Myths & Misconceptions: Cane Sugar Refining in Europe
This note sets out the facts that rebut the top twelve common misconceptions circulating in Brussels
and around Europe with regard to the sugar sector, cane refining, EU policy and competitiveness.
These misconceptions are particularly dangerous because they undermine efforts to introduce a
rational and fair EU policy for a competitive European sugar sector. They fall into four main
categories:
1) Restructuring for a competitive sugar sector;
2) Market considerations;
3) Trade & development and finally
4) CAP Reform
I.
Restructuring for a competitive sugar sector
Misconception 1: While the EU sugar beet sector suffered a drastic and painful restructuring
process over the period 2006 to 2010, the cane refiners have not faced this
challenge.
The Facts: Refiners have had to drastically restructure ever since they were first bolted on to the EU
beet-dominated sugar market and beet-focused EU sugar regime when the UK joined the European
Economic Community (EEC) in 1973. This restructuring led to the closing of five of the original six UK
cane refineries due largely to the EU imposed restrictions on access to raw material. This
rationalisation was achieved with no EU financial assistance and thus at considerable cost to the
companies in terms of jobs and cost. There is no scope for further rationalisation or concentration
of UK refining capacity.
The real debate however should not lie in discussing who has suffered the most, but how EU
legislation should re-establish fair terms of access to raw material for European manufacturing
sectors producing the same product, despite differing raw materials and manufacturing models.
Refiners did not directly contribute to the restructuring fund. However in the transitional phase t0o
2009 the minimum price refiners were required to pay by legislation was kept much higher than the
minimum beet price processors were required to pay beet growers. This was so that refiners could
continue to pay preferential suppliers a higher price for longer, in order to cushion the impact of the
price cuts on ACP suppliers.
Misconception 2: Traditional raw sugar refiners in Europe received a transitional aid of €150
million without any counterpart
The Facts: As part of a much broader restructuring scheme for the sugar industry, Council Regulation
(EC) 320/2006, Article 8 (implemented by Commission Regulation (EC) 968/2006, Article 15)
authorised a total aid of €150 million for refiners. On the basis of business plans approved by the
member states, of this total €94.3M went to full-time refiners (“FTR”) in the UK, €24.8M for FTR in
France, €24.4M for FTR in Portugal, €5.0M for FTR in Finland and finally €1.5M for FTR in Slovenia.
In contrast and under the same broad restructuring programme, the beet industry received around
€5 BILLION in aid.
The Council Regulation was specific that the aid could only be granted on the basis of a business plan
approved by the Member State relating to the adaptation of the situation of the FTR concerned to
the restructuring of the sugar industry. The Commission Regulation went on to lay out explicitly the
nature of the actions and measures that the business plan had to include. These plans and the
ultimate deliverance of the projects have been thoroughly audited. Tate & Lyle Sugars received the
monies for actions which included reducing cost, adding value and securing raw material supply.
II.
The Market & Commercial Behaviour
Misconception 3: The refining industry made a strategic choice to increase their production
capacity, causing the current market problems
The Facts: The increase in refining capacity in the EU stems from beet processors diversifying into
cane, not cane refiners increasing their own production. Since the 2006 reform three new full-time
refiners in Portugal, Italy and Spain have started operations thanks to the investments of beet
processors, respectively DAI, SFIR and British Sugar, using restructuring funds and in some cases
equipment from beet plants closed as part of the 2006 reform. Refining capacity has also been
developed in plants that still process beets as their main function (commonly referred to as corefining and off-crop refining). Plants in the, Germany, Poland, Spain, Hungary, and the Netherlands
have all seen investment by beet processors to create this cane refining capacity. Some of the beet
processors who have developed this refining capacity are, in fact, owned by beet growers cooperatives.
Cane refiners welcomed the 2006 reform to open up their sector to new entrants. The problem lies
elsewhere: by opening the sector to competition, the EU legislator created new demand for raw
sugar imports and then forecasted that imports of raw sugar from the ACP and LDC preferential
suppliers would almost double over the current period. If the forecasts had proven correct, there
would have been ample supply for all refiners. Unfortunately, the forecasts have proven woefully
incorrect and inadequate to meet the growth in demand. Furthermore, the Commission has not
corrected the EU supply shortfall by allowing sufficient raw sugar at zero duty from other sources.
Misconception 4: The refining industry underestimated the increased competition that would
result from the 2006 reform as the sector was open to new operators and
supply guarantees were eliminated
The Facts: On the contrary refiners welcome competition on fair terms, but this is not the current
situation. Indeed, they were well aware of the economic consequences of Europe’s political decision
to welcome new entrants into refining without also guaranteeing increased imports of the raw
material all refiners require. Faced with this contradiction, traditional cane refiners campaigned
throughout 2004 and 2005 for a mechanism to ensure that any increased demand would be
matched by new supplies, but failed to convince policy makers.
As a result, today the beet sector enjoys complete protection from new entrants through the quota
system and, in many cases, do not even face competition when buying raw material as the growers
are located in countries where there is only one quota holder. In contrast, the cane refining sector is
open to all including those that benefit from an effective cross-subsidy from beet quota processing.
Misconception 5: The refining industry did not foresee that the cost increase of sugar production
in Brazil (one of the world’s largest producers) would provoke rises in world
market prices which have made the EU less attractive for imports
The Facts: This criticism, levied as world sugar prices climbed to record highs in recent years, has no
basis in fact. The reasons for the import deficit are numerous, but one thing is clear: sugar from the
LDCs and ACPs is not being exported to other, more lucrative, markets because the EU is less
attractive to imports. Data from the International Sugar Organisation (“ISO”) clearly show that cane
sugar exports from these developing countries to all markets, not just the EU, have fallen since 2005.
Sugar exports from preferential countries have fallen from 2005 to 2010, the last full year for which
ISO data is currently available. See graph below which shows the total exports split by EPA region /
LDC category.
Aside from the Commission’s overly optimistic forecast of imports (3.5 million tons in 2012-13), the
reasons for the current shortfall of some 1.5 million tons in imports are almost all structural.
Production is in decline in a number of preferential supplying countries, a tragic fact given the
importance of the industry in many of these small and vulnerable economies, and a trend which we
should be seeking to reverse. Meanwhile, growth in other countries is well behind the EC forecast
due to multiple obstacles. The financial crisis has restricted access to capital for investment, whilst
the EU’s disbursement of funds for sugar accompanying measures is slow. Finally, where sugar
production is growing, much of the additional supply is consumed by the producers’ own growing
populations.
Misconception 6:
There is a structural overcapacity in the EU refining industry despite the
constant increase of EU sugar imports since 2006
The Facts: EU sugar imports have increased, but much of the increase results from the ad-hoc
market management measures that the European Commission has taken in the 2010/11 and
2011/12 marketing years. The extra raw sugar imports from these measures have totalled 0.874M
tonnes to date, of which 0.679M tonnes have been subject to high import duties. Access to these
extra imports has been available to almost any operator, including beet quota holders and
speculators. Meanwhile 0.382M tonnes of white sugar has been imported under Commission
‘exceptional measures’. This policy legislation enabling the import of white sugar, whilst EU cane
refiners struggle to survive, is tantamount to the export of EU jobs.
In parallel, the European Commission has allowed the sale of an extra 1.210M tonnes of out of quota
sugar and isoglucose on the EU market, but access to this sale has been strictly limited to quota
holders and at a significantly lower levy than that charged to the importers.
The 2005/2006 reform approved by the Council of Ministers did not foresee this is effective quota
increase, so the European Commission had to make use of a loophole in the Council Regulation to
make it happen. The use of this loophole is currently subject to a legal action by Tate & Lyle Sugars
and its sister refinery Sidul in Portugal, supported by a number of other European refiners. See case
summary T-279/11 in OJ C232/33 of 6 August 2011 and T-103/12 in OJ C151/55 of 26 May 2012.
Of the 4.1M tonnes imported in 2010/11, only 2.1M tonnes was raw sugar for refining. Of the
remaining 2M tonnes of refined and direct consumption sugar imports, more than 0.5M tonnes was
sugar in processed products, 0.3M tonnes was refined sugar imported from refineries outside of the
EU under the European Commission ad-hoc measures, and nearly 0.3M tonnes was imported from
the Western Balkans. This is over 1M tonnes of refined sugar imports that EU refiners should at least
have the opportunity to compete with by having access to a fair volume of raw sugar. This would
allow cane refiners to compete with the refined sugar imports themselves, or supply refined sugar to
European food manufacturers to compete with the processed product imports.
Misconception 7: The request by refiners for guaranteed access for 3.5 million tonnes of world
market sugar is completely unacceptable
The Facts: The refining industry is not asking for a guarantee of duty-free access to 3.5 million
tonnes of world market raw sugar. Refiners simply want to ensure sufficient supplies of raw material
in line with the volumes forecasted by the Commission and on which the cane refining sector was
open to all processors and according to which beet quotas were set.
In all cases the first course of action to fill this supply should go to those countries that have
preferential access to the EU market such as the ACP/LDC, CXL, DOMs, and FTAs as well as future
bilateral or multilateral trade deals. Only when these countries cannot supply sufficient quantities in
any one year are refiners asking to buy the missing volumes from other suppliers. Indeed current
sugar regime legislation gives provision for more than 4 million tonnes of raw sugar for refining to be
accessible to the EU refiners at zero or reduced duty.
III.
Trade & Development
Misconception 8:
If refiners were competitive, they could reinforce their profitably by refining
raw sugar under the Inward Processing Relief scheme where they import raw
sugar duty free provided they re-export the same quantity of refined white
sugar or processed products
The Facts: Refiners, like any operator in the EU sugar market, can use the Inward Processing Relief
(“IPR”) scheme to import sugar from the world market and re-export the equivalent volume to nonEU markets. In so doing, import duties are suspended.
However, in most cases, this procedure is simply not profitable for EU refiners competing with
domestic competitors in the export market. For instance, the key sugar export markets accessible to
EU exporters (beet or cane) lie in North Africa and the Middle East where new full time cane
refineries are under construction as the most cost effective and reliable way to serve their local
sugar markets. A local refinery imports raw material directly, refines and sells on the local market
while an EU refinery first imports the raw material into the EU, processes it and then exports the
refined sugar to the overseas market. This extra freight movement can cost more than the margin of
the local refiner.
The EU refiner must also compete with out-of-quota beet sugar for the same markets. These exports
depress the market price in the export markets, notably because they arrive in waves linked to the
issuance of export licences in blocks by the European Commission regardless of the market
conditions in the export country. As a result, prices of EU out-of-quota beet sugar can even undercut
a competitive local refiner.
Misconception 9: The end of the transitional period in 2015 for import liberalisation from ACP
and LDC countries will increase refiners’ access to raw sugar
The Facts: Removal of this threshold mechanism in 2015 will not by itself increase supply from the
ACP and LDC countries. The level of raw sugar exports from these countries is currently so far below
permitted duty-free sales that there is no reasonable expectation that they can increase production
significantly beyond current levels. This is despite Tate & Lyle Sugars efforts to improve the
productivity of these suppliers and to tackle deep-rooted mill and grower challenges. In practice,
imports from the ACP and LDC currently total less than 2M tonnes, and their governments have
stated publicly that they will not reach 3.5M tonnes in exports even during the next sugar CMO,
from 2015 to 2020.
Misconception 10: From 2013 a series of bilateral agreements especially with Central America and
the Andean countries will grant preferential access to an additional 270,000
tonnes of raw sugar
The Facts: The EU is in the process of ratifying and implementing trade agreements with Central
America1, and is forging ahead with bilateral agreements with Colombia and Peru2, although its
regional deal with the Andean Countries is delayed. Subject to timely European Council and
European Parliament approval, these deals will allow the export to the EU of both sugar and high
sugar content goods starting at 246,000 tonnes in 2013 rising to around 305,000 tonnes per year by
2020.
Although raw sugar for refining is just one of the products that can benefit from this quota, the
refining sector reasonably expects that raw sugar will benefit from around 50% to 70% of the total
due to the competitiveness of the refining sector. If raw sugar represents 70% of the imports, this
will still bring in only about 200,000 tonnes of extra raw sugar for refining supply out of the 1.5
1
http://trade.ec.europa.eu/doclib/press/index.cfm?id=689. Appendix II, paragraph 9 refers to sugar and high
sugar content products.
2
http://trade.ec.europa.eu/doclib/press/index.cfm?id=691.
million tonnes gap between the European Commission’s forecast for the ACP/LDC countries (3.3M
tonnes in 2011/12) and the actual expectation (1.8M tonnes in 2011/12).
The impending bi-lateral agreement with the Ukraine is for white beet sugar, so will not have any
benefit to Europe’s cane refiners.
Misconception 11: The EU beet sector, growers and beet are paying for the consequence of the
refiners’ over investments already financed by the European taxpayer!
The suggestion that it is the traditional refining sector that has spent EU taxpayers’ money on
expansion is ludicrous and fails to understand the complete regulatory framework. As European
manufacturers, refiners are seeking only fair terms of competition that allow them to compete on a
equal basis with the beet processors for the production of the same end product – sugar – from
different raw material and manufacturing models.
The EU authorised new entrants into the refining sector based on its irresponsible forecast that
ACP/LDC exports of raw sugar to the EU would increase to 3.5M tonnes by 2012/133. The new
entrants are almost exclusively beet processors diversifying into cane refining. At the same time
however, beet processors benefit from a quota for their raw materials which acts as an effective
barrier to entry into the beet sector.
Redressing this blatant imbalance between cane and beet processors is fundamental to building a
competitive and sustainable sugar market in Europe.
IV.
CAP Reform
Misconception 12: The objective of the new CAP post-2013 is to secure the EU white sugar market
so that domestic sugar beet production maintains its 85% share of EU
consumption while respecting the EU’s commitments to both the WTO and
preferential access to over 60 countries.
Neither EU legislation nor the block’s policy objectives stipulate that beet production should secure
85% of EU sugar consumption. The goal of legislation should be to set out fair terms of competition
so that the marketplace and consumers chose and determine the outcome. Sadly in the EU this is
not the case.
If current and proposed policies continue to restrict access to raw materials, cane refiners will not
survive as part of the supply mix in Europe’s sugar sector. Their disappearance would be regrettable
but understandable if they were uncompetitive in a market sense. But this is not the case. Cane
refiners are being driven out of business by policy choices that prevent a level playing field among
beet, cane and isoglucose producers.
3
These forecasts are laid out in detail in Council Document 11255/05 page 4 – see lines entitled “of which
ACP/India” and “of which minimum EBA/SPS”.
Finding a fair legislative balance between the three very different European models of sweetener
manufacturing will be politically difficult, but technically and commercially, the EU knows what
needs to be done. Moreover, establishing this balance is mandatory if Europe wants to build an
agricultural and food manufacturing sector that is globally competitive and provides high quality
products, choice and competition for its consumers.
End