Brussels pays large subsidies to sugar beet farmers.
Whether you want a hard or soft Brexit, or even a second referendum, it's hard to disagree that the EU's agricultural policy is a mess that needs drastic reform. Gerald Mason, vice-president of Tate & Lyle Sugars, thinks Brexit will give us the chance to make changes that could cut prices while simultaneously creating new jobs. Tate and Lyle was set up in the 1870s and is now owned by US sugar group ASR. It is one of Britain's two major sugar refiners, with two factories in the UK. It employs around 850 people, including engineers and scientists.
Mason argues that at the moment the status quo is heavily skewed against both British consumers and firms. The problem is that Brussels pays large subsidies to sugar beet farmers, while imposing high tariffs on imports of cane sugar. British refiners, who primarily use cane sugar (like those in the rest of the world), "find ourselves competing with European counterparts who can take advantage of cheap supplies of sugar beet, while European trade policy makes our raw materials expensive".
This competitive imbalance has been made even worse by the fact that the EU has started phasing out production quotas on sugar beet. This means that European farmers have much more freedom to increase their production, which pushes beet prices down further. In contrast, little effort has been made to reduce trade barriers on cane sugar. As a result of this skewed playing field Tate and Lyle Sugars has had to cut both production and its workforce. Mason notes that between 2009 and 2015 alone TLS's output halved, while sugar beet imports to the UK have doubled.
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Mason admits that he doesn't know what the future direction of British sugar policy will be. There is always the theoretical possibility that there could be either no change or we could revert to the pre-1973 policy of high tariffs and strict controls, "where we had to negotiate with the government and farmers each year". However, he likes the fact that "tools are being put in the government toolbox", with the prime minister's recent white paper on trade suggesting that the UK will take control of trade policy by leaving the customs union.
If Britain does cut tariffs, the savings could be large. At the moment Tate and Lyle gets its cane sugar from around 15 mostly medium-cost countries. Even under a free market it would still make sense to keep sourcing at least some of its sugar from them "because part of the market is very interested in sustainable and fair trade practices". However, there's no getting away from the fact that it makes the most economic sense to import from major low cost producers, such as Brazil, Mexico, Australia and Thailand, which currently face high barriers.
Overall, access to cheaper raw materials could allow Tate & Lyle Sugars to quickly regain domestic market share that has been lost to European producers, leading to more jobs in the UK. Ironically, if Brexit allows the British sugar industry to gain a cost advantage over the EU, British exports to the continent, which have largely dwindled, could end up increasing substantially. In any case, Mason is confident that T&LS's current exports won't be badly affected by any restrictions imposed by Brussels, "because the products that Europe buys from us at the moment are largely high-end syrups which are far less price-sensitive".
Tate & Lyle Sugars has come up with several scenarios for post-Brexit sugar policy. One of these is to follow Canada's policy of low tariffs on raw sugar imports, but some tariffs on refined sugar. Another, more radical option is to emulate Australia's policy which is closer to completely free trade. With only two existing British producers, Mason also emphasises that the government will probably be anxious to make sure that any settlement doesn't allow one firm to become too dominant.
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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
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