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Danisco consolidates Lithuanian sugar production

By Jess Halliday , 12-Nov-2007

Danisco has announced that it will close its sugar production plant in Panevezys, Lithuania, as part of a plan to give up a slice of its quota.

In September the Danish company said that it is planning a net reduction of its overall European sugar quota from tonnes to around 967,000 tonnes (from around 1.05m tonnes) through a volley of strategic quota purchases and sales. This move was announced in response to the latest amendments to the sugar reform, announced in September. Since 2005 (when it closed its Kursenai plant) Danisco has operated two sugar production factories in Lithuania - Panevezys and Kedainiai. The Panevezys closure now means it will reduce its output there by 13 .5 per cent, to approximately 71,060 tonnes. Since Panevezys currently produces more than the 13.5 per cent of the company's sugar in that country, there will be "moderate investments" in Kedainiai to make up the shortfall. The current 2007 production season, which began in September and runs through to December, will be Panevezys' last. A spokesperson was not able to give details of the timing for the site's dismantling after this, however.


The company is now starting consultations with employees and beet growers to bring about the reduction. Around 200 employees will be affected by the closure of Panevezys. Today's news follows three other closures in 2006/7 aimed at efficiency in 2006/7 - in Denmark, Sweden and Finland - and the streamlining of administrative functions. The current state of affairs is that, in addition to Kedainiai, the company still has one sugar factory and one refinery in Sweden, two sugar factories in Denmark, one sugar factory and one refinery in Finland, and one factory in Finland. In September Danisco said that it will look for a quota sale of up to 13.5 per cent in all its production countries, corresponding to a total of around 135,000 tonnes of sugar.


However a spokesperson for Danisco Sugar told FoodNavigator.com today: "No further factory closures are planned at this time." To minimise the effect of quota reduction, Danisco has said it will buy around 32,000 tonnes of quota in Denmark and around 18,000 tonnes of quota in Sweden in 2007/08, at an cost of some DKK 220 m (€29.5m). The new EU sugar regime came into force last year and includes a package of measures aimed at improving competitiveness and market-orientation of the EU sugar sector and guaranteeing its long term future. Under the programme, financial incentives are offered to the less competitive producers to leave the market. The goal is to reduce the volume of sugar on the market by six million tonnes by 2010.


However so far only 2.2 million tonnes have been withdrawn from the market - a shortfall the European Parliament sees as being down to insufficient financial incentives being on the table. This led the EU to being in amendments to the regime in late September to further encourage voluntary quota reduction. As a new incentive, beet growers will be allowed to sell 10 per cent of the quota. Moreover, sugar producers who sell that share will receive a refund of the restructuring levy. The Commission hopes the changes will help take some 3.8m tonnes of quota off the market. Danisco it announced this year that could well split up its sugar and ingredients divisions into two separate companies.


If a carve-up does take place, this will not happen for at least two years, however - when the dust has settled on sugar reforms and the sector's future is clearer. In its annual results announced in June, Danisco reported a three per cent drop in revenue to DKK20.362 bn (€2.74bn), which was blamed on sugar reform. The sugar unit contributed 34 per cent to the company's overall revenues compared to 37 per cent in the previous year. The ingredients division contributed to 66 per cent of the company's revenues this year, compared to 63 per cent in the previous financial year.


For its part, the ingredients division recorded organic revenue growth of five per cent (the exchange rates translation into Danish currency for accounting purposes brings this growth down to three per cent on paper).

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