198 FORD STURROCK

SUGAR BEET OR SUGAR CANE: A REPLY

Ford Shvrock University of Cambridge

The comments of Messrs. Belshaw and Bryden come rather belatedly, two y e a n after the original article. In the meantime some of the points have already been raised and answered elsewhere.. Nonetheless, they pose some interesting questions that merit a reply.

In reading their comments, one is driven to the conclusion that the two authors have become so accustomed to framing arguments from the point of view of undeveloped countries that they have quite forgotten to allow for the interests of developed countries that buy their exports. If the issue is whether we should grow more sugar, the problem must be considered in terms of advantage to England. We may well decide afterwards to make concessions to undeveloped countries but, if so, this should be clearly recognised as a form of aid and not confused with an assessment of our own interests.

The two authors have attempted to estimate the shadow wage rate in Jamaica and suggest that the "real" cost of producing sugar is €33 to €38 per ton (compared with the actual cost of €53). It is not at all clear that the authors have enough information about Jamaica to assess this item accurately, but taking their estimate at face value, is it relevant to the points at issue?

Social costing is often carried out when preparing projects, e.g. for establishing a new industry in a developing country. Costs-particularly wages-= adjusted and often scaled down to allow for world prices and for the effect of indirect benefits on national income. If the estimate has any meaning in this context, however, it is that if we pay the Jamaicans (as we do) about €47 a ton, then sugar leaves a "social profit" of about €10 a ton. But this is not the question to which we require an answer. Nobody denies that the sugar industry is an asset to Jamaica particularly in providing employment. Unfortunately, the social cost is no help to the unfortunate sugar companies whose actual money costs are now over €50 a ton. Some of the higher cost firms have reccntly gone out of business and others may follow suit. The estates could reduce their costs by streamlining their labour and mcchanising the cane harvest. As this would create unemployment, however, the estates are prevented from taking such measures by the trade unions and the government.

But if the sugar companies are expected to provide uneconomic employment as a social service, it is unreasonable to expect them to carry the whole burden and the Jamaican Government could be expected to help them with a subsidy. If not, the government is likely to find bankrupt estates on its hands with the losses paid out of taxation. All of this however is an internal matter to be settled by the Jamaican Government. Does this "social cost" then have any relevance for British policy? The

answer is no. The guaranteed price we pay under the Commonwealth Sugar Agreement is based on actual costs submitted by the governments concerned. One can imagine the dismay of the West Indies delegates if we were to start price negotiations by saying: "Sugar growing is so valuable an asset to you that we shall base the guarantee on a social cost of €36 in place of your actual cash costs of f45 or €50''.

F. G. Sturrock. "A Policy for British Sugar Suppliers". Wesrmhtrr &mk Review, August 1969.

A. +asker. "British Sugar Supplies: An Alternative View". Ibid, November 1969. F. G. Sturrock, "British S u m Supplies: A Rejoinder". /bid. Febnury 1970.

SUGAR BEFf OR SUGAR CANE: A REPLY 199

In fact, the British Government in deciding whether to produce more sugar in this country must compare costs in this country with the cost of importing at the C.S.A. price. There is no doubt that if allowed to compete on level terms at this price, the British farmer could capture a larger share of the market. In the past the sugar beet industry in Britain has been freely criticised because its costs were believed to be higher than for sugar imported from the West Indies. All the more reason therefore why qua1 publicity should be given when the British arable farmer has overtaken on a cost basis at least one of the most important West Indian suppliers. This conclusion is reinforced by the fact that whereas British farmers are pressing for larger quotas, output in the West Indies is tending to decline.

The authors enquire about the selection of sugar beet growers for the Enfish survey. This was a random sample drawn from the Eastern Counties and covering two-thirds of the acreage grown in the U.K. There is no reason to believe that costs are higher further west in England. On the contrary, in the opinion of the British Sugar Corporation, labour costs in the Midlands are lower than in the Eastern Counties. Scottish costs do appear to be higher and in consequence the Cupar factory is being closed down. This is harsher treatment than is meted out to high cost Commonwealth producers overseas.

Without any evidence to support them the two authors throw doubts on the reliability of the estate costings. They are a little naive if they believe that a Royal Commission would accept such data without thorough vetting. The costings were prepared by a British firm of accountants of international repute and were scrutinised by the accountant on the Commission. They were also examined in detail by the farmers’ organisations and by the trade unions who have a vested interest in ensuring their accuracy. Short of a conspiracy and collusion with the accountants, falsification of records would be pointless and unlikely to succeed. The survey was a 100 per cent sample and as there was normally only one product, all legitimate costs were costs of producing sugar. Not many cost estimates prepared by development economists could be authenticated with such precision.

The authors refer to the marginal costs and imply that if production were increased Jamaican costs would fall and English costs would rise. In fact, both these assumptions are likely to be incorrect. In Jamaica, nearly all the land suitable for growing sugar and within reach of a factory is already doing so. An increase in acreage would thus mean the use of steeper land or the reclamation of salt marshes-in other words an increase in unit costs. &Ishaw and Bryden Seem to expect that “the major proportion of any production increase” would come from smallholchngs with unpaid family labour. This is very unlikely. In comparison with Africa. Jamaican farming is quite sophis- ticated. Half the sugar comes from company estates and a quarter from large independent farms (over 1,OOO tons cane) using paid labour and tractor equip ment. Less than 3 per cent comes from small family farms (less than 20 tons) and 4 per cent from large family farms (20 to 50 tons).

In England, the position is somewhat different. The point has bccn dealt with elsewhere,+ but can be stated briefly as follows. If British farmers were free to grow as much beet as they wished, an equilibrium would have been established. In that case, further increases in acreage might (as the authors suggest) “reduce technical efficiency at least during the learning process so that the average cost curve would slope upwards”. But farmers are now restricted from growing the optimum acreage. In 1965 those in the survey would have grown 16 per cent more acres if they had been allowed and the

F. G. Sturrock. “Outlook for Sugar B e t ” . Journul of Royul Agricitlfurul Society. Vol. 131.

200 FORD STURROCK

figure is now probably nearer 20 per cent. This is for existing beet growers who require no “learning process”. If the acreage quota were relaxed, efficiency would rise as farm programmes moved towards the optimum balance of crops. As is well known, the labour requirements of sugar beet arc complementary to barley production. It is thus possible to add one acre of su r beet to about

It can indeed be demonstrated that sugar beet could be increased with very little extra labour.

The loss of other agricultural output would be slight. The benefit in improved fertility and higher yields that would follow an additional break crop would offset the few acres of cereals displaced by sugar beet. Any potatoes displaced could be ma& up by relaxing the quota in other parts of the country.

It would be desirable to take this analysis a stage further and estimate the net saving to the balance of payments. Unfortunately, information on pro- cessing is not available from the British Sugar Corporation. It is nevertheless evident that the gain in sugar would be nearly all a net gain whereas the import content of extra costs would be comparatively small. In other words, the marginal cost of growing more sugar in this country would be low and certainly less than the cost of imports at C.S.A., E.E.C. or world prices at their present level. In terms of British interest this IS the proper criterion.

The suggestion that Jamaican factories could lower manufacturing costs by increasing the throughput is not very practical. Unfortunately output is tending to fall and this may increase costs per ton processed. It is true that the Com- mission advocated a Seven-day week and some factories are working only six days. The main difficulty is that the high wage rate at weekends can make such work uneconomic.

Belshaw and Bryden object to any international comparison of costs on the grounds that the ratio of costs could be altered by devaluation. But in the real world differences in costs and prices as they occur determine the flow of international trade and are therefore worth study. Indeed no country can expect to remain competitive if its costs rise above the level of its competitors. When this does happen then devaluation may be the only curc-as we found in this country in 1967. This docs not necessarily mean that Jamaica would devalue merely to sell sugar. Bauxite has now overtaken it as the chief export and tourism is growing in importance. But if costs continue to rise, many of the sugar estates are likely to get into serious financial difficulties.

Rather surprisingly, the two authors do not mention the Common Market. If we join, sugar prices in Britain will rise substantially. We may secure some dispensation for West Indian sugar but this is likely to be only temporary. We should thus be faced in the long run with the alternative of buying Continental sugar at a high price or of paying a substantial levy to Brussels on Common- wealth imports. In either case, the drain on our balance of payments for this one item of food could amount to f40m. to f60m. In these circumstances, an appreciable saving could be made by growing more sugar in this country.

In conclusion, one must take exception to the implications of the last paragraph. Eklshaw and Bryden appear to be making a plea that Western Europe should buy sugar from undeveloped countries-not because the importing countries want it but because the exporting countries consider that cane growing is “socially profitable”. This is to reduce the developing country to the level of a beggar selling matches at the street corner. We buy his matches not because we need them but because we are sorry for him. Charity i s a poor basis for trade in the long term. In fact no such special pleading is necessary.

six or Seven of cereals without any increase in the number of tk“ ull-time workers.

SUGAR BEFT OR SUGAR CANE: A REPLY 201

It is worth recalling that this country has an excellent record in supporting cane production. Under the Commonwealth Sugar Agreement, we have given a guaranteed market since 1951. When the World price is high, we have benefited but for most of the time we have been supporting this price above the free market price-on average about 40 per cent above the world price over the last decade. This in fact has been a disguised subsidy to Common- wealth countries. We are now making strenuous efforts in our negotiations with the E.E.C. to retain a market for sugar from undeveloped countries.

This brings us to the final and most important point. &Ishaw and Bryden seem to assume that an increase in home production means a reduction in imports from undeveloped countries. This need not be so. Even if we increased production by as much as 200,000 tons Gust over 20 per cent) we should still be importing more than half our sugar-more than enough to maintain our imports from undeveloped countries.