Will Britain really be a free trade nation after Brexit? Sugar is the test
Sugar is political. Bloodshed has haunted the commodity since the 17th century.
The British, Dutch and Portuguese once fought relentlessly over production in Brazil, the Caribbean and beyond. The history of sugar goes hand-in-glove with the history of slavery and the legacy of colonialism.
The modern industry, which supports close to 10,000 jobs in the UK, is less prone to violence but still a contested frontier in global trade. Sugar has now become a battleground for the future of British trade after Brexit.
The sweet stuff is derived from two sources. Sugar beet is grown throughout northern Europe. Sugar cane is a cash crop in the Caribbean, southern and eastern African states, Asia-Pacific, and South America.
The British sugar industry works both sources and across the supply chain.
Beet is grown and refineries turn partially processed sugar beet and sugar cane into the recognisable end-product.
Under EU trade policy, there are several tariffs applied to imports of sugar in its different forms. These tariffs provoked fresh controversy last week when the Prime Minister’s tour of southern African states thrust sugar into the spotlight. As Theresa May danced in pursuit of post-Brexit deals, questions were asked over whether a free-trading Britain might drop the EU tariffs.
Brussels’ tariff and quota structure for sugar is complex, built on a combination of barriers to protect European sugar beet farmers from cheap imports, and duty exemptions for less developed economies.
Sugar beet production quotas in the EU were lifted in October 2017 but it remains a closely guarded sector for growers outside the bloc. “The EU market is still very protected. When it was liberalised last year, that only really affected domestic production [through lifting domestic beet quotas],” says Ruud Schers, an analyst at Rabobank.
“Import tariffs are still in place, with exceptions for the least developed countries.
“There was a more than doubling of the white sugar exports out of the EU but when you look at the imports there was a more than halving of what was coming in. Simply because there’s more availability of sugar in the bloc,” Schers says.
However, Britain’s ability to reform its sugar market with an alternative, independent and effective policy will put the rhetoric of free trade to the test.
For politicians keen to back up freewheeling talk with action there is a delicate and controversial balance to be struck.
The UK will have to decide whether to continue to maintain support for domestic production in the face of a falling global sugar price or let the forces of globalised commodity markets do their worst.
Many farmers across the EU have increased production following the lifting of sugar beet quotas last year.
This, combined with strong yields and heavy production subsidies in many nations around the world, particularly India, have forced prices down to their lowest level in two and half years.
Lifting all tariffs would throw open the floodgates to imports, whether or not other markets are distorted by government interventions.
That’s a worrying prospect for Britain’s 3,000 sugar beet producers, who fear the end of tariffs would mean the end of their livelihoods.
“There are a lot of farmers in east England who are affected by this,” says Schers.
“I wouldn’t be surprised if sugar beet disappears in the UK [if a removal of all tariffs were pursued]”.
One such farmer, is Cambridgeshire- based Michael Sly. He represents sugar beet farmers in the National Farmers Union (NFU).
“We don’t want to see product entering the UK that isn’t produced to the same high standards,” he says.
“In lots of places, sugar growing is as much as social policy as anything, that distorts the market.”
Sly and the NFU are demanding continued protection for British beet farmers after Brexit to save them being undercut by cheap imports from Thailand, India and elsewhere.
For Mrs May, balancing such domestic lobbying with international trade diplomacy is far from straightforward. She has signalled that after Brexit the UK will seek to combine its trade and aid policies.
In the case of sugar that could mean weighing the prospects of British farmers with the need to forge trade links with countries for which sugar production is a major pillar of their economy.
Fair trade groups are hopeful that development concerns will be placed high up the agenda of trade policy, and sugar in particular.
“There is an opportunity to look at it afresh [with Brexit] but it’s not that easy to find a solution that works for some of the poorest countries,” says Helen Dennis of the Fairtrade Foundation.
She says that every time developed countries lift their own production quotas or tariffs, poor countries that rely on the existing order suffer.
“This is what we’ve seen in the banana sector for example,” says Dennis. “As the EU market has liberalised, it has been very troublesome for some of the smaller Caribbean islands to compete.”
The idea of a sudden shift to zero tariffs in the event of a no-deal Brexit horrifies those working in development, as it would hit farmers in poorer countries extremely hard.
It is also very worrying for beet-based producers in the UK. British Sugar is the sole beet-based sugar producer in the UK, and supplies 60pc of the UK market.
“If there were one single government policy that I’ve heard expressed that I would avoid it would be to unilaterally reduce tariffs to nil,” says Paul Kenward, managing director of British Sugar.
“I think that would be not to take account of what is a very complicated area of global trade.”
Such a move would also remove vital negotiating capital, according to Kenwood. If the UK dropped sugar tariffs on day one, it would have given up a bargaining chip for trade negotiators seeking lower tariff barriers for British exports, he argues.
The sugar industry does not speak with one voice on life after Brexit. Britain has high-quality refining technology for both sugar cane and sugar beet.
But beet doesn’t meet all of British demand. The need to import unrefined, or raw sugar, is also a crucial consideration for the Government.
Tate and Lyle sugar refinery employs 800 staff in east London. It is far less keen to see a continuation of the status quo of EU sugar policy, even for an interim period post-Brexit.
The company is highly constrained when it comes to sourcing Fairtrade sugar. Only 75 sugar mills globally meet the highest ethical standards.
Of those 60 are in Brazil and Australia. Under EU policy, buying from these countries involves paying a 140pc tariff, explains Gerald Mason, of Tate and Lyle.
“The challenge that we have is that every part of our supply chain is regulated by the EU. Any normal business could choose its supplier based on quality and price.
“We’re only able to buy product tariff-free from 3pc of the sugar that is traded globally. “
Tate and Lyle wants to see “not necessarily complete liberalisation of sugar” but a freedom for the sugar cane buyers to purchase whatever they need tariff free.
There could be an overarching quota for all sugar cane imports, in order to protect UK beet farmers’ interests, but this would free up Tate and Lyle to source the cane wherever it chose to.
Sugar is just one of the tightropes facing trade negotiators as the UK exits the EU, and it reflects the swathes of agricultural and political sensitivities at stake.
“We’ll find solutions that tick most options, I’m sure of it. We’ll end up with something that isn’t free trade or the EU’s answer, but somewhere in between,” Mason says.
He adds: “You can’t just copy and paste EU rules in post-Brexit Britain.”