Greencore sugar decision may have cost €200m

GREENCORE’S MOVE to cease sugar production may have cost the company more than €200 million in profits, according to a report to be published early next month.

The research forms part of a feasibility study being undertaken by the Irish Biofuels Initiative (IBI), a Cork-based science and technology think tank which aims to promote indigenous, economic sustainable food and biofuel production.

The research calculates that the cost of sugar production for Greencore was €375 per tonne, below the EU sugar-reform yardstick of €400 per tonne. According to the group, this figure is based on the €36.85 per tonne of beet offered by Greencore to producers in 2006, the EU quota, as well as the company’s own assertion that it was one of Europe’s most efficient producers.

The study argues that, under the reform of the EU sugar regime, Greencore was guaranteed an average reference price of €522.74 per tonne over five years, which was dependent on the payment of a levy of €82.4 million. According to the study, this would have realised a net profit of just over €65,000 for the company over five years. The alternative option which was offered to sugar producers by the EU – a reduced price of €440.12 on average over five years with no levy – would have yielded €64.76 million in profits for the company.

However, because the price of sugar reached an average price of €602 per tonne over the last five years, the company could have netted a profit of €226.2 million over that period if it had continued producing sugar, the group argues.

IBI chairman Allan J Navratil added that sugar prices are now higher, with an average price of €800 per tonne forecast for 2011.

He also disputed the argument that reduction of the price paid to beet growers to €26 per tonne, from €47 under the sugar reform, made production in Ireland unsustainable, arguing that €26 per tonne was only the minimum that could be lawfully paid.

Greencore’s decision to close Irish Sugar in 2006 has come into the spotlight in recent months following a report from the European Court of Auditors which suggested that the Mallow plant need not have closed.

Greencore had invested €25 million in its Mallow plant in 2005, having closed its Carlow factory in order to concentrate its activities at one location. However, the company decided to close the plant in 2006 in the context of an EU-wide reform of the sugar regime that sought to reduce production and cut the generous subsidies paid.

Appearing before an Oireachtas Committee last month, Greencore chief executive Patrick Coveney defended the decision to cease sugar production, arguing that the industry was financially unsustainable. “Only fractional amounts of sugar beet can be profitably grown in Ireland at a price that competitive beet growers in other EU countries can accept,” he said.

He also said that Irish sugar beet would be an uncompetitive substrate for ethanol production, citing research that a subsidy of 26 cent a litre would be required to make ethanol competitive with an imported product or petrol.