Sugar beet fight gets under way for €145m prize

Business Opinion: The great €145 million sugar beet battle got under way formally last week with the announcement that there would be no crop this year.

In one corner we have the Irish Farmers' Association (IFA) on behalf of 3,700 sugar beet growers saying Greencore should not get "one cent" from the €145 million restructuring fund put in place by the EU for the Republic as part of its sugar reform package.

In the other corner we have Greencore, the plc that for the past 15 years has had a monopoly position here in the production of sugar. Last year it made €25 million out of its €110 million in operating profits from its sugar production activities. It says it should get 90 per cent of the restructuring fund, with the rest going to farmers and machinery manufacturers.

The IFA has based its claim on a report commissioned from Deloitte which, it says, shows beet farmers will lose €150 million because of the EU reforms.

Armed with this, it has set out its claim for €106 million, or 75 per cent, of the fund. Greencore should get nothing, it claims.

It has made profits of €300 million over the past decade from its monopoly sugar operation and "squandered the millions earned off the backs of farmers in bad investments," the IFA says.

Greencore, for its part, says it has "independent legal, economic and financial advice" that supports its case that the group is entitled to 90 per cent, or €131 million, of the EU restructuring compensation.

In the judge's chair sits the Minister for Agriculture, Mary Coughlan.

Procedures on how the whole matter will be addressed are due to be announced by Brussels in the next few weeks. A report from Greencore outlining how Ms Coughlan should divide up the loot among the various interested parties will then be delivered. The Minister has to make her call by July 1st.

Greencore makes a strong point that the contentious fund was set up to compensate sugar producing firms, such as Greencore, that are now going to cease production.

There are other direct compensation schemes for farmers that will cost the EU a further €165 million. The farmers are being adequately compensated already, according to Greencore, which argues that the Deloitte report on which the IFA case is based, is flawed.

Greencore says its analysis shows beet farmers will in fact be better off, to the tune of €166 million over the next 10 years, based on the direct compensation schemes that have been put in place.

The sugar reform announcement from the EU in November 2005 seems to support Greencore. It said that farmers would be compensated by way of a "decoupled payment" and that "a generous restructuring scheme will be established to provide incentives for less competitive producers to leave the sector".

Producers here means processors such as Greencore.

According to the EU, 10 per cent of the restructuring fund should be ring-fenced for growers and machinery producers.

The reform announcement adds, however: "After consultation with interested parties, member states shall be entitled to increase the percentage... provided that an economically sound balance between the elements of the restructuring plan as referred to... is ensured."

This is the line which the IFA says allows it make its claim to 75 per cent of the fund.

Greencore says it will have to pay €25 million to the 400 sugar workers it will have to let go, and write off €120 million in assets. Environmental work on the Mallow plant being closed will cost a further €15 million, it says.

The IFA, as well as abusing the plc for making a number of poor investments over the years, points out that Greencore could make a tidy amount of cash from the sale of its sites in Carlow and Mallow.

The Greencore chief executive, David Dilger, told potential investors in New York recently that the site of the former sugar factory in Carlow could make multiples of its book value of €40 million, depending on planning permission issues. The IFA has added this to its weaponry.

The farmers' organisation also says that, in most EU countries, the sugar processor is a co-op owned by the farmers. So restructuring payments made to these processors, will filter their way back down to the farmers. It says that, as well as having the sites of the former factories to sell, Greencore will also continue to have the Súicre Éireann brand.

The part of the fund (25 per cent) that does not go to the farmers should go to the workers and the machinery contractors, the IFA says.

While agreeing that the beet farmers are going to get direct compensation while also being able to grow alternative crops, the organisation argues that the loss of sugar beet, the most valuable part of the tillage scene, will have a bad effect generally on tillage farming in the Republic.

It criticises Greencore for not having made better strategic preparations for a reform process that was clearly pending given World Trade Organisation concerns about the EU sugar regime. The feasibility of alternative activities such as ethanol production is being assessed by the IFA.

Overall, it is hard not to feel that the IFA case is weak. It seems clear that the restructuring fund was created primarily to compensate processors while the accompanying decoupled payment scheme would be the main compensation scheme for the farmers.

That said, it is also hard not to feel that the idea of compensating a profitable plc for the loss of a monopoly from which it has made hundreds of millions of euro over the past number of years is a bit daft. Who paid the higher sugar prices over the years? The consumer. Who will pay for the farmer supports and the restructuring fund? The taxpayer.

On paper Greencore would seem to be winning. Politically, however, the case is not nearly so clear. And the problem for Greencore is the final decision will be made by a politician.