Photo of Mr Doug Henderson

Mr Doug Henderson (Newcastle upon Tyne North, Labour)

May I start by saying what a privilege it is to serve under your chairmanship, Mr. Deputy Speaker? It is also a privilege to raise such an important issue on behalf of my constituents. It is some time since I secured an Adjournment debate, although I have responded to some over the years.

The issue is about sugar production in the United Kingdom and competition in the sugar industry. It is crucial in my constituency, where more than 600 people are employed at the Nestlé confectionary plant in Fawdon, Newcastle, making such well-known products as pastilles, Fruit Gums, Jellytots, Tooty Frooties, Rolo, Blue Riband, Breakaway, Yorkie biscuit and Caramac, which are covered by the sugar regime.

The sugar regime has many consequences, the first of which is that British consumers pay a high price for their sugar. That is also true throughout the European Union, but the price in Britain is higher than that in other European Union states. According to the UK Industrial Sugar Users Group, in our country prices are consistently 20 to 30 per cent. higher than the intervention price. On 27 January, sugar cost £677 per tonne compared with an intervention price of about £400 per tonne. The price of sugar in other European Union states is only between 8 and 22 per cent. higher than the intervention price. Anyone who depends on sugar to manufacture a product in the UK is not only at a relative disadvantage to other parts of the world, but at a relative disadvantage to other European Union states.

A second consequence is that the British taxpayer must pay a significant share of the Euro800 million in annual subsidies. British confectionary producers must pay an excessive price for an important ingredient. If there is a movement, or an incentive to move, by international manufacturers away from the United Kingdom, there is a risk that British jobs such as those at Fawdon, Newcastle will be lost to other parts of the world.

What has created the inflated profitability in the sugar industry, which I consider to be economically inefficient? The profits of the two major British sugar companies—I shall come to them—are significantly higher than those of any other manufacturer in the food processing industry. I would argue that that is because of the monopoly—more accurately, duopoly—situation in the industry. The root of the problem is the rules in the common agricultural policy. Those, including myself, who have had some contact with the CAP have tried to drive through reform.

The duopoly of the two manufacturers in the United Kingdom is equally important. British Sugar, which is part of Associated British Foods, processes sugar beet and Tate and Lyle processes sugar cane. The situation in the United Kingdom has grown up over many years under successive Governments. The duopoly exists because Governments have been unable to refer the companies to the competition authorities, which has resulted in a change in the market situation within the industry. It is worth noting that the producers have been fined by the European Union on a number of occasions for anti-competitive price-fixing policies. Even when they have had an opportunity to reduce prices because of fluctuations in exchange rates, they have failed to respond. During the period between May 1996 and April 2000 there was a significant movement in favour of sterling away from the euro currencies. The price of sugar fell during that period by 33 or 34 per cent., but the processed sugar price in this country fell by only 14 per cent., which demonstrates that there has not been the response that might have been expected if the market had been competitive.

The industry is not small. Its size is considerable in this country. The sugar processors employ about 2,000 people; the farmers who grow the beet that is linked to quotas employ about 7,000 people; and the food processing industry employs about 90,000 people. About 100,000 people in the industry are directly affected by whatever regime governs the price of sugar in this country. The companies involved are widespread and include Nestlé in my constituency, Cadbury Schweppes, Mars and United Biscuits. It may not always be recognised but sugar is a substantial ingredient in the soft drinks industry and companies such as Britvic, Coca-Cola and dear old Barrs in north-east England and Scotland are also affected.

How does the anti-competitive duopoly work? First, sugar is regulated with an intervention price and quotas are linked to it. Theoretically, that is to prevent overproduction, but it actually creates an anti-competitive situation resulting in a certain amount of production above the intervention price, but the subsidies go with it and that is very much in the interests of the two main sugar processors.

Consumers who buy sugar also suffer, but the food manufacturers provide the main market for sugar. Those companies historically pay two to three times the world price for their sugar, although currently they pay more than three times the world price. I recognise that there are fluctuations around the two to three times level. Taxpayers foot the bill for export subsidies and tariffs keep out competition. That not only causes excessively high prices in this country and an anti-competitive position, but damages the ability of most developing countries—some are allowed to export to the European Union—to sell an amount of sugar that would make a major contribution to the demands of people in the European Union and beyond.

Photo of Mr Bill Wiggin

Mr Bill Wiggin (Leominster, Conservative)

Does the hon. Gentleman agree that the sugar regime costs British consumers £750 million a year? There is a Cadbury's factory in my constituency, as well as ones belonging to Brooks Soft Drinks and Malvern Water. I have witnessed the way in which sugar is brought into such factories. I hope that the hon. Gentleman would agree that the way that it is delivered is incredibly efficient. Those delivering it seem to have a way of knowing when to turn up to keep the amount of sugar in the factory at the right levels. That monitoring process is carried out remotely. The sugar companies are doing a good job, but anything that would make ingredients cheaper for the soft drink and chocolate industry would benefit all our constituents considerably.

Photo of Mr Doug Henderson

Mr Doug Henderson (Newcastle upon Tyne North, Labour)

I take the hon. Gentleman's point. It is true that consumers in this country suffer because of the increased prices that they pay, and the taxes that they pay towards the sugar regime. I am not sure that I would ascribe efficiency to the sugar producers. If they could not produce sugar at a profit under their rules, they would have to be very poor at it. I am sure that they do try to be as efficient as they can. Given that there are profits at stake, they would be silly to do otherwise.

Oxfam has played an important part in explaining the damage that can be done to developing countries. I would like to cite some of the Oxfam submissions on the subject. It says:

"European consumers and taxpayers are paying to destroy livelihoods in some of the world's poorest countries. Through the sugar regime of the Common Agricultural Policy (CAP), they are paying for a system that rewards a handful of sugar producers in Europe"—

so it is not only in the UK—

"while undermining markets and opportunities for farmers and agricultural labourers in the developing world. No agricultural sector is in more urgent need of radical reform. Yet sugar is not even included in the European Commission's latest reform proposals."

That is one of the most iniquitous aspects of the regime. Once the British demands have been met, the excess sugar produced by the two duopolists with subsidy is then dumped on the world market, often to third-world countries. Nigeria was cited as one such country recently. The regime is directly subsidised by the British taxpayer, and it keeps the production of developing countries out of those other markets.

In this country, the regime adds between 2p to 3p to the price of a typical product such as a packet of pastilles or a packet of Rolos, compared with the price that would apply if the confectioners in this country were able to buy sugar at the world price. I recognise that the world price would rise a little if there were more of an open market. That would have to be taken into account. However, it would still leave people who buy sugar in this country at a great advantage, compared with the current situation.

I raise the issue now because the current regime is wrong. There has been debate about it in the past. We are at a crossroads concerning agricultural policy in the European Union. Some say that what has served us well in the past should be reinforced in future. Others say that there must be change if the European Union is to progress in its development. Protectionism in the United States leads to the same impact as does the regime in Europe.

The next major reform of EU agricultural policy is in 2006, which is when the big arguments must take place. A mid-term review will take place this year. The Commission will be taking on board ideas and suggestions from March until the early summer, and it is expected to make some sort of recommendation in midsummer or early autumn. If I am wrong about the dates, I am sure that the Minister will put me right. It is appropriate that there is a debate in this country and in the European Union about the sugar regime.

The Commission's study covers virtually everything, but its terms of reference require it to consider the impact of European Union enlargement. One of the big questions is whether, if the sugar price in such countries as the Czech Republic is much lower than the price in the UK, producers have an incentive to move to the Czech Republic. Clearly after enlargement the relationship will be different, although the argument about moving to a lower-cost sugar-supply nation would still apply, but outside the European Union. There will probably be a rise in prices in the countries that accede to the European Union, but it will probably—this is guesswork—be over a period of time. A great deal of negotiation must take place on the phasing in, and that will be an ideal opportunity to raise the question of the sugar regime.

The Commission is also considering the relationship of products to developing countries. The agreement has the name "everything but arms", a typical piece of Eurospeak and the lowest common denominator that everyone could agree to. It deals with the relationship between products produced in the European Union and those that can also be produced in developing countries. To what extent should there be free trade? To what extent should there be restrictions? At present sugar is excluded from the considerations, even for the poorest countries, some of which are sugar producers. It would be very progressive if the Government tried to get that definition changed in the Commission and succeeded in bringing sugar structures into the discussion. Even if no progress is made, let us at least have the discussion.

I know that the Minister will want some time to reply on those issues. I do not wish to hog the floor much longer, but I want to ask him some specific questions, which I ask him to deal with today or, if not today, perhaps later.

First, do the Government recognise that there is a problem and are they prepared to take any of the actions suggested by me today and by other pressure groups in the industry?

Secondly, even if it is difficult to achieve change in the European Union—I do not claim that it is easy—can action be taken in the United Kingdom at least to bring the sugar price here in line with that in other European Union countries? Can something be done in this duopolistic situation to free things up and allow more competition? We are not suggesting that sugar producers should be denied their profits, but can those using the product have a better deal in this country?

Thirdly, are the Government committed to removing the sugar exclusion clause from the everything but arms agreement and will they take action in the Commission to achieve that?

Fourthly, will the Government insist on a phased reduction of export subsidies, which would be part of the proposals for the mid-term review of the agricultural policy?

Finally, are the Government prepared to commit themselves to a major restructuring in 2006 and to say that the main objectives are to bring competition into the sugar industry, reduce prices to bring them nearer to world prices and allow more competition from developing countries—in other words, bring prices down and give sugar consumers in this country a better deal? That would be good, because it would not only follow the general drift of the Government's policy and their desire for a more competitive economy but help to guarantee jobs in such companies as Nestlé in my constituency.

3:49 pm
Photo of Mr Elliot Morley

Mr Elliot Morley (Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs; Scunthorpe, Labour)

I congratulate my hon. Friend Mr. Henderson on securing the debate and on the thorough and knowledgeable way in which he set out the complex issue of the effect of sugar prices on manufacturing and processing.

Sugar beet is a very important crop in this country and region. It is an important crop in my constituency in north Lincolnshire. I sometimes wish that the people who defend the status quo would listen to the other side of the argument and consider the impact on processors and on the many jobs in this country, including those in my hon. Friend's constituency. He made his case clearly and strongly. I shall try to deal with the points that he raised.

I can deal straight away with the everything but arms agreement. Sugar is not excluded from the EBA, but provisions relating to it are phased in, as is the case with rice and bananas. The Agriculture Council agreement allows for an increasing quota of duty-free sugar imports from least developed countries until 2009. This year, 85,000 tonnes of sugar will enter the European Union under the arrangement.

Between 2006 and 2009, there will also be stage reductions in import duty for unlimited quantities of sugar, with a view to full liberalisation by 2009. To many manufacturers, that is not exactly a speedy agenda. I sympathise with them, because the Government's general approach towards sugar and other products is to encourage vigorous competition. The framework of competition law in the United Kingdom has been thoroughly revised since 1997 by the Competition Act 1998 and the Enterprise Act 2002. My hon. Friend mentioned the duopoly. Measures have been put in place to ensure that it is not abused.

The real problem is prices, which my hon. Friend rightly stated are affected by the CAP. We believe that strong competition is the best way to ensure that consumers get a good deal from lower prices, increased choice and higher quality. Vigorous competition puts pressure on firms to find ways of reducing costs by increasing innovation and organising their production efficiently. It is a key driver of productivity. Changes are inevitable for the sugar beet sector as well and are being phased in to give people time to adjust.

We recognise that the present situation leads to considerably higher prices. My hon. Friend was right in saying that the price of sugar in the EU is three times the world price—that is significant. One can understand why drinks and chocolate manufacturers, who are big sugar users, are concerned. As I said, the price is high because sugar is part of the subsidised and quota-controlled sector of the CAP.

I assure my hon. Friend that the Government recognise the problem. That is why we are committed to CAP reform. The policy has been largely unchanged for nearly 30 years, and it does not deliver what farmers, the rural economy, consumers and the environment need. The distortion of world prices has not helped farmers. The policy has caused all sorts of problems in this and other countries, it is hugely expensive for EU consumers and it does not meet the challenges posed by the World Trade Organisation negotiations or, as my hon. Friend said, enlargement of the EU.

We are committed to reducing the overall burden of the CAP. The mid-term review of the CAP is a good start in the right direction. We have some concerns about the detail, because we want to move away from price and production support and provide more money for the so-called second pillar—rural development and agri-environment scheme support—which benefits agriculture and the rural economy generally.

As things stand, sugar is not yet part of the mid-term review discussions, as my hon. Friend said, and I can understand his frustration about that. The reason why it does not form part of those discussions is that, when the existing sugar regime was renewed in 2001, it was decided that the new arrangements should run until 2006. Following pressure from the UK, we succeeded in getting a formal commitment to a further review this year, which the Commission has now openly linked to the MTR process by promising a report and proposals by June. As my hon. Friend rightly said, if one is going through the MTR process and looking at decoupling, it is difficult to ignore the sugar regime. The report will have to take account of what is now being proposed in the MTR for other sectors. The Commission has said openly that that is its intention, and we welcome that.

We do not believe that there is a case for the sugar regime remaining outside any such changes. The UK will argue vigorously that any MTR decisions will have to apply to sugar at the earliest opportunity. I agree with my hon. Friend that the sooner we tackle those issues, the better for all concerned. We are committed to taking action on price. We also want to see a reduction in subsidies as part of the MTR process, because they are not helpful to European consumers or to world prices, or consequently to developing countries and poorer countries, which want market access.

I understand my hon. Friend's point about the Oxfam report entitled "The Great EU Sugar Scam", and we have a great deal of sympathy with what Oxfam said about the impact of heavily subsidised and protectionist regimes on developing countries.

Photo of Mr Doug Henderson

Mr Doug Henderson (Newcastle upon Tyne North, Labour)

As my hon. Friend will recognise, these are complicated issues. Would he be prepared to meet a delegation from the industry before the end of March to discuss the British submissions to the European Commission?

Photo of Mr Elliot Morley

Mr Elliot Morley (Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs; Scunthorpe, Labour)

I certainly have no objection to that in principle. I should point out, however, that my colleague, Lord Whitty, is responsible for food and farming at the Department for Environment, Food and Rural Affairs, and it is all too easy to make commitments on behalf of people who are not here. I deal with debates in this Chamber as part of my multi-functional role in the Department, and because my colleague is a Member of the House of Lords. I know that he shares the Government's views on the matter, however, and has been a strong campaigner for the changes that I have described, so I will put my hon. Friend's proposition to him. I am sure that he will be happy to talk to him about the progress that is being made and about the details of the MTR, which are complex.

It will be no surprise that there are differences of opinion between member states, but the UK has consistently taken the lead in pressing for the urgent adaptation of the internal market to the circumstances that full market access for developing countries will bring. We believe that that is in the best interests not only of our processing sector, for which my hon. Friend made a good case today, but of agriculture, in terms of adapting to the changes and considering the opportunities that a more liberalised market may present.

My hon. Friend did not raise the subject, but I know that sugar growers are interested in industrial crops and the use of sugar for ethanol production. My right hon. Friend the Chancellor has introduced changes in duty to encourage biodiesel and bioethanol production, which offers some potential in the long term.

I congratulate my hon. Friend on the way in which he made his case. I will take up his request with my colleague, Lord Whitty. I hope that I have reassured him that we sympathise with the points that he made and are committed to advocating these changes in the European Union, which are long overdue.