Could the Irish sugar industry have been saved?
This post was written by Alan Matthews
I have been amazed by the media spin put on the European Court of Auditors’ report into the implementation of the EU’s sugar regime reform in 2006. This reform resulted in Greencore deciding to close the only remaining Irish sugar factory in Mallow, thus signalling the end of beet-growing in this country. The reform cut the price of sugar beet by 36% while removing 30% of the EU sugar production quota over a four year period. It is simply not credible to suggest that the Irish industry could have survived in this new environnment.
“Without sugar reform, it’s quite possible that the sugar factory in Mallow would exist and sugar growers would be growing,” said Eoin O’Shea, Ireland’s member of the Luxembourg-based audit body. Asked if the plant’s closure was needless, Mr O’Shea said that was “the inescapable truth of the court’s report.”
It is not rocket science to state that, in the absence of the reform, sugar production would have continued in Ireland. Indeed, at a protected price of €44 per tonne of beet, beet was a profitable part of the arable farmer’s rotation and Greencore could make money from its refining operation.
However, the reform did take place, necessitated by the EU’s obligations under the World Trade Organisation and its trade commitments to the poorest countries in the world. The Court of Auditors criticises the design of the reform on a number of grounds, but to conclude that the Irish industry could have remained viable in this scenario is an exercise in escapism.
The Court notes that one objective was to contribute to a more competitive sugar industry, and that this was to be achieved by concentrating quota reductions in the least competitive areas. The audit criticises the Commission for the absence of data on the productivity of individual factories and for the fact that data on the overall competitiveness of sugar production in different Member States was somewhat dated. The auditor’s view seems to be that the Commission should have collected data on the productivity of each of the 200 or so sugar factories and then required the 80 factories with the lowest productivity to close. We might describe this as the Gosplan approach to industrial restructuring.
Instead, the reform was based on a voluntary restructuring approach where the decision to abandon or remain in production was made by each individual sugar company in the light of the substantially lower institutional prices for sugar beet.
However, by the end of the first two years, the voluntary approach was not working and the amount of quota renounced was far below the Commission’s target. So, in year 3, the Commission announced that it could be forced to make an explicit, uncompensated, quota reduction on all factories but focusing especially on factories which had offered no quota reduction to date, by definition the more efficient suppliers. As a result, 47% of the renounced quota came from factories in the more efficient producing regions. The Court concluded that
“This situation calls into question the effectiveness of the measures introduced to ensure the future competitiveness of the sugar industry from the perspective of the producers. In particular, the measures introduced from third year of the reforms were not sufficiently targeted to achieve the desired objective”.
The Commission responds that an explicit targeting approach would neither have been feasible nor politically acceptable. It defends its approach by pointing that out that Member States with high profitability in beet production now account for 78% of EU quota (compared to 68% before the reform) where Member States with low profitability now hold 5% of the EU quota (compared to 12% before the reform).
The Irish situation is, rather curiously, commented on in a stand-alone paragraph where the auditors noted that the sugar company, which “defined itself as one of Europe’s most efficient producers” had closed down “its large, modern and potentially efficient sugar factory”. It noted that this decision had been justified on the risk of the lower prices reducing the supply of sugar beet to an uneconomic level. The implication that seems to have been drawn is that the Irish plant had the misfortune to be hit by the blunderbuss approach of the Commission and would have escaped closure if a more targeted strategy had been adopted.
This is just Alice-in-Wonderland stuff. Ireland was always a marginal sugar beet producer within the EU. Arising from the closure of the Carlow factory the previous year, many midlands beet growers had already decided they could not supply beet to Mallow because the extra transport cost would erode their margins. Yet the beet price was going to fall from €44 to €26 per tonne which would have seen many more growers exiting the industry. Greencore had made the decision to exit the industry in the first year of the reform, and well before the Commission’s revised proposals in Year 3 which were the particular subject of the auditors’ criticisms.
There is a view that Greencore wanted to exit the industry to develop their sites for their property value, a view sustained by the large investment subsequently made by property developer Liam Carroll in the company and its significant planning application in 2007 for a €500 million development proposal including business, tourism and residential elements. But Greencore’s decision to close the plant was made in March 2006, before either of these events. In the absence of the reform, there is no reason to doubt that Greencore would still be refining sugar in Mallow today.
Politicians have jumped on the bandwagon:
Ireland East MEP Mairead McGuinness said: ‘It is very clear that the Commission has questions to answer arising from the Court of Auditors report. Lessons need to be learned.
‘The sugar reforms resulted in the complete loss of the Irish sugar industry.’
Fine Gael Agriculture, Fisheries and Food Spokesperson Andrew Doyle said the report leads to the inescapable conclusion that the Government of the time was asleep at the wheel.
Labour Agriculture Spokesperson Sean Sherlock said that in the wake of the finding, serious questions arise as to the suitability of Mary Coughlan for high office.
In fact, a proper reading of the Court of Auditors’ report supports none of these conclusions. The simple fact is that sugar beet production in Ireland was not economically viable at the current price of €26 per tonne of beet, which itself is well above the (volatile) world sugar price. Nothing in the way the Commission implemented the 2006 sugar reform alters this fact.