The vast majority of sugar consumed in the UK is via processed foods and drinks. Information about which manufacturers are the biggest buyers of sugar is closely guarded, but insiders have reported that “there are probably 100 industrial users requiring more than 10,000 tonnes of sugar per year” and that “80% of demand comes from 20% of the names”. A hint as to who the biggest of these might be comes from an open letter written by the Food and Drink Federation about sugar’s impact on public health. The companies mentioned are Coca-Cola, Britvic, Mondelez International, Premier Foods, PepsiCo and Unilever. Nestlé is also likely to be one of the big buyers having represented the UK Industrial Sugar Users Group in Parliamentary hearings, along with the major supermarkets manufacturing their own-brand products.
In terms of sugar production, in 2014 there was 2.3 million tonnes of refined sugar supplied to the UK market. Almost two thirds (1.45 million tonnes) came from sugar beet, processed by British Sugar at its four factories in Eastern England. An estimated 0.7 million tonnes came from sugar cane, refined by Tate & Lyle Sugars at its factory in London. The remainder came from net imports from other sources. This supply works out at 35 kilograms of sugar for every person living in the UK, and is probably supplemented further by net imports of sugar-containing products. The guidelines from the UK’s Scientific Advisory Committee on Nutrition (SACN) report recommend that for people aged 11 and over, no more than 11 kilograms of sugar should be consumed over the course of a year.
In this sense there is a structural over-supply of sugar in the UK. Of course, this is not the way that supply management has traditionally been understood. Regulated under the European Union’s Common Agricultural Policy (CAP), a variety of policy instruments have been used to govern sugar with the express purpose of supporting farm incomes and ensuring a sufficient supply for food manufacturers. These instruments have not been used to meet public health guidelines.
Over the last decade the EU sugar market has been steadily liberalised, with the intention of exposing producers to greater competition within and beyond the EU. One manifestation of this is the abolition of the EU’s production quotas for sugar in 2017. Production quotas limited the amount of beet sugar that EU member state could produce and sell at the EU reference price. Removing quotas is predicted to increase the supply of beet sugar produced in France, Germany, and to a lesser extent, the UK. But by the same token, the import of raw sugar from cane growing countries is predicted to decrease. Assuming the UK remains in the EU, modelling undertaken by the UK’s Department for Environment, Food and rural Affairs (DEFRA) suggests that at the EU level the supply of sugar from beet will increase by 1 million tonnes while the supply of sugar from cane will decrease by 1 million tonnes.
Since the majority of EU cane imports are currently processed by Tate & Lyle Sugars, this will have particular bearing on their business. This is why, in the context of a possible ‘Brexit’, they have said that they will be better off outside the EU unless certain reforms are made. As the quota restrictions on iso-glucose syrup made from maize or wheat (known as High Fructose Corn Syrup in the US) have also been lifted, more of this industrial sweetener could be produced in the EU too. However, interviewees considered it unlikely given the large upfront costs of installing additional processing capacity.
Another manifestation of the last decade of reforms has been to integrate income support for sugar beet farmers into the CAP’s direct payment system. This means they are supported through subsidies paid out of general taxation rather than through managed crop prices paid ultimately by the consumer. In 2014, the direct payment in England was set at €251.39 per hectare, which translates to a €29.2m subsidy through the CAP for UK sugar beet production. This was equivalent to 9% of the value of the sugar beet crop. Reclaiming this money through a ‘subsidy refund’ on sugar sold by the beet factory would be one way, albeit unorthodox, in which taxpayer support for this commodity could be redressed at the national level.
Looking ahead, while the total amount of sugar supplied within the EU is not expected to change significantly, the price of sugar and who benefits from producing it will. As the EU market becomes more closely aligned to the world market, EU sugar prices are likely to become lower and more volatile. This trend is already visible. The average price of white sugar in the EU fell from a peak of €738 per tonne in January 2013 to €425 per tonne in October 2015. For food and drink manufacturers this equated to an EU-average price of £0.31 for a 1kg bag of sugar – far below the region’s historic average. DEFRA estimate that this will fall a further 15% by 2020. By making sugar cheaper, agricultural policy and health policy are working at cross-purposes.
For farmers, this means lower beet prices. Negotiations between British Sugar and the National Farmers Union (NFU) over the sugar beet contract offer for 2016-17 resulted in a price of £20.30 per tonne, the lowest in a generation. As the NFU Sugar Board Chairman noted in June 2015, “Our industry continues to face significant challenges. Low world prices and the approaching end of quotas are resulting in difficult market conditions”.
Lower prices also mean that many farmers will stop growing the crop and turn to other rotation crops – winter wheat, winter oilseed rape, winter barley and beans. None of these provide the kind of gross margins that sugar has in the past, although one farmer reported to me that there other benefits to leaving beet behind such as a reduction in the amount of soil lost because of wet-weather harvesting. This shake-out will continue the trajectory of concentration in sugar beet farming. In 2005 there were 7,300 sugar beet holdings in England with an average size of 20 hectares. By 2014 there were 4,300 holdings with an average size of 35 hectares. Even these figures over-estimate the number of farmers growing beet, since a single farmer can have multiple holdings and sugar beet contracts – British Sugar says it works with 3,400 growers. In short, sugar beet reform has accelerated the trend in UK agriculture toward fewer farmers operating at larger scale.
For food and drink manufacturers, sugar reform was intended to result in lower prices for their raw ingredients. The former EU Trade Commissioner, Peter Mandelson, spelled out how this was in fact necessary to help EU agriculture move out of bulk commodities like sugar and into exports of value-added processed foods. Behind the scenes, CIUS, the association representing sugar-using companies in EU policy negotiations, has done its bit to lobby for lower sugar prices. They have argued that it helps “the supply-chain operate in a more market-oriented environment” which is vital for business competitiveness.
However, the evidence as to whether the cost savings of cheaper sugar has then been passed onto consumers has been inconclusive. In other words, cheaper sugar makes the ingredient more attractive to manufacturers, but does not necessarily make for cheaper final foods. This can be seen in the figure below, which shows the low cost of sugar in the price of even very sugary foods and drink. Incidentally, these are all brands owned by foreign multinationals including Nestlé, Unilever, Kraft-Heinz, Yildiz Holding, Kellogg’s, Hain Celestial, PepsiCo and Red Bull. Cheap to make, these products they offer large margins with which to finance advertisements, slotting fees and other marketing costs.
For sugar cane farmers, especially those in the bloc of African, Caribbean and Pacific (ACP) countries which has historically benefitted from the EU’s managed market, the future looks grimmer still. In line with the price movements faced by beet producers, cane producers have also suffered declining terms of trade. In September 2006 the price paid for a tonne of raw sugar from the ACP was €512 per tonne. Nine years on it had fallen to €375 per tonne.
Looking forward, despite having unlimited access to the EU, many ACP countries seem likely to be squeezed out the market as they are considered to be uncompetitive vis-à-vis sugar beet producers. A report commissioned by the UK’s Department for International Development (DFID) suggested that, among other countries, Belize, Fiji, Guyana, Jamaica and Mauritius are all in a precarious position. As high-cost producers with few alternative markets, they will need to undergo radical restructuring in order to preserve industry revenue and jobs, or else transition out of sugar cane altogether.
This is why the Fairtrade Foundation has called for more to be done to provide aid support to cane farmers: all of the countries cited above had certified Fairtrade sugar producers exporting to the EU. In fact, in August 2015 Tate & Lyle Sugars, the EU’s biggest refining group, said it would no longer buy Fairtrade sugar from Fiji, citing EU market regulation as a reason.
For its part, Tate & Lyle Sugars have called for greater and cheaper access to raw sugar from low-cost cane exporters like Brazil and Thailand in order for it to stay business. For the last few years they have been running well below capacity and at times have been forced to close three days a week. This has raised questions about the long-term commitment to sell all their bagged sugar in the UK under the Fairtrade label, in place since 2008, which is a commercial decision ultimately dependent on their economic viability as a cane refiner.
In 2014 almost 200,000 tonnes of Fairtrade sugar were sold worldwide – the majority through Tate & Lyle Sugars in London. With this in jeopardy, the long-term future of Fairtrade sugar in the UK may well lie in processed foods like chocolate bars, although this too has been made more difficult because of recent changes in Fairtrade’s rules which allow companies to commit to Fairtrade one ingredient at a time. In October 2015 Mars Bars were launched in the UK and Ireland that contained Fairtrade-certified cocoa, but not certified sugar; even though sugar was their main ingredient.
For full referencing see Richardson, B. (2016) Sugar Shift: Six Ideas for a Healthier and Fairer Food System. Food Research Collaboration Briefing Paper.