On Tate & Lyle\’s subsidies

Sorry, but this is one of the things that seriously annoys me each and every year when it comes up.

Farm Subsidy by Constituency tells us which UK area gets the most farm subsidy.
Which bucolic Tory shire would you guess?
The answer: East Ham

Yes, East Ham in London tops the list with twice as much as the next ones, the Berwicks, a total of €763,726,965.82
And it all went to Tate & Lyle.

C Czarnikow Sugar Ltd only got €99,316,783.17 but then they are based in Islington where the soil isn\’t so fertile.

The information given is of course true….but horribly misleading.

I hope that readers here will have got their heads around the idea of tax incidence….God knows I\’ve belaboured the point enough. The person handing over the cheque isn\’t, necessarily, the person carrying the economic burden of the tax.

This can also be true of subsidies: the person cashing the cheque isn\’t necessarily the beneficiary of the economic joys of the subsidy. And this is so with these international sugar companies. And the secret is in that word \”international\”.

Tate & Lyle does two things (I\’ll leave aside their non-sugar based sweetners made from grains). It imports cane sugar and its precursors from outside the European Union, processes then into the sugar we put in our tea and then sells that sugar both inside the European Union and outside it. Secondly, it purchases sugar beet within the European Union, processes that into sugar and sells that sugar both inside the European Union and outside it.

One other thing you need to know. The European Union runs a huge subsidy programme for sugar beet growers within the European Union (some slightly old details here).  The basic structures of this subsidy scheme are twofold:

1) Massive duties upon imports of sugar from outside the European Union…..some countries get a waiver from these as long as they sell at a certain minimum price.

2) Guaranteed high prices for farmers producing sugar and precursors inside the European Union.

So, what now happens to a company which buys in sugar and precursors from outside the EU to process and sell inside the EU? They must pay these very high import tarrifs, good, well done that man. And if they purchase sugar and precursors inside the EU then they must pay that massively high guaranteed price to the farmers. Again well done.

If they then sell the manufactured sugar inside the EU then nothing else happens. We\’ve defended the high EU sugar price and everything is sweet and lovely.

However, what happens if they then export that sugar that they\’ve either brought in and processed or bought and processed? They lose an absolutely bloody fortune, because the EU has, either way, made their raw materials cost two to three times the world price.

So what does the EU do? It sends them a subsidy cheque for their exports. This subsidy cheque is calculated to be exactly, and only exactly, the increase in costs imposed upon the companies by the import tarrifs upon cane sugar and precursors imported into the EU and the high guaranteed price paid to sugar beet farmers within the EU.

So who gains the economic joys of this subsidy? Tate & Lyle and shareholders? No, not at all: they\’re only being compensated for the costs that the system is imposing upon them already. Those who gain are

the sugar beet farmers in the EU.

They get protection against all that cheap and yummy cane sugar and also get their guaranteed price for sugar beet. The incidence of the cheque Tate & Lyle get isn\’t Tate & Lyle at all: it\’s that bloke eyeing up a top of the line Range Rover somewhere in Lincolnshire. That top of the line Range Rover which will be paid for by his fields of sugar beet.

You know, that sturdy independent yeoman that is the very backbone of England.

That we should abolish it all is clear and obvious. But not because Tate & Lyle makes a mint out of it, they\’re just the conduit, not the beneficiaries. But because if farmers cannot make money growing sugar beet in the European Union without subsidy then farmers should stop trying to grow sugar beet in the European Union.

16 thoughts on “On Tate & Lyle\’s subsidies”

  1. So the question is then, what is the best use that beet fields in Lincolnshire should be turned to? At the moment it’s crop is a subsidy. We could instead turn the land to forest, pay the farmer the same subsidy and import sugar at the world price. Where’s the loser?

  2. No mention of “food security” in your piece?
    If we are going to rely on far flung parts of the world for our sugar supply then we have to be honest about the security that supply. The Chinese, Indians etc are all ready to bid up world prices to satisfy their increasing domestic demand and take away our traditional suppliers.
    Food and energy security are going to be big issues in the next 10 years and the Great British public may realise the benefit of subsidising a decent amount of home production of food basics to ensure supplies.
    Globalisation isn’t looking sustainable……………

  3. “We could instead turn the land to forest”: why should “we” do any such thing? It’s not “our” land.

  4. Taxes and subsidies generally are incident on the beneficiaries of
    economic rents. (ATCOR – All Taxes Come Out of Rents). I’m sure
    you’ve heard this before, but you don’t seem to have traced the
    economic flow far enough to locate the relevant rents.

    You have identified the subsidy as being incident on the farmer (the
    person in the field who owns the beet). But usually, he is not the
    benefiary of the rents. As a tenant farmer, he will pay paying rents
    over to the landowner, who in turn may be paying interest over to the
    bank on debts. Changes in subsidy may produce temporary impacts on
    farmers.

    When talking about “farmers”, you must be bear in mind this has at
    least three different meanings (which have changed over time). Are
    your “sugar beet farmers in the EU” the owners, the tenants,
    the workers or the managers?

    The consequence of subsidies like this is normally a rise in the
    market price of land, arising around the time people expect the
    subsidy to be introduced. So a previous owner may have cashed out the
    capitalised value of the expected subsidy already. And the current
    owner may well have pledged the land to the bank as part of a
    mortgage. The subsidy then becomes the income which is used to
    service the bank debt. The bankers are one of the ultimate
    beneficiaries of bank debt issue.

    In short, the “farmer” you talk of usually plays little role in the
    economics of the subsidy, which is promptly paid out to the prior
    landowners and bankers and then forms the backing of the money supply.

    The key rents involved are the classical (Ricardian) rent of the land
    and the money supply rents of the money issue cartel.

    Your “solution” of abolishing the subsidies is rather problematic
    since the subsidies have already been divvied up between the prior
    landowner and the banker who collateralised the land (and are now both
    sunning themselves on in idle luxury). The financial hit is taken by
    the current land owner and the bank, who both are become at risk of
    collapse. The bank will need the indirect subsidy replaced by a
    direct subsidy (eg bailout), (or depositors can kiss their money
    goodbye). In other words, the beneficiaries have got away with the
    loot with a clean getaway, and your solution hits “innocent” bystanders.

    All of this is well supported by theory and practice. Farmers
    (tenants and labourers) rarey benefit from subsidies – which is why
    they demand they are vital and must be increased. The taxes and
    subsidies are incident on the inelastic suppliers and/or consumers and
    monopolists. The farmers are supplying labour, an elastic factor.

    Do you accept the ATCOR principle? Is my analysis sound?

    Tim adds: ACTOR is a little too far for me. That subsidies to things which use land usually end up as subsidies to those who own the land I’ll agree. In fact, if you look around ehre you’ll see I’ve said that the movement from production subsidies to acreage subsidies simply increases the price of land. Meaning that land owners gain the subsidy (indeed, teh capital value of it) rather than those who use the land.

    But “all” is too far for me. Some, much, most, many….but not all.

  5. dearieme,

    No, except in the sense that we have to pay for the crop. If we have to pay, why can’t we choose what it is?

  6. Mr Pot: again, who is “we”? If by “we” you mean British taxpayers, the answer isn’t for our politicians to choose the crop, it’s to stop subsidising the growing of anything.

  7. All this talk about who benefits and no mention about who pays for it – the taxpayer.

    Would the tax payer be better off paying the tax with it eventually ending up in the farmer’s hands or paying the money direct to the famer in higher prices. I’m taking into account that there is no passing the subsidy at cost, all the middle men will be taking their cut even if small. It would be normal business sense to do so.

  8. As an indication of the extent of the subsidy – in a supermarket in a sugar cane growing area in Brazil, a 5kg bag of sugar costs less than £1.50.
    1kg of sugar I pay 75p for here – 2.5 times the price.

  9. Sativa

    I don’t think the growing of hemp was ever subsidised though I am sure that is was actually a compulsory crop once. Something to do with Britannia ruling the waves.

  10. Wait a sec! Food security for our SUGAR supplies?! It’d probably do *good* for the reputation of British teeth if some far-flung sugar cartel decided to impose sanctions on us…

  11. Pingback: A cash crop.

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