EU Sugar Regime (EUC Report)

– in the House of Lords at 4:36 pm on 23rd March 2006.

Alert me about debates like this

Photo of Lord Renton of Mount Harry Lord Renton of Mount Harry Conservative 4:36 pm, 23rd March 2006

rose to move, That this House takes note of the report of the European Union Committee, Too much or too little? Changes to the EU Sugar Regime (18th Report, HL Paper 80) in the context of the Doha development round of WTO negotiations.

Photo of Lord Renton of Mount Harry Lord Renton of Mount Harry Conservative

My Lords, it gives me great pleasure to move the Motion. I am very pleased that the powers that be have agreed to add the words,

"in the context of the Doha development round of WTO negotiations".

The WTO appeals tribunal decided in April last year, at the request of Brazil, Thailand and Australia, that the EU sugar regime broke WTO export rules. That decision led to the change in the EU sugar regime that we are talking about today. It would also be helpful if we looked a little further forward to what might happen next in the WTO Doha development round.

I am grateful to the Clerk to our committee, Suzanne Todd, and Professor Sir John Marsh, our specialist adviser, who are largely responsible for the compactness and clarity that are the hallmark of the report. I thank all my colleagues who were involved in our Sub-Committee in this inquiry, and I have been particularly asked by the noble Lord, Lord Sewel, to say how sorry he is that he is not here today. He spoke in the January debate about development aid, but he is on his way to the Ukraine to be one of the supervisors of the Ukraine elections on Sunday. This is doubtless an interesting time to be in the Ukraine.

I think that noble Lords would agree that there is at least one unique feature to our report. In the very solemn context and appearance that House of Lords reports always have, we have a somewhat frivolous title. We ask a question:

"Too much, or too little?"

Three months have passed since we published the report and I still think that it is an appropriate question. Of course, we welcome the reform of the sugar regime. We very much agree with the remarks of the Government in June 2005 that the regime was,

"anomalous and indefensible in its present form".

During our inquiries, we were very pleased to talk to Commissioner Mariann Fischer Boel at length in Brussels. She was obviously going out of her way to try to achieve a golden mean—a reform that would be quite substantial but which would, in a sense, be fair to all parties.

It is too early to be certain whether she achieved that. Overall, the proposals that, as we all know, were subsequently modified from her first proposals, were all right for the European Union, but the position of the African, Caribbean and Pacific countries and India—about which I would like to talk in a few minutes—is more questionable. As most of your Lordships know, the price cut was originally to be 39 per cent. It was reduced to the still formidable figure of 36 per cent. The reductions were phased in slightly more gently than was suggested at the start; over four years, with the final cut in price in 2009-10.

It is generally agreed that European Union producers receive a generous, ongoing compensation package of 64 per cent of the price cut for four years, with added diversification aid for those giving up more than 50 per cent of their quotas. I know that Commissioner Boel expects the EU of 25 countries to reduce production substantially over the whole period—once this is complete and in action—from about 19 million tonnes a year to 10 million or 11 million tonnes.

I am delighted to note that my noble friend Lord Plumb is intending to speak. I expect that he will tell us something about the effect on British farmers. I might add that my noble friend Lord Jopling—who shares a room with me and whom I told we were having this debate—was somewhat doubtful, as a sugar-beet grower himself, whether he was really going to benefit. I assured him that my impression is that he, as a grower in the north of England, was not going to do too badly.

I seek clarification on one point in our report, though I do not want to dwell on it too long as it is, in a sense, now a done deal. The EU Ministers agreed in February to this going ahead and the details are to be finally settled by July this year. Yet there is one point which I would be grateful if the Minister could clarify for us when he replies. That is on the question of job losses. In paragraph 44 of our report, we quote Commissioner Boel telling us that, on the basis of the proposals, there would be,

"a loss of 54 factories, a reduction in agricultural jobs of about 6,500, industrial jobs of about 25,000, and indirect jobs 51,000".

On a rough summing-up, that means about 80,000 jobs being lost overall in the EU. Then, in paragraph 46 on the same page the noble Lord, Lord Bach, as a relevant Minister, told us that,

"failure to reform would mean twice as many jobs would be lost".

Well, twice 80,000 would mean 160,000.

Slightly to my surprise, therefore, when we received the Government's response to our report a few days ago, paragraph 125—on, I think, page 5—states that,

"The Government agrees with the Committee's conclusions which reflect the findings in the European Commission's own analysis that, without reform around 15,000 jobs would be lost in the European sugar industry by 2012".

It says 15,000, not 160,000; was a zero perhaps omitted when that paragraph went through the typographer's hands? If the Minister could correct that when he replies, then I thank him in advance for that. To sum up, it is generally expected that EU producers will receive about €7 billion over the years in compensation, to cushion the impact of the price falling by 36 per cent over that period.

Then one comes to the more difficult part of the equation. What the ACP countries and India get as guaranteed export into the EU is spelt out in our report. Chapter 5 deals with the problems and pages 24 and 25 go into the detail. In essence, ACP countries and India have, since 1975, been guaranteed that the EU will purchase specific quantities of cane sugar at a guaranteed price. Therefore, as the EU farmers' price for sugar beet now falls, as I have described, the ACP countries and India will get reduced prices for their 1.3 million tonnes of quota exports to Europe.

Understandably, this immediately led to cries of anguish and protest from speakers for the ACP countries. I have here a document produced by the general secretariat of the ACP, dated 15 December:

"The ACP have justifiably argued that €500 million per year will be necessary to allow them to adapt and survive".

This was at a time when all the EU had said was that it would be €40 million for the first year.

"This view is shared by certain Member States, including the UK, where the House of Lords this week warned the amount of assistance, currently earmarked for the ACP is 'desperately inadequate'".

I do not think that we ever used the word "desperately", but we said that it was, in our judgment, very inadequate. That statement was picked up by a further document from the general secretariat of the ACP a week later:

"The current situation is gravely unjust. It is a complete contradiction of the EU's stated commitment to the developing world. The ACP are the collateral damage of this reform and nothing is being done to help us".

This shows how difficult it is to do good in the world. In fact, Commissioner Fischer Boel had done what had, for many years, been asked for but had not happened: reform of the EU sugar regime. In the process of reforming, she had cut the price so that, instead of being three to four times the world price, it would now only be twice the world price.

The fact of the matter is, however, that there will definitely be a loss of export earnings for some ACP countries—such as Fiji, Saint Kitts and Jamaica—which depend on their 150-160,000 tonnes of EU exports at a favourable price. They find this an important part of their export earnings, and have made a number of protests saying that they do not know what they are going to do instead.

What is the Commission's position? It said originally that there would be €40 million for the first year, 2006. I understand that that has now changed to 2007, but that it is saying that it then hopes to make €190 million a year available for adjustment in the ACP countries—but, of course, the EU budget is not yet totally fixed for the next period. There will continue to be debate about this figure; that is obvious. At least it is a big step up from what was originally proposed.

The question still arises, however, of how this aid is to be delivered. What are to be the mechanisms for delivery? The point has been made to me that it is important that it should not just go to the multinational companies, who are important in the world sugar industry, but that there should be specific aid for farmers and smallholders, and help in seeing how new industries—compatible with the climate, environment and workforce traditions—could be started in some of these countries. No one could pretend that this is going to be very easy. There is a new development and economic co-operation instrument in the Commission, which I think will be responsible for handling this money. It will have to learn about trade reform in the developing world. ACP countries will not necessarily want exactly the same as the LDCs. The comment has been made to me that the LDCs have been completely sidelined in the argument about the sugar regime. They do not have the same imperial link, or the same ability to make their views know as, for example, Mauritius.

Therefore, this becomes a complicated trade development and we should ask what we can learn from it for aid for trade generally in Africa and other parts of the developing world. How can we make sure that when there is aid for trade it gets there, it goes to the right people and the right people are given better market access? These are all lessons to be learnt. That is the broader question of the WTO and the Doha development round.

This morning, I learnt that Oxfam is about to publish a pamphlet about the Doha development round, of which the headline will be, "A recipe for disaster". The reason is that Oxfam thinks that when the least developed countries agreed to join the development round they were concerned with the agricultural pillar only and how export subsidies and support in the agricultural world could be removed. However, it is now becoming clear that changes in access for industrial subsidies and the services world are every bit as important to the EU and the USA as what happens in the agricultural world, perhaps more so. The EU wants access in the developing world for its transport, IT, telecoms and financial services. Similarly, the USA is considering the removal of subsidies or import tariffs of about €4 billion and is demanding reciprocal access for its established industries in the developing world.

There is a real danger that this could be locking developing countries into low-value agricultural production while much of the new industrial production and access is taken over by the developed world, particularly the EU and the USA. In essence, that is the point that Oxfam wishes to make. It leads on to the thought that developing countries must be very careful about what they sign up to in any Doha development round because once a country has signed up to the WTO, it cannot unsign. It might be better to have further delay because no deal this year is better than a bad deal. Thus, the sugar regime has become a litmus test for Doha and for making reasonable deals that will help development and trade in the developing world. How can the EU and the USA help locally financed industry to grow in the developing world and then give tariff-free market access for those manufactured products to their domestic markets? If we are to succeed in this programme to help Africa, to cut its debt and improve standards of life in developing countries, those are the key questions that have to be answered. This is the most important element in fighting to reduce poverty in the developing world.

I have no doubt that all of us will hope for success in this field. I hope that the Minister will be able to tell us some of the Government's thoughts about where Doha and the WTO discussions go in this important year before the United States president's fast-track provision runs out early in 2007. All of us will hope for success, but I hope that the Minister may feel that he does not have to use the usual words, "the Government remain committed to a successful conclusion". It would be much better if he could substitute "the Government are determined to achieve a successful conclusion". I beg to move.

Moved, That this House takes note of the report of the European Union Committee, Too much or too little? Changes to the EU Sugar Regime (18th Report, HL Paper 80) in the context of the Doha development round of WTO negotiations.—(Lord Renton of Mount Harry.)

Photo of Lord Bach Lord Bach Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Farming, Food and Sustainable Energy)

My Lords, perhaps I may answer the noble Lord's query. I congratulate him on having read our response so carefully. He was right: it was a printing error. It should have read "150,000" and not "15,000". I thank the noble Lord and apologise to him.

Photo of Lord MacGregor of Pulham Market Lord MacGregor of Pulham Market Conservative 4:55 pm, 23rd March 2006

My Lords, I must congratulate my noble friend on spotting that error, especially given that the report was published not so long ago, and on the masterly way in which he introduced this debate. I congratulate him also on his chairmanship of the Select Committee, which produced such an excellent report, and on his securing this debate so quickly after it came out. It gives us the opportunity to look ahead, which is what we must now do.

I declare an interest as a non-executive director of Associated British Foods, which owns British Sugar. Inevitably, I shall have to say a great deal about the position of British Sugar. It is impossible to avoid doing so when one is talking about the sugar regime in terms of the UK. I live in Norfolk. I represented a constituency in Norfolk for 27 years, when I made extensive farming contacts. I hope that I still have farming friends in the community despite having once been Minister of Agriculture.

I mention Norfolk because many of my friends there are sugar beet growers. I think that roughly one-third of the sugar beet that is grown in this country comes from Norfolk. Therefore, I have a dual interest in this debate.

Sugar beet has been a staple crop in these pressing times, which—I cannot resist saying it to the Minister—have been accentuated by the Government's failure to reach their target for paying a single farm payment. That is a source not only of great anger but great distress to many farmers. Sugar beet is one of the few crops which have produced good returns in these pressing times. There has understandably been much concern and uncertainty during the past few months while the regime has been negotiated and farmers have evaluated the outcome.

These reforms are radical. British Sugar broadly supports them and has done so throughout. Recognising that they were imminent and knowing that they would have a considerable impact on its profits, British Sugar has been pursuing a strategy of diversification and restructuring, as farmers also have had to do.

Some five to six years ago, about 50 per cent of ABF's profits came from British Sugar. Today, because of the diversification, that proportion is 25 per cent. It is interesting that the impact of the reduction in profits from British Sugar in this coming year is likely to be at the same level as the impact of the much higher energy costs that we are facing.

British Sugar supports the objective of achieving a more competitive, efficient and sustainable sugar industry in Europe which provides benefit to customers. I entirely agree with the Select Committee that to have left the regime unchanged would have signalled a distorted and wasteful use of resource in European agriculture. However, to make sure that the reform works effectively, the Commission and member states' governments must ensure that their policies support the reforms and the agreed decisions, and that some member states do not try to block some of them. I look to the UK Government to keep up the pressure on that.

We must, however, recognise how extremely challenging the new regime will be to both processors and growers. It will change fundamentally the shape of the industry in the European Union. My noble friend said that the Commissioner's original proposals were weakened in the negotiations, but I know from my many years' experience of negotiating on agriculture in the EU that that is a normal process. Every Commissioner expects some weakening as negotiators try to argue their own corner. It will be a challenging outcome for farmers and growers.

If the regime becomes more efficient and sustainable, some countries will exit from beet—I believe that one country has already done so—and high-cost and less efficient processors and growers will disappear. We will have a new EU market that is smaller and has fewer large and efficient players.

I wish briefly to refer to three issues, beginning with the position in the UK. British Sugar is committed to being a surviving industry and to continuing its strong record of efficiency and improvements to do that. For the avoidance of doubt—and over the past weeks and months I have had to reassure a number of Norfolk farmers about their doubts—I emphasise that British Sugar intends to continue production of its current quota for sale into the domestic market. Provided that we are able to secure adequate raw materials, we have no intention to renounce quota. In emphasising that proviso, the raw materials must come from UK beet growers so that there is a real incentive to work together.

I am pleased to say that British Sugar is now the most efficient European sugar processor. It will have to continue the process of becoming more efficient through productivity improvements, technical innovation and investment. Likewise, the grower will have to improve productivity if we are to succeed in the new regime and continue to have a profitable crop. That is why British Sugar is setting growers a challenging target in the next three years or so and working with them to achieve an average of 70 tonnes per hectare across the industry, compared with 60 tonnes today, which itself is a huge improvement on earlier years. That is a challenging but achievable target, in line with the objective of the reform which is to drive the efficiency of the remaining European industry and to make it more sustainable.

Regarding grower compensation in the UK, I support decoupling and agree with the NFU that beet growers should get the majority of the compensation until it is eventually absorbed into the single farm payment. I look to the Government to achieve that.

Secondly, I have spoken more than once in this House about bioethanol, and I helped to secure an amendment that enabled the Renewable Transport Fuel Obligation to come about. That is relevant because, apart from the important objective of reducing the contribution of transport to global warming, it offers farmers another source of diversification. Unfortunately, we in this country started very late compared with many others in the development of bioethanol. The 2006 Budget report—not all of which I have read, but I did get to page 165—states that the biofuels market share has increased sixfold since 2003. That sounds tremendous, until we learn that it still accounts for only 0.25 per cent of road fuels. So there is a big challenge there.

I was pleased to see in yesterday's Budget, first, the announcement that the 20p per litre incentive for bioethanol is to be continued into 2007–08; and, secondly, that the target has been set for the Renewable Transport Fuel Obligation. It will be introduced in 2008-09, starting at a low level but, I hope, working up to 5 per cent by 2010-11. We started late, so we have a long way to go. However, because the Government made that commitment, British Sugar has now invested £20 million in the plant at Wissington, the first bioethanol plant in the UK, which will come on stream in 2007. I hope that the Government will continue to monitor whether they are achieving their targets on biofuels and will not go below the targets set in the Budget yesterday, and that they take further measures if they fail to reach the targets.

Thirdly, I wish to refer to the international scene. My noble friend Lord Renton concentrated mainly on that and I do not wish to cover the same ground. The Select Committee report, too, put much emphasis on the ACP and developing countries. I have one point on the international context. The industry will be planning on the basis that the EU retains its export potential under its agreed WTO limits. I ask the Minister to comment on that.

I want to turn to Africa. British Sugar recently announced that it is negotiating to acquire a 51 per cent stake in Ilovo Sugar—Africa's largest sugar producer, in, I think, about seven countries. It is still early days in the negotiations and the outcome is unknown. There will be big opportunities for LDC countries in the EU markets from 2008-09 onwards. British Sugar expertise in improved technology and efficiency has already been well applied for some years in China, a sugarcane producer, where we place strong emphasis on corporate social responsibility. If successful in the bid, British Sugar would be supportive of Illova's expansion plans domestically in Africa as a whole and believes that its experience in production and its knowledge of European markets would help it to optimise the opportunities both in Africa and especially in the EU from 2009 on. It is intended to be a long-term investment with high awareness of and support for the company's social responsibilities in Africa.

That is just one example of how there will be big changes not only in the EU but in the world scene. The reforms are tough and EU and world markets are going to change substantially. The challenge is considerable, but it was high time the regime was changed, and the reforms are broadly right.

Photo of Viscount Eccles Viscount Eccles Conservative 5:06 pm, 23rd March 2006

My Lords, I very much welcome the report, which I found fascinating reading. My noble friend Lord Renton of Mount Harry suggested that it might be a way of looking at other agricultural products in the developing world as in competition with the developed world. I am not certain about that. As far as I know, sugar is the only example of a completely undifferentiated consumer product—when the housewife buys a bag of sugar, it says on the label whether it is cane or beet sugar, but if it did not she would not know. They are two completely different plant species of different origins. One works extremely well in certain tropical and semi-tropical conditions and the other works in temperate conditions.

I do not believe that there is another example. If we take vegetable oils, of which many are available across the world, nevertheless each remains pretty distinct. Olive oil is not like palm oil and rapeseed oil is not like soybean oil. They have distinct characteristics which are retained, although they too can be used for biofuels. Indeed, it is that aspect of the sugar market and sugar production on which I want to concentrate; particularly the ACP part. Six of the countries in the list are Commonwealth countries which have populations of between 1 million—Guyana has under 1 million—and 3 million and per capita incomes of between $1,000 and $4,000 against our $25,000. They produce about 1 million tonnes out of the 1.3 million tonnes included in the report. Because of my Commonwealth Development Corporation background I am familiar with five of the six countries. I have never been to Guyana but I feel I know it because the Guyanese used to come regularly to explain to us. I see that the committee took evidence from Mr Barry Newton, who was an excellent colleague of ours in CDC. We had many joint endeavours with Booker Tate and he knows Guyana like the back of his hand.

The sugar protocol goes back a long way: it has its roots in imperial preference. Those of us of a certain age remember that there was not any sugar in the war, or very little—and there was not a lot of beet or beet sugar. It is a post-Second World War industry to a great extent. There was some but not much. It has needed reform for a long time. The point I wanted to make was that, if I remember rightly, it was the European farmers who originally jumped in on the back of the imperial preference protocols and the price became equal—my noble friend Lord Plumb will know the history much better than I—because the European industry saw an opportunity to say, "We deserve equality with the price being given to the cane sugar producers coming under imperial preference, or Lomé, or subsequently Cotonou". We should remember that. We should also remember that this is primarily a UK issue. If we read the list of ACP countries, the 1.3 million tonnes come largely from Commonwealth members and countries with strong connections with this country to whom, at one or another time, we have been very grateful.

We must add in the fact that the population of Mauritius is very largely ethnically Indian, because of sugar; the population of Fiji is very largely ethnically Indian, because of sugar; and the population of Natal is very largely Indian, because of sugar. There is a tremendous history. I do not want to go back to the 17th century barons in the Caribbean, but there is a tremendous history here. The UK is more bound up with that history than many of the other countries in Europe. In fact, that history is not really of tremendous interest to, for example, either Germany or Poland, which are big producers of beet sugar. The French are the largest producers and, again, their interests are historically somewhat different from ours.

What is the size of the problem? My noble friend Lord Renton said that it was 19 million tonnes, rather than 18 million tonnes, so I shall say the same. It will reduce to 10 or 11 million tonnes. That is what the commissioner promised in evidence. That must be compared with 1.3 million tonnes coming from the ACP countries. Even if European production reduces as far as it is hoped, the issue of the 1.3 million tonnes does not seem all that difficult to solve in principle. I shall come back to that.

As for European production, 6 million tonnes of exports will cease—or is it 5 million tonnes? I think that there was a hint that there would still be 1 million tonnes of export. Presumably, 2 million tonnes will be brought in, because we shall have a sugar deficit instead of a surplus. Then, the question becomes: what will happen to the world price? I remember well when it was six cents a pound—when we worked in pounds and US cents. The ACP price was 26 cents. Such disparities have gone on for a long time. It is a matter of great regret that that nettle was not grasped a long time ago. I remember making representations to what was then the ODA from CDC asking whether it was not time that someone did something about that, because all sorts of distortions were being built in that would be very expensive to sort out.

My point is: do we know what is going to happen to the world price? No, we have no idea. There is the looming ghost of Brazil, which may do something dreadful, perhaps, but various assurances have been made to the committee that that will not be allowed to happen. The Brazilians have been cross-subsidising their sugar production with ethanol. To my knowledge, they have been making ethanol for their motor cars for more than 20 years, and very funny noises those cars make when they go up their steep hills.

In evidence, the Commissioner said that 8 million tonnes is definitely coming off and that it was not an option to do nothing. There was a sort of sideways suggestion that tourism might be some sort of solution for some of the members of the ACP. Historically, when we considered the sugar market years ago, we were more worried about Cuba than Brazil. At the time, Cuba was exporting between 8 million and 9 million tonnes of sugar a year; it is now down to 4 million. So these things do change. In many ways, the most telling comment of the evidence-taking session came from Mr Lars Hoelgaard, who said,

"we do not have a perfect allocation of resources . . . in practice you will always have distortions".

I suppose that that is just a description of agriculture, is it not? That is one of the reasons why pure market forces do not quite do when it comes to agricultural production and trade.

The evidence given by DfID was a very straight bat, but I got the impression that it was not really DfID's problem; it was something to do with Brussels and the Commission, and someone else was going to sort it out. Anyway, as Lady Kinnock told us, no one has any money in their budget at the moment for the ACP countries. I therefore came to the conclusion that the regime was ready to do whatever it felt it had to do to European farmers and European processors, but it was not ready to do whatever it was going to do about the ACP countries. I hope that it will not simply be left to Brussels. It is a bit unkind to be asking the Minister to take this on because, after all, I would have thought that his colleague in DfID would have the most knowledge of what is going on in these small ACP countries and what could easily be done about it. It is not easy for them to find alternatives. None of them is likely to become a Switzerland or a Singapore.

However, there is a disparity and there are differences, which the report points out. I hope that Her Majesty's Government make a real effort to work out, protocol country by protocol country, what the issues are, what can be done, and how the transition to this long-overdue reformed market can be best handled to the maximum advantage of countries such as Swaziland, Fiji, Guyana, Jamaica and the others in the list.

Photo of Lord Plumb Lord Plumb Conservative 5:17 pm, 23rd March 2006

My Lords, it is a great privilege to be part of what I believe to be a very cohesive team in Sub-Committee D under the very able chairmanship of my noble friend Lord Renton of Mount Harry. We were well served, as he said in his opening remarks, by our Clerk, a secretary and our specialist adviser to the inquiry on the sugar regime, Professor Sir John Marsh, who is regarded as one of the most experienced policy advisers in the United Kingdom on agricultural business—hence the excellent report that was produced.

Naming our report on changes to the sugar regime Too Much or Too Little? may sound a little frivolous, as my noble friend said, but I believe it sums up admirably the worldwide views of all who gave evidence from Brazil, Australia, South Africa and some of the larger producers who unfortunately have been linked into the ACP group. As has already been said quite clearly, this matter, so far as the ACP countries are concerned, must be dealt with very positively country by country because of the differences and the difficulties so many of those countries have. If you compare the spread of large producing countries that are still intent on increasing their production with countries such as Malawi and some of the other very poor regions, you can see that very different treatment is needed in all those cases.

The economies of many of those smaller countries are mainly, if not solely, dependent on sugar production. I often think of the similar situation with bananas—many people felt that the central American banana would put many of them out of business. I remember people trying to tell dear old Mrs Charles in Strasbourg that we could get much cheaper bananas from central America. A big brown fist came down on the table and she said, "If you want my bananas, you have my bananas. You don't have my bananas, you have cannabis". We should stop and think about that for a moment. If we are not careful, we could drive some of these countries completely out of business, and what will we get in exchange? It does not bear thinking about.

I declare an interest as an ex-grower of sugar beet. I stopped growing it many years ago because, as a Warwickshire farmer, I could not compete with Norfolk farmers. I also declare an interest as a farm leader. When my noble friend Lord Eccles was speaking, my mind went back to those days when many of the negotiations were going on about the part that UK growers could play against the world leaders of growing cane sugar.

Your Lordships would not expect me to say that the report, or the decisions taken by Ministers since the report was produced, is wholly satisfactory for the producers of sugar beet. It may not be fully appreciated, and it may surprise many people to know, that while sugar beet is seen as a very important breakcrop in arable areas, particularly East Anglia, it is also important to the livestock industry in the United Kingdom.

It may be surprising when you read the 260-odd pages of the report, with the evidence given from so many, that a body such as the sheep association felt that it had a responsibility to make a point. It said that within the arable rotations where sugar beet is a suitable breakcrop, it is environmentally beneficial and provides immensely valuable after-crop forage for grazing sheep and beef cattle in the form of sugar beet tops. I refer to the golden hoof of the sheep, therefore, which is promoted as a feature of good husbandry. It also reduces the cost of land production to the benefit of the industry and exports. Sugar beet pulp, another by-product, is a vital ingredient to many livestock rations. All that must fit into the whole pattern. It is a breakcrop, but it is also a crop which fits into the pattern of the balance of farming.

I have spoken with a lot of individual sugar beet growers recently. With cuts now agreed on the longer term by Ministers, the price could drop as low as £17 a tonne, against a cost of production of between £16 and £19 per tonne. As sugar beet growers prepare to plant this year's spring crop, they say that that would make it unprofitable. I am sure that the Minister will say, "Yes, but there is appropriate and generous compensation, which will be paid to the farmers". As one farmer said to me recently, "It sounds reasonable and generous to pay up to 64 per cent compensation against a cut of 36 per cent. But if that is paid through the single farm payment to all employed in agriculture, beet growers will quickly say that that is not so good". As they see it, it has been announced that in the rest of Europe their competitors' compensation may stay directly with the individual.

We are aware of the substantial surplus of sugar in Europe, particularly in France. When we were taking evidence, I think that it was quoted that the surplus in France is almost equivalent to the total consumption of sugar that we consumed last year. So that has to be dealt with. When national quotas are reduced, I hope that Ministers therefore will agree that those countries with the largest surplus should take their share of the reduction over time.

I accept that the national quota will have a value and that the reduction will affect processes as well as growers. But if a farmer decides to give up beet growing through economic reasons, or British Sugar decides to close its factories by moving quota elsewhere, compensation will be crucial in allowing restructuring of its businesses. It is already planned to convert part of the Whittington factory, which has already been referred to and is in a very large beet growing area, and to take surplus C beet and convert it into bioethanol. This will give growers something in the region of £10 to £15 per tonne, depending on world ethanol prices and future demand. Farmers are beginning to wonder if they will be turning their fields into oilfields for the future. It is a very small part of the overall mix and the overall scene at the moment. Let us hope that the future will take away some of the problem as far as sugar is concerned.

This may provide some ray of hope. British Sugar is to be congratulated on the initiative it is taking. It will be essential for growers and processors to work in harmony in order to stay in business. As ever with European Union reforms, we end up with compromise. I believe there is a lot to be done to ensure improvement and get a better start than seemed likely when the decision on price levels was first taken. The efficiency of the scheme in removing production in order to reduce surpluses is central to its success; therefore I support it. It provides a voluntary means of reducing surpluses, instead of applying an across-the-board quota cut.

The United Kingdom has, as we know, an efficient beet growing industry yield. That yield has doubled since my beet growing days; it has probably trebled. To reduce production, the issue is one of market balance, while encouraging inefficient industries to exit under a reasonable strategy. If the policy is to last for nine years and three months, until September 2015 from 1 July this year, it at least offers a period of stability and, I hope, visibility for the sugar sector. If the price cuts span four years, they allow for adjustment. Growers will hope that if payments are made and managed by the RPAs, the present confusion will then be history. Let the appalling mistakes of last year be a lesson for the future.

Looking ahead to 2014, we should ask: will the reform work? Does it—or will it—comply with WTO rules? Will all countries that are party to the WTO honour those rules? At the end of the day, will it be worth it? Our inquiry covers the world sugar market and emphasises the difficulty one has, because the situation must be looked at globally. Evidence from many of the ACP countries, who rely on cane sugar production and export for their economy, claims that the impact of change is potentially large and serious. This is at a time when the G8 emphasises the importance of free trade and fair trade for ACP countries. If they lose market share and compensation is insufficient there will be problems.

The case for aiding underdeveloped countries carries a heavy political weight. Is causing economic damage to the European sugar industries the best means of helping them? Will this reform lead to benefits for ACP counties, or will it increase exports from countries such as Brazil? The reports I hear from Brazil indicate a growth in sugar production, with plans to double their output over the next 10 years. I learned from someone who arrived back last weekend, having studied some of the factories there over the past three weeks, that 75 new plants are being erected in Brazil.

That must be set against the possibility of 56 plants being removed in the European Union. Of course this would be sugar coming from a country with a greatly devalued currency and very low wages; moreover, a country where the environmental damage to fragile soils and tropical forests should be causes for real concern. Helping through trade the small, traditional supply countries, particularly through the Caribbean supply arrangements they have had in the past, is another matter which cannot be ignored. I re-emphasise that, in my opinion, many of those countries need different treatment.

When he comes to respond, I am sure that the Minister will give the sugar industry the recognition it deserves, and hope for the future.

Photo of Lord Livsey of Talgarth Lord Livsey of Talgarth Spokesperson in the Lords, Welsh Affairs, Spokesperson in the Lords (Agriculture), Environment, Food & Rural Affairs 5:31 pm, 23rd March 2006

My Lords, it is a privilege to speak in this debate. The expertise of those serving on Sub-Committee D of the European Union Committee is immense. The noble Lord, Lord Renton of Mount Harry, has been an excellent chairman. In his remarks he cast his net very wide indeed and covered an enormous spectrum of agricultural products, as well as the situation in the UK and the content of our report. As he said, we have been very fortunate in an excellent Clerk and a very good adviser in Sir John Marsh. I confess that I was one of his students many years ago. Some of our sessions felt a bit like rewinding the video. Sir John is still a very forthright and excellent communicator, just as he was when I was a postgraduate student.

I cannot match the expertise of the noble Lord, Lord MacGregor, in his description of the situation in East Anglia, nor the experience of the noble Lord, Lord Plumb. I come from a livestock area, so I can say that I have probably distributed more bags of sugar-beet nuts to herds of dairy cows and flocks of sheep than any other noble Lord here. I recall that my first foray into front-line politics was as a candidate in Perth. At my very first meeting, a journalist from the Dundee Courier asked me what I thought of the impending closure of the Cupar Angus sugar beet factory. I remember saying, "I'm agin it because sugar beet is an excellent part of the rotation in Angus and Perthshire. It maintains the fertility of the soil and is an excellent crop with by-products for sheep". Does that not mirror what was said by the noble Lord, Lord Plumb, in his speech?

This is a vast subject. The conclusion is that there is to be a minimum price cut of 36 per cent. The two main issues are how that will affect us here in the UK from the EU vantage, and how it affects the ACP countries in the worldwide balance we have been talking about. Indeed, the issues go even wider so far as the less developed countries are concerned. The EU production cut of 40 per cent is an enormous target to achieve. Setting that against a competitive EU sugar regime and a viable future for the ACP countries will be, as we stated in our report, very difficult if not impossible. But they are certainly clear objectives. The reduction in overall EU production from 19 million to about 9 million tonnes is very large. I believe that we have to look at alternative uses for sugar beet. I do not think that we can sustain some of these cuts and keep agriculture in our arable areas balanced, to say nothing of the by-products that the livestock industry in the UK also depends on.

The EU must comply with the WTO ruling, to which the noble Lord, Lord Renton, referred. It is interesting that the complaint came from Australia, Brazil and Thailand, which are massive producers. On the other side of the coin, as far as the UK is concerned, it is a bit like talking about Tesco, Sainsbury's and Asda in relation to selling our products in the UK market. Yet those countries want access to our market. As has been said about Brazil, where I was in the autumn, the potential there is vast. It could fulfil a lot of the demand on a worldwide scale. The WTO appeals panel upheld these complaints and, of course, the result is the reduction in production and cuts to the quota, which are very important.

We have to take note of the report's conclusions, particularly as far as the ACP countries are concerned—they certainly need more than sympathy. Paragraph 133 in our report, under the heading "Effect of Reform of ACP Countries", states:

"Witnesses from the ACP countries were understandably anxious about the precise sources of support money. We recommend that the Commission provides clarification as soon as possible to the ACP countries of which Directorate will have overall budgetary responsibility for the Action Plans".

There seem to be an awful lot of things that are not tied up tightly enough. As has been said, the anxiety expressed by the ACP countries is a result of such uncertainties. Those countries are highly dependent on sugar output and, as we have heard, they do not have many alternatives. I was fascinated by the contribution of the noble Viscount, Lord Eccles. His experience of the situation in the ACP countries has been of enormous benefit to this debate, as we got all the background.

Overall, this is a huge problem, which has to be tackled, as it is being now. We support the cuts, but we must not underestimate the impact on our own producers and those in the ACP countries, particularly as far as the one-third cut in the price of the product is concerned—that is a huge cut for the ACP countries.

There may be some answers that we can grasp if we are bold. If we think about it—and these are just my own thoughts—we must remember that sugar beet originates in Europe. During the First World War, the supplies of sugar to Germany were cut off. People in continental Europe researched and produced root crops—they are used to growing them—and eventually supplied a lot of their own sugar from sugar beet that they grew themselves. This spread to Britain, particularly after the Second World War, as we have heard.

Particularly in the United Kingdom, it would be very wise if we tried to transfer as soon as possible as much of the beet sugar as we can into the production of bioethanol for biofuels to meet the climate change objectives, as well as many other objectives. This is a very interesting time. It was very interesting to hear the noble Lord, Lord MacGregor, say that £20 million has been invested in the plant in Norfolk, particularly in relation to world standards and what the noble Lord, Lord Plumb, was saying about the number of plants being built in Brazil. Let us not forget that those plants can produce sugar and bioethanol. I would like to see one of these plants. Do you just turn a switch to produce one or the other? It seems like that, the way it is described.

Given what the Chancellor said in his Budget and the need to put more biofuels into the UK fuel market, considerable investment in the UK in plant and factories to convert sugar into bioethanol is required. Given what the Chancellor is doing, this would meet carbon-reduction targets—or not meet them, but go some way towards securing them. At the same time that might enable us to import more sugar from ACP countries, where they do not have these alternatives.

This would achieve two important objectives at the same time and would also reduce imports of bioethanol from Brazil. It looked to many of us on the committee that a very high price was being paid environmentally in Brazil for growing more sugar. This kind of investment in the UK would help sustain British farmers and help to solve some of these other problems.

Photo of Baroness Byford Baroness Byford Shadow Minister (Food & Rural Affairs), Environment, Food & Rural Affairs 5:42 pm, 23rd March 2006

My Lords, I congratulate my noble friend Lord Renton of Mount Harry as chairman of this committee and thank him and all the members of the committee who worked so hard to deliver a thorough and detailed report. It has dealt with complex and, in many cases, emotive situations.

The debate has shown clearly how the committee was concerned about what would happen to producers within the UK and the EU, and particularly the implications for the ACP countries. Although it has been a little while since Lady Young passed away, she would have taken part in this debate, because she clearly strove to ensure that the ACP countries' interests were considered every time. If it was not bananas, it was certainly sugar. Some of the comments that have come from noble Lords tonight have reflected our continuing concern as to how we can sustain and encourage those countries to develop in different ways. The committee has highlighted this particularly well.

The committee is to be thanked for its robust conclusions and for highlighting some of the areas that will need further attention. My noble friend Lord Renton of Mount Harry, in introducing, challenged the Government on the job loss figures. The Minister has slightly clarified that, but if he could refer to it again when he winds up, that would be helpful. In other words, how many job losses does he see within the UK and how many within the EU?

The noble Lord, Lord Renton of Mount Harry, raised the question of the ACP countries, as did other noble Lords. He referred in particular to Oxfam's forthcoming pamphlet, which will look at the whole question of the future work within those countries.

I was extremely grateful for the contribution of my noble friend Lord MacGregor, because he looked at and was concerned in particular with the way in which British Sugar, as a company, is taking a responsible stand and trying to respond to the changes within the sugar regime. We are delighted to hear of the Wissington biofuel plant investment of £20 million. We look forward to that coming on stream.

Several noble Lords have spoken of their anxiety to ensure that, within the UK, the sugar-beet growers should get that share of compensation. It should not be divided across all other farmers, growing whatever other crops. Again, I would be grateful if the Minister would clarify that when he responds because I do not think that it is clear at present.

My noble friend Lord Eccles asked what would happen to the world price of sugar. That is a big challenge for the Minister to respond to. I suspect that he has no idea what will happen to the world price of sugar, but I am confident that he will have a stab at it. The world price of sugar is a huge problem. Will it go up? Will it go down? What will happen? My noble friend Lord Eccles asked what would happen with the restructure plan of the ACP countries.

My noble friend Lord Plumb characteristically hit the nail on the head as regards UK producers. I shall not go through all the points that he raised but I shall pick up on one or two. My noble friend mentioned the spring planting of crops and said that the payments should go to all farmers. My noble friend and I are both concerned that whatever we do in the UK should be done throughout Europe because otherwise, clearly, some beet farmers in Europe could benefit whereas some UK beet growers could end up getting less support. I have often laboured the next point hard and strong in other debates. My noble friend said that we must recognise that the United Kingdom is not an exporter of sugar. In fact, we produce only 55 per cent of our sugar requirement. It is strongly suggested that those who export more should take the bigger share of cuts. I totally agree with and underline my noble friend's resolve in that regard.

Brazil has come in for a lot of comment in the House. If I lived and worked in Brazil, I might well ask, "What has Brazil done and why are they so against us?". Brazil has an enormous capacity not only as regards sugar production but also other farming outputs. As my noble friend highlighted, the threat posed to the European and, indeed, to the world market is that Brazil will double its output. It is a question of where that goes. Obviously, it will come back on to the world market.

In looking at Recommendation 133, the noble Lord, Lord Livsey, rightly asked which directorate would be responsible for taking aid to the ACP countries. The Minister should be able to answer that question. Very valuable points have been raised.

The Government's response is welcome although I am concerned that, as regards the areas where they still have room to act, they should do so with a number of responsibilities in mind. The aid packages for both restructuring and diversification must be ring-fenced so that they are not simply assimilated into, for example, regional budgets, as my noble friend Lord MacGregor said. I say that partly because the effect of the reduction in sugar beet cultivation will be territorial, as we have heard. A third of it is produced in Norfolk. Farmers in Norfolk raised that concern with me when I visited Norfolk last Friday.

The aid packages should also be negotiated so that growers, British Sugar and the Government have an equal influence on how they are used. I would like the committee and the Government to envisage a situation where the processors are involved alongside the farmers to determine what will happen in the future.

The Government have stated more than once that a full regulatory impact assessment is in preparation. Can the Minister give us a firm date by which it will be available, if it is not already? How will it affect job losses? What are the implications for other agricultural production and, possibly, alternative end-term usage?

I was pleased to note that the Government have confidence in the ability of the competition authorities both here and in the rest of the EU to take action against unfair practices in the restructuring of the EU market. I wonder, however, how long those authorities will take to agree that there is a problem before they actually address it. Will the Government ensure that the UK industry, from soil to spoon, is protected from unintentional disadvantage through perhaps an interjection by the Office of Fair Trading which acts well in advance of its continental counterparts? It is not an issue that was raised, but I am raising it with the Minister now, because the OFT sometimes intervenes.

One of the less acceptable by-products of sugar reform is the threat to European wildlife caused by the gap in crop rotation if sugar beet is withdrawn. Other noble Lords have already spoken about the importance of that, particularly my noble friend Lord Plumb. Last July, in another place, my honourable friend Keith Simpson MP read out a letter from a farmer who grows sugar beet, linseed and spring barley in rotation. They are all grown in the spring. His farm is financially viable, and over the winter stubble supports a number of grey partridge, brown owls and other wildlife. If he can no longer earn a profit from sugar beet, he will have to change his crop rotation and start winter sowing of winter wheat, oilseed rape, and beans.

As the Minister is aware, stewardships schemes are welcome, but they are unlikely to compensate adequately if many farmers face the loss of sugar beet as a basic crop. What have the Government done to further its use as feedstock for the production of bioethanol for fuel? Others have touched on that today. What was the outcome of the research at the Central Science Laboratory at Ryedale? It was noted last July in another place that it was virtually complete, and I wonder whether he can bring us up-to-date information on that. Yesterday's Budget does not appear to have included anything specific to encourage the production of bioethanol in the UK from UK feedstock.

Returning to the report, the committee expressed great concern about the effect of price cuts on the ACP countries. I note the Government's response that the assistance of some €40 million is for the remainder of 2006, and that there will be help for the period beyond of 2007 to 2013. The implication is that there will be more, both in the sense of further assistance and in the sense of more generous assistance. Can the Minister give us any indication of the sort of levels for which the UK Government will be pressing?

The granting of unlimited access to sugar from the least developed countries from 2009 rings alarm bells for me, in that it would appear that Australia will enter the list as well. It was third, after Brazil and the EU, in the list of top 15 sugar exporters in 2000. How will the Government act to ensure that once the EU is open to Australia it will not simply clean up at the expense of the really disadvantaged less developed countries, particularly the ACP countries that we talked about earlier? A lot of comment has drawn attention to the problems in Brazil, and of its capacity. That is a real problem and we need to address it.

Finally, the agreement to end the EU export subsidies by 2013 is most welcome, especially in the case of sugar beet, as it will not affect the UK position. I would be glad if the Minister could tell us whether the agreement is balanced by any form of prohibition that will prevent other countries subsidising exports into the EU. It would be a most unwelcome development, were the ACP countries to find themselves pushed out by further unfair competition from third parties.

Photo of Lord Bach Lord Bach Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Farming, Food and Sustainable Energy) 5:53 pm, 23rd March 2006

My Lords, I, too, begin by thanking the noble Lord, Lord Renton of Mount Harry, for his extremely helpful speech to commence the debate. I also thank the European Union Committee as a whole for giving us the opportunity to discuss the very important subject of sugar reform and its wider consequences and, as noble Lords have said, to look ahead, which is one of the main purposes of the debate. I also pay tribute to the members of Sub-Committee D for an excellent report. I put on record my thanks to the noble Lord, Lord Grenfell, chairman of the European Union Committee, for writing to me with the emerging findings ahead of the pivotal meeting of the EU agriculture Ministers in November last year, when agreement on a compromise package was successfully reached under our presidency.

It was very valuable for two main reasons to have the benefit of the sub-committee's initial analysis as we went into the final stages of the negotiations: first, because of the support it gave to the rationale behind the European Commission's proposals; and secondly, for the way in which it highlighted the key areas where pressure was likely to come. Those themes were, of course, carried forward into the final report, which also had the advantage of being able to assess the final outcome as a whole and to set it in the wider context which is the subject of our debate today.

Before embarking on the substance of this, I want to thank all those who have spoken in this debate for their characteristically considered and well informed contributions. They have ranged over wide areas of policy and reinforce the need for government to have a coherent and collective response beyond the remit of individual departments. That message is understood and I hope to be able to demonstrate that we are indeed taking a broad strategic view of these issues, in line with the span and depth of the sub-committee's own work. I welcome what the noble Lord. Lord MacGregor, had to say about British Sugar's commitment to the UK sugar industry. It was good to hear that.

The Government have, of course, already provided their formal written response to the sub-committee's report and I do not intend to go over too much of that ground again today but I do not think that there are any other arithmetical mistakes. However, it may be helpful if I recall very briefly some of the major points as well as attempting to update the House on where we now stand in the process of implementing the reform package, ahead of the commencement date of 1 July.

Following the November Council agreement, it was necessary for the European Commission to amend its original legislative proposals of June 2005 to reflect the presidency compromise. In addition to this technical work, the Council also needed to take delivery of the opinion of the European Parliament before proceeding to the formal adoption of the legal texts. During this time, it also became apparent to the Commission that the combination of existing sugar stocks in the EU, expected plantings in 2006 and the impact of the WTO export limits following the Panel case, meant that there was a real risk of oversupply to the market in the first year of the new regime, before the restructuring process was fully underway. The Commission therefore asked the Council to give it the power, for one year, to apply temporary measures to reduce EU beet production, over and above the various market management instruments already in the package. After debate in the Special Committee for Agriculture in late January and early February, the Council finally adopted all three regulations giving effect to the new sugar regime on 20 February, including the new temporary measures.

Work has now begun at the level of the Commission-chaired Sugar Management Committee on the various detailed implementing rules necessary to bring the new regime into operation, including the temporary withdrawal of 2.5 million tonnes of sugar in the 2006–07 marketing year. Member states are also putting into place their own arrangements in respect of issues such as the incorporation of payments to sugar growers into existing direct payments schemes, on which we ourselves have launched a full public consultation, having listened to and taken advice from the National Farmers' Union on how we should approach that particular issue.

Photo of Lord Renton of Mount Harry Lord Renton of Mount Harry Conservative

My Lords, on that point, can I have clarification from the Minister? I may be wrong, but I understand that the first view was that every farmer receiving a single farm payment would also receive some money for sugar beet that was no longer going to be grown, whether he had been growing sugar beet in the past or not. That has probably changed now, and the Secretary of State, having listened to the arguments, will direct payments for not growing sugar beet to those who were growing it before.

Photo of Lord Bach Lord Bach Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Farming, Food and Sustainable Energy)

My Lords, the noble Lord knows that I would really like to be able to answer his question in a transparent way, to use a word from earlier this afternoon. He will, I hope, understand that I cannot say more about this today since the consultation is still so much in progress. No doubt I will have more to say about it in due course.

One reason I should not say much is that I realise how sensitive and important this is for UK growers and processors. Indeed, let us be frank: in some instances farmer is divided from farmer on how it should be approached. However, the Secretary of State listened to the representations that were made, which is why the consultation is worded as it is. In practical terms, therefore, we are only now coming to the starting-line of a change process where a great deal will depend on the decisions of individual growers and processors within a new market-based structure, under substantially different terms of competition.

I will briefly reiterate what we have already said in our formal response to the sub-committee in respect of prices, quotas and decoupling. Although the November compromise contained some changes from the June proposals, all the key elements remained as originally envisaged. These are: a substantial price cut of 36 per cent over four years; a voluntary restructuring scheme designed to promote rationalisation and efficiency; and a fully decoupled system of support for growers. The reformed regime is also designed to be fully consistent with both the EU's WTO obligations and its existing market access commitments, under the ACP sugar protocol and the "Everything But Arms" initiative.

Some aspects of the November compromise in respect of aid for EU growers have given rise to misunderstanding on the question of decoupling. Only where more than 50 per cent of production in a member state is given up is it possible to make additional payments to help growers in the transitional phase. That is designed to stabilise the process of adjustment, not as a means of allowing the inefficient to gain unfair advantage. There has also been criticism of the decision to retain production quotas and not make them tradable. The reality is, however, that restructuring will lead to a redistribution of production within the EU and that the most efficient industries—including, if I may so, the UK industry—will have some scope to expand without upsetting the overall balance of supply and demand. That should lead, in turn, to a more competitive internal market with more cross-border trade. It is already clear, from around Europe, that the industry is facing up to the challenge, recognising it as a real and fundamental reform to what has been a major source of economic and trade distortion, both in the EU and far beyond.

Before I address the ACP issues, the final RIA is due in April and will include an update on employment consequences. On the issue of using sugar surplus for biofuels—as raised by the noble Lord, Lord Livsey, and the noble Baroness, Lady Byford—the reform package allows out-of-quota sugar to be used for biofuels and for sugar beet to benefit from existing set-aside energy crop aids. British Sugar has announced its plans for a biofuels plant at its Wissington site. As for the Ryedale research, I shall write to the noble Baroness if she will allow that, as we do not yet know the response.

I turn to the ACP issue. It is not just an ACP issue but one surrounding the EU's trading partners; in particular, our traditional suppliers in the ACP countries and that wider group of developing countries with preferential access rights under "Everything But Arms". That is, quite rightly, a key area of concern both in the sub-committee's report and in the speeches made today. As noble Lords will know, a commitment to provide proper adjustment aid for the ACP was an integral part of the Commission's approach to reform and of our own negotiating objectives. Because such aid is not a matter for the Agriculture Council, a separate proposal establishing an appropriate framework for the necessary action plans was put forward separately to the General Affairs and External Relations Council. The funding for these so-called accompanying measures is, however, further complicated by the EU's own budgetary procedures, which distinguish between expenditure for 2006 and that in the next financial perspective from 2007–13. The funds to pay for this transitional assistance are likely to come from the external relations directorate. The allocation will be in close collaboration with DG development.

I can confirm that the framework itself and an initial sum, very much a down-payment, of €40 million for what remains of this calendar year, have now been agreed, including the relevant distribution between affected countries. But, importantly, this is entirely without prejudice to decisions for 2007–13, on which discussions are still continuing. I can also confirm that the ACP and LDCs will benefit from a two-year delay in cuts to the EU raw sugar price, which is guaranteed to them under existing arrangements.

We in the UK are now focusing on ensuring that the limited funds for this year are put to the best possible use, including assisting several countries in developing their national action plans. Those plans are important, as they will outline how the 2007–13 funds will be used and help to generate investment funds to complement the EU assistance. The amount of assistance for those years is still under negotiation, and the House will not be surprised to hear that we are pressing for the best possible deal. We believe that at least €250 million of assistance per annum is needed for ACP countries successfully to make the transition to a post-sugar-reform environment. That figure is based on independent, evidence-based analysis.

That analysis also highlights the importance of "frontloading", if I may use that expression—putting the money up early—the assistance if the adjustment process is to be successfully managed. Restructuring industries in potentially viable sugar producers, such as Mauritius, will take time to implement and deliver productivity improvements. Any failure to deliver the assistance in advance could lead—as noble Lords have hinted today—to closure of otherwise sustainable sugar industries, with serious economic, social and environmental consequences. Those countries, and there are some, planning to exit the sugar sector, such as St Kitts, need to invest now in physical and human capital projects, such as retraining programmes, to ensure a smooth transition to more productive sectors.

In a sense, the LCDs are different—the noble Lord, Lord Renton of Mount Harry, made this point—because they have not enjoyed this preferential access in the past, as ACP countries have, but will in the future, under the "Everything But Arms" agreement. They will still get preferential treatment to twice the world market value.

The UK has undertaken a number of activities to assist ACP countries in planning for the future—the noble Viscount, Lord Eccles, asked me about this. These include funding pieces of research looking at the impact of sugar reform, and providing technical assistance, which has been of great help to several of the Caribbean countries most in need. This technical assistance includes funding for the development of action plans; the creation of business strategies from these plans; and research into the potential of bioethanol production as an alternative use for sugar cane. We in the UK, as you would expect given our history, are putting in a real effort, to use a phrase from the debate.

On the WTO and the current Doha round negotiations, the House will know that we consider outcomes beneficial for developing countries to be paramount. Our approach can be described in two ways. First, we are harnessing and confronting head on the inevitable way forward—how the future will be. Secondly, we are pursuing an agenda which we believe will lead to a fairer and more open and inclusive global trading system. The House will therefore not be surprised to hear me say that the outcome of the World Trade Ministers meeting in Hong Kong last December was a little disappointing. It made only limited progress. The main progress was the agreement to end all agricultural export subsidies by 2013. However, the most fundamental elements of the round—agricultural and non-agricultural market access—remained unresolved, with key WTO members not able to agree on the formulae necessary for tariff cuts.

The focus since has been on high-level political contact between the key players, rather than on detailed negotiations in Geneva. There have also been some technical meetings where progress has been made, but the big issues have yet to be resolved. As well as tariffs on non-agricultural goods, those big issues include agricultural market access and domestic support. Ministerial-level meetings took place on those in London earlier this month, but there was no breakthrough. The noble Lord, Lord Renton of Mount Harry, kindly asked me in advance by letter to comment on that meeting. The G4/G6 ministerial meeting was held on the weekend of 10 to 12 March. The Commission represented the EU. We understand that there was good dialogue between the parties, but no real breakthrough. A couple of days before that, the Prime Minister, in his joint statement with President Lula of Brazil on 9 March, called for a heads meeting to move the process forward.

The time pressures are increasing. The Hong Kong declaration set a deadline for modalities by the end of April and draft schedules by the end of July. That is an ambitious programme, but it is not far off what needs to happen in order to complete the round before the US trade promotion authority expires next year. Not concluding this round by then is likely to put the DDA into cold storage, and we would have missed an extremely important opportunity.

We are playing a proactive role; we support an ambitious outcome to the round and believe that it must include a significant opening of the EU market to trade with all third countries. That is what we signed up to. Significant opening of the EU market or significantly improved market access will involve tariff cuts. That prospect is daunting to a number of ACP countries that enjoy preferential trading arrangements with the EU. The result of EU tariff reductions is that those preferences will, to a greater or lesser degree, be eroded. In addition, that preference erosion comes hard on the heels of the sugar reform that we have been discussing today, which reduced EU sugar prices. So tariff cuts will look doubly unattractive to some countries on top of that.

It is essential that the nettle is grasped. The trend exemplified in WTO rounds is for tariffs to be reduced and for more liberal trade between countries. That is for good reason. We believe that there are a number of benefits from a more liberal trading regime and that protecting preferences should not undermine that goal. Less efficient ACP sugar producers need to examine with care what is best for them as their preferences become eroded, and they have to take decisions about the future of their affected industries. We have been assisting ACP countries with that.

DfID is exploring the implications of the aid for trade commitment for our country and regional programming and is looking for opportunities to scale up assistance in ways that will lead to outcomes that reduce poverty and benefit poor people.

I shall not pretend that any of this is easy, nor did the report. The challenges posed by sugar reform in the EU or among our trading partners are difficult, but as the sub-committee's report so clearly demonstrated, there is really no alternative. We must remember that, even after reform, countries with preferential access to the EU market will receive around twice the world price for their sugar. Reform should also see an end to the damaging export of subsidised surplus EU production, which depresses prices elsewhere and denies trading opportunities to others better able to compete in the market. Resources that are freed up by the ending of inefficient production can and should be put to better use. We need to do all that we can to ensure that the benefits of this historic step-change are released. I express once more the Government's gratitude to the Select Committee.

Photo of Lord Renton of Mount Harry Lord Renton of Mount Harry Conservative

My Lords, I am always delighted and surprised by the ability of your Lordships to talk wisely and learnedly about a specialised subject. That has certainly been the case in this debate. Great expertise and wisdom has been shown, and I am grateful to noble Lords from all sides of the House who have taken part. I also thank the Minister for his final words about the acceptance of the need to use the final Doha development round of WTO negotiations to meet the important objectives of reducing tariffs and making access to markets more available for the developing world.

I was reminded in the debate about the future of the sugar market. One of my noble friends—I think that it was the noble Viscount, Lord Eccles—said that there was little knowledge of what would happen next. Sugar, after all, is a commodity and an agricultural product. It is perhaps wise to remind ourselves of that. There was a hurricane in Australia a few days ago which is said to have wiped out Australian sugar production. That represents approximately 4 million tonnes off the export market. That will have a great effect on price and on decisions about which countries go on producing sugar. Perhaps that is a lesson that we all have to learn.

I thank friends and colleagues from all sides of the House who have taken part in this very useful debate.

On Question, Motion agreed to.

House adjourned at seventeen minutes past six o'clock.

Thursday, 23 March 2006.