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Sugar Beet

Volume 450: debated on Tuesday 10 October 2006

Mr. Olner, I should like to pause to remember my late colleague, the right hon. Eric Forth, whose life we have just commemorated in a thanksgiving service. He was an excellent parliamentarian, and such an expert on parliamentary procedures that the rest of us can only aspire to follow in his footsteps.

I am delighted to have secured this timely debate. The impact of the York British Sugar factory closure, expected to take place in February or March after this year’s sugar beet campaign, follows a number of other job losses. I welcome the Minister to his place and look forward keenly to what he has to say. For his information, I should say that before the factory closure was announced, we were facing something between 1,200 and 1,600 job losses in York. The Terry’s factory had closed and Nestlé had announced a major restructuring; two sets of job losses were announced in one year. Furthermore, Norwich Union, the insurance firm, announced a major restructuring and job losses as well. I mention all that to put in context, for the Minister’s benefit, what the impact of the next closure will be.

The location of the sugar beet has brought great benefits to the chocolate and confectionery industry in York and the York British Sugar factory’s closure poses questions about the future of the remaining chocolate factories there. Within York itself, the closure will result in more than 100—102, we think—job losses, but there are something like 790 growers supplying the York factory, and many are based in Vale of York and other parts of North Yorkshire. In a moment, I shall turn to the impact on contractors and supply industries, including the road hauliers. I hope to take a positive look at this debate and shall not dwell too long on such things, but I shall just set the scene for the impact in York and North Yorkshire. However, I hope to explain in conclusion that I have a bullish, positive, upbeat outlook on the farming community.

There is a lot that the Government and we can do together, working with all concerned. However, we need support from the Department for Environment, Food and Rural Affairs, not least so that alternative crops can be used in the production of bioethanol. I hope to end on a positive note.

I also hope that the Minister sees fit through his good offices to support what I have attempted to do, which has not been without its local difficulties. I have asked City of York council to impose a condition on the planning application for what we assume will be a housing development on the factory site; prime residential land will be available when the factory closes. That condition is that the railhead be built close to, presumably, the A19—probably within Vale of York constituency. That would have to be very sensitively handled from a planning and traffic point of view. However, opening up the railhead would permit growers to transport their sugar beet to York and enable it to reach not just Newark but the remaining sugar beet factory at Wissington in East Anglia. That is a 130-mile round trip for many constituents in Vale of York and North Yorkshire generally. I hope that the Minister will join me in applying that pressure.

I recognise that the decision is commercial and that since the day I was elected to represent Vale of York I have received complaints about the lorries, the noise pollution and the hours involved during what is called a sugar beet campaign, which runs approximately from October to February, sometimes March. It brings with it noise, heavy lorries and dirt and mud on the roads, and for some a decision to build houses on the site would be welcome. However, despite all that, I hope that there will continue to be a future for sugar beet growing.

The Minister will tell me that the issue goes back to the decisions taken, with our support, on the “Everything but Arms” campaign, which led to a fall in the price of sugar and more imports from third countries such as Brazil, which to my knowledge were never traditionally sugar cane producers, but are now undercutting. Another problem is that although world sugar consumption has been rising steadily in recent years, that rising consumption has been outstripped by the rise in production, giving a surplus that will continue for a considerable time.

The recent environmental impact assessment carried out by the Department for Environment, Food and Rural Affairs and non-governmental organisations shows that the growing of sugar beet has positive, beneficial effects on biodiversity and bird life. During the past 20 years, there has been a substantial reduction in all forms of chemical input to crops; in the case of insecticides, the reduction has been 95 per cent. In addition, many of the co-products of processing sugar beet are utilised in the farming industry—in animal feeds, for example.

I hope that the Minister will address the real political issue, which so far has not been given a great deal of publicity. Alarmingly, there has been a 7 to 10 per cent. reduction across the board in the DEFRA budget. We heard this morning that for British Waterways, the reduction has been as high as 15 per cent. The DEFRA budget cut amounts to £200 million. The background, as I am sure the Minister will confirm, is avian influenza; the delays involved in the introduction of single farm payments for farmers, which have meant that interest payments have had to be made to the European Union; and an overspend on IT resources within the Rural Payments Agency. Flood defences will be particularly badly hit, along with nature conservation and canal repair work. Obviously, that, on top of everything else in connection with this debate, causes great concern to farmers.

As I mentioned, the York British Sugar factory is due to close in January, February or March next year. Three core groups in Vale of York will be affected—the growers, contractors and suppliers. As I mentioned, many parties are hoping to come into play and give their support, but they are hampered by the fact that it is often difficult to identify parties other than the actual growers. Critical remarks have been made by the Tenant Farmers Association, and I am delighted that the Prime Minister has agreed to meet a small delegation led by me tomorrow. I shall furnish him with a copy of my and the Minister’s remarks on the issues.

Will the Minister respond to my comments—if possible today, or, if time does not permit, in writing after this debate—so that I can share his response with the association? It understands that British Sugar could have decided to avail itself of the European Union restructuring scheme, agreed as part of the November 2005 sugar reforms, set out in EU Council regulation 320 of 2006, agreed and published on 20 February this year. Given the quota associated with the York and other factory closures—Allscott, in particular—British Sugar would have been entitled to up to about £490 per tonne in restructuring aid in return for announcing the complete or partial decommissioning of the sugar processing plant. Under the regulation, at least 10 per cent. of that aid would have to be passed to affected growers and contractors.

The Tenant Farmers Association argues that that would be a minimum, but should be a lot higher, particularly given the development value of the two closed sites. I understand that growers supplying the Greencore plant in Ireland will receive an astounding 32 per cent. of the restructuring aid available under the EU scheme, following decisions to relinquish the quota associated with that factory. Perhaps the Minister could respond to that against the background that, even with transport costs being offered to growers who supply York, it does not make economic sense when beet prices are £20 a tonne or less to transport beet into Newark, let alone Bury St. Edmunds or Wissington.

Among those who hope to assist the growers in particular is Yorkshire Forward. Obviously, it is easy to identify the growers, as they have identical contracts with British Sugar, and the National Farmers Union has been acting on behalf of all who are involved. However, Yorkshire Forward is finding it difficult at this stage to obtain supplier information from British Sugar. I wonder whether the Minister could use his good offices and intervene to ensure that not just the growers but the other parties concerned will be able to benefit in that respect.

The growers reached an agreement that I gather was concluded within the past fortnight. Unfortunately, British Sugar led them to believe that Newark would be the next port of call, but the British Sugar factory at Newark is full, so they will have to transport to Wissington. That is why they have such a problem.

The Minister may wish to address the fact that sugar beet will have to be replaced, as it is a rotation crop. It may be replaced by winter cereals or oilseed rape. I hope that the Minister will look favourably on the potential for those crops and also on the option of biofuels, which I shall come to in a moment.

Contractors have invested large amounts of money in harvesting equipment dedicated to beet. In most cases, a new machine costs in excess of £250,000. The problem for many people is that they are not eligible for compensation from British Sugar, which has no point of contact with them. They will be left completely in the lurch when the campaign season for sugar beet ends, and there will be repercussions for staff and employees of growers and contractors.

The supply industries—primarily hauliers with special loading equipment for beet—have invested large amounts of money to provide themselves with work for five months of the year. As the announcement was made late in the year, they expected the contracts to extend beyond January or February of next year. They, too, will be left in the lurch. Like the contractors who have heavy machinery that will be left idle if no alternative use is found, road hauliers have lorries that are fit for little else than hauling beet, unless the Minister sees fit to join my campaign to ensure a connecting railhead.

The three groups are the growers—the NFU has negotiated on their behalf and cared for them, but the Minister might like to address the remarks of the Tenant Farmers Association—and the suppliers and the contractors, who will be left in some considerable financial difficulty.

Finally, through the Minister, I would like to explore with the Government the opportunities for developing biofuels. He may or may not be aware that for many years there were lucrative contracts for sugar beet growers. Sugar beet has been a stable crop when everything else has failed or lost money. Recently, there was also an agreement under which willow coppice would be taken from north Yorkshire and co-fired with coal at Drax, but it has ended. There may be potential for bioethanol, either at Teeside or, as is more likely, at the sugar beet factory in Wissington. However, the only option at present is the British Sugar plant at Wissington. Against a background in which the Government have failed to meet their bioethanol targets, certainly in the past year, I hope that they will look favourably on VAT at a lower or zero rate on the production of bioethanols. The Conservative party through its shadow Minister for agriculture and rural affairs and, indeed, its leader is committed to exploring bioethanol, and I hope that the Minister will respond positively to the issue.

In conclusion, I am delighted to have secured this debate. The Minister will detect that emotions are running high against the backdrop of British Sugar’s announcement that the factory will close so near the end of the campaign. I wait in anticipation of some good news from him.

I congratulate the hon. Member for Vale of York (Miss McIntosh) on securing the debate and associate myself with her remarks about her late colleague, Eric Forth, who was respected on both sides of the House.

I extend my sympathy and understanding to the hon. Lady’s constituents who will find themselves out of work as a result of closures and job losses at Terry’s, Nestlé, Norwich Union and, potentially, within the sugar industry itself. I understand the importance that she attaches to the future of sugar beet production in the UK, and the passion with which she speaks about it and the interests of growers and processors, particularly those in her constituency. This is certainly not the first time that the House has debated sugar reform. However, it is the first time we have been able to have a considered discussion of the issues since the reform process that was successfully concluded last November under the UK presidency of the EU—the first substantive reform of the sector in nearly 40 years.

I do not want to rehearse all the arguments for change, but it was estimated that the old regime cost EU consumers and taxpayers nearly £5 billion a year, less than half of which was transferred as benefits to beet growers and processors. The result was a welfare loss to the EU economy of around £3 billion a year. In the UK alone, the net annual economic cost was estimated at more than £500 million.

The old sugar regime was also the single most distorting and protectionist element of the whole common agricultural policy. Negotiating reform was complex and difficult, but it was clear to all that an EU sugar price of more than three times world levels simply was not sustainable.

It is worth while briefly to recap the three fundamental aspects of the reform package. First, sugar prices are to be cut by one third over the next four years. The sugar-using industries have been crying out for price cuts for many years. Indeed, the hon. Lady knows that from her constituency interests, which include Terry’s and Nestlé. She will no doubt recall that when Kraft Foods closed its Terry’s of York factory in 2000 and Nestlé recently announced 645 job losses at its York manufacturing facility, high costs of raw materials, including sugar, were implicated in both decisions. The unsustainable system of high sugar prices may have been good news to sugar beet growers and processors while it lasted, but it damaged our food and drink industry. The price cuts seek to reverse that damage in part—I say “in part” because, of course, only one third has been cut from prices that were three times world prices.

Secondly, a substantial compensation package for sugar beet growers has been announced. I shall say a little more about that aspect of the reforms in a moment. The third element is a restructuring scheme to help those member states with inefficient sugar production sectors close down their industries. One of the many problems of the former regime was the over-production encouraged by high prices and the quota management system. It was necessary to provide a financial incentive to persuade inefficient producers to quit production. As there has been confusion—indeed, the hon. Lady alluded to tenant farmers and their understanding of the situation, which perhaps added to it—I must stress that British Sugar’s planned factory closures are not part of the restructuring scheme. Far from it. Instead, it plans to remain in the business of producing sugar in the UK.

Difficult and controversial though the reform process was, the final outcome was accepted as a tough but necessary deal by all sides of the UK industry, including the National Farmers Union on behalf of sugar growers. In the course of negotiations, the Government published a full regulatory impact assessment on the effect of the reforms on various sectors of the sugar industry including, of course, the effect on sugar beet growers in Yorkshire and elsewhere in England. That was submitted to Parliament.

It is clear that there will be significant implications for UK beet growers. It is quite possible that the industry will not continue at the current level. The hon. Lady’s remarks have given us a feel for those implications. Farmers who receive the single farm payment, decoupled from production, may choose not to continue to grow sugar beet at all if other crops appear more profitable, but that would be a rational response to market signals allowing resources to be used to the best effect.

It was also open to British Sugar to participate in the restructuring scheme. I want to address this point in particular, as the hon. Lady dwelt on it and there is clearly confusion. British Sugar could have given up its production quota, exited from sugar production and received EU compensation. It chose not to take that course.

British Sugar plans to close factories at York and Allscott next year as part of its commitment to the future of sugar production in the UK. Rather than pulling out, it has signalled its intention to maintain and possibly even increase levels of quota for beet in the UK. In order to be fully competitive, it intends to do that at a smaller number of factories. That is, of course, unfortunate for the hon. Lady’s constituents who are beet growers or who work at the York factory.

Job losses are always regrettable and it is inevitable that some will occur at the York and Allscott factories, but I am pleased to say that an agreement has been reached between British Sugar and the NFU covering the consequences for sugar beet growers who are affected by the factory closures. Growers have the option of continuing to grow beet and supplying a more distant factory, or of switching to alternative crops and selling their supply contracts to a more favourably located grower.

My noble Friend the Minister of State at the Department for Environment, Food and Rural Affairs, Lord Rooker, recently made an announcement on compensation for sugar beet growers through the single farm payment. It is intended that the additional support arising from last November’s landmark EU sugar reform will be incorporated into the single payment scheme from 2006. That support will be worth almost £500 million over the next seven years.

As there have been difficulties with implementing the SPS in England, my right hon. Friend the Secretary of State announced in June that he had decided to simplify to the maximum possible extent the arrangements for delivery of the sugar support for the 2006 SPS. In practice, that means that the £52 million available in the 2006 scheme year will be added entirely to entitlements held by the 7,000 sugar beet producers who meet defined qualifying criteria, rather than some of the funds being used to increase the flat-rate value of all SPS entitlements.

It has also been confirmed that from the 2007 scheme year, the additional support will be incorporated into the SPS on the existing flat rate and historic split, but that in the 2007 to 2009 scheme years, the annual increments in that support relative to the 2006 scheme year level will be added each year to the entitlements held, initially at least, by sugar producers. It is hoped the greater share of the income support directed at historic sugar beet growers in the key transitional period of 2007 to 2009 will help the industry to cope during the critical period of phasing in the price cuts that arise from sugar reform.

The arrangements that we announced on the incorporation of income support into the SPS were supported by the vast majority of consultees. I believe that the decisions that we have made successfully balance the interests of sugar producers and all other SPS claimants while taking account of the need for arrangements that the Rural Payments Agency can successfully manage alongside its existing challenges.

Finally, I want to refer to the potential for biofuel production in the UK, which the hon. Lady raised. The Government are keen to support agricultural diversification and the development of new market opportunities as appropriate, and biofuels are an important growth area, including bioethanol obtained from sugar beet. Road transport accounts for a quarter of the UK’s total carbon emissions and low carbon transport fuels will almost certainly be required if the Government’s 2050 target is to be met.

I am most grateful to the Minister for his comments, and I will read with care what he said about the compensation scheme. I welcome his comments on biofuels, but last year only 0.3 per cent. of the UK petrol and diesel market was provided by biofuels when the EU’s target, which was presumably agreed with his Government, was 2 per cent. Can he offer some encouragement that we will meet the targets year on year?

We were close to the target for biofuels in general in 2005 and we are introducing the renewable transport fuel obligation to increase production of biofuels to 5 per cent. by 2010. I hope that that gives the hon. Lady the assurance that she and her constituents need. There is a growing and developing market, and the Government will take the necessary action to see that the pull factor in the equation attracts more investment into biofuels.

In 2005, renewable fuels such as bioethanol and biodiesel accounted for only about 0.24 per cent. of all road fuel sales, as the hon. Lady said. However, to develop supply further the Government intend to introduce the renewable transport fuel obligation. As I have suggested, that will deliver 1 million tonnes of carbon savings by 2010.

I want quickly to address some of the specific questions that the hon. Lady raised and, in particular, the benefit of sugar beet on biodiversity as a rotation crop. It is certainly true that sugar beet has environmental benefits as a spring-sown broadleaf crop, but alternatives are available, as she acknowledged, and that can be addressed through the agri-environment schemes.

The hon. Lady also stated that there had been a £200 million reduction in the DEFRA budget. I want to correct that, as I am sure she would want me to. There has not been a £200 million reduction. New pressures, specifically those that she mentioned from avian influenza and so on, have meant that that money has been reprioritised to address those problems. There certainly has not been a cut in the amount of money spent to the order of £200 million. That is simply wrong.

The hon. Lady raised the specific matter of British Waterways and flood defences. In the reprioritisation process, there has been no cut in the capital allocation for flood defences, but only a cut relative to the revenue stream budget in that area. She has to see that in the context of the dramatic increase in funding achieved by British Waterways since 1999. The extraordinary backlog of repairs that had not been done for the previous 20 years has now been addressed and British Waterways has restored 200 miles of waterways to public navigation. It has done a tremendous job with the huge extra investment made available to it.

The hon. Lady talked about the location of sugar beet benefiting the factories of Terry’s and Nestlé and also asked specifically about the planning condition on the location of the railhead to facilitate growers to reach the market and sugar beet production at Wissington. In relation to the distance from the market, I am sure she has seen that British Sugar is operating site rationale in terms of best yield and transport distance. Of course, the problem for the York factory has been that, in terms of the yield, it has the lowest—