March 6 (Bloomberg) -- In the basement kitchen of the Churchill War Rooms in London, Maree Harrison and her chefs bake hundreds of flapjacks a month for catered events using the same Golden Syrup favored by Queen Elizabeth. Soon, they may need to change the recipe.
The Thames-side refinery that Tate & Lyle Sugars has operated for 135 years, and which helps produce the Golden Syrup labeled the oldest branding by Guinness World Records, says it may be forced to close because of changes in European Union rules. In 2017, the EU will end caps on how much sugar domestic producers, who use mostly beets, can sell. That will boost competition for sweetener produced by Tate & Lyle from raw sugar imports, which remain limited by the EU.
“Our competitors will be completely unleashed, and yet we remain constrained in terms of raw-material access,” Gerald Mason, vice president of corporate affairs at Tate & Lyle, said in an interview at the refinery on Feb. 3. “We are going to be pitched into a big fight with both hands tied behind our back.”
While the EU, the world’s leading producer of sugar from beets, makes enough sweetener for its needs, a quota system means about 20 percent of the bloc’s consumption is met by imports. Tate & Lyle, owned by American Sugar Refining Inc., buys raw cane sugar from countries that have tariff-free agreements with the EU to refine it and re-sell in the bloc. Imports from these nations are falling short of demand, leaving its Thames factory running five days a week instead of seven.
The EU has agreed to end sugar quotas in 2017, allowing local producers of both sugar and isoglucose, a starch-based sweetener made from cereals and similar to high-fructose corn syrup, to sell unlimited volumes in the region. Refiners, meanwhile, will still be constrained to buying raw cane sugar, which closed at 18.23 cents a pound yesterday, from countries that have preferential deals. Raw sugar fell 0.3 percent today to 18.17 cents. Imports from most other areas incur a levy of at least 339 euros ($466) a metric ton, more than half of the current EU sugar price.
“Cane refining is over 400 years old in Europe,” said Marina Yannakoudakis, a conservative member of the European Parliament, who has lobbied on behalf of refiners. “But faced with an end to beet quotas, it faces a considerable challenge. The cane-refining sector employs 5,000 people across Europe, with 800 employees based in London, the city I represent.”
Tate & Lyle already has cut 27 positions and another 550 direct jobs and 300 contractors are at risk, Tony Bennett, the government affairs and strategy manager, said in an interview at its factory in Newham. Last year, Newham had the second-biggest unemployment rate of all London boroughs, according to Trust for London, a charity. Wages have also been hit by operations halting on weekends, when pay is typically higher, Bennett said.
“Despite all of their best efforts, Europe will legislate them out of business in 2017 potentially,” Tate & Lyle’s Mason said of his fellow employees. “There’s a risk that the business won’t be able to compete.”
When the U.K. joined the EU in 1973, it imported about 2 million tons of sugar a year, according to the International Sugar Organization in London. As part of the accession agreements, those purchases were reduced to 1.3 million tons, limiting the amount available for refiners.
“We had six sugar refineries with tens of thousands of employees, and we’ve now got one with 800,” John Christiansen, a 63-year-old shift manager who first joined the company in Liverpool in 1968 and now works at the Thames unit, said in a Feb. 4 interview. “For 40-odd years, I have been working in an industry that has been continuously under threat, and this all began in 1973. There’s been that continual attrition caused basically by the European sugar regime.”
In 2006, the EU changed its sugar regulations as the World Trade Organization ruled it was dumping subsidized sugar on world markets. As a result, sugar output shrank by about 6 million tons and the current quotas were imposed. That left about 3.5 million tons of demand to be met by duty-free imports from a group of least-developed countries and nations in the African, Caribbean and Pacific group of states and some other purchases at reduced duty.
“Over the past few years, these imports have not arrived as anticipated,” said Philippe Aeschlimann, a spokesman for Nestle SA in Vevey, Switzerland, the world’s biggest food company, which sells most of the sugar-containing products it manufactures in Europe within the bloc. “Although there is plenty of domestically produced sugar within the EU, the quota system prevents it being used for food production. This leads to higher prices, which is detrimental to European consumers.”
EU sugar quotas distort prices and reduce competitiveness for food and drink manufacturers, adding about 35 percent to sweetener costs, the U.K.’s Department for Environment, Food & Rural Affairs said in an e-mailed response to questions. The output limits also add about 1 percent to the cost of a weekly shopping basket, Defra said in a Feb. 25 statement.
While refiners are starved of supply, prompting Tate & Lyle to operate at about 60 percent of capacity, local beet-sugar producers benefited from higher sales.
EU white-sugar prices climbed to a record 738 euros a ton in January 2013, more than double the global price indicated by futures contracts traded on NYSE Liffe in London, even as the bloc took measures to boost supplies by more than a million tons in each of the past three seasons. The December cost of 627 euros, according to the European Commission, is about 90 percent higher than for futures, as tighter markets in Europe contrast with excess supply elsewhere in the world.
In February, the EU abandoned a price-fixing investigation of sugar producers citing a lack of evidence. Germany’s Federal Cartel Office fined Pfeifer & Langen KG, Nordzucker AG and Suedzucker AG, the bloc’s biggest supplier, for local, quota and price agreements that hampered competition for many years until 2009. Tate & Lyle filed five actions against the EU claiming damages of 425 million euros for alleged “mismanagement” of the market.
The U.K. consumes about 2 million tons of sugar a year. British Sugar Plc, owned by Associated British Sugar Plc, has 100 percent of the domestic quota of 1.056 million tons, data from the commission showed. Most of the remainder comes from raw sugar imports that are refined by Tate & Lyle, or white sugar imported by Napier Brown, owned by Real Good Food Co.
“If you talk to the big sugar customers in the U.K., they want alternative sources of sugar, they want choice and competition,” said Andrew Brown, a marketing director at Real Good Food in London. “At the moment, there are plenty of stocks of sugar, so EU producers are happy to sell at pretty competitive prices. But clearly, if there’s a deficit in the U.K., if supply was tight and you’ve only got one producer in the U.K., there’s only one direction where prices would go.”
Tate & Lyle’s troubles threaten the demise of Lyle’s Golden Syrup, distributed in the same iconic green and gold tins since 1885 except for a brief World War I interval when a shortage of metal compelled a shift to cardboard, and carrying the Royal Warrant of approval since 1922. The syrup, a staple of British kitchen cupboards, is currently made at the company’s Plaistow plant in London from a by-product of the cane sugar refined at the Thames factory.
“We used to have it on toast when we were kids,” said Harrison, who is head of operations at the catering firm at the Churchill War Rooms in Westminster. “If Tate & Lyle disappeared, it would be a shame for the jobs lost in the area. As for our flapjacks, I guess we’d have to use maple syrup instead.”
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