EU sugar reform could 'wipe out' Irish industry

Sweeping reform of the European sugar regime could see the Irish sugar industry wiped out in a few years, according to an internal EU document.

As the EU price for sugar falls, growing sugar beet in countries such as Ireland, Greece, Italy and Portugal could quickly become less profitable than other crops such as cereals and oilseeds, the European Commission document said.

The commission is working on a wide-ranging reform of sugar policy, which has been broadly unchanged since the late 1960s. It is due to issue its formal reform proposal next week, which will then be discussed by EU agriculture ministers.

However, leaks have suggested that it is proposing to cut the white sugar support price by 39 per cent and the minimum beet price by 42 per cent. Both cuts would run over two years, starting in 2006/07.

According to the latest document to be leaked, the country most vulnerable to price cuts, as the EU's internal sugar price drops below €550 a tonne, is Italy. But as the price - which stands at €632 - falls, other less-efficient producer countries would also feel the pinch, the EU study said.

"A price below €500 a tonne would make sugar production less profitable in Ireland, Portugal, central Italy, Greece and parts of southern Spain.

A spokesman for Greencore declined to comment on the document, noting that the EU's proposals were not yet in place.

However, not everyone believes that the writing is on the wall for the Irish sugar industry.

According to Liam Igoe, food analyst with Goodbody Stockbrokers, the Irish sugar business will remain viable after the EU reforms, while Greencore will still have a profitable sugar business, although not nearly as profitable as before.

He estimates that the company's profits from sugar will fall from €23 million to €13 million, based on a 39 per cent cut in the sugar price. The hit would be greater but for the savings the company will realise as a result of its decision to close its sugar factory in Carlow earlier this year.

Mr Igoe also believes that it will remain relatively profitable for farmers to continue to grow sugar beet, although he expects to see fewer, larger and more efficient producers emerge.

Mr Igoe estimates the gross profitability from winter feed wheat at €160 a tonne compared to €318 for malting barley and €325 for sugar beet, post-reform.

But he concedes that, as sugar beet profitability declines, more farmers may be inclined to switch as growing sugar beet requires more care and attention than other crops.

Greencore, which derives the bulk of its profits from its convenience foods business, may decide that its funds are better invested elsewhere.

If the EU proposals include a quota buyback scheme to entice players out of the sector, Greencore's sugar business could be valued at up to €180 million, money that shareholders might prefer to see invested in an area with better growth prospects.