Features International Sugar Journal

Brexit and sugar

 

It’s no longer ‘the economy, stupid’, it’s ‘identity, stupid’… Identity and cultural politics are even bigger determinants of people’s politics than we thought possible.”1

 

On 29th March, the UK’s Prime Minister Theresa May triggered the Article 50 to formally seek divorce from the European Union. The two-year countdown of the departure from the EU has begun. With entrenched positions, particularly on the UK side, it seems irrationality will give way to a pragmatic solution to EU-UK trade relations in the foreseeable future. Without doubt, UK is in weak bargaining position. As Dhingra et al2 points out in a recent paper “UK–EU trade accounts for a much larger share of the UK’s economy than the EU’s economy. Consequently, the UK needs a deal more than the EU does.” Further, having not participated in trade negotiations for the past 40 years, the UK currently has very little negotiating capacity – it has fewer than 40 trade negotiators, compared with the 550-strong team boasted by DG Trade in Brussels. Drawing up new trading arrangements with the EU, while at the same time sorting trade pacts individually with 65 countries with whom EU already has a pact, will be a struggle. Add to these, by invoking Article 50 touch bit early in March before the French and German elections, any meaningful negotiations will be on hold while the two-year countdown has commenced. As Dhingra et al “argue that the UK’s immediate objective after invoking Article 50 should be to neutralize the 2-year time limit by agreeing a transition arrangement to govern UK-EU trade relations for as long as necessary between when the UK leaves the EU and when a longer-term agreement is concluded.”

While time will only tell how this will unfold, it is clear that EU will not want to give UK an easy ride. This is to stem other countries following suit. Further the demand for an exit fee of €60 billion, what appears to be the divorce bill, will be used in negotiations.

UK has been quite vocal that it wants to regain control over immigration from EU countries. At the same time it wants the European Court of Justice’s jurisdiction over Britons to end by 2019. Automatically, this means that the UK cannot remain part of the Common Market. Therefore, of the options it has: remain part of the Single Market like Norway; negotiate bilateral trade deals with the EU as Switzerland and Canada have; or trade with the EU under World Trade Organization (WTO) rules as the United States and many other non-European countries have done – the latter is the most likely.

The UK’s sugar industry comprises beet sugar production and cane sugar refining. UK’s sugar quota in the current sugar regime is around 1 million tonnes. With consumption at around 2 million tonnes, imports have been around 1 million tonnes.

Beet sugar is produced by British Sugar, which operates four plants in East of England. Production usually is in the range of 1.0-1.2 mln tonnes. Almost all of the beet sugar produced is consumed locally.

United Kingdom: Sugar balance (1,000 tonnes)

  Oct/Sep
  2017/18  2016/17  2015/16  2014/15  2013/12 
Opening stocks(a) 124.2* 354.2* 689.2* 505.0* 395.1*
Output(a) 1,350.0* 970.0* 1,033.0* 1,445.0* 1,319.0*
Imports(a) 1,100.0* 1,100.0* 1,060.1 1,282.8 1,311.8*
Consumption(a) 2,075.0* 2,100.0* 2,125.0* 2,185.0* 2,185.0*
Exports(a) 300.0* 200.0* 303.0 358.7 335.8
Ending stocks(b) 199.2* 124.2* 354.2* 689.2* 505.0*
(a) Raw value
(b) Residual of the balance
Source: Licht Interactive Data

The second part of the British sugar manufacturing industry is represented by raw cane sugar refining. This sector has shrunk in recent years. Tate & Lyle Sugars’ refinery in Silvertown, owned by the American Sugar Refining (ASR) since 2010 is operating well below capacity. There is also the Ragus sugar refinery in Slough, processing 40,000 tonnes raw sugar, and specialsing in niche products.

This set-up, which pits a domestic producer processing local beet against an international company that would clearly benefit from lower tariffs on raw sugar, in many ways epitomises the hard choices the government will have to make.

As Marie Christina Ribera from CEFS pointed out at the American Sugar Alliance symposium in 2016, the world sugar market is a residual ‘dump’ market for surplus sugar, distorted by the state policies of the major producers and exporters. There is no such thing as a level playing field in the sugar market.

  • The major structural exporters (e.g. Thailand, Brazil) have massive programmes in place to support their sugar and ethanol sectors.
  • For non-structural exporters (e.g. India), dumping sugar on the world market is a market clearing mechanism used to keep domestic price high.

It would be reckless for the British government not to include significant safeguards for the beet sugar industry. This does not necessarily mean that this should come at a cost to the cane sugar refining sector. Combination of preferential access and quota for select countries maybe the solution.

Sarah Lyall pointed out recently in a piece in the New York Times, “This is probably the noisiest and most complicated divorce in modern history”. Will it be fractious too?

References

1 Tim Bale (2016) http://www.politics.qmul.ac.uk/news/2016/189532.html

2 Swati Dhingra, Gianmarco Ottaviano and Thomas Sampson (2017) A hitch-hiker’s guide to post-Brexit trade negotiations: options and principles Oxf Rev Econ Policy 33 (suppl_1): S22-S30 DOI:https://doi.org/10.1093/oxrep/grx005