Written evidence submitted by British Sugar (BTS0008)

Introduction

British Sugar is part of AB Sugar – a business segment of Associated British Foods plc (ABF). ABF is a diversified food, ingredients and retail group with 2017 sales of £15.4 billion and 133,000 employees in 50 countries.

British Sugar manufactures sugar from sugar beet grown in Britain – predominantly across East Anglia and the East Midlands. The home-grown sugar industry is one of the most efficient in Europe, making an economic contribution of over £700 million/year and supporting 9,500 jobs throughout the economy, many of which are in rural areas.

We work in close partnership with the 3,500 farmers who grow and supply the crop, NFU Sugar, and 7,000 other businesses from across the country. The British beet sugar industry is consequently highly integrated.

1.                  What challenges and opportunities will the UK sugar industry face from new trade arrangements with EU countries post-Brexit?

1. The British beet sugar industry today is world-class. It makes a significant contribution to the British economy, particularly in rural areas, and supports 9,500 jobs. We believe Brexit presents an opportunity to further grow this important industry for the benefit of British farmers, food and drink manufacturers and ultimately, consumers.

2. To maintain the UK’s competitive position, future trade arrangements with the EU must be reciprocal – either through zero tariffs or equivalent tariffs in both directions.

3. In the past five years British Sugar has invested £250 million in its four advanced manufacturing plants, helping to create an industry which is fit for purpose in a liberalised EU market, with low cost sugar factories and high sugar beet yields on farm. This has made our domestic industry one of the lowest cost beet sugar producers in the world[1].

4. We believe there is still further progress, innovation and investment to come for our industry, and that it is therefore crucial that the future policy environment post-Brexit enables further growth. We believe that an independent UK trade policy should continue to give us the opportunity to export to the EU and world markets due to our low cost base and competitive industry.

5. The deregulation of the European sugar market on 1st October 2017 gives us the opportunity to sell homegrown sugar without an artificial volume cap for the first time since the UK joined the EU in 1973. We would not want to see this undermined by any future agreements with the EU or other third country.

6. This means that in a bumper crop year we can now sell all the sugar we produce – here in the UK, to the EU, or internationally directly to specific customers outside the EU, or through agents onto the world market.

7. The UK is a net importer of sugar. The EU is one of the sources which fulfil this demand, particularly from France and Germany. However, there are also significant trade flows from the UK to the EU.[2] At the moment, as part of the EU, these trade flows are unrestricted, and the regulatory conditions governing them are fully reciprocal. In order to avoid trade distortions, and to ensure the British beet sugar industry is able to compete on a fair basis in the future, it is essential that the new EU-UK trading arrangements post-Brexit are also reciprocal. This reciprocity must include equivalent tariff arrangements (either zero or the same applied tariffs), rules of origin and customs controls.  

8. Overall, we believe it is important to use this opportunity to create a consistent trade policy that is fully integrated with UK agricultural policy and regulations, putting the British beet sugar industry and our 3,500 sugar beet growers on a level playing field with competitors in the EU and worldwide.

9. We believe that the British beet sugar industry adds substantial value to the UK economy, for example in 2014/15 the total revenue generated by British Sugar’s workforce amounted to £720 million.[3]  We adhere to high standards which are valued by both the Government and consumers.  Our main interest is to ensure that these standards are upheld, and that the import arrangements finally agreed by the UK post-Brexit strike a fair balance between domestic and third country supplies.

10. Another concern for us would be any move by the UK to unilaterally cut tariffs. This would introduce trade distortions with the EU, and place the domestic industry at a competitive disadvantage against subsidised world sugar imports. As the only significant sugar producer in the world without tariffs to correct for these subsidies and distortions, the UK could become an over-supplied market.  To unilaterally cut tariffs would also unnecessarily concede UK negotiating capital prematurely in advance of future trade negotiations.

11. We would expect any import concessions granted as part of trade deals to be matched by reciprocal export opportunities for UK sugar into those markets, including the imposition of counter-vailing or anti-dumping duties.

12. The EU and UK enforce strict environmental standards in their agriculture and food production. These should be maintained post-Brexit so that we have a level playing field and are not disadvantaged. We would therefore oppose any reduction in traceability and sustainability standards which would undermine food safety for consumers. For sugar, this includes unauthorised use of genetically modified beet, and less stringent regimes for crop protection.  This point applies to both UK/EU agreements and more widely to third party agreements.

13. In this context, we strongly support the continued adoption and enforcement by the UK of rigorous rules of origin which are currently in place with the EU. We believe this is essential to underpin food traceability for consumers and to ensure that the benefits from trade agreements pass to the intended countries.

14. We welcome the UK’s intent to become an independent WTO member, and support the approach being taken by government to replicate the EU’s schedules and commitments in full, apportioning quotas, where they exist, on the basis of recent usage.

15. We believe that this is essential to avoid business disruption and minimise the possibility of disputes from WTO members. We would not support any attempt to amend or ‘cherry pick’ specific tariffs, as we believe that this could lead to trade distortions and unintended consequences, and could jeopardise the delicate EU-UK trade negotiations.

2.                  How should the deficit in sugar that will accompany the departure from the EU be filled?

16. The UK is already a net importer of sugar. Currently the UK market is approximately 2 million tonnes of demand. The British beet sugar industry produces about half the requirements of the UK sugar market, with the balance provided roughly equally by imports from third countries (cane) and from the EU (beet).

17. The UK sugar market is one of the most liberalised in the world as well as being highly competitive.

18. We support an import policy that provides a variety of sources for imported sugar and believe that the current supply arrangements allow competition and support consumer choice.

19. We believe this competitive market situation should continue following the UK’s exit from the EU and we will continue to compete to sell our homegrown sugar in our domestic market.

20. Since 2006 the availability of preferential sugar imports to the EU at zero or low duty has greatly increased, due to the introduction of new trading agreements with ACP and LDC developing countries and other trading partners. Total preferential import availability has in recent years reached 3.5 mt/year, of which 2.7mt/year is duty free.

21. However, we would expect origins to fluctuate in a given year. The amount of sugar depends on the relative attractiveness of the EU market compared to alternative competing markets globally.

22. The raw sugar volumes that enter the EU/UK are used by refiners, who simply clean it up to EU standards. The ability to source sugar is a function of refinery competitiveness and EU market attractiveness rather than supply availability. This works in the best interests of the LDC/ACP and preference countries.

3.                  How can future policy best address trends in the sugar industry such as a falling world price and decreased consumption?

23. We’ve focused on ensuring our business is as competitive as possible to ensure that we’re able to compete in the global market place regardless of fluctuations in price.

24. We’ve invested to improve the efficiency and productivity of our four advanced manufacturing plants and, through our work with NFU Sugar and the British Beet Research Organisation (BBRO), we’ve also helped drive up beet yields by 25% in the last decade and 50% in the last thirty years.

25. This crop year, from October 2017 to September 2018, we already anticipate exporting more sugar onto the EU and world markets then we have for over ten years. This is a valuable export business which we want to be able to continue. 

26. What we’d like to see from Government is recognition for, and a commitment to, the importance of agriculture and the food manufacturing industry, which are major contributors to the economy and employment. We would also like to see a final trade policy that does not involve pursuing free trade at any cost.

4.                  What trade policies and agreements could achieve a balance between protecting domestic and infant industry, competitiveness and free trade and supporting the sugar industry in LDC and ACP countries?

27. We fully support trade agreements with countries which are not subsidised, and which have similarly high standards for traceability and sustainability as the UK does.

28. We would, however, be concerned if the UK entered into sugar trade agreements with countries whose governments intervene to support or subsidise their sugar industries. This would place the British beet sugar industry (which is not supported at the moment, and which we are recommending remains free of support post-Brexit) at a competitive disadvantage, putting British jobs at risk and undermining the industry’s economic contribution.

29. Before making any changes or concessions to the existing trade arrangements, we would therefore ask the Government to consider their effects on the UK sugar market structure, and to make sure that inadvertent damage is not caused.

30. We support replication in full of the EU’s WTO schedules and external tariffs, as proposed by the UK government. This is important to avoid business disruption and minimise the risk of disputes.

31. In addition in the sugar sector, one of the principles accepted in most international trade agreements, is that refining does not confer origin. This reflects that fact that the product is not fundamentally transformed in a destination refinery; and that the majority of value in the product is clearly exported to the origin seller.  We support the continuation of this principle by the UK.

32. Sugar is treated as a ‘sensitive product’[4] in most international trade negotiations, and we also support the continuation of this status by the UK post-Brexit.

33. We believe the following areas should also be considered to ensure a balance between domestic industry, free trade and supporting sugar production in LDC and ACP countries:

34. Import tariffs: There should be no unilateral reduction of EU sugar import tariffs given the significant government support and subsidies in Brazil, Thailand and other global sugar producing countries. This is also necessary to maintain the LDC and ACP trade preference.

35. TRQs:  We believe that sugar TRQs should be shared between the EU and UK on the basis of recent historic usage, as proposed by the UK and EU.

36. Developing country access: We support maintaining unrestricted access for LDC and ACP developing countries either through access to Everything But Arms (EBA) initiatives, Economic Partnership Agreements (EPAs) or equivalent mechanisms.

5.                  What are the opportunities for export for the UK sugar beet industry post-Brexit?

37. With the EU sugar quota regime ending, the UK can export to world markets, based on the competitiveness of the UK sector. New export markets could include Canada, USA, Algeria, Egypt, Russia, Central Asia, Saudi Arabia and China.

38. This crop year, from September 2017 to September 2018, we already anticipate exporting more sugar onto the EU and world markets then we have for over ten years. This is a valuable export business which we want to be able to continue. 

39. We’ve made significant investments in our export capability to date across our factories.

40. In the longer term we will continue to invest in both our factories and our people as we grow our export capability further – if there is a level playing field.

41. We would value any assistance the UK government could offer to find and develop new export markets.

British Sugar

February 2018