Agro-industrial sectors position papers on levies' removal

The Federation of Industry had long discussions with representatives of the various agro-industrial sectors that would be affected by the removal of levies. The result was a position paper for each sector, highlighting the difficulties and challenges...

Beverage production industry

Local soft drinks manufacturers produce mainly international brands of carbonated and still soft drinks under licensed franchises, as well as still and sparkling table water.

The levy structure in Malta on soft drinks has been scheduled to be completely dismantled by January, 2003.

Despite the levy-dismantling programme which commenced in January 2001, local soft drinks manufacturers still do not have access into the EU markets due to the import duties charged.

Notwithstanding the problems confronting them in exporting to the EU, they still export on a regular basis to North Africa, the Middle East, and Asian markets, with a small proportion of their export volumes also going to EU member states.

Having almost arrived at the final stage of complete liberalisation, they are demanding that they should be given immediate free access to EU markets.

They are also requesting that the last stage of the levy dismantling programme, which was scheduled for January, 2003, should be kept on hold until they have such free access. The remaining levies will give local beverage producers time to restructure their facilities and operations.

The manufacturers also argue that they are at a disadvantage with their European competitors because the quality of water provisions supplied both through the service network of the Water Services Corporation and through underground sources is not of a good quality, as a result of which they incur costs to treat the water used in their production.

Beverage manufacturers also require financial assistance to achieve EU compliance for their facilities. There are heavy costs involved for plant, machinery, equipment and human resources, besides others relating to warehousing, distribution, training, health and safety, emissions, and effluent treatment.

Pigmeat processing industry

Malta is practically self-sufficient in the production of pork. Government price controls on bacon and ham limit price competition.

Local pigmeat processors manufacture their own branded cooked, cured, smoked pigmeat products, including sausages and burgers, and currently compete with the imported products of well renowned processed meat brands, mainly originating from the European market.

Some pigmeat processors also produce other support products to complement the pork range which include beef, lamb, and poultry processed products. Some of the latter are processed from imported raw materials.

A total of about 260 employees are employed by pigmeat processing firms, excluding various distributors involved in this sector, private butchers, pork breeders, and employees at the abattoir.

A levy structure has been in place for the past 13 years.

Some pork and beef imports from the EU benefit from export subsidies, thus EU processed meat products currently imported into Malta are at subsidised prices and compete, even though levies on imported products are quite prohibitive.

The local high cost of pigmeat together with the prohibitive import tariffs in the EU make export impossible.

The pigmeat processing industry suggests that as Malta's industry is so small, local pork processors should have free access into the EU market immediately on Malta's accession into the EU.

This would enable the Maltese pigmeat processors to explore the EU market before the much larger and well-established European processing firms are given a free hand to exploit the very small Maltese market as a result of the removal of protective levies, jeopardising the local pork processing industry.

Pork processing firms stress that, as a matter of principle, the government should resist all attempts to force it to start the removal of levies on the products manufactured in Malta and on those substitute products that still carry a levy.

Pork processing firms should be allotted restructuring funds with immediate effect, the FOI said.

The beer brewing industry

Local brewers produce their own brands and also foreign-owned brands of kegged beer, bottled beer, canned beer and shandy.

Malta currently charges a levy of 25c per litre on all imported beers. Beer exported by EU brewers to countries that are non-EU member states such as Malta qualify for a subsidy. Thus importers can easily allow a higher margin to retailers than local producers can afford.

Local brewers have been exporting to the EU consistently over the last 10 years but there is a quota on how much they can export without paying duty. Unlimited free access into EU markets should be possible as from July, 2002.

Local brewers believe the government should introduce an import quota based on the current volumes imported into Malta. This would limit the level of foreign beers imported into Malta, so as to give local brewers a chance to continue restructuring.

Local brewers believe that levies should be gradually removed over a seven-year period in the same manner that the government has agreed to do with local vintners who still import the greater part of their grape requirements.

They also believe the government should assist them to treat the water they use for their production.

Brewers require both financial and technical assistance to achieve EU compliance for their facilities. Costs involved range from capital investment in plant and equipment to human resources as well as other costs related to warehousing, distribution, training, health and safety and effluent treatment.

Tobacco processing industry

There is heavy protection of the tobacco market within the European Union, which charges 57.6 per cent customs import duty on the value of the tobacco products imported into the EU market prior to the application of excise.

Although Malta has a levy structure protecting its local tobacco manufacturing industry, it is at a much lower level than that set by the EU. Malta charges an import levy of Lm6.15 per kilo on gross weight of imported cigarettes, excluding packaging.

Approximately 60 per cent of the locally manufactured cigarettes are exported to non-EU countries. Should the EU remove the customs import duty, the major local cigarette manufacturer could be in a competitive position to export cigarettes to the EU.

Cigarette manufacturing sectors directly employ about 130 people.

Operators believe that levies should not be gradually decreased but removed in one go, provided that these same operators have completely free access into the EU market.

Apart from cigarettes, the local industry produces some two million cheroots, two million other cigars/cigarillos and five tonnes of pipe tobacco in total.

This industry employs 14 full-time and three part-time employees.

If EU import duties were removed for Malta-produced cigars, cheroots, cigarillos and pipe tobacco, the Maltese operator believes that he has a good export potential that could be developed in a period of five years.

Restructuring funds are however needed to bring plant and machinery to EU compliance standards, marketing and sales assistance, and technical assistance at agronomy levels and financing for the required research.

Tomato processing industry

The tomato processing industry welcomes the government proposal that they would be able to purchase their requirements of tomatoes for processing at world market prices.

They also agree that local farmers should be adequately compensated for their efforts and to provide them with a sustainable income that is guaranteed for the future.

The tomato processing industry agreed that the levy dismantling programme on these products should be that proposed in the draft Special Market Policy Programme for Malta Agriculture and that levies would be gradually waived by 2010 but should only start after accession.

Because of the low quality levels of the water, which has to be treated, tomato growers need to receive assistance to help them achieve a level playing field with their European competitors.

Moreover, some tomato processing firms believe that, should they be faced with having to close down their plant, the government should offer some kind of compensation for the investment, income and employment generated by them in this sector over the years, especially to safeguard payment to workers and farmers.

Tomato operators request that the government should subsidise some of the transport costs that they are faced with, so that they would be able to compete with their EU competitors on a level playing field.

Dairy production industry

The dairy sector in Malta, basically a fresh milk sector, is definitely one of the largest of the agro-food sector.

Malta Dairy Products Limited (MDP) handles all locally produced fresh milk (46,000 tonnes per annum) with an annual turnover of Lm11 million, of which more than 70 per cent is value added.

The fresh milk sector in Malta faces a number of structural and natural constraints, including the small size of the islands and the smallness of the market, which dictate that there are small scale operations and related efficiency constraints, limited land and high opportunity cost, scarcity of water, lack of locally produced forage of quality and other feed ingredients, which are generally imported.

The local milk sector needs to be upgraded and modernised to be compliant with the acquis, to improve efficiency and quality throughout the whole 'stable to table' chain.

EU funds and technical assistance especially within the Rural Development Plan must be sought in this respect.

Eggs and poultry processing industry

The government is committed to subsidise the industry up to 2013, but processors suggest that the reduction on import levies should be synchronised with a subsidy in such a manner that levies are removed over a period of 10 years at, say, 10 per cent per annum as is the case with other agricultural sectors.

Furthermore, the government is to ensure that the processors, farmers and hatcheries have adequate administrative and technical consultants to assist them to reach their EU commitments, if necessary even importing foreign expertise.

Operators in the industry, namely hatchers, farmers and processors, have shown considerable goodwill since 1995 by investing substantial sums of money in the upgrading of their facilities.

In particular, such investments should be considered for the grants and assistance required together with the new necessary upgrades.

Wine industry

The dismantling of levies on imported bottled wine commenced in July, 2002 and will be totally dismantled by January 2010.

Only small quantities of Maltese wines are exported and these go mainly to European countries.

Wine producers emphasise the importance for the government to insist during negotiations for the levy dismantling timeframe on imported wines to be maintained in accordance with the Special Market Policy Programme for Maltese Agriculture.

Local companies do not have the financial clout of big European companies, which sell at lower costs than Maltese vintners because of economies of scale.

Vintners welcome recent government announcements about its intention to financially assist farmers to dedicate more land for the planting of vines.

Wine producers urged the government to help farmers by improving the quality of water supplied, in the long term. In the medium term, the government should grant assistance to farmers for capital investment needed to buy costly equipment to treat the water.

Local vintners using indigenous grapes for wine-making purposes request that the government negotiate temporary arrangements for all wine made from these indigenous grapes and to assist in the necessary research that needs to be conducted to phase out chapitalisation (part of the fermenting process which uses sugar).

Additional assistance is required for vintners to achieve EU compliance for their wineries.

Vintners request that the government should subsidise some of the transport costs faced by wine producers so that they would be able to compete with their EU competitors on a level playing field.

Confectioners

Confectionery manufacturers who make their own brands and foreign-owned brands of biscuits, cakes, chocolates, as well as savoury snacks, directly employ over 250 employees, apart from the various distributors.

The majority of levies in Malta on processed sugar, confectionery and chocolate products have already been dismantled. The only remaining levy is on a particular weight range of biscuits and cakes.

In spite of the removal of most of the levies in Malta, no local confectionery manufacturer has been given the facility of accessing the EU market without being subject to the high EU import duties applied to the products of third countries like Malta.

EU confectionery manufacturers exporting to Malta obtain export subsidies and can afford to lower their prices in the Maltese market. A number of local manufacturers operating particularly in the cocoa and sugar confectionery have been exposed to severe pressures and have had to close down their production lines because of this.

The FOI proposes that processors are given immediate access to the EU market and that the remaining import levies should not be removed prior to the granting of free access into EU markets.

Processors believe that the levies should be gradually dismantled at 20 per cent per annum as from the date when duty-free access to the EU market is granted, so as to reduce the shock that increased imports are bound to cause on the local market and to allow enough time for consolidation of the existing export markets.

In view of the hefty transport costs, local biscuit manufacturers request a subsidy on the incoming freight of their raw materials.

Local biscuit manufacturers already export appreciable volumes of which only a small proportion is going to the EU market. Should free access to the EU market and the above assistance be granted, the FOI is informed that exports to the EU could increase by 300 per cent within three years.

Edible oil and margarine manufacturing sectors

Despite, the removal of most of the levies in Malta, the only local producer of edible oils and margarine has never been given the facility of accessing the EU market without being confronted by heavy EU import duties.

To aggravate the situation, EU operators exporting their edible oils and margarines into Malta obtain export subsidies and thus can afford to lower their product prices in the Maltese market, which is at present a 'third country'.

The local firm requested that an import quota for duty free access to the EU market be negotiated. This import quota should change to unlimited access by the end of the dismantling programme of the remaining levies.

Should free access to EU markets be considered, the local producer has stated that the company would be able to expand its export volumes of margarine and edible oils from when the EU market becomes freely accessible.

It is recommended that the levy dismantling programme be spread over four years to enable the necessary restructuring to take place.

The processing company requires assistance to achieve EU compliance for its plant.

Pasta manufacturers

Local pasta producers manufacture their own branded pasta products and currently compete with the imported products of well renowned pasta brands, mainly of Italian origin.

Some 100 employees are employed directly by pasta producing firms, including the various distributors.

EU pasta exporters receive an EU export subsidy when exporting their products to Malta. Thus, the price of EU pasta products currently imported into Malta is subsidised and is competitive in spite of the high import levies.

No local pasta operator currently exports any of his products. The main reason for this is that local pasta operators wishing to export face double the transport costs faced by EU pasta houses exporting to Malta.

Producers stress that the government should only start to dismantle levies on competing imports in a gradual manner starting from the date of accession to the EU when operators will be entitled to free access to EU markets.

They are seeking assistance to achieve EU compliance for their plants and want some subsidies for transport costs.

Flour milling sector

There is currently no levy structure on the purchase of imported wheat, while wheat derivatives such as flour, self raising flour, bran and pollard are protected by import levies, as are the products of which these are ingredients. Thus, mixes and doughs for bakeries' wares, as well as bread, are also charged a levy once imported into Malta.

No flour mill currently exports. Over the years, export efforts proved unsuccessful due to high freight costs, while no effort was made to export to EU countries due to the high import levies charged at point of entry.

Malta Federated Mills, the only milling company, said the government should disclose the time frame for the proposed liberalisation of grain importation - currently a government monopoly through Medigrain - and the arrangements that will operate.

The operators need to know whether the requested special supply arrangement of purchasing of cereals and other raw materials at world market price has been accepted by the EU and whether some type of price stabilisation mechanism will replace that being guaranteed at present through the pricing mechanism of Medigrain, which ensures the constant local market price rather than international prices or EU market prices of raw materials.

Malta Federated Mills emphased that it was most important for the government to demand from the EU immediate free access to the EU market for local flour milling and bakery operators.

Federated Mills needs to achieve EU compliance standards for its plants. This requires a considerable expense for which they are expecting assistance from the government to cover the various compliance costs involved.

Millers have also requested a government subsidy amounting to a fair percentage of the transport costs.

The flour mill also declared that if EU tariff barriers were to be removed and freight costs reduced, it could handle appreciable export volumes.