2205 final report.pdf - Agra CEAS Consulting

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IMPACT OF THE EU SUGAR REGIME ON BCCCA MEMBER COMPANIES in the BCCC sector (with changes in consumer demand, employment costs and rationalisation of production facilities to improve production efficiency also being rated as important factors). Critical Very important quite important not very important no importance Rationalisation - M&A Rationalisation - efficiency Relocation - EU15 Relocation - NMS Relocation - nonEU25 CEECs Relocation - third countries Technological change Changes in demand Competition - intra-EU imports Competition - extra-EU imports Sugar cost Labour cost Other raw material costs Exchange rates Figure 3.14: Average importance placed on various factors driving changes in BCCC employment Source: Industry survey Further analysis 15 of those companies that consider the price of sugar to be an important factor shows that, in general, over the last five years: • their use of sugar in the manufacturing process has been declining; • their total production of BCCC products has been falling; and, • the proportion of their BCCC production destined for export has decreased. These results suggest that the current cost of sugar is not only an important issue in terms of determining sector employment, but also one that is encouraging restructuring of the sector in order to reduce sugar utilisation, BCCC production and export orientation. Moreover, the cost of sugar was also found to be more important amongst those companies that expect a marked decrease in employment levels over the next five years if the current differential between the UK price of industrial sugar and the world price remains unchanged (Section 5.1). 15 There was no significant difference in the significance attached to the cost of sugar and the production of different BCCC products. 26
IMPACT OF THE EU SUGAR REGIME ON BCCCA MEMBER COMPANIES 3.4. Conclusions It is evident from the preceding discussion that the CMO for sugar has had an important impact on the formation of the price of sugar for industrial use. Although sugar using industries in the EU have to buy sugar produced in the EU at a relatively high price compared to prices on the world market and in many other developed countries, the CMO for sugar effectively isolates and protects the EU sugar market from the world sugar market. The high EU internal price of sugar is protected and maintained through high import duties on sugar and the guaranteed minimum sugar price. Nevertheless, it can be argued that EU industrial users of sugar are not specifically disadvantaged by these high prices, because the CMO for sugar effectively maintains a reasonably level playing field for EU industrial users as compared to non-EU manufacturers through a system of export refunds. However, for exporters of Non-Annex 1 sugar containing products, it is acknowledged that export refunds do not make up entirely for the difference between EU market and world market prices. For these industrial sugar users, the CMO for sugar may be contributing to sugar price differentials between EU and non-EU manufacturers. Similarly, within the EU the CMO for sugar has not resulted in a level playing field with regard to the price of sugar between Member States. In a single (common) sugar market, it would a priori be expected that prices would converge between Member States. Analysis of unofficial price data from CAOBISCO suggests otherwise. In summary, this analysis demonstrates that the UK ex-factory delivered price for sugar for use in the production of chocolate, biscuits and confectionery is higher and more volatile than in any other Member State. From an economic perspective, this finding is difficult to explain, particularly given that there seems to be no correlation between the CAOBISCO prices for industrial sugar and the supply and demand conditions in each Member State. In the UK, for example, the industrial sugar price is at its highest although sugar is typically in surplus. The above large differential, relative to other Member States, calls into question the assumption of a competitive environment, particularly given that: little sugar is traded among Member States. These doubts would tend to be reinforced by the existence of a highly concentrated sugar processing industry; and the fact that a number of cases of anti-competitive behaviour have been investigated and found to be prevalent by the EU and national authorities. However, while there is insufficient information to draw an unequivocal conclusion as to why the UK sugar price for industrial use in the UK is higher and more volatile than in any other Member State, it is clear that along with production quotas, the high sugar price has tended to accelerate and amplify the process of structural change within the industry resulting in a series of merger and acquisition activities and divestment of production facilities out of the UK. This is consistent with the findings of our survey of the UK BCCC sector. These divestments have resulted in reduced production and export of BCCC products and for the first time in 2002 a negative trade balance of sugar product exports. Analysis of industry employment data reveals that this induced concentration of the sector has resulted in a marked decrease in employment in the manufacture of cocoa, chocolate and sugar confectionery and manufacture of rusks and biscuits and preserved pastry goods and cakes, relative to most other food and drink manufacturing sub-sectors. 27
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2205 final report.pdf - Agra CEAS Consulting

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