The UK's Competition Commission has provisionally cleared the completed acquisition by Napier Brown Foods of James Budgett Sugars but also voiced concerns about a lack of effective competition in the UK sugar market.

In a summary of its provisional findings, the Commission said it has provisionally concluded that the merger will not lead to a substantial lessening of competition within the market for the supply of sugar to industrial users in the UK. Napier Brown and James Budgett are the two largest non-producing distributors of sugar in the UK.

"Although this merger would reduce the number of suppliers available to industrial sugar customers in the UK, we have provisionally concluded that the overall impact on the market would be limited," said Christopher Clarke, chairman of the inquiry group and a deputy chairman of the Competition Commission.

The Commission said that even after the merger, market power will still be mostly in the hands of the two UK sugar producers, British Sugar and Tate & Lyle.

However, the Commission also raised concerns about the lack of competition in the UK sugar market.

"Our inquiry has been conducted against the background of the structure and features of the EU sugar regime which, with its system of national quotas and price support, inhibits effective competition and results in customers in the EU paying prices for sugar that are three or four times higher than those in the international market outside the EU. The expected reform of the regime in 2006 has the potential to address these concerns but its impact will depend on the detail and timing of the measures eventually adopted," Clarke said.

The inquiry was referred by the Office of Fair Trading (OFT) on 12 October. The Competition Commission is required to publish its final report by 28 March 2005.