Announcements regarding a major withdrawal of quota sugar from the market plus measures persuading European beet producers to exit production and tackle oversupply issues are expected from European ministers next month.
Sugar distributor Real Good Food Company (RGFC), said the European Commission (EC) had to act as sugar beet producers had not renounced “anywhere near” the quota anticipated when sugar regime reforms were devised.
As part of reforms designed to tackle overproduction of sugar beet in the EU, the EC introduced a restructuring scheme offering producers and growers compensation for exiting the market. This was expected to force the least efficient producers out of the market, cutting EU production from 20Mt to 14Mt a year.
However, thus far, just 2.2Mt of quota have been renounced. Some producers have even purchased extra quota, so that quotas have fallen by a net total of just over 1Mt. Only three countries have ceased production altogether: Ireland, Latvia and Slovenia.
RGFC financial director Lee Camfield said. “I think a lot of producers were waiting to see what happened with Greencore [which exited production last year and ended up in court over compensation payments], and were not reassured about how much money they would get.
“But producers haven’t behaved entirely rationally. The EC didn’t take into account that many sugar producers are family-owned or partly government owned, and are not therefore run purely for profit. Either way, they haven’t exited production, and the EC is going to have to do something to incentivise them.”
Under revised restructuring proposals in May, the EC suggested fixing the proportion of compensation payments allocated to farmers at 10%, clarifying the share of cash processors would be allocated. It also proposed that farmers should be given extra payments per tonne of quota renounced and allowed to apply directly for the restructuring fund.
The measures will be debated in the European Parliament this week. The Council of Ministers, which has the final say, is expected to adopt a common position shortly afterwards.
More than two thirds of RGFC’s sales were generated from its Napier Brown sugar division, which saw a 17% increase in turnover in the six months to June 30, said Camfield. “We see an opportunity for our business when the European market opens up to [duty-free] sugar supplies from least developed countries in 2009, when we will be able to buy our sugar from wherever.”
There had been a drop in first half profits at RGFC’s Renshaw baking ingredients business compared to the previous year. But Camfield said operational efficiencies were improving all the time, and the division was exploring new opportunities in chilled desserts and confectionery. “We’ve seen a 7% improvement in efficiency in both Renshaw factories [in Liverpool and Carluke, near Glasgow].”
There had also been significant improvements in labour efficiency and material cost control at the firm’s bakery business in Devizes, Wiltshire, which supplies chilled and ambient premium desserts and patisserie products.
Overall, the group posted a 12% rise in sales to £127.8M in the first half. Operating profit was flat at £4.4M.