Britain’s sugar industry owes its existence to a period of poor European relations. When the British Navy blockaded Napoleon’s ports, the French leader experimented by growing sugar beet to feed his people. The industry was so successful that it later spread across the Channel.
Brexit negotiations will hopefully be carried out in a more friendly spirit, but they offer opportunities and raise risks with which policymakers are only just beginning to grapple. The British beet sugar industry is a prime example of the complex issues involved. When Britain leaves the EU, it will have the ability to set its own trade policies on a great many issues – sugar included. At a dinner at The Spectator’s offices, sponsored by British Sugar, a group of policymakers, MPs and journalists sat down to discuss the issues at stake.
Britain’s home-grown sugar industry is highly successful. Sugar beet is grown in Britain and processed in four advanced manufacturing plants belonging to British Sugar, a subsidiary of Associated British Foods, supplies about 50 per cent of the UK’s demand for sugar. The industry supports 9,500 jobs in the UK economy and does not require subsidy: its plants are among the most efficient in the world. Besides sugar, the industry produces animal feed, electricity and bioethanol – a bio fuel added to petrol.
Current EU policy impacts on the sugar industry in several ways. While there are no subsidies specifically for sugar beet production, farmers growing it do benefit from the EU Single Farm Payment which is paid to landowners based on their land area kept in ‘agricultural condition’. Currently, the EU still operates a highly regulated sugar regime, with a quota system which limits production country by country, and minimum beet prices. However, in October, the EU is removing these quotas and minimum prices (a move which has nothing to do with Brexit). Also, sugar imports into the EU are subject to tariffs. Brazilian producers, for example, pay 98 euros per tonne they import to the EU. If they exceed a set quota, this rises to the WTO level of 339 euros per tonne. Britain’s sugar importers argue that this is an unfair protectionist barrier that means consumers pay more. The exception to the tariffs, under EU rules, is sugar from the Least Developed Countries (LDC), which are allowed to export sugar to the EU tariff-free. In some of these countries sugar cane farmers are dependent on the UK for up to 90 per cent of their sales.
So what to do after Brexit? Britain will be able to choose either to liberalise its food markets or to maintain some form of protection. We could abolish agricultural subsidies and open our markets to some countries in return for access to theirs. Paul Kenward, Managing Director of British Sugar, is confident that his business can compete – on equal terms – with anyone in the world. What he fears, though, is what he calls ‘dumping’. Brazil, for example, developed a huge sugar cane industry so that it could reduce its dependence on foreign oil producers – much of the sugar it produces is turned into bioethanol to power road vehicles. When oil prices fall it can mean large quantities of surplus sugar, and the trouble is that a Britain without any import tariffs on sugar would be left vulnerable to this, almost alone in the world.
‘I am not saying we would close our four sugar beet factories if all tariffs were removed,’ said Kenward, ‘but it would be difficult for us to carry on investing £50 million a year in them. If we remove tariff barriers entirely, Brazil and Thailand would look to Britain to dump sugar because other countries would still have tariffs.’
Should agricultural subsidies go? It is inevitable that there will be calls for reform, given that at present farmers don’t even need to produce food in order to qualify for the EU Single Farm Payment. This leads to the absurd spectacle of oranges left to rot in groves because the growers are paid anyway. Iain Duncan Smith, the former work and pension secretary and prominent Brexiteer, cited the case of New Zealand, where subsidies were abolished almost overnight – and while some farmers went to the wall the long-term result has been a stronger, better quality agricultural sector.
At the heart of this question, as with most agricultural issues, is how to balance the competing interests of producers and consumers. In a Britain without any tariffs on imported food, consumers would benefit from lower prices – at least in the short term. Consumers does not just mean shoppers: the food processing industry itself is large buyer of sugar. Duncan Smith said that there is another question about what environment we want: in some countries, he said, farms are not productive but add to tourism. Kate Andrews, from the Institute of Economic Affairs, said that this would be fine, if the use of the taxpayers’ money was honest. ‘But to subsidise a very small percentage of British jobs, at the expense and peril of consumer prices, is more worrying.’
Kenward said that this is a hard question for many industries, but the majority of sugar that comes into Britain is tariff-free – and is a small component of the consumer prices. If there were to be an 80pc tariff on European sugar, he said, that would add just 1p to a can of soft drink. ‘It’s not a big number.’
Michael Sly, Chairman of the NFU Sugar Board and who himself farms 1,600 hectares in the fens, is doubtful that British consumers would cheer a deregulated market. He foresees problems if liberalisation of UK markets opens the door for imports of food which is not produced in accordance with British standards. ‘Can you imagine the headlines if we started importing meat from the US, where it is allowed be washed in chlorine?’ he asked.
Leaving the EU does not in itself commit Britain to any particular agricultural or trade policy. But it does repatriate policy-making to the UK. How the freedom to set our own rules should be exercised is going to dominate debate longer than the mechanics of Brexit.