
35. The measures within the Common Market Organisation
are not the only aspects of the CAP reform proposals and broader
EU funding arrangements that are relevant to sugar. In order to
ensure more efficient deployment of EU funding, the European Commission
has proposed that, in the period 2014-2020, Member States ensure
that their plans for rural development, regional development,
European social fund and fisheries fund are complementary. In
our recent report on The Multiannual Financial Framework 2014-2020,
we supported the simplification and improved synergies offered
by this Common Strategic Framework.
We remind the Council and the European Parliament that the
reform of the sugar sector must be seen in the broader context
not only of Common Agricultural Policy reform but also of the
future cohesion policy. The potentially large-scale alternative
use of beet sugar in bio ethanol productionrather than
for human food or animal feedis another important consideration
on which we would welcome the Government's response in the UK
context. When designing future rural development plans and operational
programmes for structural funds, the nature of Member States'
sugar sectors might usefully be borne in mind.
36. Commenting specifically on the application
of the proposed new rural development regulation to the sugar
sector, the Government confirmed that there was some scope for
using rural development funding to help farms and groups of farms
manage their own risk, making use of private sector insurance
would allow farmers to be financially supported in order to purchase
appropriate insurance against the risks arising from weather and
price volatility. In correspondence with the Minister and EU institutions
on reform of the Common Agricultural Policy, we have supported
this concept, although on a time-limited basis until such mechanisms
have become well established. One justification for continued
protection of the sugar beet industry is the difficulty of facing
the volatility of the world market, a danger that could be mitigated
by greater use of risk management tools, such as insurance but
extending also to future pricing. We understand that such tools
are under developed in the sugar sector and we therefore recommend
that the European Commission submit a report, with recommendations,
on the use and development of private sector risk management tools
in the sugar sector.
Market management instruments
37. For the moment at least, the European Commission
has a key role in managing the volatility of the EU market. In
considering future sugar policy, it is necessary to take into
account the regular management of the market by the Commission.
Even if production quotas were abolished from 2015, UKISUG acknowledged
that the Commission had a role to play in a managed transition
and that a safety net of some description may be required for
food security purposes.
Market management measures adopted by
|The European Commission has adopted a range of measures over the last two marketing years to stabilise the market. In essence, these include tariff reductions through a tendering process, quotas to import at zero tariff and the incorporation into quota production of excess sugar produced (so-called "out of quota" sugar).
Since December 2011, measures to increase imports have included:
- The opening of a standing invitation to tender for sugar imports at a reduced tariff191,000 tonnes over seven tenders, three of which were cancelled as the EU had enough sugar. Tariffs ranged from 252 to 270 per tonne, all for raw sugar; and
- Three Regulations fixing minimum tariffs for a further three tenders, permitting another 200,000 tonnes on to the market. Reduced tariffs ranged from 289.36 to 312.6 for raw (unrefined) sugar and from 320 to 345 for white (already refined) sugar.
During the same period, measures to release out-of-quota sugar were taken in December 2011 (400,000 tonnes) and May 2012 (250,000 tonnes).
38. There was some questioning among our witnesses
of the European Commission's performance in responding to the
shortage of sugar on the EU market (see Box 4). The NFU stated
that the Commission needed to use the tools available to it rather
better than it had thus far.
Tate & Lyle Sugars asserted that their warnings of weaknesses
in the market had been ignored until it was too late: "the
Commission should have acted earlier". In particular, they
considered, more imports of tariff-free sugar should have been
allowed. Looking to the future, Tate & Lyle Sugars argued
that market management measures should not be left for the Commission
to operate. Rather, they would like to see the correction to address
the lack of imports at zero tariff to be automatic, enshrined
in legislation, rather than for the Commission to decide.
39. On 2 July 2012, the Commission responded
to criticisms that its exceptional measures have been unfair to
cane refiners. It acknowledged that it has had to relieve pressure
on the EU market and considered this market pressure "normal
... as the EU market competes with others to obtain the necessary
raw material, including from LDC countries which are free to choose
to whom they supply". The Commission argued that it has used
the measures of facilitating imports and releasing out of quota
production of beet onto the market "in broadly equal measure
over the past two years".
40. Whilst the market remains regulated at
EU level, there is clearly a role for market management measures,
including tariffs and import quotas. There is dissatisfaction
with the manner in which the Commission has discharged its responsibilities.
We observe that the Commission has at least attempted to balance
the interests of the beet production and cane refining industries.
It must continue to do so and to ensure that its decisions are
taken in a timely and transparent manner. Transparency is important
as tariffs form part of the EU's budget and therefore substantial
reductions in tariffs have wider implications for the financing
of the EU budget.
41. During our short inquiry, we had some debate
among witnesses about the apparently monopolistic nature of the
UK's sugar market, a debate which extended to the oligopolistic
nature of the EU's market. Sugar users, represented by UKISUG,
were not concerned about the nature of market and pointed to the
possibility to import supplies from elsewhere.
Similarly, British Sugar, the sole sugar beet processor in the
UK, contended that it has completely open competition from Tate
& Lyle Sugars and from processors in France, the Netherlands,
Germany and Belgium.
42. While Tate & Lyle Sugars, the EU's largest
cane refiner and the UK's only devoted sugar cane refiner,
denied that they are in a monopolistic position, they observed
that there is concern about competition in the EU market as a
result of the small number of beet processors: only six companies
account for almost 80 per cent of sugar production quotas.
In commenting on a recent merger referred to it,
the Commission noted, "the current high price and scarcity
of sugar across the EU make it all the more important to maintain
competition on the already concentrated European sugar markets"
and added that, "at the production level the degree of concentration
and entry barriers in several Member States are high".
We were also made aware of a recent report by the European Competition
Networka network of national competition authorities and
the European Commission. This noted that it is a highly concentrated
industry, with external competition largely prevented by import
tariffs and that competition is very much influenced by the EU's
It is important therefore that any inquiry into the market structure
should be based on the EU wide sugar market, not simply the UK.
43. We observe, as have others, that the nature
of the sugar market is unusual and that the EU's sugar regime
is a contributory factor. As already highlighted in this report,
the prices paid by consumers for sugar and related goods have
not, at least in the UK, followed the trends in the EU market
price for white sugar. We accept, as do the Court of Auditors,
that pricing in a market such as sugar with a complex supply chain
is far from easy to disentangle. It is our view that greater clarity
and transparency is required. We therefore recommend that the
Competition Authorities at EU and national level, namely the Office
of Fair Trading in the UK, in collaboration with Competition Regulators
in other EU Member States, investigate the market as it applies
to UK and EU consumers, to assess the extent to which the consumer
gets a fair deal.
44. We heard some concerns that the Commission's
recent proposal could potentially disrupt contractual arrangements
in the sugar beet sector between growers and processors. In the
UK, the NFU negotiates, on behalf of all 3,500 UK sugar beet growers,
an Interprofessional Agreement with the sole UK processor, British
Sugar. The benefits of the agreement were stated to be that it
ensures a fair balance of interests, that it helps joint working
on research and knowledge transfer, that processing capacity could
be expanded given the certainty that it brings and that it enables
mechanisms to be put in place to overcome weather difficulties.
The UK sector's agreement, for example, includes a frost insurance
scheme. We heard
that the industry works similarly in some Member States, whereas
others operate through co-operatives.
45. The specific concern set out by the NFU related
to Article 101 of the Commission's Common Market Organisation
proposal. This requires the terms for buying sugar beet and cane
to be governed by written agreements. Unlike the text in place
at the moment, the
proposed wording is imprecise in what should be covered by such
an agreement, no longer explicitly stating that this should include
the purchase and payment of beet. The Commission proposes that
such detail be established at a later date through secondary (delegated)
legislation. From the perspective of the NFU, they fear that this
change undermines their position and would like to see the legislative
We consider it unlikely that the Commission desires to undermine
the position of growers in this type of relationship but we think
it essential that the Commission communicates its intentions.
It would be helpful to amend the text of the new Regulation to
include the same specificity as is reflected in the current legislation,
which might also remove the need to confer the power on the Commission
to adopt a delegated act.
Research and knowledge transfer
46. As set out above, one benefit of the Interprofessional
Agreement is to support research and knowledge transfer. In our
report, Innovation in EU Agriculture,
we placed a great deal of emphasis on the importance of basic
and applied research and the transfer of that knowledge. We heard
that the UK beet industry is continuing to invest around £1.5
million per year in research in order to boost yield, with a yield
increase target of four per cent annually.
This "4x4 Yield Initiative" is being coordinated by
the British Beet Research Organisation (BBRO).
Underpinning its overall objective, BBRO research, largely taking
place at Rothamsted Research's Broom's Barn Centre, includes projects
on crop production and crop protection. There is also a sophisticated
Grower Support programme, including four well-attended open days
annually at which growers can meet research teams and see demonstration
work. The NFU confirmed the value of these open days and emphasised
how important the rapid uptake of improved techniques was to yield
47. We heard from the NFU about the French Aker
sugar beet research project, where plant-breeding activity
is underway to try to decode the sugar beet genome.
This is based on the overriding objectives of the French beet
sector: to increase competitiveness by 30 per cent by 2020 in
order to face the world market and, if possible, to reduce dependence
on inputs such as plant protection products, nitrogen fertiliser,
water and energy.
48. In our view, basic and applied research
in the sugar sector, supported by knowledge transfer, are a key
component to driving forward a sugar sector throughout the EU
that can stand on its own. We believe that industry must invest
in order to boost both research and its competitive position.
We therefore recommend that the Government assess whether research
efforts in this industry are in line with the needs of consumers.
17 Until the end of the marketing year in order to
address over-supply of sugar on the market Back
Permits the granting of aid when the Union sugar price falls below
a certain percentage of the reference price for a certain period
of time Back
The precise levels of tariff are set each year by the Commission Back
Draft General Budget 2013 Back
Pp 140-141 Commission Regulation (EU) No 1006/2011 amending Annex
I to Council Regulation (EEC) No 2658/87 on the tariff and statistical
nomenclature and on the Common Customs Tariff Back
QQ 63, 72, 88 Back
Economic Partnership Agreement (EPA) Back
Q 64 Back
QQ 72-73 Back
Q 89 Back
Q 91 Back
Q 97 Back
Q 81 Back
Q 74 Back
QQ 92, 103 Back
QQ 134, 143 Back
Liquid in form, isoglucose is a sweetener that is used as a sugar
substitute mainly in the production of drinks. It is obtained
from starch, which in turn is extracted from wheat or maize. Isoglucose
quotas represent around 5 per cent of the overall production quota. Back
Q 138 Back
Q 13 Back
Q 203 Back
QQ 168-169 Back
Office of National Statistics, Consumer Price Index, June 2012 Back
QQ 165, 166, 171 Back
Q 186 Back
Q 204 Back
European Parliament, Committee on Agriculture and Rural Development,
Draft Report on the proposal for a regulation of the European
Parliament and of the Council establishing a common organisation
of the markets in agricultural products. Rapporteur: Michel Dantin Back
European Union Committee, 34th Report (2010-12): The Multiannual
Financial Framework 2014-2020 (HL Paper 297) Back
Q 215 Back
QQ 142-143 Back
Commission Implementing Regulations 302/2011 and 589/2011, in
March and June 2011, covering 500,000 tonnes Back
Commission Implementing Regulation 1239/2011 Back
Commission Implementing Regulations 382/2012, 444/2012 and 485/2012 Back
Commission Implementing Regulations 1240/2011 and 362/2012 Back
Q 82 Back
Q 178 Back
Commission replies to refiners on sugar market woes, Agra-Europe,
2 July 2012 Back
Q 132 Back
Q 94 Back
Tate & Lyle Sugars have over 25 per cent of the EU's cane
refinery capacity. British Sugar refines a small amount of cane Back
QQ 167, 190, 195 Back
Case M.6286 Acquisition by Sudzucker (largest EU sugar producer
and quota holder) of ED&F Man Back
"ECN activities in the food sector", May 2012 Back
QQ 75, 76, 105 Back
Article 50, Regulation 1234/2007 Back
QQ 75, 82 Back
European Union Committee, 19th Report (2010-12): Innovation
in EU Agriculture (HL Paper 171) Back
QQ 73, 105 Back
Q 74 Back
Aker 2012-2019 French Research Initiative for a Sustainable Beet
Improvement: Innovative breeding, strategies based on allelic
variation mining and novel -omnic tools Back