In its oral submission to the UK House of Lords committee hearing on EU sugar reform, published in July 2012, the UK National Farmers’ Union highlighted the importance attached to the inter-professional agreement (IPA), which governs relations in the sugar sector. The IPA allows the UK’s 3,500 sugar beet producers to negotiate collectively with the monopoly beet processor (British Sugar). Establishing ‘a single selling voice’ to balance the ‘single buying voice in the supply chain’, the IPA allows ‘an obvious imbalance of power in the supply chain’ to be managed.
According to the NFU, the IPA ‘does not affect the price of sugar’, which is driven by developments in the European sugar marketplace. The IPA allows the negotiation of a fair price for sugar beet rather than the imposition of an unfair price. It further allows collaboration between farmers and the processor on matters which ‘propel the industry forward more rapidly than might otherwise be the case’, e.g. on the development of weather-related insurance schemes.
In the most recent IPA announced on 13 June 2012, the contract prices and payments negotiated were seen as ‘working well and reacting to market conditions’, by addressing grower concerns over the extended length of the beet processing season via an ‘enhanced Late Delivery Allowance’ and the introduction of a ‘frost insurance package’, the costs of which in future will be incorporated ‘within the beet pricing mechanism’. The basic contract tonnage beet price for 2013/14 was seen as reflecting increased growing costs, forward cereals prices for 2013 and exchange rate changes. A specific contract price was also agreed for specific contracted tonnages for use of out-of-quota sugar beet in biofuel production.
At the House of Lords Committee, British Sugar expressed its support for the IPA, given the highly integrated nature of the sugar beet industry in the UK. British Sugar accepted the need for ‘some form of negotiating and contractual framework between British Sugar as the sole processor and its supplying farmers’ now and in the future, and maintained that the IPA structure ‘ensures a fair balance of interest’. The company expressed a preference for seeing the relationship along the sugar supply chain structured in an organised way, ‘defined in some way in the legislation, providing it does not inhibit our local freedom and flexibility to negotiate terms that are sensible for UK conditions’.
Against this background, the NFU expressed concerns over EC proposals that would change the legislative basis for the IPA. It is feared that these could lay the basis for the abolition of such arrangements. The NFU, in line with the position of British Sugar, would like to see the IPA system ‘reinforced in the long term’.
The concern to address what the NFU chairman called ‘an obvious imbalance of power in the supply chain’ is likely to increase in many ACP sugar exporting countries, given the dismantling of traditional price guarantees on the EU market and the changing patterns of corporate ownership within the sugar sector. These concerns need to be seen against the background of the high concentration of ownership in the EU sugar sector (where six companies control 80% of the EU beet quota and have growing interests in co-refining raw cane sugar, accounting for around half of all raw cane sugar refined), and the increased frequency of EU refiners with shareholdings or corporate linkages to local millers in ACP countries.
Considerable scope potentially exists for sharing NFU’s experience of contract negotiations with a monopoly processor, with ACP sugar producers’ organisations. This is particularly relevant where small-scale farmers have to deal with the same corporate family as NFU negotiators (e.g. Zambia and Malawi). Such an exchange of experience would also appear to be appropriate in countries where the principal EU refiner has shareholdings in the local miller (e.g. Belize), in order to ensure that ‘obvious imbalances in power relationships along the supply chain’ do not result in primary producers alone carrying the burden of price volatility.