Sugar

It is being reported that enthusiastic Tory Party donors Tate and Lyle stand to be the sole beneficiary of the abolition of EU tariffs and quotas on raw cane sugar imports, to the tune of over £70 million a year. This is a good anti-Tory and anti-Brexit story, but deeper thought raises some extremely interesting ethical issues around agriculture, trade, the developing world and environmentalism. Let me just unpack a little of it for you to see and start thinking about. I do not claim to have all the answers, but I do have some interesting questions. I want you to indulge me if I start by going back over thirty years to recount an experience of my own.

I was in charge of agriculture and water in the British High Commission in Lagos back in 1986, and in that capacity paid several visits to the state owned Nigerian Sugar plantation and factory at Bacita, Kwara State.

I loved Bacita. Nigeria in the 1980’s was a disheartening place. A ridiculously over-valued Naira allowed the elites who could access the official exchange rate to live lives of sumptuous luxury and buy up top end properties all over London (the nobs’ estate agent, Knight Frank and Rutley, opened a Lagos office staffed by British expats to sell Holland Park mansions and Dockland penthouses). The overvaluation destroyed Nigerian agriculture, as imported food became cheaper than local. In a decade, Nigeria went from being the world’s largest exporter of palm oil to the world’s largest importer of palm oil, and hundreds of thousands of acres of palm oil, coconut, cocoa, pineapple, lime and other plantations withered away and closed down.

To import, you needed an import license and these were a principal source of corruption in probably the most corrupt country in the world. The most valuable of all were the sugar and rice import licenses, controlling the import of a daily staple to a country then of 200 million people. The duopoly right to import sugar to the whole of Nigeria was given to just two Northern families, Dangote and Dantata, well connected to the military regimes. They became billionaires several times over. I was most amused in 2014 to see Aliko Dangote being fawned over at Davos as an example of a great African entrepreneur.

The Dantatas and Dangotes had unlimited access to Nigeria’s oil dollars at the official exchange rate – which was an amazing three to four times more favourable than the real or black market rate. So not only did they have the duopoly on a diet staple, but the system worked like this. For the sake of example let’s say sugar was a dollar a kilo. They could exchange a naira for a dollar at the official one to one exchange rate and buy the kilo of sugar. They could then, given their duopoly position, sell that kilo of sugar to the public for eight nairas, worth two dollars in the real world. They could then exchange that eight nairas at the official rate for eight dollars. Making a 800% markup if you start from the first dollar, or a 3,200% markup if you start with the real value of the first Naira they bought that first dollar with.

I am not trying to recreate the actual sugar price or exchange rates in 1986. I am using notional values to show how the system worked and how the Dangote family originally became, as loudly proclaimed at Davos, the richest in Africa.

So in 1980’s Nigeria, it may appear that the situation for their domestic sugar industry could not have been worse. But it could, and it was the European Union that made it much, much worse. Dantata and Dangote were able to buy beet sugar from the European Union typically at around 70% of the cost of its production. The EU was dumping massive volumes of export subsidised sugar on to Africa as part of the Common Agricultural Policy, destroying much of African sugar production in the process.

One of the abhorrent things about today’s politics is that Brexit has made any sensible discussion of the EU impossible. It ought to be perfectly possible to discuss things the EU has historically done wrong without being labeled a Trump-loving Farage supporter, but that is not how public discourse is going. The EU’s record on effectively dumping did improve substantially with successive reforms to the CAP.

The general problem has not gone away, however. In 2000 I recall the USA dumped vast amounts of subsidised chicken on Ghana while I was working there, putting numerous good quality Ghanaian producers out of business. Africa remains subject to the whims of western politicians seeking to subsidise their farmers either for reasons of food security, or because the Idaho soya bean farmer suddenly became a key voting demographic.

The Common Agricultural Policy was designed to encourage food security and reduce price volatility in Europe. In original concept that functioned through large scale over-production of staples, taxpayer subsidised, and food stability in the rest of the world was not part of the remit.

Despite all of the odds, the Nigerian Sugar Company in Bacita kept going through the 1980’s, employing tens of thousands of people a year and producing some 20 to 30,000 tonnes of refined sugar (out of a nominal capacity of 60,000 tonnes). I loved spending time there. I admired the tenacity of the workforce who struggled every day to maintain both field production and factory with almost no available cash. I marveled at the ancient, massively wrought, crushing, boiling and refining equipment all manufactured in Glasgow or Motherwell, and chatted with the blacksmiths who hammered replacement parts using old matchets as raw material. I would sit with the cane cutters enjoying a drink of fresh cane juice, as the burning prior to cutting drew black feathers across the vivid red of the setting sun. I loved the fact that the entire plant and town were powered by using cane waste as fuel.

You have to understand that Nigeria in the 1980’s had massive societal problems, and honest endeavour and agro-industry were not exactly its hallmarks. Bacita was my haven. I should point out that Bacita had never employed either slave or imported labour, lest you feel my nostalgia for a sugar plantation was misplaced.

I tried very hard to persuade both DFID and the Commonwealth Development Corporation to help update the plant, but both said that the EU dumping policy made Nigerian sugar unsustainable. Bacita somehow limped on another two decades until it closed in 2006. It closed because the international donor community insisted it was privatised.

Once put into the hands of a wealthy owner, international aid was finally forthcoming and the African Development Bank put an amazing 60 million dollars into expanding field production. This was entirely wasted as the new owner decided it was most cost effective to take advantage of tariff advantages of raw versus processed sugar. They simply shut down the field operation, making 10,000 people redundant, and ran the processing plant on imported raw sugar. That lasted a couple of years and then they lost interest and the whole thing went bust. The joys of privatisation.

Sugar is fascinating, because temperate beet sugar is the original and most striking example of industrial selective breeding of a crop deliberately to provide import substitution in temperate countries of a tropical food. Modern sugar beet typically contains 15 to 20% sugar. At the end of the 18th century, when serious breeding started, it was around 8 to 12%, similar to sweet potato today. Industrial scale production of sugar from sugar beet started around 1820.

Contrary to popular belief, sugar beet in a temperate climate can in fact yield more sugar per hectare than sugar cane in the tropics, because of its shorter growth season. Nitrogen fertiliser inputs for the two are comparable. Cane sugar production costs are substantially cheaper than beet sugar, but higher yield in the field is not the reason. Nor is cheaper labour as large a factor as you might think, given the mechanisation of the beet industry.

The reasons cane sugar is cheaper are more complex – for example, sugar beet factories in the UK typically run 100 days a year, whereas a sugar cane factory factory is almost a year round operation, thus giving a better return on the capital employed. The UNFAO argues that in a liberalised market some beet production would be competitive, particularly major scale producers in France and Germany. I am dubious; the general rule that without protection cane sugar is more financially viable, by a wide margin, is not in doubt.

As the UK leaves the EU, the EU quotas and tariff barriers that kept out cane sugar are vanishing and Tate & Lyle are now free to import raw cane sugar for processing. This is where that £71 million tariff reduction comes in. This could theoretically be an advantage of Brexit – sugar ought to get cheaper. But actually, it won’t. You see, Tate & Lyle are the only refiner of raw cane sugar in the UK. They have a monopoly, and the capital costs are a significant bar to market entry. So what will happen is that Tate & Lyle profits will go up, very substantially.

The British sugar market is dominated by British Sugar, who produce beet sugar, and Tate & Lyle, who finish in the UK imported “raw” cane sugar. In theory, Tate & Lyle should now be in a position to put British Sugar out of business and end UK beet production. That will not happen. What will happen is the duopoly will continue to fix the price, with Tate & Lyle simply making mega profits.

As you will have realised, this is all predicated on the fact that the UK intends to maintain high tariffs on the import of fully processed sugar from abroad, to maintain the protection of the processing operations of both British Sugar and Tate & Lyle. The only reason it makes any sense for Tate & Lyle to import raw sugar from Brazil or Pakistan and process it here, is that fully processed sugar from Brazil or Pakistan is subject to a deliberately prohibitive tariff.

This means that extra bulk is being transported across the sea for no good reason. It also keeps the most profitable part of the entire value adding process in the developed world and not in the developing world. I visited a sugar factory in Pakistan last year, where it is a massive industry, and access for their refined sugar to the UK market could be a major economic boost.

It is of course not just sugar; this system of protection aimed at keeping developing countries as raw material exporters and keeping the high value processes in the developed world applies to many commodities. If we take the case of cocoa, my friend President Nana Akuffo Addo of Ghana states that Ghana loses over half of the value of its cocoa by exporting beans rather than processed cake and butter, or still better chocolate.

President, Nana Addo Dankwa Akufo-Addo, says Ghana no longer wants to be dependent on the production and export of raw materials, including cocoa beans.

According to President Akufo-Addo, Ghana intends to process more and more of its cocoa, with the aim of producing more chocolate, “because we believe there can be no future prosperity for the Ghanaian people, in the short, medium or long term, if we continue to maintain economic structures that are dependent on the production and export of raw materials.”

He, thus, reiterated the commitment of his Government “to add value to our raw materials, industrialise and enhance agricultural productivity. This is the best way we can put Ghana at the high end of the value chain in the global market place, and create jobs for the teeming masses of Ghanaians”.

That the UK in leaving the EU is lifting the barriers to raw sugar import but not to processed sugar import, is indeed a sign that the Tory government is favoring the interests of its donor Tate & Lyle above the interests of the developing world (who still cannot send us more valuable processed sugar), the interests of the consumer (who will not get cheaper sugar from the tariff reduction) and the interests of beet farmers (who will have competition from cheaper imported raw sugar). It really is a spectacularly bad policy decision designed solely to benefit Tate & Lyle, and nobody else.

Now this is where I do not know the answers.

A couple of years ago I would have written with arrogant certitude that the correct policy would be to lift all tariffs on import of fully processed sugar, thus greatly benefiting the consumer while opening opportunities for value added in the developing world. But how do the food miles involved factor into climate change? On top of which, has the effect of covid-19 given a warning that the EU’s original ideas of food security and local production had more value than we had lately thought?

Now those are some really meaty questions. There is no reason my views are any more valuable than yours, and indeed, I do not know the answers.

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