Sugar reforms are 'good news' for food firms

By Dan Colombini

- Last updated on GMT

Related tags Sugar European commission

EC sugar reform will introduce much needed stability and transparency, according to analysts
EC sugar reform will introduce much needed stability and transparency, according to analysts
The European Commission’s plans to abolish beet sugar quotas by 2015 will be welcomed by food manufacturers, predicted market analysts who slammed the current sugar regime for being “completely illogical”.

The Commission yesterday confirmed that it intended to phase out the controversial quota system as part of the latest Common Agricultural Policy (CAP) reforms, after mounting industry criticisms of soaring prices and a chronic shortage of supply.

Chris Horseman, analyst at Agra Europe, told “It is a positive step and a complete liberalisation of the market. It should make quite a significant difference as the removal of the quotas should have a positive ​[stabilising] effect on price and increase market transparency.​”

Straight jacket

Horseman said that the implementation of the proposals would remove the “straight jacket”​ from the market.

Keith Flury, senior investment analyst at Rabobank, told “The potential reforms are a good start and certainly an improvement on where we are now. The proposals will create more freedom and a more efficient system than the one currently in place.​”

The removal of the quotas has been a key demand of manufacturers in an on-going battle for reform to the current regime. Many firms are concerned that the current market is stifling competition and contributing to the chronic shortage of supply.

James Lambert, chief executive of R&R Ice Cream, Europe’s largest own-label ice-cream manufacturer, welcomed the proposals but called for further clarity on the issue.

He told “It is positive, but what do the changes actually mean? Can manufacturers now invest in sugar processing and then get farmers to grow it for them? I would like to see the two processes integrated. This would lead to a more cost-efficient and sustainable market​.”

But Lambert was still concerned about the shortage of short-term supply. “We still need to see more sugar. There is supposed to be a record harvest this year but, as it stands, there are still quotas,​” he added.

Prices soared

UK sugar prices soared by 60% to about €880/t this year compared with €550/t 12 months ago. In August, Lambert told that without extra quota his firm would be forced to buy sugar on the world market. With EU tariffs totalling €417/t, that would bring the price to about €1000/t, he predicted.

Also In August, food giant Nestlé pressed for the phasing out of sugar production quotas by 2015. “Significant changes are needed to bring sufficient transparency and fair conditions in the market,”​ its spokesman told the Financial Times​.

The EC’s proposals were announced yesterday (October 12) as part of wider reforms to the CAP. Andrew Kuyk, the Food and Drink Federation’s director of sustainability and competitiveness, said the proposals showed a disappointing lack of ambition​”.

“They represent a missed opportunity to balance the need for increased output with more protection for the natural resources on which future productive potential depends,” ​he said.

The CAP in numbers

  • €55bn – annual CAP budget
  • €3.5bn – CAP payments to UK farmers
  • £7.2bn – agriculture’s estimated contribution to the UK economy

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