§ 8.25 p.m.
§ Lord Walston rose to ask Her Majesty's Government whether they are satisfied, in view of the uncertainty concerning the future control of the British Sugar Corporation, that the interests not only 1010 of British but also of Commonwealth sugar producers are adequately safeguarded.
§ The noble Lord said: My Lords, may I say at the outset how grateful I am to other noble Lords who have agreed to take part in what is, in effect, a short debate. It is particularly good—and I say this with no disrespect to my farming colleagues who will be speaking—to have contributions from those who have a great knowledge of the sugar industry and of the Commonwealth in one way or another but who are not themselves specifically farmers.
§ It would be of use if I were to describe, as briefly as may be, the more or less recent history of the sugar industry in this country. Roughly speaking, the sugar beet industry started during the first world war and at that time the British Sugar Corporation was set up as a public company with the Government owning 30 per cent. of the shares. It was the sole buyer of sugar from beet growers. Six or seven years ago, the British Sugar Corporation was acquired by the old established and extremely respected firm of Beresfords. There was no change from the point of view of the British grower of sugar beet.
§ The price prior to our entry into the Common Market was fixed by Her Majesty's Government after negotiation with the farming interests, and there was a free market for sugar with deficiency payments paid to the British Sugar Corporation by the Sugar Board on behalf of the British Government. So in that way the consumer got the advantage of sugar at world prices and the British sugar beet grower got the advantage of a remunerative and guaranteed price.
§ Since our entry into the Common Market the system has remained essentially the same, though the price has been fixed by the Community instead of by the British Government, and the negotiations have been with sugar producers in other member states and not solely with our own. In lieu of a deficiency payment there has been a protected market to ensure that the price paid to the farmers was an adequate one, and that the margin received by the British Sugar Corporation and the sugar factories in other parts of the Community was also remunerative.
§ So far as what are now called the ACP countries are concerned, in the days before our entry into the Common Market the Sugar Board bought cane raws from the Commonwealth countries under the terms of the Commonwealth Sugar Agreement. Here I wish to pay tribute to my noble friend Lord Campbell of Eskan, who was, I think everybody would agree, the father, progenitor and guide of the Commonwealth Sugar Agreement.
§ The Commonwealth sugar cane producers, like the beet producers in this country, therefore had a guaranteed price for a specified quantity of their cane raws. Those were brought into this country as having the only capacity within Western Europe as a whole for refining the raws. This was done very largely through Tate and Lyle and Manbre and Garton, who later amalgamated with Tate and Lyle. The price at which the sugar was sold was based on the world price—this was before our entry into the Common Market—with the equivalent of a deficiency payment being paid by the Sugar Board to the refiners. Since our entry into the Common Market, that has been 1011 modified to some extent to take care of the new situation.
§ Essentially, however, the situation remains the same. Those Commonwealth countries with one or two additions, now known as the ACP countries, continue to sell their raws in this country, where they are at present refined by Tate and Lyle. The margin for that refining is agreed by negotiation with Brussels.
§ To put the general picture into perspective, the present UK consumption of sugar is approximately 2.2 million tonnes, of which approximately one-half is produced from home produced beet; the other half is produced from imported cane from the ACP countries.
§ A couple of years or so ago a large and respected food wholesaler showed an interest in acquiring the British Sugar Corporation—now of course owned by Berisford. This company withdrew when it learnt that the bid was to be referred to the Monopolies Commission.
§ Since then two contenders for the acquisition of Beresford—which for the purpose of this discussion is the same as the British Sugar Corporation—have appeared for Berisford's hand and have made bids, one being the Italian firm of Feruzzi and the other being Tate and Lyle.
§ Ferruzzi is a very large and successful private company based in this country, where it has a virtual monopoly of Italian sugar. It has extremely large interests in French sugar also. It is worth pointing out that not only is France the largest producer of beet sugar but it has far and away the largest export of the surplus.
§ I think there is hardly any need to describe Tate and Lyle to your Lordships. Its role in sugar is well known. It also is a very large and very well run company which has been in existence, I think I am right in saying, for something like 100 years. It has concerned itself mainly with cane but it also has considerable interests in the United States in beet sugar as well as various other activities. Today it is the sole refiner of sugar cane in this country and, indeed, as I have said, in the Community.
§ If either of these companies acquired the British Sugar Corporation, there can be no doubt that something very close to a monopoly of one kind or another would be created. If Ferruzzi were to acquire British Sugar, there would be a monopoly in this country of British Sugar as there is at present through the British Sugar Corporation but owned by a company based in Italy; and one, as I have said, which also has a very large interest in French and Italian sugar. But it would in fact be controlling over 25 per cent. of the total sugar of the EC.
§ If Tate and Lyle were to acquire the British Sugar Corporation, there would be a virtually entire monopoly in the hands of Tate and Lyle of British sugar, giving it something like 16 per cent. of the total sugar within the Community but of course subject to competition from other Community sources.
§ There is a fear, which has been expressed in public by Tate and Lyle, that if Ferruzzi were to acquire Berisford—British Sugar Corporation—it would be in 1012 a position, if it so wished, to import into this country, consistent with the EC rules, some of its very substantial surplus in France and there could ensue, as there did a couple of years ago to a rather minor extent, a price war which, if carried to its ultimate limit, could result in Tate and Lyle having to give up the refining of cane raws.
§ Ferruzzi counter that by saying it is extremely unlikely that this would ever take place. However, if it were by any chance to take place, and if Tate and Lyle decided to give up refining cane raws, it could perfectly easily do the refining in British Sugar Corporation factories by the addition of a certain amount of storage and certain modifications to its plant.
§ Therefore it is the claim of Ferruzzi that the firm obligations undertaken—and this point must always be borne in mind—by the Community in response to the very strong efforts of Her Majesty's Government of the time, and particularly of Mr. Geoffrey Rippon, for the continuation of the Commonwealth Sugar Agreement to take, buy and refine the 1.1 to 1.2 million tonnes of ACP sugar, should still be met. Ferruzzi also claims that it is interested in wider aspects of European, and of course United Kingdom, agriculture and has the capability as well as the desire to develop new crops, such as lupins. Ferruzzi suggests that possibly that gives it the edge over Tate and Lyle in its ability to promote British agriculture in general. I may say that I believe that some of these claims are disputed by Tate and Lyle, but I am trying to put the conflict objectively.
§ There is one further point, a fairly remote one, which—it may be five or 10 years ahead—is of considerable interest and importance. It concerns biotechnology. We have heard a lot from time to time about biotechnology. It is now on the edge of take-off. The raw material for this is sugar or starch. The starch comes largely from cereals. As we know only too well, the EC has a large surplus of both sugar and grain. Therefore any development in biotechnology will cause rivalry between the producers of sugar and the producers of grain. Biotechnology is something in which Ferruzzi has a great interest. If it develops as some people believe it will within the next 10 years, it is probable that that development would be centred in the country which has the largest excess of sugar; in other words, in France. That would be to the detriment of those firms in this country who are not connected with sugar but who have a long-term interest in biotechnology.
§ It is extremely hard to weigh up the merits of these two contenders, though I must confess that having studied it in considerable detail I have some preference for Tate and Lyle. I hope that that preference is not due to any chauvinistic prejudice but rather due to my interest in the Commonwealth and in the ACP countries, and the knowledge that Tate and Lyle have for many generations now exemplified to the Commonwealth sugar producers their outlet into Europe. If they were in any way threatened or if their future ability to fulfil their refining commitments was threatened, it would have a very adverse effect upon the attitude of Commonwealth countries who still look to us if not as their godmother at least as a very important factor in their economies.1013
§ Surely the best interests of the United Kingdom sugar producers and the producers of the ACP countries as well will not be served by creating a great monopoly, whether it be a UK-based monopoly with Tate and Lyle or an Italian-based monopoly with Ferruzzi. We should enable the British Sugar Corporation to continue as it has done in the past as an independent entity, being very efficiently run, developing the sugar beet industry in this country and continuing to serve the interests of the British sugar beet producers, while Tate and Lyle continue to serve the interests of the Commonwealth producers.
§ I hope that at the end of the day the Government will decide that the British Sugar Corporation can remain independent of either of those two great and efficient concerns. If the Government do not wish to rethink their 30 per cent. interest, they should at least have some form of share arrangement to ensure that the future of the British Sugar Corporation continues on the lines that have served the industry so well since the inception of the sugar beet industry in this country.
§ 8.45 p.m.
§ Lord Campbell of Eskan
My Lords, I am particularly glad that my noble friend Lord Walston has so cogently raised this Question on an issue which the late Dr. Eric Williams, Prime Minister of Trinidad and Tobago, always called "The wars of the two sugars".
The future of the sugar industry in this country really cannot be separated from the pledges repeatedly given to the suppliers of cane sugar. Thirty-five years ago the Commonwealth Sugar Agreement was signed, and that agreement, negotiated with a Labour Government and signed by a Conservative Government, was heralded as the charter for cane sugar. It marked the beginning of the bipartisan policy of successive governments towards this issue. The spur to the hammering out of this charter following the war was the deplorable conditions on the sugar plantations. Britain was the foremost of the metropolitan countries which founded their cane industries, many of them in unpopulated areas, on slavery. Slavery was followed by cheap indentured labour and that was followed, in turn, by disgracefully low pay to the descendants of slaves and indentured workers. Therefore there are still obligations outstanding to the people of those countries.
In 1960 the Commonwealth sugar exporters, in concert with their governments, pressed for adequate safeguards for the continued access of cane sugar when Britain joined the European Economic Community. It was more or less said that they would try to arrange to get the fruits of the Commonwealth Sugar Agreement through the Community. The safeguards were eventually achieved through the Sugar Protocol which formed part of the negotiations between the Community and the developing countries.
In retrospect, it may now seem that the protocol was the inevitable successor of the Commonwealth Sugar Agreement. However, I can assure your Lordships that it was the result of a very hard-fought struggle by the cane producing countries over several years and, at the climax of the British entry negotiations, a valiant and successful struggle on the part of the then Chancellor of the Duchy of Lancaster, the right honourable Geoffrey Rippon, who was leading the British team.
1014 In the end, Parliament attached sufficient importance to the sugar issue to make it one of the three main conditions of British entry. Had sugar not been specially provided for, we might well now not be a member of the Community, for better or for worse.
Far-reaching assurances were given to the Commonwealth suppliers during Britain's entry negotiations. We have a great list of the assurances that were given, the exact words used and the dates on which they were used. However, I shall not waste your Lordships' time on that now. I shall only say that the developing countries were categorically assured that they would have a secure and continuing market at fair prices for that amount of their sugar guaranteed by the Commonwealth Sugar Agreement. They accepted that as what they called a bankable assurance. Incidentally, they were also given specific assurances relating to the position of cane sugar imports should European quotas for beet sugar be increased. They have been increased and nothing has been done about cane sugar. However, that is not the issue we are now discussing.
Since Britain's entry and the coming into force of the Sugar Protocol, Ministers of Agriculture of both Labour and Conservative governments have repeatedly recognised the importance to the supplying countries of their traditional outlets in the United Kingdom. They have said that they would not pursue policies which endangered those outlets.
The British sugar market continues to be absolutely vital to what are now called the ACP countries—the African, Caribbean and Pacific countries. In islands such as Mauritius, Fiji and St. Kitts, and in some mainland countries such as Guyana and Swaziland, sugar remains by far the most important industry and the main provider of foreign exchange and employment.
Promises were given to those countries and I believe that it is our responsibility to ensure that they are honoured, not only in the letter but in actual practical terms. As the noble Lord, Lord Walston, has said, this means that the cane refining industry in this country must continue to exist. It would be hypocritical and indeed untrue to maintain that the undertakings to the ACP countries have become a matter for the Community as a whole and are no longer the special responsibility of Britain. This country has by far the largest import requirement for sugar and also by far the largest cane sugar refining industry in the Community. If we renege on our commitments, the other members of the Community could not and would not make good our breach of faith.
It would also be unrealistic to maintain (and this is at the heart of the present discussion) that the future ownership and policies of the British beet sugar industry are irrelevant to the implementation of the cane sugar guarantees. Continental Europe has a beet sugar surplus of some 4 million tonnes a year. If a single entity were to control both a substantial proportion of Continental beet sugar production and the whole of the British beet sugar industry, its position would be overwhelmingly strong as against that of the cane sugar refiners.
Tate and Lyle's last two remaining refineries in London and Glasgow constitute the only bridge over which ACP sugar can continue to enter Britain in the 1015 required guaranteed quantities. Therefore if the undertakings given to the developing countries and the developing sugar suppliers are to be honoured in substance, it is essential that the cane refining industry should be able to survive.
I know that it has been said, and it is a point which has been mentioned by Lord Walston, that cane sugar can be processed in the British beet sugar factories should the Tate and Lyle refineries be forced to close. It is easy enough to say this, but it would be quite another matter to make it a genuine alternative. I do not believe that it is a genuine alternative. For one thing, this would mean that the ACP suppliers were totally dependent upon their main competitor for processing their product. No one could regard this as a permanently viable solution. Also, the ACP do not have large storage facilities. They produce their sugar at different times of year. It has to come in a regular flow to refineries here. The storage and transport problems would be enormous if ACP sugar were to be shipped throughout the year at acceptable freight rates. There is not the storage facility and freight would be very difficult to arrange while beet sugar factories can only process cane sugar out of their own beet season.
I know too that it has been suggested that ACP would be equally dependent upon their main competitor if Tate and Lyle were to acquire the British Sugar Corporation. However, their situation would be entirely different. Tate and Lyle are not going to close their refineries and process ACP sugar in beet factories. Their whole history and recent action and capital expenditure on their refineries demonstrate a real commitment to the cane sugar producers and deep understanding of their problems. They are themselves cane sugar producers in a large way.
Whatever the control of the British beet sugar industry, there is no doubt that Parliament and the British Government continue to bear the financial responsibility of ensuring that the promises given to the cane sugar supplying countries should be fulfilled. My deep and continuing concern is that nothing should be done which could make it impossible to honour these commitments in future. It would be possible to keep on saying that the commitments will be honoured, but to take steps which make the machinery non-existent and prevent cane sugar coming into this country. It is all easy to say that no one need worry because this or that organisation has given the necessary assurances. My fairly long experience is that when people get the whip hand they give short shrift to assurances given in the past.
It has also been suggested that an easy way out would simply be to pay suppliers less for their sugar. But this would go against the whole pattern of the Commonwealth Sugar Agreement and the Sugar Protocol under both of which guaranteed prices were an integral part of the access commitments.
Under both the Commonwealth Sugar Agreement and the EC protocol guaranteeing access has always been linked to guaranteed prices. Indeed, either would be valueless without the other. As all the other participants in the EC sugar regime, the beet farmers, the beet processors and the cane refiners must receive 1016 adequate remuneration, so must the suppliers of cane sugar. The promises which have been made to the supplying countries are promises of Parliament. We all have a direct responsibility to ensure that the means of honouring them are maintained.
§ 8.53 p.m.
§ Lord Mackie of Benshie
My Lords, I cannot add anything to the expert speeches which have been made by my noble friends. However, I should like to approach the subject from the Scottish point of view. The refinery in Glasgow and Greenock is extremely important to that run-down area.
The Government must take their responsibilities seriously because we in Scotland have already had the appalling example of Guinness taking over Distillers and making promises. Immediately Guinness acquired the shares (apparently by somewhat dubious means) the promises were broken. For this reason, there is no question that the arguments for leaving the competition as it is are very, very strong. I hope that that is the reply which the Government will give.
§ 8.54 p.m.
§ Lord Greenhill of Harrow
My Lords, I should like to make a brief intervention in this debate in support of the noble Lords, Lord Walston and Lord Campbell of Eskan. I do not have any knowledge of the sugar industry, but I have recently had the privilege of visiting Barbados through the courtesy of the Commonwealth Parliamentary Association. The question of the future of the sugar industry was much discussed when we met leading Barbadians. The Prime Minister of Barbados had just returned from London where he had had discussions both with people concerned in the sugar industry and the Prime Minister.
Travelling around the island of Barbados it is very plain to see how far the sugar plantations have contracted. It is not unusual nowadays in many countries—not least in our own—to see the signs of the decline of traditional industries. This is certainly so in Barbados.
I understand from conversations that there is no agricultural alternative in Barbados to the sugar industry. Various experiments have been made with only moderate success. The chances of a significant manufacturing industry in Barbados are necessarily very slim. You may say it has a very flourishing tourist industry, which is indeed true. They have concentrated on the upper part of the tourist market. We know very well from our own experience that it only requires one or two acts of terrorism or events such as have recently happened in Puerto Rico to make a hole in the proceeds of one tourist season. Although the industry is good and flourishing, it is undoubtedly a vulnerable one.
As has been pointed out, the deal which was made when we entered the Community for the Caribbean sugar producers was not an unsatisfactory one in all the circumstances. It has been accepted with good grace by the people of the area but it has created problems. It has reduced the demand for cane sugar and this has been complicated by the end of the important United States quota for Caribbean sugar.
1017 Therefore, it is for political reasons (quite apart from any other reason) that we do nothing to make the situation in this area more difficult. As has been so well explained, the fear that haunts the people of the area is that the refining capacity of this country will somehow go by the board as a result of arrangements made in the short or long term between Ferruzzi and Tate and Lyle and others.
The case for some reassurance is absolutely clear and I quite agree with the noble Lord, Lord Campbell of Eskan, on the importance which he attaches to this matter. Since independence, Barbados has managed its affairs politically and economically well. Its resources are limited and we should do our best to help them.
It is clear from talking to the people in that area that they believe the interests of this country in Barbados and the Caribbean on the whole are diminishing. I do not believe that that is the intention of Her Majesty's Government or the people of this country—indeed, I am sure it is not the intention. But help to the sugar industry at this time would be the clearest indication that the impression that the people of the area have is erroneous.
§ 9 p.m.
§ Lord Pitt of Hampstead
My Lords, I should like to thank the noble Lord, Lord Walston, for introducing this Unstarred Question. I am happy to be following the noble Lord, Lord Greenhill, because he has, in effect, illustrated the point I want to make. He has described the plight that could face one of the territories in the Caribbean whose major export is cane sugar.
It is not unfair to say that Barbados is one large sugar estate. Therefore, what happens to its sugar is of vital importance to that island. As the noble Lord, Lord Greenhill, has told your Lordships, Barbados is a well run island within its capacity. In fact, it is no secret that I have often said that if Barbados had Trinidad's money, then Barbados would be heaven.
Access to the United Kingdom market at guaranteed prices for the traditional quantity of Caricom sugar is vital to the economy of that area. Cane sugar production is a labour-intensive activity and the industry is a major employer in almost all the Commonwealth Caribbean countries. It is a vital factor in respect of foreign exchange earnings. Admittedly, Barbados has tourism. Many of the islands have tourism to add to their earnings, but as the noble Lord, Lord Greenhill, pointed out, they could lose that foreign exchange from tourism. Foreign exchange earnings are crucial for the social and economic development of those countries and—something I have often spoken about—for their debt servicing.
A fair number of service industries depend on a variable cane sugar industry. There is a multiplier effect. As the noble Lord, Lord Campbell of Eskan, said—I am not as reticent as he, so I shall underline it—many assurances have been given by successive British governments since the Lancaster House conferences of 1971 and 1973 which followed our application to join the Common Market. In 1980, Mr. 1018 Peter Walker, then Minister for Agriculture, reiterated that assurance. On 20th February 1985 renewed assurance was given to ACP Ministers by the present Minister for Agriculture, the right honourable Michael Jopling, that the United Kingdom Government fully understood their interests and the importance of this question to the islands. Similar assurances were given to ACP Ministers when they met Mr. Jopling again in February 1986; so we have full assurances that the Government recognise the problem and that they are prepared to stand by the Caribbean.
The Lomé guarantee of access is likely to lose all force, and the point made by the noble Lord, Lord Campbell, is important. If Tate and Lyle is in jeopardy and the United Kingdom loses its cane refining industry—the cane refining industry is run by Tate and Lyle—the guarantee loses much of its force.
From the Caribbean point of view—and it is from that point of view that I am speaking tonight—disruption of this industry will lead to social unrest, threatening the stability and security of the region. As I said, the industry is a major source of foreign exchange. Your Lordships must not underrate that. Maintaining a strong economy in those countries redounds also to the benefit of the United Kingdom because we have close historical links with the area.
A number of British firms are actively engaged in infrastructural and other developing activities there. A number of students from those countries are still sent here for higher education, in spite of heavy increases in overseas student fees. They come here particularly to study in the areas of advanced technology, including computer engineering. Therefore, these British firms and institutions would be affected if countries were unable to earn the revenue to pay.
Recently, the Minister of State at the Foreign Office, the noble Baroness, Lady Young, gave an assurance, which I am sure the noble Lord, Lord Greenhill, also gave when he was in Barbados, of Britain's continuing interest in and support for the Caribbean area. In fact, the noble Baroness is showing it in a practical way because I understand she is at the moment in the region. It is in Britain's self-interest, just as it is in the interests of the Caribbean, that the area should not be allowed to disintegrate.
Britain is one of the few member states of the Community where domestic production of sugar is virtually in balance with consumption. Nevertheless, it is worth noting that the marketing is open to competition from imports, both actual and potential, from other member states whose quota production far exceeds their consumption. The noble Lord, Lord Walston, referred to France, and that is a good example. There are massive surpluses in France which pose an enormous threat to the two British manufacturers, British Sugar and Tate and Lyle.
In spite of that, in the negotiations for entry into the EC, it was Britain that rightly insisted that preferential access should be given to raw cane sugar from the small developing countries of the Commonwealth which had long been Britain's traditional suppliers. As mentioned earlier, that access for just over one million tonnes now represents a solemn commitment for the Community and takes the form of the sugar protocol to the Lomé Convention. Nevertheless, it has not 1019 prevented the Community from producing at high cost massive surpluses of sugar which are put on to the world market and which severely depress prices and the income that third world farmers are able to earn. However, that is a question for another debate and we shall not pursue it this evening.
Your Lordships can thus see what happens to those areas of the Caribbean. They have the limited access which is traditional and guaranteed. They have that market, but the rest of their sugar is put on the world market to be sold in competition with sugar that is dumped by the EC. So, in effect, the only real guaranteed prices that those countries have for their sugar are the prices that they obtain through the Lomé agreement.
A change of ownership of British Sugar could put the ACP quota at risk. That is the real worry, because under the EC regime a cane sugar refiner is allowed a refining margin which falls far short of that allowed for beet.
As mentioned earlier, particularly by the noble Lord, Lord Campbell, this country is the only country in Europe with the existing capacity to refine the ACP cane. The continued viability of cane refining in Britain is at grave risk in terms of profitability, return on investment and its reliance on volume throughput. It is a problem. Tate and Lyle is the company involved and therefore Tate and Lyle is important to the Caribbean countries. I am sure that if I were speaking for other parts of the Commonwealth I should be saying much the same, but I am speaking only for the part of the world that I know. It is of the greatest importance to the Caribbean that Tate and Lyle's capacity to refine raw sugar is safeguarded so that the traditional guaranteed markets can continue to exist.
I hope that when the Minister replies he will be able to give an assurance to the people of the Caribbean. Those of us who have taken part in Caribbean politics talk glibly about moving from sugar to other crops and broadening our economic base. But we always come back to the fact that, in many instances, there is no other crop.
§ 9.12 p.m.
§ Lord John-Mackie
My Lords, I have had discussions with the three companies concerned and I must admit that Tate and Lyle and Ferruzzi almost convinced me that their cases were correct, but when I talked to British Sugar, the manager there pointed out to me that the situation had changed over the last year to 18 months.
At one time, Berisford had been hard up and that is why they wanted to sell their 70 per cent. share in British Sugar but they have recovered their financial situation and there is now no great necessity for selling. On this side of the House we are philosophically against mergers, especially with the present situation in the merger market, but the case for the ACP countries has been so ably made, not only by the noble Lord, Lord Walston, but also by the noble Lords, Lord Campbell, Lord Greenhill and Lord Pitt, that I do not need to say anything more about that.
1020 We are all very much seized of the importance to the ACP countries of raw cane sugar continuing to be refined in this country. The noble Lord, Lord Campbell, made that point, and of course Ferruzzi have shown a guarantee that they are prepared to give. However, they admit that to convert beet sugar factories to cane sugar refining at today's prices would cost somewhere around £40 million. As the guarantee lasts for five years it would probably cost twice that sum by the end of that time and, with the best will in the world, they might not have £80 million then to do it.
I do not see why Ferruzzi needs British Sugar in order to carry out the researches that it makes out that it would if it acquired British Sugar. Surely that and many of its other activities can be carried out without having British Sugar. From the meetings and discussions that I had, and after hearing what has been said tonight and the conclusion at which Lord Walston arrived, I came to the view that British Sugar should be left alone. The report is with the commission. We should leave the matter in the Government's hands and hope that they will take the right decision and leave the situation as it is.
§ 9.15 p.m.
§ Lord Belstead
My Lords, this debate comes at an important time for the future of the United Kingdom sugar industry. I have listened with interest to the points made by your Lordships, most of whom are experts on this matter. I shall do my best to give a government reply. I must make one thing clear at the beginning. I am not in a position to disclose today the outcome of the as yet unpublished report of the Monopolies and Mergers Commission on the future of British Sugar.
The noble Lord, Lord Walston, said that sugar consumption in the United Kingdom, including sugar used in confectionery and other processed products, has remained relatively stable in recent years at just over 2.25 million tonnes per annum. There are two main sources of supply. British Sugar produces beet sugar up to its maximum quota of 1.144 million tonnes; and, secondly, Tate and Lyle refines about 1.15 million tonnes of cane sugar imported under preferential arrangements, which your Lordships have all mentioned, from the African, Caribbean and Pacific countries (the ACP states), in the main in this context Commonwealth countries. We also import relatively small quantities of refined sugar from the European Community and export a similar amount, mainly to third world countries.
Thus British and Commonwealth sugar producers each account for about 50 per cent. of domestic supplies available to meet the needs of United Kingdom sugar users and consumers. Safeguards exist to protect the interest of British and Commonwealth sugar producers.
As to the British producers, under the Community's sugar regime each member state is allocated a sugar production quota. The national authorities then allocate their quota among sugar producing undertakings in their country. Because we have only one sugar manufacturer, British Sugar, the entire quota is allocated to that company.
1021 I should make it clear that national quotas cannot be than by decision of the Council of Agriculture Ministers; in other words, it would not be possible for a company with sugar producing interests in more than one member state to transfer quota among its undertakings in different member states. Indeed, under Community regulations even transfers of quota between undertakings within a single member state can take place only as a result of a decision by the national authorities, and then only to a defined and limited extent. In deciding whether to transfer quota within its territory, national authorities are moreover required to take into account the views of all interested parties, and primarily those of sugar beet growers.
The price received by growers for their sugar beet from sugar manufacturers is protected by means of specified minimum prices which are fixed annually by the Council of Agriculture Ministers. Separate prices, as your Lordships will know, go to the manufacture of A or B quota sugar. Those minimum prices are derived directly from the intervention price for white sugar—the basic support price for sugar manufacturers—by subtracting elements representing the cost of beet processing and the value of the molasses by-product.
Subject to the minimum requirements, the actual price paid by British Sugar for its beet is the subject of annual negotiation with the National Farmers Union which represents the interests of all beet growers. Such negotiations take place within the context of an inter-professional agreement drawn up between British Sugar and the NFU. Inter-professional agreements and the form of contract between manufacturer and grower must comply with certain outline provisions set down in Community regulations. Those provisions deal in particular with general conditions governing purchase delivery, reception of and payment for beet. In the unlikely event of difficulties arising in the negotiation of contract prices or other terms or conditions relating to the purchase of beet between British Sugar and the NFU, my right honourable friend the Minister of Agriculture, Fisheries and Food, acting jointly with the Secretaries of State for Scotland and for Wales, has the power under Section 69 of the Food Act 1984 to determine or designate a person to determine the prices, terms or conditions concerned.
Sugar manufacturers are—as I am sure your Lordships well know—protected by more classical market support arrangements. An intervention price is fixed to set a floor to the market, imports of non-preferential sugar are subject to variable levies and exports of surplus quota sugar can benefit from export refunds.
In short therefore Community and United Kingdom legislation afford reasonable protection for the interests of both growers and manufacturers. Of course, that protection is not absolute in all respects, nor can it be. The interests of sugar users and consumers, and budgetary considerations, also have to be taken into account. For example, Community sugar beet prices have been frozen at the last three price fixings and in that time the effective support price for white sugar has increased by less than 1 per cent. in ecu terms. As with other commodities in surplus within the Community there is a need for price 1022 restraint. Despite this, however, sugar beet profitability has remained good relative to other arable sectors.
Perhaps I may say a further word on what your Lordships have been mainly talking about in this debate although the noble Lord, Lord Walston, in introducing the debate went across the whole scene. However, the thrust of most of the speeches of noble Lords has been to express concern about the cane sugar producers. I should like to say a word about them. The noble Lord, Lord Campbell of Eskan—who I realise has almost unrivalled experience in this field—spoke of the assurance which has been given to ACP countries in the past. Under the preferential arrangements established in the Sugar Protocol of the Lomé Convention there are these words:The Community undertakes for an indefinite period to purchase and import, at guaranteed prices, specific quantities of cane sugar, raw or white, which originate in the ACP States and which these States undertake to deliver to it".Under these arrangements each ACP state is allocated a specific quota. Provided that it continues to supply its full quota, there is no risk of any reduction. If, however, an ACP state shortfalls on its deliveries in a particular year for any reason other than those outside its control—the expression is "force majeure"—then its quota for future years is reduced by the amount of the shortfall. The unused quota is then in practice redistributed among existing or new ACP supplying states by the EC Commission after consultation with the parties concerned.
Subject to the specified minimum prices fixed annually by the Council of Ministers, the actual price received by the ACP states for their sugar is the subject of negotiation between individual supplying ACP states and the buyer. However, the Community has undertaken to purchase at the guaranteed price any quantity of preferential sugar for which the ACP have been unable to find a commercial buyer at or above that price. ACP guaranteed prices for white and raw sugar are negotiated annually between the Community and the ACP states. The Sugar Protocol requires them to be fixed:within the price range obtaining in the Community".It is fair to say that traditionally guaranteed prices have been fixed at or very close to Community intervention prices, and that with world prices being at very depressed levels for the past several years guaranteed prices represent a substantial premium over world prices.
There is one point that I should like to take up in the speech of the noble Lord, Lord Pitt. I understood the noble Lord to say that the European Community has a responsibility for the poor state of the world sugar market. I understood the concern which the noble Lord was expressing; but I am sure that he will agree that many factors have caused the poor state of the world market and that the Community has not been unresponsive to world market conditions. In the past it has taken action to help stabilise the market by putting part of exceptionally good harvests into stock and by cutting acreage. The latter has resulted in a fall in Community production from just over 15 million tonnes in 1981–82, to 12.7 million tonnes last year.
1023 The arrangements to which I have just been referring for guaranteed prices are of indefinite duration. Indeed, the Community has stated that, in the unlikely event that the Lomé Convention should at any time fail, the provisions of the Sugar Protocol would continue to apply. This evening I should also emphasise that Her Majesty's Government remain firmly committed to the Sugar Protocol of the Lomé Convention and recognise the importance attached by the ACP countries to their traditional outlets in the United Kingdom market. Her Majesty's Government's policies on sugar are therefore determined having regard to the need to maintain a reasonable balance between cane and beet sugar interests in the United Kingdom.
In summary, there are substantial and valuable safeguards for both British and ACP sugar producers. These safeguards are not absolute nor can they be, and it is necessary both for the producers concerned and for Her Majesty's Government to seek to ensure that circumstances do not arise that would prejudice this position, taking account of the other interests which I have already mentioned.
An example of where the position is not as certain as we would like it to be is the cane refining margin. This is one of the main factors which determines the profitability and ultimately the continued viability of cane sugar refining operations in the United Kingdom, and your Lordships have spoken about it this evening. Essentially this margin is the difference between the ACP guaranteed price for raw sugar—broadly the price Tate and Lyle pay for their sugar—and the United Kingdom effective support price for white sugar—broadly the return Tate and Lyle are able to get from the UK market.
I am sure noble Lords are aware that during the course of the negotiations for the ACP guaranteed price for 1985–86—which proved to be the most difficult and protracted negotiation of recent years—my right honourable friend the Minister of Agriculture, Fisheries and Food obtained a commitment from the EC Commission to review the cane refining margin and to submit a report to the Council of Agriculture Ministers. The Commission subsequently engaged a firm of consultants to carry out a study of the costs of refining, and the results of that study, and the subsequent report of the Commission, are awaited. We look to the Commission to make proposals which will allow the refining margin to be set on a fair and stable basis.
I should like to pick up a point made by the noble Lord, Lord Walston, in which he suggested that the prospects for the use of sugar in biotechnology were likely to be best in the Community member state which had the greatest sugar surplus; namely, France. I quite understand why the noble Lord said that, and there indeed is the major sugar surplus. I think it bears saying that since 1st July, 1986, when sugar was made available to the chemical and biotechnological industries at prices close to the world prices, there has been a modest but welcome increase in uptake in this country. Forecasts suggest that uptake in the UK could increase by some 50,000 to 100,000 tonnes by 1990.
Finally, perhaps I may say a word about the future 1024 of British Sugar. As your Lordships know, my right honourable friend the Secretary of State for Trade and Industry referred the proposed mergers of Tate and Lyle and Ferruzzi Finanziaria with British Sugar to the Monopolies and Mergers Commission because they raised issues of public interest arising from the special nature of the sugar market and British Sugar's place in it. The role of the Commission is to examine the proposed mergers in the light of comments it receives from all interested parties in the context of the relevant public interest matters, and to make a report and recommendations to the Secretary of State for Trade and Industry.
The report is now in the hands of my right honourable friend, who fully recognises the need to publish it and to announce any decisions as speedily as possible so as to remove the uncertainty over the future of British Sugar. But until the report is published your Lordships will understand that I really can make no further comment. I should however underline that the substantial safeguards for both British and ACP sugar producers which I have outlined will remain irrespective of the outcome of the MMC references.
§ House adjourned at half past nine o'clock