2205 final report.pdf - Agra CEAS Consulting

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IMPACT OF THE EU SUGAR REGIME ON BCCCA MEMBER COMPANIES quality requirements and services (e.g. transport, timely and regular delivery). This is particularly the case given that there is an overall surplus of quota sugar on the EU sugar market. Thus, assuming effective competition, prices in sugar surplus countries should be close to the sum of the minimum guaranteed price plus the aforementioned costs of additional quality requirements and services. In sugar deficit countries prices should be higher reflecting the transport costs between the surplus and deficit areas. This is clearly not the case, with the UK having the highest and most volatile price despite having an overall sugar surplus. Based on the CAOBISCO price data, in September 1999 the ex-factory delivered prices for sugar for industrial use was 24.2% higher than the minimum guaranteed sugar price. This large differential, relative to other Member States, might call into question the assumption of a competitive environment, particularly given: • The EU sugar market is not fully integrated at the EU level, but consists of a number of national markets. In most national markets, including the UK, the sugar processing industry is highly concentrated, which sells sugar to a more fragmented sector (the industrial users). In essence, the sugar processing sector tends to be oligopolistic in nature and along with limited intra-EU trade in sugar, the relative homogeneous nature of sugar and high barriers for firms wanting to enter the sugar processing sector (in terms of the economies of scale associated with sugar processing), economic theory suggests that this is not conducive for effective competition. In fact, theory suggests that such conditions often have an (upward) effect on prices. • Industrial sugar users report that they have difficulty finding alternative sugar suppliers willing to deliver sugar at a viable and competitive price, which might suggest collusive activities among sugar processors (Box 3.1). Similarly, discussions held between Agra CEAS Consulting and UK industrial users of sugar revealed that the cost of sourcing sugar from EU markets outside the UK incurs a premium. It was suggested that this premium is in excess of the mark-up required for the additional transport costs, handling costs, delivery schedules and other required services. However, consistent with the findings of the NEI (2000) study (Box 3.1), whether or not active and deliberate collusive activities between sugar processors have occurred which may have resulted in this lack of alternative viable buying possibilities could not be established. Box 3.1: Evidence from industrial users of sugar concerning supply possibilities “Industrial users of sugar represented by CIUS point at a lack or even absence of alternative supply possibilities. It would be difficult or even impossible to find other EU based sugar processors willing to sell sugar, other than the ones with which contractual relationships already exist. Applications for deliveries from alternative EU sugar processors are said to be turned down or ignored. Whether or not active and deliberate collusive activities between sugar processors have occurred which resulted in this lack of alternative buying possibilities could not be established.” Source: NEI (2000). Evaluation of the Common Organisation of the Markets in the Sugar Sector. Report for the European Commission 16
IMPACT OF THE EU SUGAR REGIME ON BCCCA MEMBER COMPANIES • There has been a history of anti-competitive cases investigated by the European Commission and national competition authorities over the last 15 years in a number of Member States (France, Denmark, Ireland, Italy, Spain, and Austria), including the UK, which have investigated claims of price discrimination and other forms of anti-competitive behaviour by sugar suppliers. However, this information is insufficient to draw a firm unequivocal conclusion regarding the differential between the intervention price and the actual market price of industrial sugar in EU Member States and in the UK in particular. 3.2. Impact of the CMO for sugar on UK BCCC production, consumption and trade Industry data presented in Figure 3.3 to Figure 3.5 shows that UK production of BCCC products (namely biscuits (and baked goods), all chocolate and sugar confectionery) has declined over the analysis period (1998 to 2003), despite modest increases in consumption of most products. Over the five year period, sugar confectionery production decreased by the greatest amount (11.6%), followed by biscuits (and baked goods) (6.0%) and all chocolate (4.5%). In contrast, total production in the EU-15 has increased for sugar confectionery (7.8%) and all chocolate (5.2%) and has remained virtually unchanged for biscuits (and baked goods). 35.0 25.0 15.0 % change 5.0 EU-15 average -5.0 -15.0 -25.0 Austria Belgium Germany Denmark Spain Finland France Greece Italy Ireland Netherlands Portugal Sweden UK Production Consumption Figure 3.3: % change in EU production and consumption of biscuits (and baked goods), 1998 to 2003 Source: CAOBISCO 17
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2205 final report.pdf - Agra CEAS Consulting

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