EU reform threatens Greencore sugar

Related tags Sugar European union Sugar beet United kingdom Eu

Food and ingredients producer Greencore has warned early that its
Irish sugar business could be seriously damaged when the EU finally
implements its sugar reform, expected next December, writes
Chris Mercer.

Greencore, which recently announced a €1.6 million increase in operating profit to €46.6 million in its ingredients and agribusiness division, said its sugar business faced a number of challenges in 2005, from a slowdown in consumer demand to impending EU sugar reform.

EU plans to cut member states' sugar quotas and prices may have a big impact on Greencore, which currently produces Ireland's entire annual sugar quota, about 199,000 tons, and processes almost 1.4 million tons of sugar beet from 3,600 Irish growers every year.

Under current proposals, designed by ex-EU agriculture commissioner Franz Fischler, minimum sugar beet prices would be cut by more than a third, from €43.6 per ton to €27.4, in two steps over three years, and the total EU production quota would come down by 2.8 million tons to 14.6 million by 2008/9.

Greencore marketing director Frank Gaynor said he expected the proposals to be modified but that company profits would almost certainly be hit. "We are expecting a decision within the next 12 months and we have been working for the last two years to prepare,"​ he said.

A company statement spelt out its precarious situation whilst trying to stay up-beat: "It remains the group's strong view that the resultant new sugar regime will provide a framework whereby efficient European sugar processors and growers will earn a reasonable return on the capital invested in their businesses. Irish Sugar will do everything possible to ensure that it will survive and prosper as an efficient EU sugar processor."

The company's complete reliance on Irish production to maintain its sugar business is particularly concerning considering that Ireland has just complained to new EU agriculture minister, Mariann Fischer Boel, along with nine other EU countries, that existing reform plans may destroy their domestic sugar industries.

The ten countries, all relatively small-time sugar producers in the EU, agreed that the sector needed reform but that price reductions should be much more gradual than those proposed. They also argued that quota reduction should mostly target the biggest exporters among member states.

European states with smaller sugar industries are more likely to be priced out of the market by cheaper sugar from southern hemisphere countries such as Brazil, following enforced price cuts and a possible relaxation of EU subsidies, which were recently ruled illegal by the World Trade Organisation.

One option for Greencore is to move further into other areas, and the company has already started to do this by focusing on expanding its convenience food division, which now supplies most major UK retailers.

The company said it had also increased production and sales within its malt division, although margins have been under pressure first from high barley prices and then from low malt prices.

Earlier this year, the owner of British Sugar, Associated British Foods (ABF), pursued a similar policy on a grander scale by agreeing to spend €1 billion on the yeast, bakery ingredients and US herbs and spices businesses from Australia's Burns Philp. ABF relies on the EU for 34 per cent of its sugar business profits.

Related topics Commodities Cocoa

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