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The Sugar Worker, November 2005. News from the Sugar Sector.

Posted to the IUF website 01-Dec-2005

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The Sugar Worker
Information and Analysis for Unions in the Sugar Sector
Volume VII, Number 11
November 2005


European Union: Sugar Reforms Agreed

On 24 November, after three days of meeting in Brussels, EU ministers of agriculture reached an agreement on the reform of the European Union sugar regime. Among the basic reforms are:

The European Commission for Agriculture said that the reforms of the 40-year old sugar regime offer the possibility for the sector to become more efficient and competitive. The EU Sugar Regime would remain unchanged, with no mid-term review, from 2006/07 to 2014/15. The reforms are still to be approved by the European Parliament.

It is expected that the reforms would make a net sugar importer of the EU, from its current position of a net exporter. Agreeing to the sugar reforms, said the European Commission for Agriculture, will strengthen the EU's position in the WTO ministerial meeting on 13-18 December in Hong Kong.
Complete details and technical matters of the reform will be published at a later date, but a basic negotiating tool was buying-out the opposition with a generous compensation to farmers via direct payments, and resources to processors through the restructuring fund. For instance, press sources reported that countries like Italy, Sweden and Austria obtained specific concessions for their sugar industries, as the European Commission wore down a group of 11 member states opposed to the reform.

The Italian minister of agriculture, initially an outspoken opponent to the proposals of last June, said his country was "moderately satisfied" with the agreed reforms, explaining that Italy would keep half of its sugar production, providing that the other half goes towards conversion for bio-fuel production. Processing companies will make the decision on what factories will remain in operation, said the minister. He also said that "not one job will go," although his country has agreed to hand over half of its current sugar production quota.

Finnish sugar sources were somewhat happy to see that the country's production would be reduced by about one third, as they had feared a complete destruction of the sector. The Irish sugar industry would most probably disappear in the short run. Irish beet farmers complained that the �310 million assistance offered to them is "totally inadequate and highly unsatisfactory." According to news, the package includes compensation of �121 million over the next seven years, a one-off payment of �44 million for growers if production ceases in Ireland, and a �145 million payout to processor Greencore to assist restructuring. (There are about 3,700 beet farmers in Ireland.)

Poland still opposes the reforms but, along with Greece and Latvia, was left in the very small minority against it. Press reports quoted the Polish delegation to Brussels as saying that the new cabinet "probably" did not have enough time to study the whole sugar dossier. Marianne Fischer Boel, European Commissioner for Agriculture, said that Poland must restructure its agricultural sector, and the restructuring fund "provides an excellent opportunity" for it.

On the other hand, France, the EU's top sugar producer is seen as the major winner, as has the chance to substantially increase her market share -once the less profitable areas go out of production. The UK sugar sector also appears to benefit from the reforms, as it is reckoned as one of the most efficient sugar producers in the EU.

Immediate negative international reactions came from Guyana and Mauritius, two of the beneficiaries of the EU/ACP Sugar Protocol. The countries said that the reform would destroy their sugar industries. In a press statement, the ACP sugar group deplored the EU's insensitivity towards their sugar industries, saying that, in comparison to the billions of euros offered to the European farmers and processors, the ACPs have only been assured of a �40 million assistance in 2006, given vague promises of additional support in subsequent years (which depends on approval of the European budget), and the 4-year period for implementing the price cuts. "Adding insult to injury," said the ACPs, the EU is passing on the burden of the refining aid of �35 million to them. The ACPs also want concrete proposals on resources available to them for adjustment to the reforms.

UNICA, a cane growers association in Sao Paulo, said that the EU reform was an important step to advance international free trade in the EU, one of the "deepest trenches" of protectionism. Sources at Itamary, the Brazilian foreign relations ministry, said that they were studying the EU decision before giving a public statement. Australian cane farmers hailed the reforms, as they would end subsidies to the EU sugar producers, making the Australian sugar "more competitive" in the international market.

Sugar Companies' Reaction

After the agreement on reforms was announced, shares of sugar companies went up: Tate & Lyle's share rose by about 7.6 percent, Danisco's by five percent, and Ebro's by about two per cent.

Tate & Lyle (T&L) welcomed the decision of a 36 percent reduction in prices (instead of the 39 percent proposed) and the longer phase-in period, and welcomed the way the Commission addressed some of the "specific concerns" the company raised in their lobbying. It also acknowledged the support of the British and Portuguese governments in "delivering an improvement" to the June reform proposals. Apparently, T&L was referring to the refining aid, which would bring the impact of the reform "on cane refiners and beet processors more closely in line." Probably, this specific policy decision, which the ACP Group complained about, reflects the complexity and inequality of the EU sugar reform process. As a Caribbean source told The Sugar Worker: "The ACPs are suffering a price cut in 2006/07 and 2007/08 corresponding to the Adjustment Aid previously given to the refiners (�29.2 per tonne), which is being abolished. Therefore the ACP will effectively be paying for this subsidy." Without surprise then, T&L's thanks to the British and Portuguese government are undoubtedly linked to T&L's refining operations in the UK (Silvertown, the world's largest refinery) and Portugal (Alcantara), which process a substantial proportion of the imported raw sugar in the EU.

Associated British Foods (ABF), which owns British Sugar operations in the UK and Poland, welcomed the reforms saying they would cost less that the USD 68.8 million in reduction in profits, estimated from the original price cut of 39 percent. British Sugar is also given the option of purchasing some 83,000 tonnes of quota for its UK operations and another 10,000 tonnes for its Polish business. British Sugar also spoke to allocating part of its businesses to producing bio-fuels. Spain-based Ebro Puleva said that they would develop bio-fuel production, and would offer such option to beet farmers. Ebro Puleva is involved in a bio-ethanol venture plant in northern Spain with Abengoa SA.

Outside Europe, Saudi Arabia's Savola Group said the reforms would stabilise the sugar market and the EU sugar production will be limited, opening opportunities for the Group to expand operations and exports in the region, particularly Egypt. The Group said it might built another refinery in Saudi Arabia, through United Sugar Company, raising its production capacity from 800,000 tonnes to 1.2 million tonnes of sugar per year. Savola Group is also building a new refinery in Ain Al-Shukhna, Suez City, Egypt. The new 750,000-tonne refinery will be completed by the end of 2006, after an investment of USD 107 million. (The Savola Group is one of the leading industrial companies in Saudi Arabia, which supplies edible oils, fresh dairy products and sugar to Saudi Arabia, the Middle East and North African countries. The Group also owns fast food restaurants and is considered the largest retail food chain in the Middle East.)

The IUF's opinion on the EU sugar reforms from May 2005 is available here.

Brazil: Another Cane Cutter Dies Because of Exhaustion

After cutting some 25 tonnes of cane, Jos� M�rio Alves Gomes, a cane cutter, died at age 47. After collapsing in the field, Mr Gomes was taken by bus to the usina Santa Helena, owned by the Cosan Group, for whom he worked. He was pronounced dead on arrival. He worked in Rio da Pedras, S�o Paulo.

In an article published by Jornal do Commercio on 31 October, the Brazilian Labour solicitor said he was convinced that Mr Gomes' death was caused by excess of physical effort at work, a consequence of the system of payment based on productivity. An investigation on Mr Gomes' death was done by the Ministry of Labor and the Labour delegation in Piracicaba, with the participation of Feraesp, the rural workers federation of Sao Paulo, an IUF affiliated, and the Plataforma Brasileira on Human, Economic, Social and Cultural Rights - an NGO which comprises some 60 different groups in the country.

The death of Mr Gomes is the 11th death occurred under similar circumstances since 2004, according to the Pastoral do Migrante de Guariba. Diagnostics of these deaths identified cardiac arrest and respiratory shock as main causes, but workers said it is "bilora," a process leading to death because of physical exhaustion.

The Pastoral do Migrante from Guariba recorded the following deaths in 2005: Lindomar Rodrigues Pinto, 27, usina MB; Ivanilde Ver�ssima dos Santos, 33, from S�o Martinho; Valdeci de Paiva Lima, 38, of Engenho Moreno; Natalino Gomes Sales, 50, from Batatais; e Dom�cio Diniz, 55, from Malosso, It�polis. In 2004 dead were Jos� Everaldo Galv�o, 38, from Macatuba; Mois�s Alves dos Santos, 33; and Manoel Neto Pinto, 34. Under investigation are the factories were the latter two workers were employed. In early October a task force of the federal Public Ministry, the Labour Ministry and the UN, visited the cane fields in the Ribeir�o Preto region to investigate the deaths of the cane cutters. They found signs that workers were being enticed with false promises, and were investigating the specific case of nine workers from Maranh�o who had been offered several terms not delivered by their employers.

Environmentalist Set Fire to Himself

Francisco Anselmo Gomes de Barros, Franselmo, environmentalist, died a day after setting himself on fire to protest the installation of alcohol factories in the Pantanal region. He had opposed construction of factories since the 1980s, when two factories were built, arguing that the burning of cane has a catastrophic effect on the Pantanal, an extensive wetlands, almost half the size of France, home to around 700 species of birds and 240 of fish. In the 1980s, the state government approved a ban on new factories, but the dispute resumed in 2003 when the state governor took steps towards permitting building them again. Supporters of the factories said that they bring employment and revenues to the state, but Franselmo remained adamant that this would not happen. Franselmo set fire to himself when participating in a demonstration against the alcohol factories on 15 November in Campo Grande, capital city of Mato Grosso do Sul. He was 65 years old.

Egypt: Privatisation of Delta Sugar

The Ministry of Investment said on 28 November that the government plans to sell 87.9 percent stake in the state-owned Delta Sugar Co., through an initial public offering (IPO) by 31 December. Trading of shares would be awarded on 7 January.

Delta Sugar Co has a refinery with an estimated 270,000 tonnes of yearly production, and plans to establish a new production line by the end of 2007, at a cost of USD 9 million. Trade sources said that until now, the Savola Group and Tate & Lyle are the main bidders for Delta Sugar. The two companies are partners in the United Sugar Company, which owns and operates Saudi Arabia's only refinery, in Jeddah.

The Ministry of Investment said that it plans to privatise two other sugar companies, Daqahliya Sugar and Nobariya Sugar, in early 2006.

Egypt produces about 1.6 million tonnes of sugar, from beet and cane, and imports about 1.2 million tonnes, mostly in the form of very high polarization sugars from Brazil. Early this year, the government announced the investment of USD 294 million in the construction of three beet factories in the northern area of the country, in a move to cut imports.

Mexico: Half Million Tonnes to US in 2006?

Mexico expects to export up to 500,000 tonnes of sugar to the US, as the "second-tier" import tariffs decrease under NAFTA. The second-tier tariff is applied to sugar imports outside the tariff-rate quota, making them quite expensive. In January 2006, the second-tier tariff for Mexican sugar would be around USD 70 per tonne (about US 7.6 cents per pound) said Mexican sources, and exports above quota would be attractive. This year, Mexicans paid USD 106 per tonne in exports over quota. According to NAFTA, there is a phase-out of the "second-tier" tariffs on Mexican sugar, until they reach zero by the end 2008. In 2004/05 Mexican production was about 5.8 million tonnes of sugar, generating a surplus of almost 1 million tonnes.

In related news, STIARSM, the Mexican sugar workers union in representation of 48,000 factory workers, and 58 mills, represented by national sugar chamber (35 private mills) and FESA (23 state-run mills), reached an agreement that gave workers a 4.9 percent wage increase. The agreement also resolved some outstanding demands on housing facilities granted by the nation-wide sugar contract.

Company News

Philippines: Gokongwei Group to Expand in Negros

The Southern Negros Development Corp. (SONEDCO) announced the investment of 2.543 billion Filipino pesos (USD 1.00 = PHP 54.12) in the expansion of a sugar mill and the construction of a new refinery in Kabankalan, Negros Occidental. The new refinery is planned with a 750 tonnes per day of capacity, expected to go on line in October 2006. Approved as a pioneer project, the refinery would enjoy tax holidays for six years. The expansion of the mill from the current 4,000 tonnes of daily capacity (tdc) to 9,000 tdc is to be completed by mid 2007.

SONEDCO is part of the food products arm of Universal Robina Corp. (URC), which also has other sugar subsidiaries: the Universal Robina Sugar Milling Corp. (URSUMCO), and its division, Cagayan Robina Sugar Milling Corp. (CARSUMCO). Most of the additional sugar produced would go to supply the expanding beverage business of URC, after the company successful launched several new products, including a flavoured green tea drink. URC is one of the largest food processing companies in the country, with growing business in Asian markets. URC is a subsidiary of JG Summit Holdings Inc., one of the largest conglomerates in the Philippines.

Brazil: Cosan Listed on Bovespa

Cosan SA raised some 770 million Brazilian reais (USD 350 million) from its initial public offering (IPO) of shares on the Brazilian Stock Exchange, or Bovespa, said the company in a press release. The group, the first sugar and alcohol company listed on Bovespa, sold some 16 million shares at 48 reais each, which surpassed the expected price range of 40-46 reais. The stock was offered to Brazilians and US investors, and the company is ready to issue more shares if there is enough demand. Cosan's IPO was welcomed by investors amid "positive sentiment" about the future of the industry, said trade sources. Cosan would use the money to pay debts and invest in expansion.

Cosan SA is the largest sugar and alcohol company in Brazil. Its strategy, according to top management officials, is to invest in Brazil to satisfy international markets. There are very few countries around the world, said management, that could supply sugar at volume and prices as Brazil, in particular after the WTO ruling that limits EU sugar exports, starting May 2006. The future, however, seems brighter in the ethanol sector, thanks to the sustained demand by flex-fuel cars (with engines that run with gasoline or ethanol or any combination of both) in the domestic market. Two and a half years after being introduced, there are over one million flex fuel cars on the Brazilian roads, and estimates are for five million units in the next four years.

Uganda: Eight Companies After Kinyara

On 11 November, bids on the sale of 51 percent stake of Kinyara Sugar Works were opened, with eight companies qualifying as potential buyers: Kagera Sugar and Energy Company of Tanzania; the Libyan Arab Foreign Investment Company (LAFICO) of Libya; Deep River Beau Champs Ltd of Mauritius; the Rai Group of Kenya; Madhvani Group of Uganda, also owners of Kakira Sugar; Olam International Ltd, a consortium from Singapore and Thailand; Illovo Sugar Ltd, and Industrial Promotion Services (IPS) in conjunction with Transvaal Sugar Company Ltd. and Booker Tate Ltd. (the latter two are based in South Africa).

By the end of November, the pre-qualified bidders would start due diligence work, and Uganda's Privatisation Unit expects that the sale would be completed by March 2006. According to the privatisation program, ten percent of shares would go to outgrowers (independent cane farmers), ten percent to the Bunyoro Kingdom, where the estate is located, and ten percent to the employees. The remaining 19 percent would be listed on the stock exchange.

Malawi: Illovo Reports 48% Increase in Profits

Illovo Sugar posted a 48 percent increase in net profits at 998 million Malawian kwachas (USD 8.5 million) for the six months ending 30 September, up from the 673 million the previous year, based on an estimated production of over 265,000 tonnes of sugar.

Illovo Sugar operates two estates in Malawi, Nchalo in the southern region, and Dwangwa in the Central Lakeshore Distric of Nkhotakota. The company said that Nchalo showed good growing conditions and reliable supply of electricity that allowed the uninterrupted operations of the irrigations programs. Along with improved cane husbandry, this resulted in excellent cane production both in the company estate and independent farmers. The Nchalo factory achieved excellent operational performance, and reached a record production of 161,700 tonnes of sugar in the season that ended on 23 October. Dwangwa saw a lower than expected production of cane due to reduce availability of water, but factory performance was good and production would be in excess of 104,000 tonnes of sugar. Illovo Sugar also operates in South Africa, Zambia, Swaziland, Mozambique, and Tanzania.