I would like to thank the members of the Joint Committee for the work they have put into the preparation of this comprehensive report on the Sugar Company. The report itself, together with the minutes of evidence, clearly indicate the sustained efforts made by the committee to examine the role of the company, to lay bare its weaknesses and to suggest remedies where appropriate. The minutes of evidence, in particular, demonstrate the depth of detail which the committee was prepared to grapple with so that the full picture of the company would be recorded. The committee even went to visit the company's premises at Carlow to make sure that they acquired first-hand experience of what they were examining.
As we know, the company no longer deals exclusively with the manufacture and sale of sugar, but also engages in extensive food processing operations, the manufacture of agricultural machinery and other ancillary enterprises. Each of these areas has been covered in the report which contains a wealth of information, is a model of clarity and will be of great assistance to me and to the officers of my Department in dealing with the policy and activities of the company, responsibility for which was comparatively recently assigned to me. Up to February 1980, as the House knows, statutory responsibility for the company was vested in the Minister for Finance. That Minister remains the principal shareholder, holding £6.5 million of the issued share capital of £7 million.
I understand that this is the first occasion on which the Members of the Seanad have had an opportunity to debate a report of the Oireachtas Joint Committee on State-Sponsored Bodies. For my part I welcome the report as a constructive document and look forward to hearing the views of this House on it.
Before commenting on the more salient matters arising from the report I think it well to recall briefly some of the relevant background to the company's activities, with a view to putting its present situation into better perspective.
The Sugar Company was set up in 1933 to provide an additional source of revenue for Irish farmers and to improve the national balance of payments by reducing or eliminating sugar imports. The four sugar factories which we still have were established in those early years.
Before we joined the EEC the sugar industry operated within a protected home market which safeguarded the Irish manufacturers of goods containing sugar for domestic consumption. At that time world sugar prices were generally low and such manufacturers, using home produced beet sugar were finding it impossible to sell their products on export markets in competition with products incorporating sugar at world prices. To help these manufacturers stay in business the Irish Sugar Company committed itself to importing substantial quantities of raw cane sugar for sale, after refining, to the sugar goods sector, for incorporation in products for export.
During the ten years prior to our accession to the Community these sugar imports averaged 42,000 tonnes a year. As a result, because of the necessity for the imports, and the low prices generally prevailing for sugar on world markets limitations had to be imposed on the production of the more expensive beet sugar. The area under beet was, accordingly, limited to around 69,000 acres a year, although demand by growers for beet quotas was often in excess of that figure.
These limitations on beet acreage and the retention of four production units to process this, acted as a severe constraint on the development potential of the industry. Such capital as was available was invested in the establishment and development of food processing. Consequently, on entry to the Community in 1973 the Irish sugar industry was underdeveloped, much of its equipment being old and inefficient.
The advent of EEC membership and the integration of the industry into the common organisation of the market for sugar changed the situation, however, and provided the industry with the desired scope for development. Among other advantages the Community pricing system for sugar enabled the use of home grown beet sugar in processed products for export. An investment and modernisation programme was, therefore, commenced. As the joint committee have pointed out the company regards this investment programme as essential to the survival of the sugar industry; efficiency in production is no less vital in this industry than it is in any other. I shall return to the company's investment programme. In the meantime I should like to offer some comments on the importance of CSET in the national context.
With an annual turnover last year of £140 million the company is one of the top 20 Irish companies and employs about 3,600 people. It is the second largest enterprise in the Irish food industry. Apart from those directly employed there is vital ancillary employment on the farm, in the cultivation and harvesting of the crop. In addition, there is substantial employment in providing necessary inputs for the crop — fertilisers, seed, machinery, ground limestone and so on. In the haulage area employment on road and rail transport is involved. Up to 16,000 people are employed in the sugar using industry which is serviced with supplies of sugar from the company.
Another very important aspect of the Irish Sugar Company's role in the economy is that it is a rurally based industry. With its sugar factories in Carlow, Thurles, Mallow and Tuam and with its other activities in various corners of the country, the company spreads widely its economic advantage. I would like at this stage to refer to the point made by Senator Connaghton in relation to the Tuam factory and to state quite clearly that there are no proposals before me regarding the closure of the Tuam factory. Not only does the commercial life of a town benefit greatly from the presence of a sugar company operation but so, too, does the social environment. Departure of young people to the major cities is greatly stemmed as service industries also grow up in the town, creating employment in all walks of life.
Last year there were approximately 8,000 farmers growing beet under contract for the company; the importance of the industry to these farmers is very great indeed. For example, close on £40 million was paid to growers which represents a sizeable contribution to farm incomes generally. At present the company is issuing new beet contracts for 1981-82 and every encouragement is being given to new growers to undertake beet production. At a time when many aspects of farming are experiencing difficulties of one sort or another, the importance to the Irish farmer of a guaranteed market and a comparatively favourable price for his produce cannot be overestimated. As recent statistics published by An Foras Talúntais show, beet is still the most lucrative of farm enterprises.
Apart altogether from the importance of the industry in terms of employment created, and in terms of the benefits to the farmers, the very existence of the industry ensures not only that we are self-sufficient in sugar but that we can be net exporters also. This helps our balance of payments. The approximate value of our sugar exports for 1979-80 was £17 million. Domestically we consume in the region of 150,000 tonnes of sugar annually. If this sugar had to be imported the adverse effect on our balance of payments would be close on £60 million.
Any discussion of the Irish Sugar Company should take place, therefore, against the background of the definite importance of the industry to Ireland, its economy and its people.
I have already mentioned the impetus which our joining the EEC gave to the industry. One of the matters referred to in the report is the fact that proposed changes in the EEC sugar regime would, if implemented, adversely affect the company's operations. The background to this is that last year the EEC Commission proposed the introduction of a regime which was essentially aimed at cutting back production in the Community. The Commission advocated this because Community consumption had stabilised and the cost of disposing of surplus requirements on a depressed world market was proving to be very costly on the EECs financial resources. As far as Ireland was concerned the measures proposed envisaged a substantial reduction in our so-called ‘A', or basic sugar quota from 182,000 tonnes to 164,000 tonnes.
The direct implications of the proposals were of extreme gravity for the industry in Ireland. It was, therefore, incumbent on me to present the Irish case in Brussels and to point out the disastrous consequences such proposals would have for our industry. I am glad to say that eventually the Commission withdrew their proposal and presented an alternative which at least ensures us of the retention of our basic quota and thus provides an opportunity for the industry to develop.
I should point out that the production levy to which Senator Hillery referred is a maximum levy and not a fixed amount. None of it need be charged unless the Community incurs losses on its sugar operations. In fact over the past year or so sugar prices on world markets have been high and no losses were incurred on surpluses. Naturally I would have preferred to have no levy at all on ‘A' sugar. However, it is not possible to argue plausibly in favour of one approach to sugar and in favour of a conflicting approach to milk. If the levy is at the maximum it will represent about £1 million but the price increase already put forward by the Commission represents a gain of close on £5 million for the industry. I have already said I will press for an increase on this figure of £5 million.
When the Council of Ministers are discussing sugar quotas, past production performance is a vital consideration. I was very disappointed, therefore, at the decline in our production from the campaign recently ended. I realise, of course, that the weather in 1980 was not particularly favourable to growth and that harvesting conditions were also difficult. But these factors only partly explain the decline in our sugar outturn. The acreage of sugar beet last year was almost 6,000 down on that of the previous year. Obviously acreage is a critical factor in determining total production and any significant fall in acreage is greatly to be regretted.
Apart from its effects on our sugar quotas such a fall clearly has implications for the profitability of the Sugar Company, not alone in relation to the domestic market but also in relation to exports, especially at a time when world market prices are higher than those obtaining in the Community.
Members of this House will, therefore, I hope forgive me if I take this opportunity to address myself, through them, to beet growers. Acreage of beet is, of course, a matter in which growers themselves can exert a real influence. I realise of course that costs of production have gone up but, notwithstanding that, beet growing continues to be most attractive for producers. According to the findings of an Agricultural Research Institute research team beet production gave the best return of all farm enterprises in 1980 and it is expected to head the list in the current year also.
In addition to the advantages of beet as a cash crop there is the consideration that beet is ideal for a tillage set-up where, in rotation, the crop cleans up the land after cereals. Beet has none of the marketing problems and risks associated with some other crops and, moreover, the pulp provides farmers with a valuable and economical livestock food.
I would regard farmers as partners with the Sugar Company when it comes to ensuring the survival of the beet sugar industry. We are now at a stage where the company's profitability will be seriously threatened — perhaps irreversibly — unless its production targets are achieved.
For the coming season the company is making a new drive to expand the acreage of beet and has recently agreed with the Beet and Vegetable Growers Association on the prices to be paid. It is anxious to have at least 90,000 acres grown and will not be limiting its offers of contracts to existing growers. I would urge all concerned to co-operate fully with the company in their drive to ensure the security of the sugar industry and its thousands of jobs for the future.
I welcome the careful consideration given by the committee to the company's food division — Erin Foods — and I note the comments and recommendations made. 1980 was a particularly unfortunate year for this division as it suffered from much publicised irregularities. The total cost of these to the company is shown in the recently published accounts at about £1.8 million arising mainly from stocks of goods which as yet remain unsold. This is a very large sum and Garda investigations into the irregularities are continuing. I am assured by the company that every effort is being made to prevent a recurrence of any similar incidents by improving procedures, systems and controls.
Apart from this, Erin Foods has been having more widespread and more deeply rooted problems over the years. The company has made these known to the committee. One of these problems — indeed the major one — is its overdependence upon the production of industrial dehydrates. The dehydrate market is currently suffering from a severe downturn not only in Ireland but in the EEC as a whole. The diminishing market is also subject to strong competition from non-EEC low cost producers. It is in such a context that the company has had to implement certain rationalisation measures within its food sector in order to safeguard the company as a whole. The recent decisions taken to cease its Carlow Erin Foods operation and to terminate its financial involvement with the Fastnet Co-operative Society represent attempts by the company to secure a commercially viable food division. These measures were as regrettable as they were inevitable. The sugar division cannot, as it did in the past, bear the losses of the food division. The recently published annual accounts of the company, which show a trading loss for the group of over £8 million, highlight only too dramatically this very point.
However the company, in keeping with its traditional social commitment, is at present making every possible effort to limit the adverse effects of such closures on the communities concerned. In conjunction with the IDA it is attempting to provide alternative productive employment in the areas directly affected by the closures. As I have said, I regret that the need for the company to cease these food operations was necessary but I am confident that, given the priority which the IDA are according the matter of replacement industries and given the genuine concern of the company itself to absorb staff by transfer to other parts of the company where possible, the adverse effects of what are necessary measures of rationalisation will be the minimum possible.
In the case of growers who have regularly grown vegetables in the areas and who have committed significant expenditure to the production of these, the company assures me that efforts will be made, where appropriate, to offer beet contracts in lieu. Where this is not feasible alternative special arrangements will be considered.
The future of the food industry as a whole is at present under detailed examination by the Horticultural Development Group which I have set up under the aegis of my Department and I will ensure that the questions raised and the recommendations made will be given detailed examination.
Apart from the two aspects of the company's activities to which I have broadly referred, namely, sugar and food, the committee deal with many other matters in their report. While all of these are important and are at present being considered in my Department there is one which is, perhaps, of more importance than any other. That is the present serious strain on the company's finances.
I have attempted in my earlier remarks to indicate one of the underlying causes for this, namely, the lack of investment over the years on the sugar side which has resulted in the company having now to borrow heavily for investment purposes at a time when interest rates are very high and when the general level of activity in certain of the company's areas of operation is not very buoyant. The existence of high interest rates has added to the company's financial burden in regard to its working capital also since at periods of the year it has to carry very sizeable stocks of sugar.
The question of an immediate equity injection of £25 million is referred to, as well as further injections to help fund the investment programme over the next few years. Coupled with this reference is a recognition that opportunities for innovation may exist in financing the company's development. One of the suggestions made, for example in paragraph 31, is that the question of widening the ownership base and the provision of funds from suppliers' resources should be examined.
The report concludes with the observation that the company faces difficult decisions in a number of areas in its attempt to restore profitability and to correct the imbalance on its capital structure; and it suggests a number of areas where Government action and assistance are required. It indicates also that the company will need the full co-operation of all concerned if it is to continue in its long-standing development role in key areas of the Irish agricultural industry.
In this regard I can say that subject to the company coming forward with a suitable programme for restoring full viability the Government will not be found wanting. I have already initiated a detailed examination within my Department of the committee's report. In so far as the immediate major problem is concerned, namely, that of the company's financial situation, consultations between the company and my Department and the Department of Finance are already in progress.
Although the problems facing the company are by no means minor ones the report rightly draws attention to a number of favourable aspects in tackling them. These include the company's management expertise and physical infrastructure, its strong position on the home market, its capacity for applied research and development work in all of its main areas of activity, its background of good relations with the agricultural community and its tradition of good industrial relations.
In conclusion, I want again to thank the joint committee for providing me with the opportunity to take part in this debate and to have made available to me the views of this House on what the committee described as one of the major industrial enterprises in the economy.