Ross Clark

What will Brexit mean for the UK’s sugar industry?

What will Brexit mean for the UK's sugar industry?
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The Spectator, in association with Tate & Lyle Sugars, brought together MPs, representatives from Tate & Lyle, the Fairtrade Foundation and the Australian High Commissioner to discuss the future of the UK sugar sector following Brexit. This is a report of the discussion which followed.

The sugar industry is an interesting case study for the opportunities as well as the challenges which could result from Britain’s departure from the EU. At present, 50 to 60 per cent of the sugar consumed in Britain comes from sugar beet grown and processed in this country. The industry has been subsidised since before Britain joined the EU and subsidy has continued under EU membership (not directly but via farm subsidies). It is also protected by tariffs on sugar imported from outside the EU, while prices within the EU have been kept high through quotas on sugar beet production – although in a development which has nothing to do with Brexit, the EU has now lifted these quotas.

The other 25 to 30 per cent of sugar consumed in Britain comes from raw sugar cane, which is refined by Tate & Lyle Sugars at a single factory at Silvertown in the East End of London. All raw cane sugar is grown outside the EU and is subject to hefty tariffs. Raw cane imported from Brazil, for example, is subject to a tariff of 98 euros per tonne, rising to a punitive 339 euros per tonne if Brazil exceeds a quota set by the EU. The tariffs have a serious effect on the profitability of Tate & Lyle’s business. In 2015 alone, EU policies artificially inflated their raw cane sugar cost by €40 million, resulting in a $25 million loss to Tate & Lyle Sugars. It would be a perfectly viable business were it not for the tariffs, says Gerald Mason, senior vice president at Tate & Lyle Sugars – which is why the company was one of the few large businesses to come out vociferously in favour of Brexit.

To complicate the matter, the EU does allow sugar manufacturers to import some cane tariff-free, from some developing countries, as a means of helping their farmers. Following Brexit, we could decide to carry on protecting our sugar beet industry in much the same way as now, we could fully liberalise trade, or we could establish some kind of halfway house, where British farmers continue to receive some form of support but sugar refiners can trade more freely.

Australia provides a model for liberalisation of trade in food and drink. When Britain joined what was then the Common Market in 1973, Australian food producers exporting to Britain were suddenly hit with large tariffs, damaging the dairy and meat industries. Australia searched for new markets in Asia, negotiating free trade deals and stripping subsidies from its own agriculture. Farmers had to change the way they did business. 'The effect was that their capital, the land, was much better deployed,' says Alexander Downer, Australia’s High Commissioner to the UK.

One thing is for sure: if Britain is going to forge its own bilateral trade deals with countries beyond the EU, it is going to have to open up its food markets. We can’t expect to sell cars tariff-free to Australia, for example, unless we are prepared in return to offer Australian food-producers tariff-free access to British markets.

Liberalisation of food markets could do us good in the long-term, says Bim Afolami, MP for Hitchin and Harpenden, but you have to separate the long-term economics from the short-term politics – which could mean farmers going to the wall. 'I don’t know if the British public is up for it,' he says.

Liam Halligan thinks liberalised trade might be an easier sell – even to the farmers. 'A lot of farmers are very entrepreneurial. Many UK farmers think the EU’s subsidies system is clunky and hugely bureaucratic. And much of the public think giving more public money to rich landowners under the CAP is immoral.' It could be easier to convey the benefits of liberalised trade if it were made clear to people now that it would mean lower food prices in the shops, thinks Ranil Jayawardena, MP for North East Hampshire. Post-Brexit, the government could pursue a much more consumer-focussed food policy. 'So, for instance, it was suggested that people should be able to buy British chicken – knowing what quality that is produced to; American chicken – knowing that may be produced to a lower quality; or, indeed, organic chicken, whether from Britain or elsewhere—knowing that it might be produced to the highest standard. Each has its own price point but, armed with the right information, this would allow consumers to make the choice that is right for them – lowering food prices, increasing disposable income and raising the quality of life for all.' Jayawardena adds: 'This support for farmers – alongside transitional support as they adapt to the new consumer landscape – would make sure that our landscape is protected and farmers are supported.'

But that forgets, says Rebecca Pow, MP for Taunton Deane and a member of a farming family herself, that many farmers in Britain don’t own their land – and so wouldn’t profit from it if it were developed. There is an argument, she thinks, for continuing to pay some form of agricultural subsidies but for particular public goods – like nature conservation, public access, farming land in such a way that it retains rainwater longer and helps alleviate flood risk in towns downstream.

The people it is easy to forget in this debate, says Helen Dennis, policy and advocacy manager for the Fairtrade Foundation, are the poorest farmers in the world. Many farmers in poor countries have high unit costs because they are producing food in small quantities. The EU arrangements which existed until recently suited them well. They were allowed tariff-free access to EU markets. Moreover, the now-abolished quotas on EU sugar beet production pushed up prices so that they could compete. In a fully liberalised food market, however, they would be unable to compete with mass producers in middle income countries like Brazil.

Farmers in the poorest countries are already being harmed by the end of EU quotas on EU sugar beet production. How we help them in a more liberalised market that might follow Brexit is a tricky question, concludes Gerald Mason. 'The choice for the UK will not be one or the other – beet or cane – there is room for both in the UK market., the UK Government has the opportunity to design a sugar policy that is right for the UK, taking in to account the needs of consumers, farmers and sugar producers.'