Greencore pull-out to end Ireland's sugar industry

Greencore said it would not be processing sugar this year or in any subsequent year, after a business review of the new European Union sugar regime found the group would "incur unacceptable losses"​ if it processed sugar again.

The firm had hoped to undertake one more processing campaign in 2006, but was forced to tell employees this week they would be working their last granule much sooner. Its factory at Mallow, Ireland, will close in May.

Greencore said it saw future losses in the sector from the deterioration of industrial sugar markets in the EU, a €25m restructuring charge and a drop in sales due to a temporary quota cut of 11.6 per cent, agreed by the European Council of Ministers this month.

The decision to pull out will cost Greencore around €168m. It is also likely to extinguish Ireland's 80-year-old sugar processing industry, because of the group's dominance over the sector.

The company said legal advice it had taken suggested it would be entitled to 90 per cent of the €146m compensation fund allocated to Ireland by the EU for temporary restructuring.

The firm assured Irish customers that it had sufficient stocks to supply them until November this year, and was planning to continue supplying its Siucra and McKinney brands after that.

European agriculture ministers have approved a plan to reduce EU sugar prices by 36 per cent over four years. They also recently agreed a one-off production cut of 2.5m tonnes, or 13.6 per cent, in the EU in 2006.

The effects of sugar reform on Ireland's processing industry have come suddenly, though were not entirely unexpected.

Greencore itself had already issued warnings and restructured its sugar capacity into one plant for greater efficiency. It has also begun to concentrate more heavily on its food service operations, and has built a successful convenience food division that accounted for 62 per cent of profits in 2005, up from 25 per cent in 2000.

Ireland was one of several member states opposed to EU sugar reform last year. A European Commission report in 2003 found that reform could ruin the sugar industry in Ireland plus another nine member states.

David Dilger, Greencore chief executive, said: "The regime change has turned an efficient, profitable operation with dedicated employees into a loss-making processing business with no viable future."​

Supporters of reform point out that the EU sugar regime was declared illegal by the World Trade Organisation last year for maintaining sugar prices within the EU-25 at three times the world level.

The European Commission has long accepted that reform would inevitably cause producers and processors, predictably those in countries with smaller industries, to leave the sugar sector. It has set aside a €4bn compensation fund to ease the transition.

Several other European ingredients firms, including Tate & Lyle and ABF in the UK, have felt the pressure of EU sugar reform, which is due to start in July.

Danisco announced this month it was streamlining its sugar operations. It said this would affect 350 workers and that it expected to see an initial cut in its sugar quota of 100,000 tonnes.

The EU produces between 19 and 20m tonnes of sugar every year, which accounts for 14 per cent of world sugar production. France and Germany are the largest sugar producers, together pumping out more than 40 per cent of the EU total.