EUC Report: EU Sugar Regime

Lord Carter of Coles Excerpts

Monday 3rd June 2013 Grand Committee

Moved by

[Lord Carter of Coles]

That the Grand Committee takes note of the report of the European Union Committee, Leaving a Bitter Taste?: The EU Sugar Regime.

[Lord Carter of Coles]

My Lords, I chaired Sub-Committee D—the sub-committee on agriculture, fisheries, environment and energy—when this report was produced last year. Sadly I have now stepped down from that position, but happily I have passed the baton to the very able hands of the noble Baroness, Lady Scott of Needham Market.

Before moving on to the detail of our report, I want to deal with a procedural matter. We published our report in September last year. A response was received quite promptly from the European Commission in March. Despite repeated prompting, though, we received a response from the Government only last Wednesday, almost seven months late, and I suspect it may only have been the pressure of today’s debate that produced it at all. Members will know that receipt of a government response three working days before a debate, and during recess, does not provide ample time for preparation for a parliamentary debate.

We recognise the challenges of the last few months, which have seen the parameters of this debate shifting on a regular basis as the common agricultural policy negotiations have progressed, but the lack of communication from the Government during that process has been lamentable. We trust that there will be no repeat of this disregard of Parliament in future.

I turn to the substance of today’s debate. The EU sugar regime might sound like a very niche, distinct and rather arcane area. However, it has widespread implications. The first is that sugar remains one of the most protected sectors under a CAP that in other respects has slowly made progress towards a more liberal regime. Secondly, like it or not, we all consume sugar and it is our contention that we, as consumers, pay more than we should as a direct result of EU policy. Thirdly, the regime also has significant implications for developing countries, and I shall come back to that point.

At the time of most of the reform of the sugar regime in 2005, we undertook an inquiry and welcomed that reform as a necessary step, although even then we regretted that more extensive proposals had not been pursued. Since then there have been critical reviews of the regime, not least by the EU’s Court of Auditors. Indeed, in 2011 the European Commission tried to identify some of these shortcomings in its proposals to reform the common agricultural policy. For that reason, we decided to undertake a short inquiry into this subject last spring as part of our contribution to the debate on the reform of the CAP, knowing that the future of the EU’s sugar regime would be a closely fought tussle in those negotiations. We were also keen to ensure continuity and follow up on our earlier report.

I turn first to quotas. The EU’s sugar policy is not something of which we can be proud—in fact, it is not sweet, it is rather bitter. It is still a policy that restricts both the production of beet sugar in the EU and the import of cane sugar from third countries into the EU. Changes made in 2006 have ensured that the EU’s minimum price is there, yet we do not have a guaranteed minimum price. That is a rather contradictory position.

There was a clear division of opinion among our witnesses as to when, and even if, production quotas should be abolished. Some argued for an extension of the system until 2020 in order to allow the sugar beet industry to restructure further and prepare itself for the onset of the world market. Others—quite logically, those on the receiving end of an uncompetitive market—argued for the immediate end to quotas. This included the industrial users of sugar, such as manufacturers and producers of confectionery products and the like.

However, that final grouping also included the importers of raw cane into the EU for refining, specifically Tate & Lyle. Their position was that either they should be protected against the market or both the beet and cane sectors should be liberalised—a logical position. We took the view that neither the cane nor the beet sectors should continue to be protected and that this would involve both the abolition of production quotas and the easing of import tariffs on raw cane sugar. We acknowledged the difficulties of negotiating this, but suggested that in the event that production quotas could not be phased out by 2020, they should certainly end at some point between 2015 and 2020.

It is pleasing to note in the Minister’s response that the Council’s negotiating mandate extends quotas only until 2017, although that has to be negotiated finally with the European Parliament, which itself favours 2020. I would very much appreciate it if the Minister could share any further intelligence with us, including how the Government are working to ensure a positive outcome in this respect.

We also recommended that, as part of a package to assist with the negotiation over the ending of quotas, support should be available to remove inefficient production. Interestingly, the Government disagree, noting that there is no justification for the spending of such money. Let me be clear: we supported the use of such funding only as part of a compromise package. It is unclear to me, frankly, how the Minister expects to be able to negotiate the 2017 date without some form of financial compensation. I would welcome clarity on that subject.

I turn to the issue of price and competition. One consequence of the protected sugar industry is that costs to the consumer are higher than they should be. We were struck by the findings of the EU’s own auditors, the European Court of Auditors, which concluded in 2010 that changes in the EU market price for sugar were not passed on to the consumer. Between 2006 and 2012, the average price of a kilo of granulated sugar in the UK rose by one-third, while the market price increased by only 16%. Clearly there is a widening of margins somewhere.

We concluded that the consumer is the missing stakeholder from the debate on EU sugar policy. The Commission refuted that argument in its response to us, noting that:

“Consumers are consulted in the framework of the High Level Forum for a Better Functioning Food Supply Chain”.

That seems hardly a very consumer-focused body to us, so it is no surprise that we remain unconvinced about this.

The Government say that they have used every opportunity to raise awareness of the impact of this policy on consumers. I should be grateful if the Minister could tell us whether the Government’s work has influenced the course of negotiations on sugar, and indeed generally on the future of the common agricultural policy in any way.

We noted that this is a highly concentrated industry; as we heard, only six companies account for almost 80% of sugar production quotas. The European Competition Network, a network of national competition authorities and the European Commission, has been very critical of the concentrated nature of the industry. The Government confirm that the sector is in the spotlight and that the European Commission undertook an unannounced inspection on 23 April at the premises of companies active in the sugar industry in several member states.

The Commission noted in its response to us that it is conducting its own study into price transmission in the sugar sector, which I understand should be available imminently, and we are keen to see what it says. We are pleased to note that the UK’s Office of Fair Trading is assisting the Commission in its work. I urge the OFT and the Government to be very vigilant in this area.

Another issue that we are keen to see explored is risk management. We observed that most sugar producers are a risk-averse group, which is why they have a strong preference for continuing the protection available under the current regime. The reformed CAP contains some support for risk management, including support to help farms and groups of farms manage their own risk, making use of private sector insurance mechanisms. This is important; it is trying to make industries use the private sector instead of always relying on the state to somehow mutualise the risks that they face. This is a theme that we have referred to many times in our reports.

The Government are imprecise in their response about their preferences regarding risk management. I would welcome an update from the Minister on the state of play of risk management in the CAP negotiations and what the UK’s current priorities are for that aspect of the negotiation.

I want to focus on the importance to beet growers, in terms of managing their risk and in the light of the concentrated nature of the industry, of clarifying the relationship between beet producers—that is, the farmers—and processors such as British Sugar, Nordzucker, Suedzucker and all those big organisations. The proposals to reform the CAP insist that this relationship be covered by a written agreement but do not set out what should be included, which is in fact a step back from the status quo. The Commission insisted in its response that such detail can be set out later in secondary legislation. I would welcome an update from the Minister on where that debate has reached.

One of the recurring themes on our committee has been that of research. We emphasised in this case the importance of basic and applied research in sugar, supported by adequate knowledge transfer: that is, getting the research from the lab into the hands of farmers. We recommended that the Government assess whether research efforts in this industry are in line with the needs of consumers. The Government appear content that all necessary basic and applied research is being undertaken and is sufficiently funded. Sadly, we do not share the Government’s confidence on that matter. While we agree that the industry is particularly well placed to identify its needs, at least in terms of applied research, it is important that science is able to feed in basic research and to be financially supported in its efforts. It is only through this sort of research that we will maintain in Europe the lead in technology that we need to maintain our position in the world and in trade. There will inevitably be a tendency by industry to focus on low-hanging fruit, but I urge the Government to take a greater interest in this important part of the chain.

The African, Caribbean and Pacific bloc and the so-called least developed countries, the LDCs, have had preferential access to the EU’s sugar market and were therefore negatively affected by the reduction in the EU’s sugar price after the 2006 reform. A helpful package of transitional measures was put together, known by the lengthy name of Accompanying Measures for Sugar Protocol countries funding. We heard that almost €1.2 billion had been allocated to this, yet much of it had not reached the intended beneficiaries. This was due in part to insufficient resourcing in the Commission’s offices in those countries. It is very sad that the money was available but we could not find a way to spend it. That is clearly an issue for the Commission to address. I am glad that the Government similarly recognise the problem and that they will seek assurances from the Commission that local offices will be sufficiently resourced.

In evidence to us, we were favourably struck by the Minister’s condemnation of the plan for further reform, which in his view almost entirely ignored the needs of developing countries. He emphasised that the Government have an obligation to find ways to support them, and we support that.

It was surprising to note from the Government’s response that some progress had been made in negotiations on the European Development Fund. The response indicates that funding available to many of the sugar-producing developing countries will support interventions that have the most impact on the critical areas of poverty reduction, job creation and economic growth.

These developments are helpful and important, but I would caution against any complacency. We have had seven years of little action on this, and I urge the Government to ensure that they are assiduous in their work with the Commission on monitoring the effect of the new reform and ensuring that the money that has been allocated gets spent.

I have spoken today on behalf of the committee and I pay tribute to its members, whose engagement with this subject gave our inquiry both energy and effect. I also pay tribute to our clerk of the committee, Kate Meanwell, and to Alistair Dillon, our researcher, both of whose endeavours on our behalf made us better informed and better able to produce this report.

The common agricultural policy continues to be reformed, albeit slowly. It is extremely disappointing that there are sectors within it, such as sugar, that proceed at such a glacial pace along that path. Certain industrial concerns dominate while the interests of consumers and developing countries are virtually ignored. This is not a situation that we should tolerate, and I look forward to hearing from the Minister how the Government’s attempts to promote reform are bearing fruit in Brussels. I beg to move.

--- Later in debate ---

[Lord Carter of Coles]

I thank all noble Lords for their contributions. We have had an interesting debate that, as the noble Earl, Lord Caithness, said, has come at a crucial time. The critical thing about these reports is to be able to make the point while the negotiations are taking place.

We have all sensed the great loss that we all felt because the noble Baroness, Lady Byford, could not contribute, and in this debate her incisiveness and her fact-packed contribution brought evidence of that. In my experience the noble Earl, Lord Caithness, always seems to have the knack of zeroing in on a key issue and then helping us along a little with a reminiscence of somewhere such as Romania, which is always very much appreciated. The balanced view of the noble Baroness, Lady Parminter, of the needs of consumers in terms of price but also in terms of welfare and health was a perfectly fine contribution to this debate. I very much welcome the intervention from the noble Lord, Lord Palmer, who made his point so strongly.

I thank the noble Lord, Lord De Mauley, for setting out the views of the Government. It is nice that we are all in so much agreement on what needs to be done, and we appreciate how difficult it is for the Government to exercise their point of view in these very difficult negotiations. I speak for us all in saying that we are grateful for the fulsome apology that he was able to make on the late response.

We should hope that the Government are now successful in their attempts to work with EU partners to renegotiate the sugar terms. Clearly, the position of the French and Germans—the great barons of the industry, if you like—makes it very difficult, and we should offer every support that we can to ensure that the next seven years, in terms of everything that we want to see happen, are somewhat more productive than the previous seven.

Turning to my chairmanship of sub-committee D, I have done this for the past four Sessions. For me, at least, it has been a delight. We have had some really focused and productive times, and generally I believe that they have been happy. That has been a hallmark of our committee. That has been wholly due to the committee’s members, and we have been extraordinarily fortunate in the composition of our committee. I also record our thanks to our successive clerks: Paul Bristow, Kate Meanwell and Aaron Speer. Running through it, we have been fortunate to have the same golden thread of our researcher, Alistair Dillon, who has been absolutely tremendous.

A further delight to me is that the noble Baroness, Lady Scott of Needham Market, has taken over as the chair of the committee. I have no doubt that it will be as fulfilling for her as it has been for me. I beg to move.

Motion agreed.