EU farm subsidies a controversial. But it’s not just Europe that subsidises its agriculture, as Matthew Partridge found out when he spoke to a UK sugar manufacturer.
As with most issues, when it comes to Europe, there is more than one side to each argument. A fortnight ago, we spoke to a senior executive at Tate & Lyle Sugars, who discussed with us in detail how the status quo was affecting both his business and the British consumer, and also how he wanted to see radical post-Brexit changes to current food policy. Of course, Tate & Lyle Sugars is not the only sugar company in the UK. To get a more rounded view of the issue, we've spoken to Paul Kenward, the managing director of British Sugar, the other major British firm, which currently supplies around 60% of the UK market.
Unlike its competitor, which imports cane sugar from the rest of the world, British Sugar sources its raw ingredient, beet sugar, from UK farms. It estimates that that it buys from around 3,500 growers in East Anglia and the Midlands, supporting around 9,500 jobs (British Sugar itself employs around 1,400 people at above average wages in its factories). Kenward points out that since these growers use beet sugar as part of a crop rotation programme to improve soil quality, it is therefore not directly subsidised by the EU, although the main crops that the farmers grow are.
It's "very easy to blame Brussels for everything that goes wrong", says Kenward, but he thinks this is unfair. While production quotas previously limited the amount of sugar that growers could produce, even if the surplus sugar were to be exported outside the EU, these are set to be removed in October. Anticipating this, British Sugar has heavily invested in refining equipment, spending £250m over the last five years. As a result, Kenward claims that "we now have one of the most efficient factories in the world", giving the company scope to dramatically increase production of refined sugar.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Kenward is not completely opposed to some degree of liberalisation. Indeed, he points out that many of the countries in Africa and the Caribbean that already export to the EU are able to do so largely tariff-free. However, in his view, an immediate free-for-all would unfair. Because most countries consider sugar "a sensitive area", they heavily subsidise it, especially "low-cost" producers such as Brazil and Thailand. This means that under a completely open market the UK would become "the dumping ground for cheap sugar", putting valuable British jobs at risk. Indeed, he points out that at the moment, the only country that completely embrace frees trade is Australia, and even then its geographical isolation is a de facto barrier.
Allowing dumping could also have negative environmental consequences. All of British Sugar's raw material comes from "Tractor Assured" producers. To become a supplier, farmers have to meet certain standards in terms of biodiversity and sustainable production (the EU's rural payments scheme also helps them in this regard). In contrast, many foreign producers are much less scrupulous about such issues. While the average British sugar beet travels only 28 miles before reaching a factory, global imports can travel for hundreds, even thousands, of miles, which causes pollution. Finally, the waste produced by British Sugar's refineries is used to produce electricity and bioethanol.
As a result, Kenward wants to see gradual cuts in tariffs, with the emphasis on ensuring "a level playing field". In terms of post-Brexit relations with the rest of Europe, he's very happy that the government seems to be trying to get a free-trade agreement that would enable British Sugar to continue to export to the continent. However, he does think that if talks break down and Europe does end up imposing tariffs on imports of refined sugar from the UK, it's only fair that the UK government does the same in return, although over time even these could be phased out.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
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.
Filtronic: a UK success story cashing in on the space race
How to use SAYE and SIP schemes to multiply your money
