BUSINESS OPINION:THE OIREACHTAS agriculture committee has invited Greencore management in for a chat later this month about the closure of the Mallow sugar factory in 2006.

It likely to be a pretty uncomfortable few hours. David Dilger, the chief executive at the time, has moved on, but current chief executive Patrick Coveney was chief financial officer when the decision was taken to withdraw from the sugar business. Likewise, chairman Ned Sullivan was in situ at the time.

The committee will be asking a question to which it already has the answer: why did Greencore close down a modern, efficient factory with the loss of 230 jobs? The answer is that it saw the opportunity – thanks to the restructuring of the sugar regime – to get out of an ex-growth business at minimal cost while unlocking the potential value of the Mallow factory site, which ran into hundreds of millions.

The game at the committee will, as usual, be to extract the maximum amount of political capital and publicity for the committee members. But hopefully they will have the sense to explore the divergence between what Greencore was saying at the time about its sugar business and what we have learnt from last month’s report of the European Court of Auditors into the effectiveness of the 2006 changes to the sugar regime.

The report did not deal with Ireland – or any other state – in great detail, but it did single Ireland out as an example of a country in which an efficient processor was closed down, which was at odds with the objective of the reforms, namely to close inefficient plants.

The ECA’s conclusion would seem to be very much at odds with the company’s statements at the time of the closure.

In the stock exchange statement announcing the decision to close the plant the company said that because of the changes to the sugar regime “it would incur unacceptable losses if it processed sugar again”.

David Dilger was quoted in the statement as saying “the regime change has turned an efficient, profitable operation with dedicated employees into a loss-making processing business with no viable future”.

Contrast this with the findings of the ECA Special Report to the effect that “the audit found that in one MS [member state] the only producer, which before the sugar reform had undertaken a consolidation/rationalisation of its processing facilities and defined itself as one of Europe’s most efficient producers, closed down its large, modern and potentially efficient sugar factory justifying their decision on the risk of the lower prices reducing the supply of sugar beet to an uneconomic level”.

It is not quite the same thing, although no doubt with enough verbal gymnastics the gap could be narrowed. The fundamental point is whether or not investors in Greencore, along with suppliers and employees, were misled as to the extent of the case for closing down Mallow.

A separate point is does anyone still care? If things had worked out as planned, the shareholders would most likely not care less. The net cost to Greencore of closing down the site came to about €27 million after it eventually received €145.5 million in compensation from the European Union. This would pale into insignificance compared to the value of Greencore’s share in the €1 billion-plus development planned for Mallow.

In the cold light of post-boom Ireland the whole thing looks a lot less clever and some shareholders might be angry enough to do something about it. Instead of owning a valuable sugar business, they are €27 million poorer and own a couple of brownfield sites in rural Ireland that some would say are all but worthless. The employees and farmers who lost all or some of their livelihood are presumably still sore.

Greencore’s executives may be able to explain away as semantics the difference between what they said in 2006 and what the ECA said. More problematic is another issued raised by the ECA report which questioned why the whole review was based on 2001 figures.

This was particularly relevant in the case of Ireland because 2001 data did not reflect the considerable rationalisation and improvements in efficiency that had taken place since 2001, including the closure of the Carlow sugar factory. If Greencore wanted to keep Mallow open, this was a pretty obvious tack to take with the commission. The lack of a good answer to this question will leave them open to the allegation that they acted opportunistically and ultimately incorrectly in getting out of sugar when they did.

The Government also has questions to answer in this regard. It too must have known that the decision to class Ireland as one of the least efficient sugar producers – and thus top of the list for compensation – on the basis of 2001 data was flawed. But for some reason they also seemed to see an opportunity in what was going on and played along.

One other finding of the ECA speaks volumes in this regard. In no other country was the compensation available to farmers – as against the processors like Greencore – thrown around like confetti. In Ireland the growers shared €44 million without having to show that they needed it to diversify into other areas of farming. In other states mentioned in the report, farmers were required to offset it against new machinery or else only received it indirectly.