Procurement chief: Time to bury the EU sugar quota
Food and beverage companies are lining up against a proposal to extend the EU's sugar quota to 2020, reversing an earlier agreement to phase it out by 2015. A vote in the European Parliament is scheduled later this month. The procurement chief for one of Europe’s biggest food companies tells EurActiv that extending protections for sugar is bad for consumers, businesses and the environment.
Marc Engel is the chief procurement officer at Unilever, the Anglo-Dutch producer and food and consumer goods.
The following is an excerpt of a telephone interview with EurActiv’s Timothy Spence.
You have expressed concern about the European Parliament agriculture committee, which voted to maintain the sugar quota in their draft of the 2014-2020 Common Agricultural Policy. What are those concerns?
We are actually quite disappointed. In times where everybody is talking about food security, about food prices, about consumer crisis – in a time where the consumer is actually having quite a hard time – [the vote to extend the sugar quota] is quite a radical stance. It’s probably the most protective policy in EU agriculture by far, and is now going to last five years longer.
This is purely a self-afflicted price and availability crisis that could easily be fixed if basically the European Parliament and member states would take the right decision, which is to abolish [the sugar quota]. In our opinion, rather than talking about 2015 and 2020, we would like the discussion to be focused on can it be done earlier rather than later.
We believe fundamentally that it needs to be abolished for three reasons: it has led to a lot of artificial price inflation of food products and it has hurt the consumer. And at the end of the day the consumer has to pay for this and the consumer is struggling most in this day and age. …
The second one is about hurting businesses, particularly small businesses. We buy about 100,000 tonnes out of the 19 million tonnes production, so we’re not a very big player but we’re also hurt by it. But what we’re particularly worried about [is] 90% of food businesses are SMEs, and they’re hurting about it.
And the third [reason] is, in our belief, is that it is hurting the planet because this kind of protective action and sugar quotas are actually hindering the development of sustainable sugar production.
So it is for us a very clear case: it hurts consumers, it hurts business, and it hurts the planet. So why are they making these kinds of decisions?
How does this affect competition?
The quota is set at 13 million [tonnes] whilst we know that the food demand is 16-16.5 million, so you are creating an artificial supply constraint. … We can import but the pricing of imports are not very favourable. And then the whole production quota on the competition inside Europe, which is isoglucose, is also restricted to 670-690,000 tonnes, whilst if this would not be restricted it would be four or five times as much and it would significantly alleviate the shortage of the food and beverage industry.
It seems to be protecting a very small group of people whilst we’re basically not thinking about the much bigger group which are the European consumers, the European taxpayers and the European businesses and the planet as a whole.
Farm groups contend that there is no way European producers can compete with cheap imports from countries with lower environmental and labour standards. Why don't you buy this argument?
I just simply look at the facts, I look at the cost levels in 2006 in Europe and the price levels since 2006. And the cost levels have actually gone down because the European farm community has done quite a good job of increasing yields and becoming more efficient.
But if you at the price levels, you see spiralling prices … so I personally don’t buy that argument, because if you look at the cost levels and the price levels, it actually turns out that this is not a correct statement. Furthermore, as a general principle, we believe at Unilever that competition is healthy and with this kind of protective measure, you are taking away any kind of initiative to become more competitive.
In 2006 this agreement was made [to phase out the quota], so the sugar industry has had nine years to get ready for it, but of course there’s not much incentive if you keep maintaining these kinds of measures. …
The Agriculture Committee of the European Parliament of course is very close to the agricultural industry in Europe and, as you said, it has been historically very influential and very important.
But our hope would be that the European Parliament and member states as a whole would take a slightly broader view, and takes the other elements into account, which is the poor consumer who cannot afford it.
So in the end it’s the consumer who pays the bill for that and as a consumer company, seeing how much the consumer in Europe in struggling and struggling to maintain standards of living – also the European Parliament and member states have an obligation to that group.
What happens if the sugar quota and the other market interventions survive the legislative process? Will companies like yours move to other places where the price of raw materials is cheaper?
There is not much that we can do about it because at the end of the day we are using 100,000 tonnes of sugar in Europe that we need to either get from Europe or from somewhere else.
In Europe the prices are set by this quota and will cost us a certain amount of money. … What we always do in this case, we first try to offset the price increases, which by the way for us is about €26 million in 2012 [the difference between the price of white sugar in Europe and the global market], which is a lot of money.
If you look at it percentage-wise, in the cost of our products, particularly in ice cream and ice tea, it is quite significant. So what we also try to do is offset the cost increase by looking at formulations, looking at savings, looking to see how we can make a more efficient product. And whatever we can do, we’ll offset. But at the end of the day, whatever we can’t offset we will have to pass onto to the consumer.
One of the things you never hear about is that this quota is hurting the sustainable production of sugar. Let me give you an example. The quota is upholding prices and therefore actually creates production areas where beat root production doesn’t make any sense from a climatological point of view.
In Andalusia and Spain we should be growing tomatoes and we should be growing olives – that is the best use of that climatological land in terms of sustainable production. But we’re growing sugar there because of the quota, and for a company like us who are really putting a lot of effort into making sure that we live more sustainably - that we source more sustainably - this is also an example where, in our view, it doesn’t make sense and it actually hurts sustainable production.
If I look at the Bonsucro initiative around making sugar more sustainable in the rest of the world, it is very clear that Europe is lagging behind.
How do you define ‘sustainable sugar’?
In our sustainable agricultural standard - also in the Bonsucro standard - in our sustainable sourcing standards there are 11 points. Some of them are about agronomy, about land use and land rights, about water use and fertilisers and pesticides, about labour conditions, about respecting margins on rivers and forests. So there are essentially 11 points that we use in our own standard and that you find that most of the certification standards have a number of points in the social, economic and environmental areas.
Sugar is a very water-intensive crop, so growing it in non-water stressed areas, but also looking at how we irrigate and more effective irrigation are very much a part of those standards.
Some of those standards you just mentioned are part of the European Commission’s sustainability proposals in the next CAP. Is your company concerned about the CAP overall, or is it just the quota on sugar that is your big concern?
Sugar is the most prominent right now. Because we are using a lot of agricultural materials and we are selling a lot of products that are very much playing in that space. The CAP has always been something that we follow quite closely because it influences our business.
But in general when you look at the progress since 2006, I think a lot of good work has been done. It is being deregulated. I believe that potato was done this year, dairy and sugar are two big one for us, which are important and that are still to be done.
So the sugar one is most prominently on our mind because we had done our business planning based on in two years time the quotas being abolished, as many other people might have done. And now of course this may change.
You were confident that the phase-out of sugar quota would happen?
Absolutely, because that was agreed in 2006.
We know there is a strong lobby here – we understand that. But we had expected that the sugar reform that was agreed by the EU institutions would be respected.