According to press reports, the UK National Farmers Union (NFU) now expects EU sugar beet production quotas to be extended through 2018. According to the vice-chairman of the NFU Sugar Board, ‘our best guess is that there will be a euro-fudge [unsatisfactory political compromise] and quotas will be with us until about 2017/18’. Before the House of Lords Committee hearing on the EU sugar regime, the NFU, British Sugar and the ACP/LDC London Sugar Group had all stressed the importance of extending quotas until at least 2020, to allow time for competitiveness enhancing measures to take effect.
The chairman of NFU highlighted the progress being made in improving sugar beet yields (+2% per annum in recent years, with aspirations to increase this to 4%), while representatives of British Sugar, the UK’s sole beet sugar processor, highlighted the extensive investments under way in improving processing efficiency and diversifying the product range produced from sugar beet.
It was stressed that UK beet farmers were more than equalling sugar cane producers in terms of ‘sugar output per hectare’. However, the process of enhancing competitiveness will not be completed by 2015, and will require until 2020. The NFU maintained that this was the situation across north-eastern European beet-producing regions, although it was acknowledged that in some beet production regions of Europe, producers ‘will struggle to catch up’ in terms of global competitiveness.
A similar perspective was held out for ACP/LDC sugar producers. It was argued that quota abolition in 2015 would increase price instability on the EU market and undermine investment in restructuring, with uncertainty over EU market prospects making it more difficult in some ACP countries to raise bank financing for investment. The administrative constraints faced in deploying EU sugar protocol accompanying measures funding to support ACP sugar sector restructuring were also highlighted during the parliamentary hearings, as was the widely held belief that under a liberalised market with a structural sugar surplus, the ACP ‘will lose more than anybody’.
The UK government, industrial users of sugar (UKISUG) and the UK’s traditional cane sugar refiner, Tate & Lyle Sugar, all supported the EC proposals not to extend the current production quota system beyond 2015. Tate & Lyle representatives were critical of EC management of the sugar market over the reform period, arguing that traditional cane sugar refiners were now being systematically discriminated against, and calling for fair-treatment.
It was pointed out that since 2005 the EU sugar beet industry had put in place ‘1.85 million tonnes of new cane refining capacity’. This will see Tate & Lyle refining only 600,000 tonnes in 2012, compared to 1.1 million tonnes before the reforms. It was pointed out that if production quotas were abolished, most of the 4 to 5 million tonnes of out-of-quota beet production could be marketed as sugar, which could mean the end of the traditional cane sugar refining industry. The UK agriculture minister, Jim Paice, expressed concern over the implications for ACP/LDC sugar suppliers who, he maintained, would ‘suffer very considerably were Tate & Lyle to close’.
Tate & Lyle called, if the EU sugar production quota system were to be extended, for the reintroduction of dedicated import quotas for traditional sugar cane refiners, or the establishment of an automatic correction system to allow sugar imports at zero duty, up to the envisaged import total of 3.5 million tonnes.
UKISUG representatives highlighted how the difficulties faced by sugar-using manufacturers were not a product of any absolute sugar scarcity, but simply the way the EU market was managed. Since 2005, this had driven up procurement costs for sugar to ‘much higher than the €404 a tonne reference price’, with this posing particular problems for smaller producers (see Agritrade article ‘ Industrial users set out their views on sugar reform against backdrop of...’, 9 September 2012).
In oral evidence to the House of Lords Committee, the agriculture minister acknowledged that the UK was in a minority in favouring the abolition of EU sugar production quotas in 2015 and further liberalisation of tariffs for EU sugar imports. He did not expect the EU Council to endorse the UK position. However, he told the Committee that the UK government would seek a firm commitment to the discontinuation of sugar production quotas by 2020 at the latest.
The emerging consensus on the extension of the sugar production quota system beyond 2015 would offer some relief to ACP sugar exporters. However, the longer-term challenges remain:
- investing in effective enhancement of competitiveness, to yield substantial benefits before 2020;
- diversifying the product range to maximise income flows;
- reforming marketing arrangements to maximise sugar sales revenues in a volatile market.
These are substantial challenges in many ACP countries. Primary responsibility lies with producers, processors and governments in ACP states to address these challenges, but EU policies can either assist or hinder the process.
Primary importance needs to be attached to establishing a stable market during the transition. This is a question of clarity not only on the future of the regime, but also on the nature and predictability of the market management arrangements applied during the transition.
In terms of the nature of transitional arrangements, the calls by Tate & Lyle, for an automatic correction system to permit zero-duty access for up to 3.5 million tonnes of raw sugar, are potentially a source of concern, particularly if third-country suppliers and ACP/LDC suppliers were to be placed on the same footing in terms of providing supplies within this 3.5 million tonne ‘quota’.
The development of discussions on how to manage markets to address sugar users’ and traditional refiners’ concerns during the transition will need to be closely monitored by the ACP.
Furthermore, a more efficient deployment of sugar protocol assistance measures programme support – for sugar sector competitiveness enhancement measures and better access to EIB loan financing facilities for ACP sugar sector companies and producers’ organisations – could potentially assist the effective implementation of competitiveness enhancement in the period prior to quota abolition. However, this will need to include a clarification of the basis on which EU assistance can be deployed in support of private-sector-led restructuring efforts.