Summary
Greenpeace has drawn a link between Tate & Lyle Sugars support for Brexit an the 260,000 duty free autonomous quota for sugar established by the UK government, suggesting this trade measure, which will solely benefit Tate & Lyle Sugars, is a reward for earlies political support. Greenpeace believes it will encourage imports of environmentally damaging sugar, mainly from Brazil and harm existing ACP/LDC sugar exporters, while NFU and British Sugar believes it will harm domestic UK sugar beet producers. The effects of the ATQ however will be determined by choices made by the UK government, namely whether it conclude an FTA with the EU and whether the ATQ is used solely as a market stabilisation mechanism or becomes an integral part of the supply equation. These two choices will determine whether less efficient ACP sugar exporters are driven out-off the UK market and the income gained by the remaining ACP suppliers.
Following on from Prime Minister Johnson’s announcement of the elevation to the House of Lords of a diverse wide range of Brexit supporting figures (1) Greenpeace has denounced the use of trade policy concessions to reward the Brexit supporting company Tate & Lyle Sugars at the expense of traditional African, Caribbean and Pacific raw cane sugar suppliers (2). Greenpeace maintains the new 260,000 tonne duty free autonomous tariff quota (ATQ) established as part of the new UK only MFN tariff regime will save Tate & Lyle Sugars some £73 million from 1st January 2021. It is maintained that since Tate & Lyle Sugars is the sole importer of raw cane sugar in the UK it ‘stands to be the sole beneficiary’ of the new sugar ATQ (3).
It was implied this would represent an extremely good return on the sponsorship given to the Conservative Party and the investments made in 10 meetings with senior government Ministers in the past 3 years (3). According to Greenpeace, ‘this is a sweet deal for a food giant with close ties to the Conservative party and easy access to ministers, but it’s a bitter one for our environmental standards and farmers.’
Other analysts take a slightly different view highlighting how Tate & Lyle Sugars has been lobbying for reform of the EU cane sugar import regime since the announcement of the abolition of EU sugar beet production quotas. It was only in the face of the absence of any response from the EU to these concerns that threw its weight behind the Brexit campaign. This was seen as the only vehicle for returning Tate & Lyle Sugars UK operations to commercial sustainability, in a context where the companies capacity utilisation rate at its Thames refinery was halved as a result of EU sugar sector reforms and the company was required to run its UK refining operations at a loss. Against this background for Tate & Lyle Sugars the new sugar ATQ is about ‘levelling the playing field’ ‘after years of EU protection for sugar beet producers’ (2).
As early as September 2019 Tate & Lyle Sugars was expressing confidence that the UK’s future sugar trade policy will enable it to ‘complement our existing supply base with competitive new suppliers’ (3). Tate & Lyle Sugars therefore welcomed the new sugar ATQ, describing it as the ‘biggest step forward’ for Tate & Lyle Sugars in the past 16 years (4).
Greenpeace believes the new duty-free sugar ATQ will allow and even encourage imports of sugar from countries with lower employment and environmental standards (3). It is maintained ‘ditching tariffs on raw cane sugar will boost imports from a handful of countries, all of which use pesticides banned in the UK for being harmful to wildlife and humans’ (2). In addition, particular concerns arise regarding Brazil where the government in 2019 ‘cancelled a 10-year-old ban on sugarcane growing in the Amazon rainforest’ (3).
The Greenpeace allegations are rejected by Tate & Lyle Sugars which maintains Australia and Brazil ‘have the highest numbers of sugar producers who are certified for the highest ethical environmental standards in the world’ (2). This debate needs to be seen in a context where the Covid-19 linked collapse of oil prices and the shift of Brazilian cane from ethanol to sugar production, alongside the collapse of the value of the Brazilian Real, has seen Brazilian sugar being offered at record low prices. It is this economic dimension which is a source of concern to the National Farmer Union (NFU) in the UK.
The NFU maintains that despite the UK sugar industry ‘being the third lowest cost sugar producer in the world’ it ‘cannot compete on the same terms as sugar growers elsewhere who have access to state support or technologies that are illegal in the UK.’ The NFU maintains the ATQ would ‘distort competition in the sugar market and lead to unfair competition for UK growers by failing to uphold environmental standards for imported product, off-shoring legitimate environmental concerns’ (3). It is argued it could ‘open the door for a new flood of cheap global sugar.’
British Sugar for its part is concerned the ATQ could ‘lead to long-term increases in raw cane imports and drive down British sugar prices (4).
Meanwhile the UK Department of International Trade asserts that through the ATQ the government has ‘sought to balance strategic trade objectives, such as the delivery of the UK’s trade ambitions and FTA trade agenda and the interests of domestic production, processing and consumption, whilst maintaining the government’s commitment to developing countries to reduce poverty through trade.’ Given this pursuit of multiple often contradictory objectives it is not surprising the UK government emphasises the right to review the ATQ in due course (2).
| Comment and Analysis The debate on the new UK duty free sugar ATQ is becoming heated, with its effects on the UK sugar market and prices being fiercely contested. Before considering this debate, a number of points of contention need to be clarified. Firstly the £73 million gain for Tate & Lyle Sugars over-estimates the saving for Tate & Lyle Sugars, since compared to current patterns of UK imports the tariff gain is only €98 per tonne. Tate & Lyle Sugars finds it commercially unsustainable to import sugar at the full tariff and so only imports under the existing EU CXL tariff. This is important since this €98/tonne tariff supports the price ACP suppliers can obtain. The actual saving is thus €25.5 million on the ATQ imports, plus the saving arising from the depression of ACP prices, resulting from the increased access to world market priced zero duty sugar.The second point to note is that while Tate & Lyle Sugars is the sole dedicated raw cane sugar refiners, British Sugar has the capacity to co-refine 250,000 tonnes of raw cane sugar, with a dedicated ‘fair-trade sugar bagging line alongside its organic sugar bagging line’ at its UK facilities (5). The big difference between British Sugar and Tate & Lyle Sugars is that British Sugar has close corporate links to Southern African sugar producers, which are some of the lowest cost producers of sugar in the world.Depending on market developments in the UK and market opportunities regionally in Africa and globally, British Sugar thus also has the capacity to import and refine raw cane sugar. The principal difference with Tate & Lyle Sugars is that British Sugar has no need for the ATQ to access low cost duty free raw cane sugar, since producers within its corporate family already enjoy duty free access to the UK market, either under rolled over UK Continuity Agreements or the UK’s rolled over scheme in favour of least developed countries (LDCs). This is a direct consequence of the global sugar sector investment policy pursued by British Sugars parent company Associated British Foods (5).It is to this extent the new UK sugar ATQ primarily benefits Tate & Lyle Sugars and will probably be most significant in terms of future patterns of sugar imports from Brazil.While the ATQ is equivalent to 58.2% of Tate & Lyle Sugars current imports it is equivalent to only 26% of Tate & Lyle Sugars dedicated installed raw cane sugar refining capacity. The impact of the new sugar ATQ on existing ACP exporters will thus depend on:a) The overall development of the supply situation on the UK market, most notably whether an EU/UK FTA is concluded before the end of 2020 which maintains existing duty free-quota free access for EU27 sugar exports to the UK.b) How the UK manages the ATQ and specifically whether it is used solely as a market stabilisation mechanism in the event of supply shortfalls.The worst-case scenario from an ACP perspective would be an EU/UK FTA agreement which preserves current EU27 duty free access to the UK market alongside the full activation of the ATQ on a ‘first come-first served’ basis. This would see Tate & Lyle Sugars replacing ACP sugar with sugar sourced under the ATQ. The best-case scenario from an ACP perspective would be a no-deal UK departure from the EU customs union and single market and the application of standard UK MFN tariffs on imports of sugar from the EU27, alongside the use of the ATQ solely as a market stabilisation mechanism in the event of supply shortages. This would be likely to see an increase in UK sugar prices, as the duty free ATQ for sugar was only drawn down on in the event of a supply shortfall. This would be likely to see the volume of Tate & Lyle Sugars purchased from ACP/LDC suppliers unaffected, with any expansion of Tate & Lyle Sugars current capacity utilisation drawing down on this duty free ATQ sugar should this quota be opened. There is however a danger in this ‘best case’ scenario. If UK sugar prices did not rise sufficiently to transform the commercial position of Tate & Lyle Sugars Thames refinery and if Tate & Lyle Sugars access to duty free world market priced sugar continued to be limited, then the future financial viability of the Thames refinery would remain perilous with a real risk that the plant could face closure given its current losses. Managing the ATQ in ways which keep the Thames refinery operating as a buyer for ACP/LDC raw cane sugar, will thus be a delicate balancing act. In this context it looks like ACP sugar exporters will face a tense period, as profound UK policy uncertainties remain, while annual supply contract negotiations are now underway. These uncertainties suggest Tate & Lyle Sugars is likely to use the potential availability of the 260,000 duty-free ATQ as a means of negotiating down the prices offered for raw cane sugar from ACP/LDC suppliers. To a certain extent this will be an intra corporate process, since in 2019 fully 34.5% of UK imports of raw cane sugar came from Belize, where the major exporter, Belize Sugar Industries, is part of the Tate & Lyle Sugars/American Sugar Refiners corporate family. It should be noted the arrangements for the UK sugar ATQ appear to be structured in such a way as to hold out the ‘carrot’ of market access for sugar to Australia and Brazil, at a time when the UK government is seeking its own bilateral free trade area agreements with these countries. Opening the sugar ATQ, on the basis of a ‘definite maybe’, with the potential to withhold or defer its opening, would thus offer and incentive for these governments to accelerate the FTA negotiations the UK is seeking to launch. |
Sources:
(1) Guardian, ‘With this new lot, the Lords looks ever more like a house of ill repute’, 1 August 2020
https://www.theguardian.com/commentisfree/2020/aug/01/truly-the-lords-becomes-ever-more-a-house-of-ill-repute
(2) Guardian, ‘Brexit backers Tate & Lyle set to gain £73m from end of EU trade tariffs’, 8 August 2020
https://www.theguardian.com/business/2020/aug/08/brexit-backers-tate-lyle-set-to-gain-73m-from-end-of-eu-trade-tariffs
(3) Greenpeace, ‘Brexit backing sugar refiner gets sweetheart deal on cane imports’, 8 August 2020
https://unearthed.greenpeace.org/2020/08/08/brexit-sugar-cane-tate-lyle-sweetheart-conservative/
(4) The Grocer, ‘Does new UK tariff policy mean cheaper sugar?’, 4 June 2020
https://www.thegrocer.co.uk/fmcg-prices-and-promotions/does-new-uk-tariff-policy-mean-cheaper-sugar/605481.article
(5) CTA Agritrade, ‘British Sugar/Associated British Foods: Corporate Profile’, July 2014
https://agritrade.cta.int/content/download/272873/3290390/file/f8167610ddf4b7f92cd40620f6c024e5.pdf
Annex UK Sugar Imports 2019
| 2015 | 2016 | 2017 | 2018 | 2019 | % share 2019 | % change 2015-19 | |
| UK Total Extra EU | 625,906 | 569,794 | 493,681 | 457,387 | 466,403 | -24.5% | |
| Traditional ACP | 516,961 | 348,193 | 260,996 | 303,586 | 324,371 | 69.5% | -37.3 |
| Belize | 98,892 | 77,861 | 28,731 | 136,626 | 161,091 | 34.5% | +62.3% |
| Fiji | 100,236 | 65,434 | 67,200 | 15,000 | 57,000 | 12.2% | -43.1% |
| Guyana | 167,539 | 51,428 | 96,484 | 57,139 | 47,951 | 10.3% | -71.4% |
| Mauritius | 71,373 | 53,810 | 38,098 | 18,843 | 29,224 | 6.3% | -59.1% |
| Mozambique | 20,000 | 7,240 | – | 31,600 | 21,284 | 4.6% | +6.4% |
| Jamaica | 45,940 | 24,139 | 19,281 | 21,025 | 6,600 | 1.4% | -85.6% |
| Zambia | 0 | 0 | 0 | 0 | 11,590 | 2.5% | + n.a. |
| Malawi | 12,239 | 9,126 | 5,427 | 3,078 | 921 | 0.2% | -92.5% |
| Barbados | 375 | 476 | 575 | 275 | 300 | 0.06% | -20% |
| Eswatini | 366 | 58,679 | 5,200 | 20,000 | 0 | 0% | -100% |
| Sub-Total % | 82.6% | 61.1% | 52.7% | 66.4% | 69.5% | ||
| South Africa | 4 | 4 | 66,070 | 55,280 | 71,037 | 15.2% | + n.a. |
| RSA % share | 13.4% | 12.1% | 15.2% | ||||
| Non-ACP LDCs | |||||||
| Laos | 0 | 30,750 | 0 | 0 | 0 | 0% | n.a. |
| 5.4% | |||||||
| Non-ACP | 109,312 | 190,851 | 166,615 | 98,521 | 70,995 | 15.2% | |
| Costa Rica | 36,961 | 17,504 | 16,307 | 2 | 33,029 | 7.1% | -10.6% |
| Brazil | 36,319 | 83,285 | 25,531 | 74,239 | 14,381 | 3.1% | -60.4% |
| El Salvador | 0 | 32,978 | – | 21,809 | 6,062 | 1.3% | n.a. |
| Colombia | 3,467 | 1,405 | 2,149 | 580 | 2,393 | 0.5% | -31.0% |
| Guatemala | 9,600 | 42,255 | 12,068 | 20 | 991 | 0.2% | -89.7% |
| Australia | 1 | 9,925 | 2 | 1 | 0 | 0% | n.a. |
| Argentina | 800 | 1,390 | 84,434 | 204 | 422 | 0.1% | -47.3% |
| Others | 22,164 | 2,109 | 26,124 | 1,600 | 13,717 | 2.9% | -28.1% |
| 17.5% | 33.5% | 33.7% | 21.5% | 15.2% |
Source: EC, Market Access Data Base
https://madb.europa.eu/madb/statistical_form.htm