EU Sugar Regime (EUC Report)

My Lords, the noble Lord knows that I would really like to be able to answer his question in a transparent way, to use a word from earlier this afternoon. He will, I hope, understand that I cannot say more about this today since the consultation is still so much in progress. No doubt I will have more to say about it in due course. One reason I should not say much is that I realise how sensitive and important this is for UK growers and processors. Indeed, let us be frank: in some instances farmer is divided from farmer on how it should be approached. However, the Secretary of State listened to the representations that were made, which is why the consultation is worded as it is. In practical terms, therefore, we are only now coming to the starting-line of a change process where a great deal will depend on the decisions of individual growers and processors within a new market-based structure, under substantially different terms of competition. I will briefly reiterate what we have already said in our formal response to the Sub-Committee in respect of prices, quotas and decoupling. Although the November compromise contained some changes from the June proposals, all the key elements remained as originally envisaged. These are: a substantial price cut of 36 per cent over four years; a voluntary restructuring scheme designed to promote rationalisation and efficiency; and a fully decoupled system of support for growers. The reformed regime is also designed to be fully consistent with both the EU’s WTO obligations and its existing market access commitments, under the ACP sugar protocol and the ““Everything But Arms”” initiative. Some aspects of the November compromise in respect of aid for EU growers have given rise to misunderstanding on the question of decoupling. Only where more than 50 per cent of production in a member state is given up is it possible to make additional payments to help growers in the transitional phase. That is designed to stabilise the process of adjustment, not as a means of allowing the inefficient to gain unfair advantage. There has also been criticism of the decision to retain production quotas and not make them tradable. The reality is, however, that restructuring will lead to a redistribution of production within the EU and that the most efficient industries—including, if I may so, the UK industry—will have some scope to expand without upsetting the overall balance of supply and demand. That should lead, in turn, to a more competitive internal market with more cross-border trade. It is already clear, from around Europe, that the industry is facing up to the challenge, recognising it as a real and fundamental reform to what has been a major source of economic and trade distortion, both in the EU and far beyond. Before I address the ACP issues, the final RIA is due in April and will include an update on employment consequences. On the issue of using sugar surplus for biofuels—as raised by the noble Lord, Lord Livsey, and the noble Baroness, Lady Byford—the reform package allows out-of-quota sugar to be used for biofuels and for sugar beet to benefit from existing set-aside energy crop aids. British Sugar has announced its plans for a biofuels plant at its Wissington site. As for the Rye Dale research, I shall write to the noble Baroness if she will allow that, as we do not yet know the response. I turn to the ACP issue. It is not just an ACP issue but one surrounding the EU’s trading partners; in particular, our traditional suppliers in the ACP countries and that wider group of developing countries with preferential access rights under ““Everything But Arms””. That is, quite rightly, a key area of concern both in the sub-committee’s report and in the speeches made today. As noble Lords will know, a commitment to provide proper adjustment aid for the ACP was an integral part of the Commission’s approach to reform and of our own negotiating objectives. Because such aid is not a matter for the Agriculture Council, a separate proposal establishing an appropriate framework for the necessary action plans was put forward separately to the General Affairs and External Relations Council. The funding for these so-called accompanying measures is, however, further complicated by the EU’s own budgetary procedures, which distinguish between expenditure for 2006 and that in the next financial perspective from 2007–13. The funds to pay for this transitional assistance are likely to come from the external relations directorate. The allocation will be in close collaboration with DG development. I can confirm that the framework itself and an initial sum, very much a down-payment, of €40 million euros for what remains of this calendar year, have now been agreed, including the relevant distribution between affected countries. But, importantly, this is entirely without prejudice to decisions for 2007–13, on which discussions are still continuing. I can also confirm that the ACP and LDCs will benefit from a two-year delay in cuts to the EU raw sugar price, which is guaranteed to them under existing arrangements. We in the UK are now focusing on ensuring that the limited funds for this year are put to the best possible use, including assisting several countries in developing their national action plans. Those plans are important, as they will outline how the 2007–13 funds will be used and help to generate investment funds to complement the EU assistance. The amount of assistance for those years is still under negotiation, and the House will not be surprised to hear that we are pressing for the best possible deal. We believe that at least €250 million of assistance per annum is needed for ACP countries successfully to make the transition to a post-sugar-reform environment. That figure is based on independent, evidence-based analysis. That analysis also highlights the importance of ““frontloading””, if I may use that expression—putting the money up early—the assistance if the adjustment process is to be successfully managed. Restructuring industries in potentially viable sugar producers, such as Mauritius, will take time to implement and deliver productivity improvements. Any failure to deliver the assistance in advance could lead—as noble Lords have hinted today—to closure of otherwise sustainable sugar industries, with serious economic, social and environmental consequences. Those countries, and there are some, planning to exit the sugar sector, such as St Kitts, need to invest now in physical and human capital projects, such as retraining programmes, to ensure a smooth transition to more productive sectors. In a sense, the LCDs are different—the noble Lord, Lord Renton of Mount Harry, made this point—because they have not enjoyed this preferential access in the past, as ACP countries have, but will in the future, under the ““Everything But Arms”” agreement. They will still get preferential treatment to twice the world market value. The UK has undertaken a number of activities to assist ACP countries in planning for the future—the noble Viscount, Lord Eccles, asked me about this. These include funding pieces of research looking at the impact of sugar reform, and providing technical assistance, which has been of great help to several of the Caribbean countries most in need. This technical assistance includes funding for the development of action plans; the creation of business strategies from these plans; and research into the potential of bioethanol production as an alternative use for sugar cane. We in the UK, as you would expect given our history, are putting in a real effort, to use a phrase from the debate. On the WTO and the current Doha round negotiations, the House will know that we consider outcomes beneficial for developing countries to be paramount. Our approach can be described in two ways. First, we are harnessing and confronting head on the inevitable way forward—how the future will be. Secondly, we are pursuing an agenda which we believe will lead to a fairer and more open and inclusive global trading system. The House will therefore not be surprised to hear me say that the outcome of the World Trade Ministers meeting in Hong Kong last December was a little disappointing. It made only limited progress. The main progress was the agreement to end all agricultural export subsidies by 2013. However, the most fundamental elements of the round—agricultural and non-agricultural market access—remained unresolved, with key WTO members not able to agree on the formulae necessary for tariff cuts. The focus since has been on high-level political contact between the key players, rather than on detailed negotiations in Geneva. There have also been some technical meetings where progress has been made, but the big issues have yet to be resolved. As well as tariffs on non-agricultural goods, those big issues include agricultural market access and domestic support. Ministerial-level meetings took place on those in London earlier this month, but there was no breakthrough. The noble Lord, Lord Renton of Mount Harry, kindly asked me in advance by letter to comment on that meeting. The G4/G6 ministerial meeting was held on the weekend of 10 to 12 March. The Commission represented the EU. We understand that there was good dialogue between the parties, but no real breakthrough. A couple of days before that, the Prime Minister, in his joint statement with President Lula of Brazil on 9 March, called for a heads meeting to move the process forward. The time pressures are increasing. The Hong Kong declaration set a deadline for modalities by the end of April and draft schedules by the end of July. That is an ambitious programme, but it is not far off what needs to happen in order to complete the round before the US trade promotion authority expires next year. Not concluding this round by then is likely to put the DDA into cold storage, and we would have missed an extremely important opportunity. We are playing a proactive role; we support an ambitious outcome to the round and believe that it must include a significant opening of the EU market to trade with all third countries. That is what we signed up to. Significant opening of the EU market or significantly improved market access will involve tariff cuts. That prospect is daunting to a number of ACP countries that enjoy preferential trading arrangements with the EU. The result of EU tariff reductions is that those preferences will, to a greater or lesser degree, be eroded. In addition, that preference erosion comes hard on the heels of the sugar reform that we have been discussing today, which reduced EU sugar prices. So tariff cuts will look doubly unattractive to some countries on top of that. It is essential that the nettle is grasped. The trend exemplified in WTO rounds is for tariffs to be reduced and for more liberal trade between countries. That is for good reason. We believe that there are a number of benefits from a more liberal trading regime and that protecting preferences should not undermine that goal. Less efficient ACP sugar producers need to examine with care what is best for them as their preferences become eroded, and they have to take decisions about the future of their affected industries. We have been assisting ACP countries with that. DfID is exploring the implications of the aid for trade commitment for our country and regional programming and is looking for opportunities to scale up assistance in ways that will lead to outcomes that reduce poverty and benefit poor people. I shall not pretend that any of this is easy, nor did the report. The challenges posed by sugar reform in the EU or among our trading partners are difficult, but as the sub-committee’s report so clearly demonstrated, there is really no alternative. We must remember that, even after reform, countries with preferential access to the EU market will receive around twice the world price for their sugar. Reform should also see an end to the damaging export of subsidised surplus EU production, which depresses prices elsewhere and denies trading opportunities to others better able to compete in the market. Resources that are freed up by the ending of inefficient production can and should be put to better use. We need to do all that we can to ensure that the benefits of this historic step-change are released. I express once more the Government’s gratitude to the Select Committee.