2205 final report.pdf - Agra CEAS Consulting

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IMPACT OF THE EU SUGAR REGIME ON BCCCA MEMBER COMPANIES balance of sugar product exports. Analysis of industry employment data reveals that this induced concentration has resulted in a loss of up to 16,278 jobs (22%) in the entire biscuit, cake, chocolate and confectionery sector between 1998 and 2002. S1.2. Likely future impact of a reformed EU sugar regime The European Commission’s Communication to the Council of Ministers and the European Parliament in September 2003 on the future prospects of the EU sugar regime identified four sets of options for reform. The first two reform options (the so-called ‘status quo’ and ‘fixed quota’ options) provide for an extension of the present regime beyond 2006. Both these options are characterised by the fact that they effectively maintain high prices through continued border protection and the regulation of supply by means of production quotas. The third reform option (the so-called ‘price reduction’ option) foresees the maintenance of a lower EU internal price and the phasing out of production quotas once the levels of imports and production at this lower price have stabilised. Finally, the fourth reform option (the so-called ‘liberalisation’ option) envisages complete market ‘liberalisation’ via the abolition of both the price support system and production quotas. Looking at the impact on the supply of industrial sugar for the sugar using industry, only the fourth reform option (i.e. complete market ‘liberalisation’) would lead to a significant and rapid change in EU sugar supply conditions. Analysis suggests that ‘liberalisation’ would lead to a reduction in EU production to around one third of present levels and, depending on the access conditions agreed with third countries, the EU would become a net importer of sugar from countries with a competitive advantage for sugar production. This would potentially have important considerations for the sugar-using sector, as the regularity and consistency of supply could be affected by weatherinduced production fluctuations as well as potential economic and political problems in these countries. Nevertheless, the complete market ‘liberalisation’ option is expected to provide industrial sugar users with the ‘lowest’ price for industrial sugar, as the internal market price would be allowed to adjust to the price of non-preferential imports. This would create a level playing field in terms of the sugar price between the UK and both the EU and non-EU industrial users. However, under the ‘liberalisation’ option, there would be a greater risk of price volatility for industrial sugar users as the market will no longer be ‘protected’. Under the ‘price reduction’ option, the UK sugar using sector will also benefit from a reduced price for industrial sugar as tariff protection would diminish and the gap between the internal EU price and the world price would reduce. However, unlike the ‘liberalisation’ option, the EU market would retain some protection from the volatility of industrial sugar prices on the world market. The UK industrial sugar using sector would have most protection against price volatility on the world market in the two policy options with quotas (i.e. ‘status quo’ and ‘fixed quota’ options). But this would come at a high cost to the sugar using sector as the industrial sugar price would be maintained vi
IMPACT OF THE EU SUGAR REGIME ON BCCCA MEMBER COMPANIES at a relatively high price level, vis-à-vis the world market price, and production quotas will limit the UK’s ability to expand production, despite being one of the most cost competitive producers of sugar beet in the EU. With the continuation of production quotas, barriers to entry for new sugar refining companies would effectively be maintained, thereby reaffirming any hold that the refining sector may have on industry prices. The current differential in, and volatility of, the price for industrial sugar between the UK and EU markets would be likely to remain. As such, the current rate of mergers and acquisitions in the UK sugar using sector would tend to continue at a similar rate as has been the case in recent years and further divestments are likely to move production outside the UK. This continued process of concentration would be likely to result in a further significant reduction of employment in the sector. Consequently, the only reform options which allow an improvement in the competitive nature of the sugar supply chain are those that result in the elimination of production quotas. If the level of merger, acquisition and divestment activity is to be reduced, then the ‘price reduction’ and ‘liberalisation’ policy options would appear most suitable. vii
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2205 final report.pdf - Agra CEAS Consulting

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