EU sugar quotas costing jobs

Soft Drinks Association (SDA) spokesperson, Richard Laming, said the group welcomed tough EU proposals to cut sugar prices by 39 per cent in two years.

But, he said industrial sugar users in the UK's food and drink industry had cut thousands of jobs in the last few years because the EU's quota system was stifling market competition.

"It's more a question of jobs rather than money. We need to get away from the quota system,"​ said Laming.

The quotas, he said, have built a concentration of power among handful of processors, which has helped to artificially maintain higher market prices.

A company granted a quota is guaranteed payment for that amount. The Commission has proposed to merge the existing two quota systems into one, but plans to maintain a quota system for at least 10 years.

Laming said the problem was more acute in the UK and, as a result, sugar prices were around 10 per cent higher there than in other EU countries.

British food manufacturers buy around 70 per cent of their sugar from two companies, which some claim leaves them vulnerable to stiff pricing. These two are British Sugar, owned by Associated British Foods, and Tate & Lyle, which are the key suppliers of sugar from beet and cane sugar respectively.

The UK industrial sugar users group (UKISUG) estimates that the excess cost of the UK's annual sugar consumption is £600m. Laming agreed that the EU's proposed reform would shave hundreds of millions off this, but by no means all.

EU sugar prices are three times above world levels, which means even a 39 per cent price cut would still leave the UK's excess costs at more than £350m in theory.

Under the proposals, producers will, however, benefit from the right to buy sugar from outside national and EU borders for the first time - a move that should encourage EU-based processors to become more competitive.

Food and drink firms will undoubtedly have access to cheaper ingredients, but it is still hard to know how much they will save.

Laming said he thought most of the money would be passed through to consumers as a result of fierce retailer price battles. "Obviously we feel the savings should be shared through the value chain, but experience shows that this is unlikely."​

A report in the UK newspaper Independent On Sunday​ claimed soft drinks and confectionery firm Cadbury Schweppes could save around £70m (from the EU's proposals.

Yet, Tony Bilsborough, the firm's UK and Europe spokesperson, said it was still far too early to tell. Cadbury Schweppes welcomed the EU's proposals as an attempt to make the market more competitive.

Main points of the European Commission's proposed sugar reform:​

· A 39 per cent price cut over two years beginning in 2006/07 to ensure sustainable market balance.

· Compensation to farmers at 60 per cent of the price cut. Inclusion of this aid in the Single Farm Payment and linking of payments to respect of environmental and land management standards.

· Validity of the new regime, including extension of the sugar quota system, until 2014/15. No review clause.

· Merging of 'A' and 'B' quota into a single production quota.

· Abolition of the intervention system and the replacement of the intervention price by a reference price.

· Introduction of a private storage system as a safety net in case the market price falls below the reference price.

· Voluntary restructuring scheme lasting 4 years for EU sugar factories, and isoglucose and inulin syrup producers, consisting of a high degressive payment to encourage factory closure and the renunciation of quota as well as to cope with the social and environmental impact of the restructuring process.

· This payment will be €730 per tonne in year one, falling to €625 in year two, €520 in year three and €420 in the final year.

· A top-up payment for beet producers affected by the closure of factories in the first year for which they have delivery rights.

· Both these payments will be financed by a degressive levy on holders of quota, lasting three years.

· Sugar beet should qualify for set-aside payments when grown as a non-food crop and also be eligible for the energy crop aid of 45 euros/hectare.

· To maintain a certain production in the current "C" sugar producing countries, an additional amount of 1m tonnes will be made available against a one-off payment corresponding to the amount of restructuring aid per tonne in the first year.

· Sugar for the chemical and pharmaceutical industries and for the production of bio-ethanol will be excluded from production quotas.

· Increase of Isoglucose guota of 300,000 tonnes for the existing producer companies phased in over three years with an increase of 100,000 tonnes each year.