Summary
The proposed sugar quota under the UK-Australia FTA is initially equivalent to 17% of total UK import from outside the EU in 2019, rising to 47% after 8 years. Its impact on total ACP sugar exports to the UK will be determined by the future volume of EU27 sugar exports to the UK; the future evolution of UK sugar demand; and the future of the temporary UK ATQ of 260,000 tonnes which was introduced for one year from 1 January 2021. If the ATQ is retained, EU sales remain at ½ 2020 volumes and UK sugar consumption shrinks in line with projections, the situation of most ACP exporters on the UK market will be precarious. However, the vulnerability of individual ACP exporters to the evolving UK sugar sector trade policy varies greatly, with in depth, country specific analysis being required to determine which ACP sugar exporters are most vulnerable to the UK’s evolving sugar sector trade policy.
For sugar, the ‘agreement in principle’ reached on a UK-Australia free trade agreement proposes to phase in the removal of tariffs within a tariff rate quota arrangement over 8 years, beginning with an initial duty-free quota of 80,000 tonnes in the first year. This would then increase in equal instalments to 220,000 tonnes over eight years (1).
The UK-Australia sugar trade provisions also need to be seen in a context where in 2019 the UK was importing 440,149 tonnes of refined sugar from the EU27, with these imports falling by 144,559 tonnes in 2020 to 295,590 tonnes (6). This decline in EU sugar exports to the UK continued into 2021 with the EC expecting Brexit to have ‘an impact on the trade flows with the UK, mainly due to the application of the rules of origin’ (7)
The initial Australian sugar quota is equivalent to 17.2% total UK extra-EU sugar imports in 2019 and by the 8th year of implementation of the UK-Australia FTA would be equivalent to 47.2% of total UK extra-EU sugar imports in 2019 (2). However, this needs to be seen in the context of the projected decline in UK sugar consumption in the coming years, as a result of sustained efforts to reduce the use of sugar in food and drink products, as part of an obesity reduction public health campaign.
The proposed UK-Australia free trade area is the first of the UK’s autonomous trade agreements which was not simply the rolling over of a pre-existing EU trade arrangement. According to the NFU, ‘the UK is set to become possibly the only country with any significant domestic sugar industry which allows completely free access for Australian sugar.’ It described the proposed duty-free TRQ as ‘incredibly unusual’, pointing out how ‘tariffs have remained on sugar in Australia’s trade deals with Japan and the USA’, countries which, like the UK, are net sugar importers. The NFU argues the UK government should retain in place the same safeguards as these other sugar deficit countries have in place (3).
There are in addition NFU concerns over the different regulatory standards Australian producers must comply with, compared to UK producers. Particular concerns have been expressed over the use of plant protection products, which include ingredients which are banned for use in the UK. This it is argued, gives Australian producers a larger ‘toolbox to draw on to tackle weeds, pests and diseases’ (3)
What is more, UK farmers fear the precedent the proposed UK-Australia trade agreement will set for other UK trade agreement and the cumulative effect this could have on UK sugar markets (4).
The proposed sugar TRQ under the UK-Australia trade agreement comes on top of the UK’s 260,000 tonnes autonomous duty-free quota established as part of the UK’s multilateral sugar trade arrangement. This autonomous quota was equivalent to 55.7% of UK extra-EU sugar imports in 2019 (see companion epamonitoring.net article ‘UK Launches Consultation on its 260,000 Tonne Autonomous Tariff Quota for Raw Cane Sugar Imports’, 21 September 2020).
However, the current ATQ is only set to run for 12 months from 1 January 2021, with the UK government undertaking a consultation as to whether this 260,000 tonne ATQ should be extended beyond 2021. It is noteworthy the UK government background document to the ATQ consultation highlighted how the ATQ was ‘not …expected to have a material impact on price incentives for UK beet producers’, rather, the ATQ was expected to impact on ‘the level of imports of raw cane sugar, and the quantity of white sugar imports required to meet the UK’s deficit in sugar.’ It is implied the ATQ is expected to see and expansion of raw cane sugar imports for refining in the UK and a reduction in UK refined sugar imports form the EU (5).
Initial figures suggest the expected decline in EU sugar exports to the UK has been realised. In the first eight and half months of the 2020-21 season, EU27 sugar exports to the UK totalled 123,000 tonnes (by mid-June 2021), with less than a third of the export season to go (8). This could see EU27 sugar exports to the UK down around a further 100,000 tonnes by the end of the 2020/21 sugar marketing year (from October to October), compared to the pre-Brexit 2019/2020 season.
EU27 Sugar trade with the UK
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Change 2015-20 | |
| EU27 Exports to the UK | 597,838 | 508,372 | 535,960 | 589,776 | 440,149 | 295,590 | -50.6% |
| EU27 Imports from the UK | 396,342 | 404,975 | 362,755 | 484,961 | 454,753 | 156,669 | -60.5% |
| Total Mutual trade | 994,180 | 913,347 | 898,715 | 1,074,737 | 894,902 | 452,259 | -49.5% |
Source: EC Market Access Data Base, https://trade.ec.europa.eu/access-to-markets/en/statistics
This could create market space for increased UK extra-EU sugar imports (both raw sugar and refined sugar). However, the extent which this is likely to be the case in unclear, given the rules of origin complications arising for UK higher sugar content food and drink manufacturers.
The absence of diagonal cumulation provisions in the EU/UK Trade and Cooperation Agreement, means duty free imports of raw cane sugar to the UK can no longer be refined and then exported to the EU, without facing prohibitively high MFN tariffs. This is leading UK manufacturers of high sugar content food and drink manufacturers to turn their back on cane sugar for use in products destined for both EU27 and UK markets (see epamonitoring.net article ‘Nestlé Move Away from Cane Sugar Compounds Wider Sugar Sector Demand Trends’, 11 August 2020).
This dimension of the new EU/UK trade agreement may limit the move away from EU27 sugar imports. This would then leave traditional ACP sugar exporters directly competing with highly competitive sugar producers who have secured duty free access to the UK market under new bilaterally negotiated ‘UK-only’ trade agreements.
This is bad news for traditional ACP sugar exporters who have traditionally been the main source of extra EU sugar imports to the UK.
UK Extra-EU Cane Sugar Imports 2015 -2019
| 2015 | 2016 | 2017 | 2018 | 2019 | |
| Total UK | 625,906 | 569,794 | 493,681 | 457,387 | 466,403 |
| Total ACP° to UK | 516,960 | 348,193 | 260,996 | 303,586 | 324,371 |
| % Share ACP° | 82.6% | 61.1% | 52.9% | 66.3% | 69.5% |
| South Africa | 4 | 4 | 66,070 | 55,280 | 71,037 |
| % Share South Africa | 0.0006% | 0.0007% | 13.3% | 12.1% | 15.2% |
Source: EC Market Access Data Base
° Excluding South Africa
The evolving UK post-Brexit sugar policy comes on top of a number of noteworthy trends which have been underway in regard to UK sugar imports.
Firstly, since 2010 ‘imported cane sugar’s share of the UK market has gradually eroded each year…from 50% towards 15-20%, with the share of EU white sugar imports growing to 25-30%’ (5). This was a product of EU sugar sector reforms which saw the abolition of national sugar production quotas and a consequent expansion of sugar production in the most efficient EU beet sugar growing areas (as well as the emerge of co-refining of cane sugar), which in turn gave rise to increased intra-EU trade in sugar.
Secondly, since 2015 traditional ACP sugar exporters have been displaced by newly preferred more competitive sugar suppliers, with since 2017, South Africa being the principal source of this displacement. While between 2015 and 2019, total UK extra-EU sugar imports fell 25.5% (from 625,906 tonnes to 466,403 tonnes), direct imports from traditional ACP sugar supplies to the UK fell 37.3% (from 516,960 tonnes to 324,371 tonnes) (6).
The phasing in of the Australian TRQ would be likely to exacerbate the market situation faced by traditional ACP exporters on the UK market.
| Comment and Analysis The impact of the sugar trade provisions of the proposed UK-Australia trade agreement needs to be seen in the context of the cumulative effects of EU trade agreements. In terms of ‘rolled over’ UK continuity agreements, the most significant of these in the sugar sector is the UK-SACU trade agreement (9), which includes South Africa, a major globally competitive sugar producer.This agreement includes a specific quota for imports of sugar from South Africa of 49,320 tonnes of cane sugar for refining and a further 22,045 tonnes of either refined sugar or cane sugar for refining. This compares to UK imports of sugar from South Africa of 71,037 tonnes in 2019, marginally below the ‘rolled over’ South Africa specific quota included in the UK-SACU Continuity Agreement which came into effect on 1 January 2021. In 2019 South Africa accounted for 15.2% of extra-EU UK sugar imports. However, in the medium term ‘rising costs of fuel, transport, fertilizer, chemicals and labor’ are ‘expected to have an impact on sugar cane production’ (10). While in 2019 the UK government reported imports of sugar totalling of 430,000 tonnes from extra-EU sources a further 511,000 tonnes were imported from EU27 member states (mainly refined sugar). Giving total UK imports of around 1,000,000 tonnes of raw sugar equivalent in 2019, with around 43% coming from extra-EU sources and 57% from EU27 sources. It is against this background that the Australia TRQ of an initial 80,000 tonnes, rising to 220,000 tonnes (approximately 22% of total UK sugar import needs in 2019), and the ATQ of 260,000 tonnes (approximately 26% of total UK sugar import needs in 2019) need to be seen (see companion epamonitoring.net article ‘UK Launches Consultation on its 260,000 Tonne Autonomous Tariff Quota for Raw Cane Sugar Imports’, 21 September 2020). Taking these TRQs and South Africa’s TRQ into account, imports under these arrangements could be equivalent to fully 63% of total UK sugar import in 2019. If the EU continued to supply around 15% of the UK sugar market (around half of 2020 levels), this would leave a little over a 22% market share in which traditional ACP sugar exporters would need to compete, alongside other preferred Central American and Andean Pact sugar suppliers. These Preferred Central American and Andean Pact sugar suppliers have rolled over their pre-existing EU trade arrangements in the form of UK Continuity Agreements. In 2019 imports from these suppliers were equivalent to 9.1% (42,475 tonnes) of total UK sugar imports (down from 11.3% or some 71,027 tonnes in 2015). A critical issue in this context is thus the future of the current interim 260,000 tonnes ATQ. Will this temporary measure be extended on an ongoing basis beyond 2022, or will it be phased out as the Australian sugar quota and any other similar UK duty free quotas for sugar are phased in? This issue will have a critical bearing on the space available on the UK market for traditional ACP sugar exporters. However, given public health campaigns aimed at reducing the use of hidden sugar in food and drinks, it would appear reasonable to assume a decline in UK sugar consumption in the coming years, with rules of origin complications in EU/UK trade in high sugar content food and drink products, being likely to further limit the usage of imported sugar in high sugar content food and drink products destined for both UK and EU27 markets. In a context, where in 2019 traditional ACP suppliers still accounted for almost 70% of UK extra-EU sugar imports (and around 32% of total UK imports) the future prospects for ACP sugar exporters on the UK market look far from bright. Against this background, the question arises: which of the current ACP sugar exporters to the UK are likely to be most severely affected by the evolving situation on the UK sugar market and the policy choices which lie ahead for the UK government? While the annexed table sets out the trends in ACP sugar exports to the UK over the 2015-2019 period. This basic table requires much more in depth, country specific analysis to determine, which ACP countries are most vulnerable to the UK’s evolving sugar sector trade policy. For example, despite its high dependence on the UK market in it sugar exports to the EU28, Belize appears to have enjoyed some flexibility in the markets served. This is in part linked to the close corporate relationship between Belize Sugar Industries and Tate & Lyle Sugars, under the corporate umbrella of American Sugar Refiners. Given Tate & Lyle Sugars operates cane sugar refineries in both the UK and EU27, this would appear to give Belize sugar exporters a high degree of flexibility in responding to the UK’s evolving sugar sector trade policy. This flexibility is already apparent in recent export trends (see table below). ACP Sugar Exports to the UK 2015-2019 (% of exports to EU28)
Source: EC Market Access Data Base However, this picture is complicated by the existence in Belize of sugar production (Santander) which is independent of Belize Sugar Industries. As a consequence, more in-depth analysis is required to understand the national impact given the complex domestic sugar production situation in Belize. |
Sources:
(1) House of Commons Library, ‘UK-Australia free trade agreement’, 28 June 2021
https://researchbriefings.files.parliament.uk/documents/CBP-9204/CBP-9204.pdf
(2) EC Market Access Data Base,
https://trade.ec.europa.eu/access-to-markets/en/statistics?includeUK=true
(3) NFU, ‘UK-Australia trade deal: The view from NFU Sugar board chair Michael Sly’, 25 May 2021
https://www.nfuonline.com/sectors/nfu-sugar/nfu-sugar-must-read/uk-australia-trade-deal-the-view-from-nfu-sugar-board-chair-michael-sly/
(4) NFU, ‘Australia trade deal: Five questions the UK government must answer’, 25 May 2021
https://www.nfuonline.com/news/latest-news/australia-trade-deal-five-questions-the-uk-government-must-answer/
(5) gov.uk, ‘Sugar ATQ consultation (2020): information pack’, Updated 16 December 2020
https://www.gov.uk/government/consultations/autonomous-tariff-rate-quota-atq-raw-cane-sugar-consultation-2020/information-pack
(6) EC Market Access Data Base
https://trade.ec.europa.eu/access-to-markets/en/statistics
(7) EC, Sugar Market Observatory, Meeting Summary’, 9 February 2021
https://ec.europa.eu/info/sites/default/files/food-farming-fisheries/farming/documents/sugar-mo-2021-02-09-report_en.pdf
(8) EC, ‘Sugar Market Situation’ AGRI G4 – Committee for the Common Organisation of Agricultural Markets, 24 June 2021
https://ec.europa.eu/info/sites/default/files/food-farming-fisheries/farming/documents/sugar-market-situation_en.pdf
(9) Dept. for International Trade, ‘Continuing the United Kingdom’s Trade Relationship with the Southern African Customs Union Member States and Mozambique’, November 2019
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/865766/UK_SACUM_EPA_parliamentary_report.pdf
(10) USDA, ‘Sugar Annual: South Africa’, 15 April 2021, SF2021-0021
https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Sugar%20Annual_Pretoria_South%20Africa%20-%20Republic%20of_04-15-2021.pdf