UK sugar regime expensive business for food manufacturers

- Last updated on GMT

Related tags: Sugar, European union, British sugar

Sugar giant British Sugar helped boost six month results for its
parent, food and ingredients firm Associated British Foods, which
this week reported double-digit growth in profits. But
international agency Oxfam has criticised the EU sugar regime which
helped British Sugar's results, claiming it rewards the gross
over-production of sugar by big companies at the expense of
developing countries.

ABF operating profit rose 10 per cent to £224 million on the back of a 5 per cent rise in group sales to £2.3 billion. As one of the two leading sugar processors in the UK - the second is Tate & Lyle - British Sugar benefits from a key slice of the EU sugar quotas.

"In primary food and agriculture, British Sugar UK had an exceptionally good campaign with excellentoperational efficiency and high yields,"​ said Peter Jackson, chief executive of ABF. Figures for the segment rose from £676m for the six month period in 2003 to £749m in 2004.

But according to Oxfam, EU taxpayers give €819 million in subsidies each year to six European sugar processing companies to 'dump unwanted sugar' on world markets. Beghin Say (France), Sudzucker (Germany), and Tate and Lyle are among the companies named in the agency's report 'Dumping on the World'.

"British Sugar is among the most vigorous lobbyists for maintaining the current regime, having built an entire campaign on a selective and misleading interpretation of facts,"​ said the report.

The European Commission is currently proposing to reform Europe's sugar sector by 2006. A clear proposal from Brussels is expected in June this year with major sugar processors, such as Danisco and ABF, expected ultimately to see margins sliced as a result of change.

Oxfam is not the only group to be lobbying Brussels for real change. UK food manufacturers that collectively use 70 per cent of all the sugar sold in the UK want to see an end to the status quo.

"In the UK, prices for sugar average between 5 - 10 per cent higher than mainland Europe, "​ a spokesperson for the Biscuit, Cake, Chocolate, Confectionery Alliance (BCCCA) told FoodNavigator.com.

Food manufacturers are paying more for their sugar than their European counterparts and the rest of the world. The trade group is hoping imminent amendments to the sugar regime will see a reduction in guaranteed domestic prices to bring prices on a par with world prices. In addition they want to see quotas upped to an extent where they become effectively meaningless.

"They need to cut import duties to bring balance between supply and demand. We're looking for a managed programme effective over five years, to start now, not in 2006,"​ added the BCCCA spokesperson.

The group is lobbying the European Commission principally through the European confectionery association Caobisco and the soft drinks body UNESDA.

With British Sugar the key supplier of sugar from beet and Tate & Lyle the equivalent for cane sugar, UK food manufacturers buy the majority their sugar - 70 per cent of total sugar sales - from these two companies. A situation that critics claim leaves them vulnerable to pricing from the two sugar giants.

Last September the EU Commissioner Franz Fischler tabled three options to amend the current 35-year-old sugar regime. The first option extends the present regime - based on flexible quotas and price intervention - beyond 2006 and would keep intact the current common market organisation.

The second scenario - and the one favoured by the BCCCA - looks at the impact of reducing internal EU prices - undoubtedly severe on Europe's key sugar producers, among them British Sugar, Danisco and Tate & Lyle. To soften the blow, the Commission looked at the possibility of introducing the single farm payment - the backbone of recent CAP reform - into the sugar sector.

The third option embraces full liberalisation which in effect would mean abolishing the current domestic EU price support system, abandoning production quotas and totally removing import tariffs and quantitative restrictions on imports. Observers estimate this would translate as a 75 per cent loss in sugar production for Europe.

In an interview with FoodNavigator.com at the beginning of the year Jean-Louis Barjol, at the Committee of European Sugar Producers in Brussels said the sugar producers were gunning for a fourth option, not covered by the Commission. The producers want to see controlled, managed imports. "We have asked the Commission to look at how to effectively manage an import, sugar-quota regime,"​ said Barjol.

The European beet growers' association (CIBE) estimates that 500,000 jobs in the EU depend on the current common market organisation (CMO) sugar regime, in place since 1968.

Related topics: Markets, Ingredients

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