Prepare for an almighty battle before Irish sugar dies

Business Opinion: If you thought Irish Ferries was bad, wait until you see Greencore, writes John McManus

Some time over the next few weeks the decision will be made on whether to call time on the Irish sugar industry, or give it a stay of execution for another year.

However, when the axe does finally fall an almighty bun fight is on the cards as all the various interested parties fight for a share of the €146 million or so in restructuring payments that will be on the table from the European Commission.

The money is to compensate the sugar processors, in this case Greencore, but the Commission has said that a minimum of 10 per cent, €14.6 million, must go to the beet growers and the contractors who harvest and transport the beet.

Even at this early stage the farmers have made it clear that they will be looking for much, much more. The other big losers - the staff of Irish Sugar's last remaining factory in Mallow - will also be looking for a share.

Greencore, however, will have to fight them as it needs the money to compensate for the closure of what is still a substantial part of its business.

All the ingredients are there for a scrap of titanic proportions; big-time capitalism versus small-time rural farmer and exploited workers.

Throw in a pending general election - if the closure comes this year - or an actual election if the factory shuts next year and you have the makings of one almighty dust up. Oh, and don't forget a new leader for the Irish Farmers' Association looking to make a name for himself.

But we are getting a little ahead of ourselves. The first question is when will the bell toll for the Irish sugar industry? The answer to that will become clearer in the next few weeks according to a report last week from Davy's food analyst John O'Reilly.

The European Commission will shortly publish the details of the sugar industry reforms agreed last year. Amongst other things it will set the "reference year" on which decoupled payments to beet farmers exiting the business will be based.

If the current year - July 2005 to June 2006 - or a previous year is taken as the reference year, then in all probability there will be no beet planted this year as other aspects of the reforms mean it is no longer economic to farm and process beet here.

However, if the coming year - July 2006 to June 2007 - is set as the reference year then there will probably have to be sugar production as the farmers will need to produce beet this year in order to get decoupled payments in the future.

The Minister for Agriculture Mary Coughlan has indicated her preference for another year of production, but it is probably more trouble than it is worth for Greencore.

O'Reilly points out that sugar processors - including Greencore if it remains active - will have to start paying a restructuring levy for every tonne of sugar they process. In addition the price of sugar will be cut. It's conceivable that Greencore would make no money on sugar processing next year if the beet campaign goes ahead.

The management of Greencore now face a number of important decisions. The issue of the timing of the shut down of Ireland's sugar industry is effectively out of their hands - for the reason outlined above.

But they will have to decide what approach to adopt in the row about the restructuring funds that will follow.

They could - with some justification - argue that the farmers deserve no more than the 10 per cent minimum set by the European Commission. There is a separate €50 million compensation package for Irish growers and according to the Minister for Agriculture they stand to get a total of €168 million over seven years.

Equally, the company could argue that the workers losing their jobs will get a generous redundancy package and thus should not look for any sort of an extra payment.

Indeed, Greencore is almost obliged to take this sort of stance as the only way for the company to prosper is to reinvest the restructuring funds in the other parts of its business, mostly food manufacturing in the UK. From the shareholders' perspective, every extra €1 given to the farmers and workers is one less for them.

The company would in theory have the European Commission on its side. The clear purpose of the restructuring payments is to encourage processors to exit the market and not to compensate farmers.

But it is not that simple. As was the case in Irish Ferries, the waters will quickly become muddied and there is a very high risk of the issue been hijacked by the farmers, trade unions and the opposition parties.

You can expect to hear a lot of shouting about how the Irish sugar quota - to which the restructuring payment is linked - is a national asset and does not belong to Greencore. Equally, the huge profits the company will make on the sale of the sites of the Mallow and Carlow factories will be highlighted.

In addition the Government has a role - albeit limited - in the distribution of the money. The funds cannot be released until it has approved Greencore's restructuring plan. Although the grounds on which it can be rejected are quite limited, it opens a chink through which the Government can exert pressure.

David Dilger, the Greencore chief executive, faces a pretty simple choice at the end of the day. He is going to have to share his €145 million and he can do it the hard way - as Eamonn Rothwell did at Irish Ferries - or the easy way.