EU Sugar Regime (EUC Report)

My Lords, I must congratulate my noble friend on spotting that error, especially given that the report was published not so long ago, and on the masterly way in which he introduced this debate. I congratulate him too on his chairmanship of the Select Committee, which produced such an excellent report, and on his securing this debate so quickly after it came out. It gives us the opportunity to look ahead, which is what we must now do. I declare an interest as a non-executive director of Associated British Foods, which owns British Sugar. Inevitably, I shall have to say a great deal about the position of British Sugar. It is impossible to avoid doing so when one is talking about the sugar regime in terms of the UK. I live in Norfolk. I represented a constituency in Norfolk for 27 years, when I made extensive farming contacts. I hope that I still have farming friends in the community despite having once been Minister of Agriculture. I mention Norfolk because many of my friends there are sugar beet growers. I think that roughly one-third of the sugar beet that is grown in this country comes from Norfolk. Therefore, I have a dual interest in this debate. Sugar beet has been a staple crop in these pressing times, which—I cannot resist saying it to the Minister—have been accentuated by the Government’s failure to reach their target for paying a single farm payment. That is a source not only of great anger but great distress to many farmers. Sugar beet is one of the few crops which have produced good returns in these pressing times. There has understandably been much concern and uncertainty during the past few months while the regime has been negotiated and farmers have evaluated the outcome. These reforms are radical. British Sugar broadly supports them and has done so throughout. Recognising that they were imminent and knowing that they would have a considerable impact on its profits, British Sugar has been pursuing a strategy of diversification and restructuring, as farmers also have had to do. Some five to six years ago, about 50 per cent of ABF’s profits came from British Sugar. Today, because of the diversification, that proportion is 25 per cent. It is interesting that the impact of the reduction in profits from British Sugar in this coming year is likely to be at the same level as the impact of the much higher energy costs that we are facing. British Sugar supports the objective of achieving a more competitive, efficient and sustainable sugar industry in Europe which provides benefit to customers. I entirely agree with the Select Committee that to have left the regime unchanged would have signalled a distorted and wasteful use of resource in European agriculture. However, to make sure that the reform works effectively, the Commission and member states’ governments must ensure that their policies support the reforms and the agreed decisions, and that some member states do not try to block some of them. I look to the UK Government to keep up the pressure on that. We must, however, recognise how extremely challenging the new regime will be to both processors and growers. It will change fundamentally the shape of the industry in the European Union. My noble friend said that the Commissioner’s original proposals were weakened in the negotiations, but I know from my many years’ experience of negotiating on agriculture in the EU that that is a normal process. Every Commissioner expects some weakening as negotiators try to argue their own corner. It will be a challenging outcome for farmers and growers. If the regime becomes more efficient and sustainable, some countries will exit from beet—I believe that one country has already done so—and high-cost and less efficient processors and growers will disappear. We will have a new EU market that is smaller and has fewer large and efficient players. I wish briefly to refer to three issues, beginning with the position in the UK. British Sugar is committed to being a surviving industry and to continuing its strong record of efficiency and improvements to do that. For the avoidance of doubt—and over the past weeks and months I have had to reassure a number of Norfolk farmers about their doubts—I emphasise that British Sugar intends to continue production of its current quota for sale into the domestic market. Provided that we are able to secure adequate raw materials, we have no intention to renounce quota. In emphasising that proviso, the raw materials must come from UK beet growers so that there is a real incentive to work together. I am pleased to say that British Sugar is now the most efficient European sugar processor. It will have to continue the process of becoming more efficient through productivity improvements, technical innovation and investment. Likewise, the grower will have to improve productivity if we are to succeed in the new regime and continue to have a profitable crop. That is why British Sugar is setting growers a challenging target in the next three years or so and working with them to achieve an average of 70 tonnes per hectare across the industry, compared with 60 tonnes today, which itself is a huge improvement on earlier years. That is a challenging but achievable target, in line with the objective of the reform which is to drive the efficiency of the remaining European industry and to make it more sustainable. Regarding grower compensation in the UK, I support decoupling and agree with the NFU that beet growers should get the majority of the compensation until it is eventually absorbed into the single farm payment. I look to the Government to achieve that. Secondly, I have spoken more than once in this House about bioethanol, and I helped to secure an amendment that enabled the Renewable Transport Fuel Obligation to come about. That is relevant because, apart from the important objective of reducing the contribution of transport to global warming, it offers farmers another source of diversification. Unfortunately, we in this country started very late compared with many others in the development of bioethanol. The 2006 Budget report—not all of which I have read, but I did get to page 165—states that the biofuels market share has increased sixfold since 2003. That sounds tremendous, until we learn that it still accounts for only 0.25 per cent of road fuels. So there is a big challenge there. I was pleased to see in yesterday’s Budget, first, the announcement that the 20p per litre incentive for bioethanol is to be continued into 2007–08; and, secondly, that the target has been set for the Renewable Transport Fuel Obligation. It will be introduced in 2008-09, starting at a low level but, I hope, working up to 5 per cent by 2010-11. We started late, so we have a long way to go. However, because the Government made that commitment, British Sugar has now invested £20 million in the plant at Wissington, the first bioethanol plant in the UK, which will come on stream in 2007. I hope that the Government will continue to monitor whether they are achieving their targets on biofuels and will not go below the targets set in the Budget yesterday, and that they take further measures if they fail to reach the targets. Thirdly, I wish to refer to the international scene. My noble friend Lord Renton concentrated mainly on that and I do not wish to cover the same ground. The Select Committee report, too, put much emphasis on the ACP and developing countries. I have one point on the international context. The industry will be planning on the basis that the EU retains its export potential under its agreed WTO limits. I ask the Minister to comment on that. I want to turn to Africa. British Sugar recently announced that it is negotiating to acquire a 51 per cent stake in Ilovo Sugar—Africa’s largest sugar producer, in, I think, about seven countries. It is still early days in the negotiations and the outcome is unknown. There will be big opportunities for LDC countries in the EU markets from 2008-09 onwards. British Sugar expertise in improved technology and efficiency has already been well applied for some years in China, a sugarcane producer, where we place strong emphasis on corporate social responsibility. If successful in the bid, British Sugar would be supportive of Illova’s expansion plans domestically in Africa as a whole and believes that its experience in production and its knowledge of European markets would help it to optimise the opportunities both in Africa and especially in the EU from 2009 on. It is intended to be a long-term investment with high awareness of and support for the company’s social responsibilities in Africa. That is just one example of how there will be big changes not only in the EU but in the world scene. The reforms are tough and EU and world markets are going to change substantially. The challenge is considerable, but it was high time the regime was changed, and the reforms are broadly right.