European Union, Quota
The Czech Agrarian Chamber is considering going to court to seek an injunction against Eastern Sugar after the Dutch-based company signaled plans to close three Czech sugar refineries.
The company - jointly owned by the United Kingdom's Tate and Lyle and Germany's Süd Zucker - announced in October that it would halt sugar production in the Czech Republic, Slovakia and Hungary.
"Because of the European Union's price cuts and plans to reduce sugar output by four million tons, we see no economic future for these plants and have no option but to apply to the restructuring fund," Eastern Sugar chief executive Matthew Trilling said. "We have begun consulting employees, beet suppliers and our other business partners to ensure we can agree a mutually acceptable package to deal with the potential challenges."
Chamber president Jan Veleba said Eastern Sugar was reacting to European Union plans to reduce unprofitable sugar production in the EU but the company posted a profit of 61.1 million koruny ($2.89 million) in the business year ending March 31.
"There are no economic reasons behind the company's decision," Veleba said. "This is why, in cooperation with our lawyers, we are considering bringing this case to the European Court of Justice.
"The company's decision to end sugar production in the Czech Republic was not taken for economic reasons."
Some 200 Czech beet farmers have also protested Eastern Sugar's plans with demonstrations outside the British and German embassies.
Eastern Sugar holds a quota for 102,473 tons of sugar in the Czech republic. If it closes its Czech plants and sells the quota to Brussels for a compensation set at 730 euros ($964) a tonne, Czech sugar output - now with a ceiling of 454,862 tonnes - would fall by 22 percent.
Eastern Sugar has agreed to pay beet producers and machinery providers 29.3 percent of the money it gets from the EU compensation fund. The EU had recommended 10% as a minimum to be paid to the farmers.
Veleba said under the EU rules the Czech government has the option of keeping up to 25 percent of Eastern Sugar's quota and divide it among other local sugar producers. "We're counting on the state to take advantage," he said. "It's the state's duty to do so."
Veleba said domestic demand for sugar is between 380,000 and 420,000 tons and if the state took the 25 percent of Eastern Sugar's quota, the Czech Republic would remain just about self-sufficient in white sugar.
The EU sugar sector reform was intended to reduce guaranteed sugar prices and force uncompetitive producers to leave the industry but it hasn't achieved what the EU Commission expected and it now is putting pressure on EU member to let sugar producers who want to halt production do so.
EU Agriculture Commissioner Mariann Fischer Boel issued a news release calling for renewed efforts by EU member states' agriculture ministers and the sugar industry to implement the restructuring process for the sugar sector. "The quantity renounced so far is far below our expectations when we drew up the reform," Boel said. "If the plan fails there will be no other funds to facilitate the restructuring of the sugar industry and we will have to apply a linear cut in quotas by 2010."
The EU is restructuring its sugar industry after losing a case brought by Australia, Brazil and Thailand under World Trade Organization rules. The three countries complained that the EU was subsidizing sugar exports by maintaining high prices within the EU.
The reforms include cutting production by four million tonnes a year and compensation to producers, growers and equipment suppliers.
Trilling said Eastern Sugar acted because of the slow pick up of the program. "The compensation to all parties would decline year on year and because so little is being surrendered voluntarily we fear it is likely at some point in the future that manufacturers like us will be forced to surrender our quotas without compensation to farmers," he said. "We have had to accept the inevitable, that the EU no longer wants or needs sugar plants like ours. So we plan to act quickly and propose that we and our farming partners accept these compensation payments."