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Sugar reform cuts back ABF UK production

By Laura Crowley , 08-Feb-2008

Associated British Foods (ABF) will renounce permanently 165,000 tonnes of UK sugar production following the changes made to the European sugar reform.

British Sugar, a subsidiary of the international food, ingredients and retail group, is the only beet sugar producer in the UK .



It has had its application accepted by the Rural Payments Agency, and the cut back in production by 13.5 per cent will take effect from October 2008.



The company will receive €93m (£69m) in two instalments of €31m (£23m) by June 2009 and €62m (£46m) by February 2010, subject to the normal audit processes of the Commission.



There will also be relief from the restructuring levy on the renounced quota in the 2007/8 marketing year amounting to €29m (£22m).



The unamortized cost arising from the purchase of additional quota of 83,000 tonnes in 2006 and costs relating to the closure of its York factory will be charged as an exceptional item totalling €61m (£45m).



British Sugar and parent company ABF have made no announcement yet on where it will invest this money.



Sugar reform



Sugar reform was introduced in Europe in 2006, with the aim of improving competitiveness and market-orientation of the EU sugar sector and to guarantee its long term future.



The programme offers financial incentives 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However, by the end of last year, only 2.2m tonnes had been withdrawn from the market - a shortfall the European Parliament sees as being down to insufficient financial incentives being on the table.



In an attempt to speed up the process, agriculture ministers agreed on a package of new measures. These include sugar producers receiving 90 per cent of the restructuring assistance of €625 per sugar quota tonne; and an exemption from restructuring payments of at last €173.80 per tonne when they renounce quotas by at least the amount for preventative withdrawal in 2007/8.



Effect on companies



In December, ABF said that sugar reform had unfavourably affected its operations during the current financial year. Company earnings from sugar production were down by €40m (£30m) compared to the previous twelve months, and it was expected they would continue to drop this year.



Chairman Martin Adamson told shareholders that two-thirds of the company's sugar production is now being produced outside of Europe, where consumption rates were also found to be rising.



The company is therefore specifically developing its presence in the markets of the Americas, the Asia Pacific, the Middle East, Africa and Europe.



For example, ABF purchased a 51 per cent stake in Malian manufacturer Illovo in 2006, boosting capacity by 200,000 tonnes as part of cooperation with the country's government.



Last year, the company also announced plans for investment in Northern China in an attempt to improve agricultural yields of sugar in the country.



A separate decision is awaited in respect of the application to renounce a permanent quota of 26,000 tonnes in Poland.



Other companies have also been renouncing sugar production amid the reforms. Last month, Tate & Lyle completed its sale of its Mexican sugar business, removing itself from volatile commodity markets and allowing it to refocus on value-added ingredients.



Danish ingredients producer Danisco announced last September that it would reduce its sugar quota by more than 10 per after being stung with levy charges amounting to €20m.

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