Business feels tremors of EU sugar shake-up

EU sugar policy reforms, which were formally adopted by the EU Council in February earlier this year, were designed to close unprofitable sugar operations in Europe.

To encourage this, sugar refineries that definitively cease operations in 2006/07 or 2007/08 will receive a 730 / MT payment. Alternatively, with the restructuring incentive, many companies in the sector have opted to improve efficiency through consolidation.

Both these strategic routes are now being taken. The preliminary EU-25 sugar production forecast for 2006/07 is 19.015 million MT, a 13 per cent decrease from the 2005/06 estimate.

For example, the new policies have already spurred a series of sugar refinery closures, persuading a number of sugar beet farmers to consider alternative crops.

In 2006/07, sugar production will cease in Ireland and Slovenia. Greencore recently announced the closure of Mallow, Ireland's last sugar factory, noting that it could not financially operate the plant for another year.

Despite complaints from Irish sugar beet growers, Greencore could receive up to 90 per cent of the 146 million from the EU restructuring fund.

Elsewhere in the EU, the least efficient sugar refining operations are also likely to shut down. Italy will be particularly affected in 2006/07, with the announced closure of 13 of its 19 sugar factories (5 Eridania Sadam facilities, 3 SFIR facilities, 4 Italia Zuccheri facilities and 1 COPRO B facility).

Accordingly, the Italian sugar beet area is forecast to fall by 64 per cent in 2006/07, to 90,000 hectares. Over the longer term, as sugar stocks fall, Italian imports particularly from the Balkans are likely to increase.

Spain and Greece have each announced a plant closure (the Azucarera Ebro Ciudad Real facility and the EBZ Xanthi facility), and further closures may be forthcoming. In the case of Greece, the future of the remaining four production facilities belonging to the Hellenic Sugar Industry monopoly (EBZ) may largely depend on a continued political commitment to prevent further closures.

Furthermore, several of the larger northern European sugar producers have already stated that they aim to scale back or even phase-out 'C' sugar production.

Nordzucker for example has announced the closure of the Wierthe facility in Germany, thus ending its 'C' sugar production. Danisco will also be closing some facilities in Denmark, Finland and Sweden, and will be shifting its production quota to other plants.

Higher energy costs may further encourage movement toward greater efficiency, said the report.

The Commission's success in winning support for the sugar reform proposal hinged on a number of factors including - financial considerations tied to the EU budget and the enlargement process, the WTO ruling on EU sugar, the ongoing Doha Development Agenda negotiations, and also the broader need to 'rationalise' and 're-align' the sugar common market organisation structure with other elements of the reformed CAP.

The legal basis of the EU sugar reform is set by Council Regulations EC No 318/2006, No 319/2006 and No 320/2006.