Major fallout looms over sugar reform package

TWO scenarios are starting to emerge from the proposed sugar reform announced last week by Agricultural Commissioner Mariann Fischer Boel.

The most alarming is the prospect of an end to beet growing in Ireland. The other is that the Greencore Group faces the elimination of a €20 million profit stream that served it well.

Chief executive David Dilger may not exactly be wringing his hands in despair however, as the elimination of the sugar beet sector would also take a lot of aggravation out of his life as boss of the sugar company. It could also generate a cash windfall of €120m that could be used to deepen the group’s involvement in consumer foods, which is where Mr Dilger wants to direct the group anyway.

However, the end of Greencore is not nigh and if the proposals are introduced to cut price supports as currently outlined, the immediate impact will be to cut profits from €20 to €10m.

While the proposals have not been decided, many believe the wind is at the commissioner’s back and we could see a decision next January. Ireland will not be alone in fighting this reform package, but nobody can be surprised at the severe nature of the proposals.

Deep down, there has been acceptance that France and others are better suited to sugar production. The other, more critical point, is reform of the farm subsidy regime had to happen. EU subsidies are robbing the food from the mouths of poor African nations.

Not that reform of the current system will change all that inequity over night, given that a country like Brazil is likely to make major gains as a result.

Like it or hate, the World Trade Organisation is driving this process too. They want open free markets in the interest of fair trade. But fair is only fair depending on where you happen to be on the globe.

The plight of poor farmers in Africa is still a huge issue and what is happening in the EU has to do with self interest rather than any deep altruistic motives geared to giving the less well-off a helping hand.

At its most basic the EU farm budget is about half the entire pot of money spent annually. In the longer term that drain on resources was not sustainable. Paying farmers to produce goods for less than they can get for them did not make sense.

The downside of this is that farmers in Africa will now face a global market price that will be up to $100 per tonne less than they are getting at present and in fact they are facing a situation where they will be selling sugar for less than the cost of production.

In the overall frenzy about the injustice being felt by Irish farmers, the plight of those in the poorest regions of the world is a sharp reminder that injustice is relative. Food analyst John O’Reilly of Davy Stockbrokers has highlighted, in his analysis of the impending reforms, an interesting anomaly in the Irish situation. He says a key issue will be the ownership of sugar quotas.

The reform suggests quota surrender, which is conditional on aid being paid to those affected by the reforms, is the preserve of the processors. In the case of Irish Sugar, which went public in 1991, the Government’s golden share gives it power of attorney over the assets of Irish Sugar.

The presence of that share “requires the written approval of the State for any resolution to authorise the sale, transfer or disposal of the majority of the issued share capital of Irish Sugar, any sugar quota held by Irish Sugar, or more than 20% of Irish Sugar’s fixed assets, used in the production of processing sugar”.

What relevance this has is still unclear in the context of the reform proposals, but Mr O’Reilly notes the proposals in the reform package indicate a definite role for member states in quota surrender.

This could presage one last major row between Irish beet growers on one side and the company and the Government on the other, before the Irish beet industry is buried for good by swingeing EU reforms.

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