I thank the Chairman and the members of the committee for giving the Department the opportunity to address the committee. I will make a brief statement on this topic.
There has been much comment in the recent past with regard to the EU sugar regime and the decisions taken in late 2005 to reform the sector. It is important to set out clearly the actual facts surrounding the issue, especially in light of some inaccurate comment which has circulated over the past few months. To do this, it will be necessary for me to explain the background to the EU sugar reform as well as to provide some detail on the reform measures themselves before dealing with the possibilities which now exist or may exist in the future for sugar production.
One of the key points to be made at the outset and which is central to much of the discussion on all the other issues is that the decision to close the Mallow factory and thus to cease sugar production was made by Greencore and Greencore alone. The Government and the Department did not have any power to prevent this.
The main purpose of the EU sugar market regime was to ensure a fair income to community farmers who grow beet, to ensure constant supplies to processors and to guarantee a supply of high-quality sugar at reasonable prices to EU industry and the domestic market. The regime had worked well in delivering on these objectives; however, the regime had also been subject to criticism to the effect that it had misallocated resources, hampered competition and did not sufficiently favour the interests of consumers, taxpayers and the environment and that it harmed developing countries. The sugar regime within the CAP has been in place since 1968 and when Ireland joined the EU in 1973 its sugar industry had to operate within that system. The system involved sugar quotas intended to underpin prices for sugar beet. Each member state was allocated a quota for manufactured sugar. The quotas were broken down into A and B quotas. The A quota was the basic sugar quota. Its purpose was to give each member state a share of the EU domestic market. The B quota was initially the margin to ensure that the A quota was filled. It also allowed the most competitive regions the possibility of some expansion. B quota sugar could be exported outside the EU with the benefit of export refunds. A third category, C, was sugar produced in excess of quota which had to be exported outside the EU without subsidy or otherwise incur a levy.
Under the regulations at the time, the quota had to be allocated to the sugar manufacturing enterprises in the member states. The Irish quota, which amounted to 200,000 tonnes, was allocated to Irish Sugar Limited, a subsidiary of Greencore, the only manufacturer of sugar in the country.
Irish Sugar Limited in turn placed contracts with farmers to grow a specific tonnage of sugar beet sufficient to manufacture the A and B quota quantities. To be absolutely clear, these quotas are attached to the finished processed product, which is sugar and is not associated with the basic raw material, namely, sugar beet. Consequently, all quotas are assigned by each member state to their respective sugar manufacturer.
While the sugar regime was adjusted and renewed on a few occasions, it had never been fundamentally reformed, unlike other sectors which were significantly changed under the MacSharry reforms, Agenda 2000 and more recently the mid-term review of the CAP. There was mounting internal EU pressures to bring the sugar regime into line with the other agricultural sectors which had by this time been subjected to dramatic reforms. The direction of these reforms was to move support away from production to a system of direct aid payments to farmers and lower prices for consumers
The former sugar regime expired at the end of June 2006, which coincided with a number of international pressures on the Community which also required significant changes to the rules. In proposing the reform, the Commission was responding to these also. These international pressures fell under three main headings - the Everything But Arms agreement, EBA, the WTO Doha Round of trade negotiations and the WTO panel finding against the EU on a complaint lodged by Brazil, Thailand and Australia.
First, the EBA, which was adopted in 2001, extended duty and quota free access to all products originating in 49 of the least developed countries, LDCs, except arms and ammunition. The EBA package was a response to claims that the least developed countries were getting a raw deal from global trade liberalisation. Sugar would have been a key product for these areas.
This initiative opened the EU market to all goods from 49 of the world's poorest countries except for military equipment. For sugar, the agreement which was to be gradually introduced from July 2009 onwards, committed the EU to allow duty free access for any quantities of white and raw sugar from these least developed countries. As the internal price of sugar in the EU was considerably higher than the world price, the provision of unlimited access for cheaper LDC sugar led to a significant surge in imports, thus impacting on the production and price in the EU.
Second, there was pressure generally at the time to liberalise trade under the Doha Round of WTO trade talks. Third, the observance by the EU of the current limits under the WTO of subsidised sugar exports was formally challenged by Brazil, Australia and Thailand. These countries complained that the EU was in breach of its WTO obligations. The ultimate decision against the EU by the WTO arbitrator meant that the EU had no option but to implement the WTO panel ruling by 22 May 2006, which added to the pressure for early action. As a direct consequence of this ruling, EU sugar production had to be cut by almost 5 million tonnes to ensure the EU export subsidy commitments were respected.
In 2003, the Commission published a communication on options for reform and submitted it to the Council. It is doing that again in the context of the current round of CAP reform. Three options - maintaining the status quo, reducing quotas or providing for the full liberalisation of the markets - were originally considered. The proposals ultimately introduced by the Commission for the reform of the EU sugar regime were based on a two-pronged approach. The first element was a significant reduction - 36% over two years - in the institutional price of sugar beet. The second element was the introduction of a temporary restructuring scheme, which would have provided a financial incentive for sugar processors to renounce their sugar quotas, dismantle their associated sugar processing plants and provide compensation to affected stakeholders.
The Minister for Agriculture and Food, who completely opposed the Commission proposals from the outset, was to the forefront of a group of Ministers from 14 like-minded member states. Throughout the reform negotiations, the Minister, having regard to the importance of the sugar beet industry in Ireland, made strenuous efforts to have the Commission's reform proposals modified in a way that might have led to the retention of an efficient sugar industry here. Ireland's stance led to a change in the proposed restructuring scheme, whereby compensation levels were maintained for two years before tapering off. When it became clear at the final meeting of the Council of Ministers that there was insufficient political support for the Irish position - in other words, the blocking minority of member states had dissipated - our efforts were redirected to achieve the best possible compensation package, which we eventually secured.
The sugar reform compensation package that was secured by Ireland encompassed restructuring aid, diversification aid and a single payment element. As a whole, it was worth €353 million, of which €220 million went to beet growers, €127 million went to Greencore and €6 million went to machinery contractors. The share of the package provided to beet growers comprised €44 million in diversification aid, €123 million in compensation over seven years through the single payment mechanism and €53 million in restructuring aid. Payments under restructuring and diversification aid were made in 2007 and 2008.
I emphasise the reform package that was agreed provided for the voluntary cessation of production. As the sole Irish sugar processor and the holder of the entire Irish quota allocation, Greencore chose to avail of the voluntary restructuring scheme, presumably after making its own assessment of the future viability of sugar processing in Ireland. The Government had no role in the making of this commercial decision by the company. However, the Minister exhorted the company to consider continuing production for the following two years, at least, during which time the level of restructuring aid would remain constant. Ireland had placed a major emphasis on this point during the EU negotiations. The company opted to renounce the quota immediately and to dismantle the last remaining Irish sugar factory at Mallow, in compliance with the conditions of the scheme.
To activate and draw down the restructuring aid, Greencore had to submit a restructuring plan, incorporating a social plan and an environmental plan. The social plan provided for early retirement and redundancy packages for the departing Mallow workers, as well as support services such as career counselling, financial and pension advice, pre-retirement programmes for those over the age of 50, job-seeking supports and "start your own business" programmes. The social plan was implemented in the first year of restructuring. The environmental plan is almost complete. The factory no longer exists.
The report of the European Court of Auditors on the 2006 sugar reform package, which was published last November, has been the subject of a great deal of comment in both Houses of the Oireachtas and a significant level of media coverage. As members will be aware, the report was addressed directly to the European Commission and not to Ireland in particular. The report contains a comprehensive 17-page response from the European Commission to the court's findings. The main conclusions of the report focused on the overall reform programme. First, the court suggested that the process did not fully ensure the future competitiveness of the EU sugar industry through a selective reduction of unprofitable production capacity. Second, the court concluded that while market stability has been assured thus far it has been achieved through the use of production quotas which currently set the maximum allowed internal production at a level of 85% of EU consumption.
Several points have been made in the public domain in regard to the report. It was suggested that Mallow might have remained open if the reform was not effected. The reality is that the reform was agreed for the reasons I mentioned and which the Commission reiterated, in detail, in its response in the report.
The European Court of Auditors report refers also to out of date information being used in the Commission's impact assessment. The Commission in answer explained the relevance of its impact assessment which it conducted in June 2005. The report states "this model does not require an analysis of profitability and prospects of every individual sugar producer in the EU. Therefore the Commission did not consider it necessary to collect such data on productivity for the model chosen". In other words, due to the voluntary nature of the proposed model the impact assessment was not of major significance.
The Commission's impact assessment identified "Ireland, Portugal, central Italy, Greece and parts of southern Spain" as member states where, as a result of proposed reforms, sugar production was likely to be drastically reduced or even phased out. This impact assessment of our vulnerability and that of the other countries identified proved to be correct.
However, none of this is to suggest that out of date information may have impacted on these negotiations. Nothing could be further from the truth. At all stages during the negotiations we brought to the table the most up to date information about the position in Ireland, including the fact that there was only one sugar processing plant operating in Ireland. The Commission was well aware that the Carlow plant had by then closed prior to the publication of the Commission's proposals.
As a result of the restructuring scheme, the overall EU sugar quota which was renounced amounted to some 5.2 million tonnes, of which the Irish quota contributed some 200,000 tonnes. EU sugar production is now concentrated in 18 member states, as opposed to 23 before the reform, which enjoy favourable agronomic conditions. It is also worth noting that more than 75% of production of EU sugar is accounted for by seven of these member states, namely - in order of the size of quota - France, Germany, Poland, UK, Netherlands, Belgium and Italy.
The Irish sugar quota has been renounced and compensation in accordance with the regulations has been paid to stakeholders. I make it clear that there is no mechanism under the present regulations that would allow for the reinstatement of the sugar quota to grow sugar beet in Ireland for the sugar industry. The current regime remains until September 2015 when the regulations will fall to be reviewed. Any proposal to review the EU sugar regime would be a matter for the European Commission in the first instance but the European Court of Auditors did not suggest reinstatement of quota in member states where they have been renounced. I also make it clear that it is not possible to produce sugar for export outside the EU. In other words, "out of quota" sugar cannot be produced. The production of sugar beet for ethanol is possible.
On the issue of sugar beet production for ethanol, I make the point that Greencore was contacted by the Department in March 2006 on the possibility of production of ethanol from beet using existing facilities in Mallow, as there was an option of availing of a partial dismantling scheme under the sugar reform mechanism. Greencore responded in April 2006 and stated "Greencore ... cannot justify commercial investment in ethanol production in Ireland from sugar beet".
The production of ethanol from a sugar beet feedstock would not be dependent on sugar quota becoming available. Sugar beet could be grown for such an enterprise, if regarded as commercially viable, in the same way that a quantity of sugar beet has always been grown here for fodder purposes. As far as I am aware, there is no legal or other impediment currently standing in the way of anyone who wishes to produce ethanol for sale in Ireland.
In general, the Department supports the development of the bioenergy feedstock within the agriculture sector and has a number of schemes in place, for example, to aid the production of miscanthus and willow for bioenergy as well as various pilot programmes in regard to the use of slurry and so on. The committee will be well aware that the Department is strongly supportive of alternative uses of agriculture systems to generate energy.
In conclusion, I reiterate Ireland did not favour the sugar reform proposals as they were brought forward by the Commission, but there was insufficient support to prevent their adoption at the end of the day. The agreement provided for voluntary cessation of sugar production, with the decision resting with individual operators. With the sugar quota having been renounced under the current regime, it is not possible to produce sugar in Ireland today.
