Sugar reforms take toll on Tate and Lyle in Central Europe

The company, which operates in the region through its subsidiary Eastern Sugar, has announced that it is currently involved in talks with its staff, beet growers and stakeholders over the possibility of renouncing its entire production quota throughout its plants in Czech Republic, Hungary and Slovakia.

The news follows warnings by processors that new EU sugar reforms that came into place from July 1 this year, could hurt the industry in Europe.

Eastern sugar, which is jointly owned by a subsidiary of German company Suedzucker AG, operates through five plants and has a combined output of 280,699 tons of sugar a year.

The reforms which were put in place following after complaints from several World Trade Organisation WTO members and consumers groups, that subsidised sugar production in the EU, gave member states an unfair advantage. As a result the EU has agreed to lower sugar production by 4m tons a year.

Though any plans to renounce its production quota would not take place until February 2007 - after the current production cycle ends, Tate and Lyle estimates that only one of the five Eastern sugar plants will remain in operation afterwards.

Though it is thought that the Czech plant will continue to remain operational for several months, the reduction will see a huge decline in beet production within the region.

"This is the right time to enter into this consultation as the business will inevitably face significant further pressure as the progressively negative impacts of reform of the sugar regime take effect on Eastern Sugar over the next three years. Eastern Sugar would also remain exposed to the possibility of further quota cuts being imposed by the EU across the industry in the event that the voluntary surrender of quota is not successful in obtaining a balance of supply and demand in the EU sweetener market,"​ said Stanley Musesengwa, chief operating officer of Tate & Lyle.

The reforms which were initially announced last year, while succeeding in reducing sugar production, have been attacked by critics for being too pro-industry and not in favour of the consumers it was established to protect.

Particularly controversial is a clause offering producers compensation over the next four years to help cope with such large scale restructuring.

With the rate of compensation during the projects first two years at €730 per ton surrendered, Tate and Lyle expects to receive €205m in compensation by renouncing Eastern Sugar's entire operations.

This figure is yet to be determined however, as funding has yet to be finalised by the EU.

The company was unable to say just how this compensation would be distributed however, though reports suggest that an agreement has been made that at least 10 per cent will go to beet suppliers in the area.