Summary
The UK government has launched a public consultation on its new 260,000 tonnes duty free sugar ATQ. A critical issue will be how the UK manages the ATQ. Given the profound uncertainties around the future supply situation on the UK sugar market arising from the unresolved EU/UK trade negotiations a strong case exists for the adoption of a carefully managed application of the sugar ATQ, with its deployment being regulated to prevent both the emergence of supply surpluses or supply deficits on the UK market in the course of 2021. Such an approach would be beneficial to both ACP/LDC sugar exporters and domestic UK sugar beet producers and processors and could also support the attainment of public health policy objectives, if it was used to foster a gradual increase in UK sugar prices. Two complicating factors however exist, namely: the depth of the impending Covid-19 recession in the UK and the serious commercial challenges facing Tate & Lyles Sugar, which desperately needs to expand the capacity utilisation of its Thames refinery in the context of more remunerative market prices for sugar. The question arises as to whether the experience and capacity exists in the hard pressed UK government administration for the nuanced and sophisticated management of the new sugar ATQ.
On 14th September the UK launched a public consultation on the management of its planned 260,000 tonne duty free autonomous tariff quota (ATQ) for imports of raw cane sugar. The consultation will run for 3 weeks and end at 11.45 pm on 5th October. Three major questions are posed in the context of the consultation:
- Should the UK ‘have a sugar ATQ or not’?
- ‘What volume of an ATQ’ should be established if one is to be established?
- What would the ‘effect of any sugar ATQ’ on specific sectors or businesses? (1)
The current sugar ATQ is scheduled to run for one year from 1st January 2021 (1).
In the information pack the UK government prepared as background to the consultation it emphasised how the ATQ is intended ‘to balance support for UK producers, processers, and consumers whilst maintaining preferential trade with developing countries and supporting the UK’s ambitious free trade agreement (FTA) trade agenda’(2). As such the consultation is intended to provide information so the UK government can take into account the:
- ‘interests of consumers in the United Kingdom’
- ’interests of producers in the United Kingdom of the goods concerned’
- ‘desirability of maintaining and promoting the external trade of the United Kingdom’
- ‘desirability of maintaining and promoting productivity in the United Kingdom’
- ‘extent to which the goods concerned are subject to competition’ (2).
Significantly the information pack highlights the need to ‘balance strategic trade objectives…with maintaining the government’s commitment to developing countries to reduce poverty through trade’ (2).
It is envisaged the review ‘could result in an increase, maintenance, or reduction, of the volume of the ATQ or the complete removal of the ATQ’ (2). However, the UK government is also open to ‘alternative courses of action’ if the evidence suggests such alternative courses of action are appropriate.
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The UK Sugar Regime ‘The UK sugar market produces around 1.9Mt of refined white sugar per annum and is made up primarily of sugar cane refining, UK sugar beet refining and EU white sugar imports’. Domestic UK sugar beet production now accounts for around 55% of UK sugar consumption. ‘There is a UK cane refinery based in London, where raw cane sugar is imported and converted into white sugar and other products for human consumption’, with most of the UK’s raw cane sugar imports coming from ACP and Less Developed Country suppliers, who enjoy duty free access to the UK market. However the cost structure of many of these ACP/LDC suppliers is higher than the most competitive global raw cane sugar producer, Brazil. The UK therefor also imports from raw cane sugar producers like Brazil, where import duties are levied under current EU sugar trade regime arrangements. ACP Countries % Share of UK Imports of Raw Cane Sugar
gov.uk, ‘Sugar ATQ consultation (2020): information pack’, DIT, 14 September 2020 |
Significantly between 2017/2019 the UK imported an average of 522,000 tonnes per annum of mainly refined sugar from EU27 suppliers, compared to an average of only 436,000 tonnes of raw cane sugar from the rest of the world (including ACP suppliers). UK imports from EU27 suppliers were thus on average 20% higher than imports of raw cane sugar from the rest of the world.
The UK for its part exported an annual average of 196,000 tonnes of refined sugar products to the EU27 market and 76,000 tonnes per annum to the rest of the world (including ACP countries) (2).
It is noteworthy that since 2017 total UK raw cane sugar imports have fallen. Indeed, they have been on a downward trend since 2008, when UK extra-EU imports peaked at 1,282,442 tonnes (3). This has seen the share of imported cane sugar in the UK market falling from 50% in 2010 to between 25% and 30% currently (2).
Total UK Extra-EU Imports of Sugar 2010-2019 (tonnes)
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
| 1,005,961 | 908,929 | 675,312 | 787,301 | 729,634 | 625,906 | 569,794 | 493,681 | 457,387 | 466,403 |
The UK government’s background document seeks to set the new sugar ATQ in the context of the relatively high price of ACP/LDC sugar (2). While it is implied this is linked to the higher production costs of ACP/LDC suppliers , in reality it is linked to the operation of the EU sugar import regime, which raises the costs of importing sugar from non-preferred sugar suppliers. The EU sugar trade regime has given rise to serious challenge for the UK’s dedicated raw cane sugar refiner Tate & Lyle Sugars, which is unable to ‘source competitively priced raw cane sugar’ (2).
This is seen as undermining the long term viability of the UK’s dedicated raw cane sugar refining sector and the role it plays as ‘a market for raw sugar cane exports from developing countries’ (2). The background note further highlights how the state of ‘competition in the UK between beet and cane processors could affect the prices paid by domestic consumers which may in turn have an impact on the wider economy’ (2).
It is maintained ‘for as long as the UK is a structural net importer of sugar, domestic white sugar prices will continue to be driven by import parity from the most competitive source of imports (currently the EU, given the prevailing level of tariffs on white sugar)’ (2).
The background note also seeks to place the ATQ in the context of the benefits to be gained from maintaining a ‘diversity of supply to the UK for food security reasons’ (2).
The public consultation document contains 4 substantive sections allowing inputs to the consultation process from:
- domestic UK sugar producers (section 2)
- UK sugar importers (section 3)
- exporters of sugar to the UK (section 4)
- specific questions on the impact of the ATQ on individual stakeholders (section 5), which allow those making submissions to make their particular views on the ATQ known (4).
| Comment and Analysis
A critical issue which will need to be addressed will be how the 260,000 tonne sugar ATQ is to be managed. This issue of the future management of the ATQ needs to be seen in the context of the profound uncertainty which exists over the basis for future EU/UK trade in sugar and sugar containing products. This needs to be seen in a context where over the last three years imports of sugar from EU27 suppliers have accounted for fully 27.5% of total UK sugar consumption, and UK exports to the EU27 have been equivalent to 10% of UK sugar consumption. Should the UK leave the EU without an alternative basis for duty free trade in sugar and sugar products being in place, this will see the application of standard MFN tariffs on mutual EU/UK trade in sugar and sugar containing products. This would then halt the existing EU/UK trade in sugar. This would then carry profound implications for the functioning of the UK sugar market and UK price levels of sugar throughout 2021, with the prospect of rapidly rising UK sugar prices. However, if a EU/UK free trade agreement were to be in place and the sugar ATQ were to be opened on 1st January 2021 on a ‘first come first served’ basis, then this would lead to a surge in imports of raw cane sugar which would result in a glut of sugar on the UK market and a rapid decline in UK sugar prices, to the detriment of existing developing country sugar exporters and domestic UK beet producers. This suggests a need for a carefully managed application of the sugar ATQ, with its deployment being regulated to prevent both the emergence of supply surpluses or supply deficits on the UK sugar market in the course of 2021. This issue of the use of the sugar ATQ as a market stabilization instrument has already been raised by ACP sugar suppliers. The use of the ATQ as a market stabilization instrument, to prevent sugar market price volatility, would be beneficial to both ACP/LDC sugar exporters and domestic UK sugar beet producers and processors. Indeed, it can be argued that gradually rising UK sugar prices would not only be beneficial for ACP/LDC sugar exporters and domestic UK sugar beet producers and processors (both raw cane and beet sugar processors), but would also help support efforts to reduce the use of hidden sugars in food and drink products in pursuit of public health objectives, which have been thrown into sharp relief by the Covid-19 pandemic. However, this needs to be seen against the background of the impending onset of the worst economic recession the UK has faced in 100 years as a result of the Covid-19 pandemic. A further complicating factor is of course, the future commercial sustainability of Tate & Lyle Sugars Thames refinery, given the dramatic fall in UK raw cane sugar imports which has taken place since 2008 (see table above). The current low levels of capacity utilisation at Tate & Lyle Sugars Thames refinery is unsustainable for the parent company American Sugar Refiners. To ensure commercial sustainability capacity utilisation at Tate & Lyle Sugars Thames refinery has to be increased, but can only be increased if remunerative market opportunities exist. Herein lays the central challenge in the UK’s current consultation around the proposed 260,000 tonne ATQ. How do you allow the expansion of capacity utilisation at the Tate & Lyle Sugars Thames refinery, so as to maintain competition on the UK sugar market, while at the same time maintaining the value of existing trade preferences granted to developing ACP/LDC countries, so that the UK maintains a diversity of supplies of sugar, in the context of profound policy uncertainty around the main source of imports of sugar to the UK? While careful management of the sugar ATQ would appear to be essential, it is unclear whether the concerned UK government departments have the experience to manage the sugar ATQ in a subtle and nuanced manner which promotes market stability. Beyond this core issue, it should be noted the argument about maintaining the diversity of supply will be critically influenced by how the UK manages the ATQ. Opening the ATQ in full on a ‘first come first served’ basis would lead to Brazil supplying the lions share and would drive smaller sugar suppliers out of the UK market reducing the number of extra-EU sugar suppliers with a presence on the UK market. This would be likely to see an increase in the UK’s dependence on a limited number of raw cane sugar exporting countries. Finally, it is noteworthy that in section 4 of the consultation response form, where the region of origin of exports is referred to, no specific box exists for Caribbean ACP suppliers. This suggests the specific situation of Caribbean ACP sugar sectors is being overlooked in the framing of the consultation process. This is somewhat surprising given over the 2017-19 period Belize and Guyana together accounted for fully 36% of extra-EU UK raw cane sugar imports. |
Sources:
(1) gov.uk, ‘Autonomous tariff rate quota raw cane sugar consultation (2020)’, DIT, 14 September 2020,
https://www.gov.uk/government/consultations/autonomous-tariff-rate-quota-atq-raw-cane-sugar-consultation-2020
(2) gov.uk, ‘Sugar ATQ consultation (2020): information pack’, DIT, 14 September 2020
https://www.gov.uk/government/consultations/autonomous-tariff-rate-quota-atq-raw-cane-sugar-consultation-2020/information-pack
(3) EC, Market Access Data Base
https://madb.europa.eu/madb/statistical_form.htm
(4) gov.uk, ‘Public Consultation: Sugar ATQ Consultation Response Form, point of entry for response form