Summary
While UK sugar beet growers have expressed concern over their future prospects as a result of the UK governments new sugar trade policy, the most fundamental change is in the UK/EU trade relationship for refined sugar and high sugar content products. This is a result of the new rules of origin requirements under the UK/EU TCA, which exclusively impact on imports of raw cane sugar. These changes could see a major contraction in UK import demand for cane sugar, with Guyana and Fiji likely to be among the most seriously affected of the 9 ACP countries which currently export sugar to the UK. However, the Brexit effects on ACP sugar exports to the UK need to be seen in the context of the dramatic decline in ACP sugar exports to the UK which has taken place since the introduction of EU sugar sector reforms.
In August 2021 The Guardian reported on the concerns of UK beet growers over the future profitability of the sector in light of the UK’s post-Brexit sugar trade policy. UK beet farmers are deeply concerned at the potential market effects of the new duty-free tariff quota agreed for Australian sugar exports. According to Michael Sly the chair of the NFU Sugar Board this could deliver ‘an additional 240,000 tonnes of tariff free sugar into the marketplace’ by 2030; after which ‘there will be no limit to how much Australian sugar can be imported.’ Michael Sly maintains Australia is a huge sugar producer which uses ‘certain pesticides that are no longer allowed in Europe’ (1).
This comes on top of the UK’s previously announced autonomous duty-free sugar quota of 260,000 tonnes (see companion epamonitoring.net article, ‘UK Launches Consultation on its 260,000 Tonne Autonomous Tariff Quota for Raw Cane Sugar Imports’, 21 September 2020). (1).
Beet farmer concerns need to be seen against the background of a steady decline in the ‘one-year contract prices for sugar beet agreed between British Sugar and the NFU’ over ‘most of the last decade.’ In 2014 the contract sugar prices ‘peaked at just under £32 a tonne’ but has since declined to ‘about £20 a tonne for the past few years’ (1).
UK sugar beet farmers believe there is a profound imbalance in the power relationship between beet growers and the monopoly beet processor, British Sugar (a subsidiary of Associated British Foods). It is pointed out how in the year to 29 August 2020, British Sugar ‘reported a 17% rise in revenue and a pre-tax profit of almost £55 million’; an earnings development which is seen as being in sharp contrast to the revenue position of UK sugar beef farmers (1).
The revenue position of UK sugar beet farmers has been further complicated by the UK’s withdrawal from the EU direct aid payment scheme, which previously provided significant financial transfers to UK sugar beet farmers. To date it is unclear how the new ‘UK-only’ arrangements for support to sugar beet producers will work out in practice.
In this context it should be noted the UK’s new sugar import arrangements primarily benefit British Sugar’s main UK rival Tate & Lyle Sugar (which is owned by American Sugar Refiners – ASR), which processes imported cane sugar. UK beet growers complain this sugar proudly carries a Union Jack label on its packaging despite being produced exclusively from imported cane sugar.
The implied UK status of Tate & Lyle Sugar’s refined sugar products is not accepted under the rules of origin agreed as part of the UK/EU Trade and Cooperation Agreement (TCA). Under the TCA rules of origin, refining of imported cane sugar is currently insufficient to gain UK originating status for the refined sugars produced. As a result, Tate & Lyle Sugar’s refined sugar products cannot be exported to EU markets under the duty-free access provisions of the TCA, but rather face standard EU MFN tariffs of €419/tonne.
This is not the only complication faced for imported raw sugar. With some 70% of UK and EU sugar consumption being accounted for by the consumption of food and drink products, these composite food and drink products can also fall foul of the new EU/UK TCA rules of origin (for details of these new complex rules of origin see companion epamonitoring.net article, ‘What Does the New EU UK Trade Agreement Mean for ACP Sugar Exporters?’, 21 January 2021).
The use of ‘non-originating’ sugar (sugar which is not produced in either the EU or UK) in food and drink products is required to stay within complex non-originating content requirements. This can proof difficult for products such as ‘white chocolate’ which has a sugar content of over 60%. If the sugar used in this ‘white chocolate’ does not originate in the EU or UK, then when traded across an EU/UK customs border such ‘white chocolate’ would face standard MFN tariffs.
This tariff would amount 8% in the case of EU-to-GB trade (2), but with a more complex system of duties being applied on ‘white chocolate’ imported from GB to the UK (9.10% +€45.10/100 kg up to a maximum of 18.90% +€16.50/100 kg) (3).
In 2019, UK ‘white chocolate’ exports to EU member states were valued at €32.3million, containing at least 7,722 tonnes of sugar, while EU white chocolate exports to the UK were valued at €70.7 million, containing over 12,000 tonnes of sugar. This is merely illustrative of the rules of origin complications facing a wide range of high sugar content food and drink products.
Value of EU/UK Trade in White Chocolate (17049030) 2019
| UK White Chocolate Exports to the EU | EU White Chocolate Exports to the UK | ||||
| Tonnes | Value (€) | Tonnes | Value (€) | ||
| 2019 | 12,870 | 32,262,388 | 20,117 | 70,767,166 | |
| 2020 | 9,262 | 28,176,458 | 18,917 | 66,814,022 | |
Source: EC, Market Access Data Base, https://trade.ec.europa.eu/access-to-markets/en/statistics
Given the rules of origin complication faced when using non-EU or non-UK sugar, some food and drink manufacturers have moved away from using imported cane sugar in high sugar content products by replacing it by EU or UK sourced beet sugar (most notably Nestle UK and Ireland, see epamonitoring.net article, ‘Nestlé Move Away from Cane Sugar Compounds Wider Sugar Sector Demand Trend’, 11 August 2020). If this trend becomes generalised across high sugar content food and drink products, this could seriously reduce overall demand for imported raw cane sugar.
This needs to be seen in a context where companies would be likely to move away from the use of imported cane sugars to EU or UK beet sugar (or alternative sweeteners) not only for exported products, but for whole product lines where sales are made in both UK and EU markets.
This would favour UK beet producers, with ACP sugar exporters likely to be most severely impacted by the new duty-free quota for Australian sugar imported into the UK.
It remains to be seen how this trend will play out in practice in the coming years, as high sugar content food and drink product companies adjust their sourcing, production, and trading arrangements to the new post Brexit realities in the sugar and sugar products sector.
| Comment and Analysis While UK beet sugar farmers are concerned about the impact of the UK’s trade arrangements, the reality is that ACP sugar exporters are much more exposed to a loss of market share resulting from these new trade realities than UK beet sugar producers. This situation arises from the additional complications which the UK/EU TCA rules of origin create for the use of imported cane sugar in food and drink products. If UK producers of high sugar content food and drink products systematically shifted away from the use of imported cane sugar to the use of UK or EU produced beet sugar, then the overall effect on the demand for imported sugar could be profound.Although in 2019, 9 ACP sugar exporters (including South Africa) accounted for 84.6% of UK extra-EU sugar imports (with these imports amounting to 394,808 tonnes valued at €133.9 million), this is a dramatic fall compared to the pre-EU sugar reform period. In 2002, 15 ACP counties exported some 1,176,257 tonnes of sugar to the EU valued at €619 million. Thus, while the post Brexit sugar sector trade situation is likely to see a further erosion of the position of ACP sugar suppliers on the UK market, this needs to be placed in the context of the dramatic changes which have already taken place over the past 20 years. ACP Sugar Exports to the UK (2019)
Source: EC, Market Access Data Base, https://trade.ec.europa.eu/access-to-markets/en/statistics?includeUK=true Of course, not all ACP sugar exporters have been equally affected by these changes. Belize Sugar Industries (BSI), given its close corporate links to Tate & Lyle Sugar…via their shared ownership by American Sugar Refiners, would appear to have an inside track as a supplier of cane sugar to the UK market (so long as Tate & Lyle’s Thames refinery operates). Equally BSI would appear to be well placed to sidestep Brexit related complications in the delivery of refined sugar products to the Irish market, by simply relocating the refining operations to one of Tate & Lyle Sugar’s EU27 refineries and shipping to the Irish market via the new expanded direct ferry services to the Republic of Ireland. Mauritius, which exports only refined sugar products and serves both UK and EU27 markets, would appear to be well placed to both expand refined cane sugar exports to the UK, should other suppliers face difficulties and continue to serve Irish markets via EU27 member states. Southern African sugar exporters meanwhile would potentially appear well placed to serving British Sugars installed co-refining capacity, given the shared ownership of British Sugar and Illovo (Southern Africa’s leading sugar producer) by Associated British Foods. The most vulnerable traditional ACP sugar exporters would appear to be Guyana and Fiji, with Guyana being particularly exposed given its high dependence on the UK market (Fiji has been diversifying its European markets in response to the Brexit process). Jamaica meanwhile has only a marginal presence on the UK market (less than 10% of its 2002 levels), while the Barbados trade in sugar consists of niche value added sugars which target premium markets and hence are little affected by the changes in UK sugar trade policy. There remains of course a simple policy solution to the Brexit related rules of origin complications faced by ACP sugar exporters, namely a unilateral initiative by the EU to grant automatic cumulation to imported cane sugar from all countries which enjoy duty free/quota-free access to both the EU and UK markets. This would at a stroke remove the obstacle to continued refining of ACP cane sugar in the UK for both UK and EU markets (notably Ireland) and remove the dilemma faced by high sugar content food and drink manufacturers who now find themselves embroiled in rules of origin complications, the solution to which is simply to shift from the use of imported cane sugar to EU or UK produced beet sugar. If this policy solution is not adopted, then the final nail could be driven into the coffin of all but the most price competitive ACP sugar exporters who have traditionally served the UK market. |
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Sources:
(1) The Guardian, ‘A perfect storm’: UK beet growers fear Brexit threatens their future’, 18 August 2021
https://www.theguardian.com/politics/2021/aug/18/uk-beet-growers-fear-brexit-threatens-their-future
(2) uk.gov, ‘UK Integrated Online Tariff’,
https://www.trade-tariff.service.gov.uk/headings/1704
(3) EC, Taric measure information (last update 5 October 2021)
https://ec.europa.eu/taxation_customs/dds2/taric/measures.jsp?Lang=en&Taric=17049030&SimDate=20211006