On behalf of the committee, I welcome Mr. Patrick Coveney, chief executive, Greencore, and thank him for attending the committee to discuss the potential for the redevelopment of the sugar beet industry in Ireland. Before I call on Mr. Coveney to make his opening statement, I remind everyone of the position with regard to privilege. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If witnesses are directed by the committee to cease giving evidence in relation to a particular matter and continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable. I call on Mr. Coveney to make his opening statement.
Redevelopment of Irish Sugar Beet Industry: Discussion with Greencore
Mr. Patrick Coveney
I thank the Chairman for the opportunity to attend the committee and I offer my apologies for the late notice of my attendance. I was unsure whether I would be able to make it but I am pleased to be here. I intend to take ten minutes to make a statement which I hope will provide some context. I am pleased to stay longer than would ordinarily be the case and as long as is necessary to deal with any questions or queries the committee many have afterwards. I thank the committee for the invitation to appear today while it considers the potential for the redevelopment of the sugar beet industry in Ireland. I listened with interest to the statements of several committee members when the Secretary General of the Department of Agriculture, Fisheries and Food was present last week to discuss the same topic. While the content and tone of much of the comment was disappointing from a Greencore perspective, unfortunately, it did not come as a surprise. This topic, industry and the company I now lead have always attracted considerable comment, emotion and criticism dating back to 1991 at least.
It is not my intention today to rake over the coals of the Irish sugar industry nor to justify all that took place in the interaction of governments, sugar growers, EU regulators and the Greencore group during the course of more than 70 years of sugar production. Suffice it to say, and I trust it would be acknowledged by those who have followed the industry for some time, that considerable benefits accrued to generations of beet growers, the Irish State and Greencore shareholders and employees over many decades.
I understand perfectly that the purpose of these hearings is to look forward and to consider the potential for redeveloping a sugar beet industry in Ireland. I commend the committee on pursuing this line of inquiry and I sincerely wish the committee well with it. However, in assessing the potential for a new sugar industry, it is critical to understand in detail the facts behind the cessation of sugar growing and producing in Ireland.
I trust I come to this topic with a perspective that the committee will deem to be of value. I have been a director of the Greencore group since September 2005. I joined Greencore in the full expectation that I was joining a business that had and would continue to have sugar processing at its core. In my capacity as a director, I participated in all the board meetings, much of the engagement with Government and many of the interactions with growers and their representatives during the critical period between November 2005 and January 2008. While I approached these decisions in my capacity as a Greencore plc director, I came to the industry and to Greencore with no bias but rather an objective, solutions-focused and fresh pair of eyes.
Although I have no wish to overstate the case, the sugar industry was not entirely new to me. I grew up in a family that operated a farm in south Cork, part of which was devoted to sugar beet growing. We were suppliers to the Mallow factory for almost 20 years. In this regard I have some understanding of the role sugar beet played in rural Ireland. Now, I am now the chief executive of a large, international food company. I know how we think about strategy, investment, growth, employment, suppliers and about our interactions with free markets and regulated markets. I do not have a monopoly on wisdom. Mine are just the views of one person, but nonetheless I am happy to share them with the committee as it thinks about the potential for a new sugar industry in Ireland. I hope by providing clarity on what happened to the sugar industry in Ireland I can help the committee with its deliberations and on what may be possible in the future.
Headquartered in Dublin, Greencore is a significant international manufacturer of convenience foods. We provide a wide range of customer and licensed brands to major retail, manufacturing and food service customers in the UK, Ireland and, increasingly, the US. Today the group operates from 19 facilities and employs approximately 7,000 people. Despite the challenging macro environment, our business is in very good health. In 2010 we grew our revenues by 7% and our profits by 18%, while reducing our debt by 32%.
The group sources more than €60 million of Irish agricultural produce today. Despite what the committee may have heard, we continue to operate a convenience food and ingredients business here with annual revenues of nearly €100 million. The committee may be aware that our board is currently recommending to our shareholders a merger with Northern Foods plc to create Essenta Foods. Essenta Foods would be the largest convenience foods company in the world, with sales of more than €2 billion, 43 facilities, more than 17,000 employees and the potential for significant further growth. This business will be Irish headquartered, Irish tax domiciled, a significant employer in Ireland and a large purchaser of Irish agricultural products.
As we consider the history of sugar beet in Ireland, it is important to recognise a fundamental fact. Competitive sugar beet, without some form of subsidy or price support, cannot be grown in Ireland. It never has been and never will be. The old pre-2005 EU sugar regime allowed a price to be paid which was sufficient to make it attractive for the crop to be grown. The new regime does not. Nobody can get away from this fundamental fact.
I will underscore this for the committee with the following two numbers. Today, the institutional price of sugar beet across European sugar producing countries is €26.30 per tonne. The cost, not the price, of growing beet in Ireland, as verified by the IFA, is at least €30 per tonne. Only fractional amounts of sugar beet can be profitably grown in Ireland at a price that competitive beet growers in other EU countries can accept. It is also important to recognise that sugar beet represents 85% of the manufactured cost of a tonne of processed sugar.
Why is this important? It puts in context the balance of the economics which inform the dialogue and the financial realities of sugar production. The EU Commission, in its reply to the European Court of Auditors report of November 2010 on this point, stated: "As the Court rightly points out in other parts of its report, the combined profitability of sugar production depends not only on the economic performance of processing facilities but also on the competitiveness of the growing sector. To be commercially sustainable, both go hand in hand."
In large part because of the EU price support, the sugar industry in Ireland prospered for many decades. Beet growers and contractors earned strong returns and got the added benefits of using beet as part of their crop rotation plans. Irish Sugar delivered excellent returns for the State, its shareholders and its employees, with cash used by the parent company to fund multiple new businesses across Ireland and internationally.
Greencore acquired Irish Sugar from the State in 1991. The value realised by the Government from the subsequent sale of Greencore shares was €211 million, which is an important point to keep in mind as some commentators have a mistaken belief that the State gave the Irish Sugar business away for free. That was never the case. From the very beginning, Irish Sugar was a key part of the Greencore portfolio and although it was a low growth commodity business it was highly cash generative and complementary to the higher growth, higher margin businesses within the portfolio.
However, throughout this period Irish Sugar operated in an artificial market. The sugar industry in the EU was protected from cheaper imports by the imposition of levies and national output quota and guaranteed minimum prices for that quota were more than double world prices. Any production in excess of quota was sold on the world market at world prices.
In 2005 the sugar regime as we knew it was changed. The WTO, in response to a request from Brazil, Thailand and Australia, found in 2005 that all the EU's exports were in effect being subsidised by the regime within the EU. In 2005 sugar production had reached 20 million tonnes, of which 7.5 million had to be exported. Radical reform was inevitable and discussions began at a political level in Brussels on various schemes to achieve a reduction in output. In the early days of these discussions there was no suggestion of a fund to promote the retirement of capacity. Discussions focused on changes to the quota system.
Recognising that some significant changes were inevitable, Greencore lobbied hard at EU and Government level for Ireland to retain a reduced but significant quota in a regime reformed through quota cuts. Let me be specific about what Greencore did. In anticipation of an inevitable regime change, a change that would under any scenario require a more competitive processing model, the board of Greencore decided to invest in significantly reducing the overall cost of future production in Ireland by concentrating all sugar manufacturing in the sugar refinery at Mallow in early 2005.
This encompassed a cash investment in Mallow of €25 million to enhance capacity so that the full, and not a reduced, national quota, could be processed efficiently on a single site. Some other vested interests have chosen to ignore this important initiative as they re-write the history of what Greencore did and did not do. To be clear, the €25 million cash investment represents compelling evidence of Greencore's intentions at the time, namely, to have a sustainable competitive sugar processing business that could survive regardless of the impending regime change.
However, as the November 2005 publication of the enacting regulation approached, the proposals emerging from Brussels had changed significantly from the anticipated quota reduction or shared pain model. First, the guaranteed prices were going to reduce substantially and progressively over the reform period. Second, a temporary fund would be put in place from levies paid by processors who remained. Growers would be compensated and processors who committed to dismantle processing capacity and renounce quota would be paid out of the temporary fund.
In November 2005, the EU Council of Agriculture Ministers agreed phased price reductions for beet growers and sugar processors. Sugar processors faced price reductions of 36% over four years and growers faced price reductions of some 40% over the same period. The EU's impact assessment and a separate paper by DEFRA in the UK, both of which are on the public record, identified the countries that were most at risk from guaranteed beet price reductions. Ireland was one of the countries deemed least efficient in beet growing.
This was not because of competence or farm investment. A major part of the disadvantage is climate and geography. Sunshine hours are a major determinant of yield. For example, as an average there is yield of 20 tonnes per acre in Ireland compared with more than 30 tonnes in France. The direct impact and the explicit objective of the severe price cuts was that there would be no future for sugar processors who could not source competitive, low cost and sustainable supplies of raw materials. It should be remembered that the explicit objective of the reform regime was to rid the EU of 5 million tonnes of sugar production and sugar quota.
The consequences in Ireland should not have been a surprise. The EU Council of Ministers' decisions were specifically calculated to achieve this result. It was critical for Greencore that sufficient beet was grown to supply the newly invested Mallow plant. It is true that quite a number of beet growers, especially those close to the Mallow factory, were prepared to continue with the crop and supply the factory, at least for the period where beet prices were to transition to the new institutional levels. However, the reality was that a significant number of beet growers were unable or unwilling to profitably grow sugar beet at the price levels envisaged, particularly towards the end of the four year period.
Even on the day that the new sugar regime reform was announced, Mr. Sean McConnell wrote in the Irish Times on 11 November 2005:
It was impossible to find anyone in the country last night who would say that there was a long term future for the sugar beet industry following the conclusion of the new sugar deal in Brussels ... [G]rowers are split down the middle on whether to go for an increase in base price for sugar from Brussels or to seek as much compensation as possible for the inevitable complete shutdown of the industry here.
The IFA chose the latter course of action on behalf of its members. It was not an irrational response, given the compensation potentially on offer to growers and the practical difficulties facing many growers, given such dramatic reductions in price support. However, as many committee members will know it was a highly contentious strategy for many growers at the time, especially those in the Cork area. Greencore, together with many other parties, worked hard to deliver a second campaign in the 2006-07 season.
Given that we had just spent €25 million on an enhanced factory, such an approach was entirely understandable. However, while many growers wanted to continue growing at lower prices, significant numbers determined that the best strategy was to cease growing and lobby Government to allocate a significant part or all of the restructuring and other aid programmes to growers.
A further more technical factor came into play here also. The 2006 campaign, which was to be the first under the new regime, gave growers an option to effectively unilaterally repudiate their beet contracts and obtain compensation. Greencore argued that the base year for compensation should have been 2006 but the Department of Agriculture and Food exercised its discretion under the new regime, without consultation with Greencore, to base the allocation of compensation to growers on the years 2002/03/04 contracted volumes rather than on 2006 levels. By making this decision, the Government made it exceptionally difficult for another sugar campaign despite the desire of many beet growers to supply Mallow at that time.
A combination of these factors crystallised in one simple fact. No growers had committed to supply Mallow by the beginning of March 2006 for the autumn 2006 campaign. In a collapsing sugar market and with no certainty of access to a sugar beet crop, Greencore had no choice but to announce closure on 15 March 2006 to avoid incurring unsustainable losses. Importantly, this decision was taken despite the risk of not knowing the level of compensation that would be obtained.
The economic consequences of the EU decision on Greencore's business were harsh: 330 people lost their jobs; asset write-offs totalled €116 million; redundancy and pension costs totalled €40.5 million; and the cost of dismantling the factory and environmental clean up was €12.4 million. Perhaps most importantly, annual earnings from sugar, which up to then had averaged €25 million per annum, were lost.
It is important also to remember the human consequences of this EU decision. A loyal and hardworking permanent workforce was made redundant and although they received progressive redundancy payments and pension augmentation, which averaged €155, 000, the loss of their jobs was hard to take. The decision to close Mallow was not, as some have alleged, a decision based on a desire for compensation. The compensation did not, and could not, cover the write-offs and loss of future earnings. Nor was the decision, as some have alleged, based on a desire to enter the property development game. If we had been intending to redevelop Mallow why would we have invested €25m in a sugar factory earlier that year? Having invested heavily in Mallow and having a business which delivered €25 million per annum in earnings, the very last thing that Greencore wanted was to exit sugar processing. The submission of the draft development plan for Mallow took place 20 months after the decision was taken to close the factory.
In July 2006, the Minister for Agriculture and Food announced the allocation of the EU restructuring fund. This fund was set up by the EU and financed by the larger European sugar refiners who remained in operation to compensate refiners who were forced to leave the industry. The Minister allocated €98.4 million to Greencore and €47.1 million to growers and contractors. This latter allocation was in addition to both €118.5 million to growers from the single farm payment mechanism and €44 million of diversification aid. Greencore initiated a judicial review of this allocation and in June 2007, the High Court quashed all elements of the Government's July 2006 decision.
Greencore had a range of obligations following the decision to exit sugar. These encompassed the dismantling of the factory buildings and decommissioning of equipment. It also involved the remediation of the site and an in-depth environmental clean-up. This activity is almost complete and all obligations have been discharged. The site is now cleared a part brown field and part green field site on 160 hectares to the west of the town. As I speak, a significant portion of the site is being farmed.
These are the facts of what happened in the lead up to and the immediate aftermath of the EU decision to reform the sugar regime. It remains regrettable that some have sought to ignore the facts to pin the blame for the cessation of a great industry on a convenient bogey man. This does nobody any credit.
Since the publication of the report of the European Court of Auditors there has been much comment on the content of the report, some of it mistaken on the basis of an incorrect interpretation of the report. Our conclusions on this are very similar to the conclusions of the Secretary General of the Department of Agriculture, Fisheries and Food.
Unfortunately a vote has been called in the Dáil. We will resume as soon as possible.
I apologise to Mr. Coveney for the delay. We were advised another vote might be called and we had to wait. Mr. Coveney may now continue.
Mr. Patrick Coveney
I am close to concluding and then I will happy to reply to questions. I wish to pick up on comments that were made about the European Court of Auditors report. Since the publication of that report there has been comment on its content, some of it mistaken on the basis of an incorrect interpretation of it. Based on the level of engagement I have had on the topic, I believe members will find an enormous level of difference between the view we have on the report, the view on it of the Secretary General of the Department of Agriculture and Fisheries or, for that matter, of the IFA based on the engagement I have had on the topic.
The role of the European Court of Auditors is to audit the EU finances, assess the collection and expenditure of EU funds and make recommendations to improve financial management. Importantly, it has no judicial powers. The report in question is entitled: "Has the reform of the sugar market achieved its main objectives?" The report also contains a comprehensive response from the Commission on its findings.
I do not propose to comment on the overall findings of the report. As they relate to the objectives of the sugar regime changes, they are, to a great degree, irrelevant to today's proceedings. However, it is worth addressing the reference to Greencore in the report which has been, in my view, misunderstood or misrepresented in some quarters. The report specifies: "The competitiveness of the EU sugar industry is dependent, on the one hand, on the efficiency of producers to produce sugar and, on the other hand, on the ability of beet growers to deliver sugar beet to the producers at competitive prices." This central point is given strong emphasis by the European Commission in its reply published with the report.
In the section of the report which examines why in the first two years of the reform the expected level of quota was not achieved, the report makes the following observation: "In one member state the producer, which before the sugar reform had undertaken a consolidation of its processing facilities and defined itself as one of Europe's most efficient producers, closed down its large, modern and potentially efficient sugar factory justifying their decision on the risk of the lower prices reducing the supply of sugar beet to an uneconomic level."
The Court of Auditors report stated nothing more than this fact in the particular context of its analysis. It did not elaborate or opine and it certainly did not question or criticise Greencore for taking this decision given the reality of circumstances facing many Irish growers and the company itself.
When the report was published, it was suggested by a number of people that Mallow would have remained open if sugar regime reform was not initiated. Ergo, Mallow should not have been closed by Greencore. The reality though is that sugar regime reform was implemented and it was strongly focused on the least competitive countries and regions. This is precisely what happened and we cannot change that. Therefore, there is no productive purpose in wishing that things were different.
It is wrong to suggest, even with the benefit of hindsight, that Greencore had alternatives to closure in 2006 once it became crystal clear that beet growers would not be able to supply the factory at a competitive price, even for one more season. To quote Alan Matthews of Trinity College who has written extensively on sugar reform, "To conclude that the Irish industry could have remained viable is an exercise in escapism."He states that a proper reading of the report suggests none of the contentions being made and concludes by stating:
The simple fact is that sugar beet production in Ireland was not economically viable at the price of €26 per tonne, which itself is well above the world sugar price. Nothing in the way that the Commission implemented the 2006 sugar reform alters this fact.
The Commission's original impact assessment identified Ireland, Portugal, central Italy, Greece and parts of southern Spain as areas where, as a result of the regime reform, sugar production was likely to be drastically reduced or phased out. The Commission's impact assessment has been borne out in this regard.
The sugar regime reform has achieved the overriding objective of reduced production and higher productivity. Based on a voluntary system, the law of comparative advantage has been applied. The EU sugar market has been drawn further down the road of less protection and more access to Third World producers. As a consequence, Ireland's outcome was inevitable in an industry where the benefits of protection will continue to be removed and where competitive advantage is the main determinant of survival.
Looking to the future, as I said in my introduction, I welcome this committee's investigation. However, it is important that I also be clear with the members. Greencore is not in the sugar industry now. We do not have the skills, the people, the assets or the economic model to return to sugar. We have been very clear on our strategy and have the strong support of our investors, our board and our employees in pursuing an international convenience foods strategy. Fortunately, our results to date back up that strategy.
There continues to be speculation as to the feasibility of sugar beet as a source of food or energy. While that industry is very different from what we now do, I am happy to offer a personal perspective on its prospects, a perspective which, though perhaps a little dated, is grounded in the reality of Greencore's experience as a sugar processor. It is difficult to see how large-scale sugar production can be made to work commercially in Ireland given that there are several challenges to be addressed.
The first challenge is economic. The cost of growing sugar beet in Ireland is, and will continue to be, uncompetitive when compared with the cost advantages enjoyed by our European Union peers and by sugar producers in other parts of the world. Regarding ethanol, Irish sugar beet would be an uncompetitive substrate for ethanol production. For example, research by Cooley-Clearpower for Cork County Council in 2006 showed that a subsidy or support of 26 cent per litre - 50% of the pre-excise cost of petrol - would be required to make ethanol competitive with imported ethanol or petrol. Wheat is a far cheaper substrate, but Ireland is a net importer of wheat. To the extent that such production should ever become economically possible, a second set of logistical challenges in terms of accessing supply of materials and distributing fuels would then come into play. For example, a port location would almost certainly be necessary.
The second set of challenges is largely agronomic. This country, for climate and scale reasons, is not competitive internationally in cereal crops. The concentration should be on the areas where Ireland has an enduring and, indeed, strengthening competitive advantage, such as dairy and beef. The Food Harvest 2020 report, led by Dr. Sean Brady, facilitated by Harvard Business School and sponsored by the Department of Agriculture, Fisheries and Food, gets to the heart of this issue.
The third challenge is political and, in this regard, I am conscious of straying into an area in which the committee has considerably greater expertise. Ireland has renounced its sugar quota. That is, we have no quota to produce sugar beet. Farmers have been paid significant compensation to repudiate their contracts, as have we. Without getting into the politics of this, it seems to me that this reality is unlikely to be ignored by Europe. Furthermore, the European Union has committed a diversification fund of €44 million to Ireland to facilitate alternative enterprises as the industry closed down. Somewhat unusually, in Ireland's case this fund was awarded entirely as further compensation to growers.
I would be delighted to be proved wrong with regard to any or all of these challenges. There are business leaders in large-scale sugar and bio-fuel producing companies with considerably greater knowledge than mine in these areas. However, based on our knowledge, our history and my judgment, we cannot envision a basis in business, financial or economic terms which would enable a new sugar industry to emerge in Ireland. It comes back to one simple reality, namely, beet growing in Ireland remains uncompetitive on an international basis.
For the avoidance of doubt, Greencore will continue to be of assistance. For obvious reasons we will not ourselves become involved in sugar or ethanol production in the future. However, if there is anything we can do to support another enterprise that has the insight, strategy, resources and determination to develop a sugar industry in Ireland, then we will be delighted to respond positively to any general or specific requests.
In summary, the facts are unalterable. Competitive sugar beet cannot be grown in Ireland without subsidy or price support. Sugar regime change and the consequent decrease in price made growing uncompetitive for many growers. Despite having made a €25 million investment in Mallow, Greencore could not be guaranteed supply and was left with no alternative but to close in March 2006. The report of the European Court of Auditors does not in any way contend that Mallow should not have closed or that it could have continued in operation. The European Court of Auditors and the European Commission specifically state that sugar production depends on the competitiveness of the growing sector. It is difficult to envisage on business, financial or economic terms that a new sugar industry will emerge in Ireland. Greencore will not be involved in sugar or ethanol production in the future but is available to be of assistance either to this committee or to some other industry participant which takes a different view to ours on this matter.
I apologise if my opening remarks have taken considerably longer than the Chairman expected. We had not anticipated that we would be divided in half. I thank the committee for giving me the opportunity to set out the circumstances that led to the cessation of sugar production in Ireland and for allowing me to share some of the key issues for consideration as members assess the potential for a new sugar industry to emerge in Ireland. I am happy to take questions from the Chairman and from members.
I thank Mr. Coveney for his comprehensive presentation. Is it acceptable to him if I call on the party spokespersons in turn before opening the floor to other members?
Mr. Patrick Coveney
That is absolutely fine.
I thank Mr. Coveney for his detailed overview of the history of Greencore's involvement in the sugar industry and for his frank setting forth of his personal views. Sugar beet was never a major crop in my area, so my observations are from the perspective of a person who is outside the controversy surrounding the demise of sugar production in Ireland. The decision to renounce our quota has been very divisive because there is a significant emotional attachment for those involved in the industry. However, the blame game will achieve nothing. If we accept that sugar production cannot resume without the aid of subsidy and that this will not be tolerated under the sugar regime in place until 2015, then we must accept that the growing of sugar beet for sugar production will not work.
The objective of this committee is to examine the feasibility of re-establishing a sugar beet industry based on another model which should primarily include production of an alternative energy crop in the form of ethanol. There are by-products from sugar beet itself that are useful in other industries but which are now being imported. When we re-evaluate the situation post-2015 to make decisions on future food production, and I include all food in this, on the basis of how it impacts on the environment, and we put a value on that, it is possible that sugar production will once again be competitive. In the meantime, however, we must accept, for everyone's sake, that what has happened is the law of the land and the law of the European Union until 2015. I understand sugar prices have doubled on supermarket shelves in the United States. Where it is produced, how it is being produced and the impact that has on the environment are issues that are probably not equated into the competitiveness model currently in place. That will be part of the review.
Mr. Coveney has been very frank in his indication that Greencore has no immediate intention of re-entering the sugar business. That is fair enough. It is useful to get that perspective and to hear Mr. Coveney's personal views, with which others may disagree. We must now look at the potential to develop an industry on a completely different model, probably port-based, probably closer to a large urban settlement and probably close to the national grid or a refinery. I am not qualified or experienced enough to offer any insight other than my objective observations of something that has left a bad taste in the mouth for many people. That is the nature of such events, especially in the case of a business that was established in 1926 and was in place for 80 years. It was seen as a cornerstone of rural economic survival and development through the many lean years when we were a developing nation. That long tradition must be borne in mind but, unfortunately, it will not secure a future for the industry. I thank the witnesses for their comments. My colleagues who come from parts of the country which were heavily involved in sugar production will be better able than I to ask questions of a forensic nature.
I appreciate that Mr. Coveney agreed to appear before the committee at the last minute, given that we were supposed to be engaging with Mr. Odlum. I am glad the head of Greencore was able to attend. Mr. Coveney's submission does not pull any punches but it would be worthwhile to investigate further the historical perspective. I do not want to dwell on these matters too long because we are most interested in the future viability of the industry and where we can go as a country in regard to ethanol or sugar production. It is important to hear Greencore's opinion on these matters.
From a political point of view, the historical perspective suggests that Greencore's version of events is at variance with that of the Secretary General of the Department of Agriculture, Fisheries and Food, Mr. Moran, who stated in his submission:
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.
He went on to state that the renunciation of the quota was in the hands of Greencore and was a commercial decision in which the Government did not play a role.
Mr. Coveney stated: "In the early days of these discussions...[r]ecognising that some significant changes were inevitable, Greencore lobbied hard at EU and Government level for Ireland to retain a reduced but significant quota in a regime reformed through quota cuts." This suggests the decision was political rather than corporate. I seek clarity on this matter. Mr. Coveney also referred to Mr. McConnell's report in The Irish Times that growers were split down the middle on whether to seek an increase in the base price or opt for a complete shut-down, stating:
The IFA chose the latter course of action on behalf of its members. It was not an irrational response, given the compensation potentially on offer to growers and the practical difficulties.
This is confusing because he went on to state: "No growers had committed to supply Mallow by the beginning of March 2006 for the autumn 2006 campaign." Is that factually the case? There is a school of thought which believes a number of growers in the Mallow and north County Cork area would have been more than willing to engage the company if it had not demolished its plant. They intended to grow for a further 12 months and then decide how the market was performing. I ask for clarity because it appears there is disparity between the Government's position as set out by Mr. Moran and what Greencore has argued today.
Mr. Coveney also stated that the Department exercised its discretion under the new regime to base the allocation of compensation to growers on the 2003-04 reference period without consulting Greencore. What was the nature of the contacts between Greencore and the Department or the Minister of the day? It has been suggested the decision to change the regime was made by the Council of Ministers and that the interaction with Greencore was subsequent to that fateful night in November.
I have before me a master plan for Mallow west which was submitted for consideration under the 2006 local area plan. I was the mayor of Mallow in 2004 and 2005, during which time the issue of the site's future arose. We hesitated to support the submission because the factory's workers had not yet received their due entitlements from the compensation package. In spite of what Mr. Coveney has claimed, the perception of Greencore was very negative among growers, workers and the wider community because we did not believe it had a sense of corporate social responsibility to the generations of workers and growers who kept the factory going. There was a sense that Greencore and the sweeping hand of capitalism was going to make as much as it could from the site. We only agreed to the Mallow west proposals in the county development plan on the basis that the workers were compensated properly. The plan stated the Mallow west project would involve a capital investment of €500 million and create a consumer spend of €22.7 million per annum, a total of 2,000 jobs and a critical mass so that Mallow could capitalise on its designation as a hub town under the national spatial strategy. None of that has happened.
As members will imagine, the perception of Greencore in Mallow is very negative at this stage. Now that a realistic proposal has emerged from the Irish bio-fuels initiative to get something going on some site in Ireland, Mr. Coveney appears to suggest it will not be possible to produce sugar without subsidies. At the same time, he stated that Greencore will not be involved in sugar or ethanol production in the future but is available for assistance. What is Greencore's plan for the site? Some of it was rezoned at our behest for light industrial use. Will the company engage with stakeholders, such as the Irish bio-fuels initiative, to contribute to a viability study in line with the Department's offer of support and, if so, how will it go about it? I suggest Greencore has corporate social responsibility in this matter. It has done quite well out of the process but there is a perception that it has given nothing back to Mallow. Perhaps one way of redressing that imbalance would be for it to engage with people or parties who want to develop that site for industrial or commercial purposes.
I hope these issues can be addressed. I have further questions which I will ask on the second round of questioning if I am permitted.
I thank Mr. Coveney for his presentation. He stated that Irish Sugar was purchased from the State in 1991 and that a subsequent sale and share issue pushed its value to €211 million. Mr. Coveney's comments would lead one to think we are speaking solely about Mallow but we are also dealing with Carlow. There are 160 ha in Mallow but no figure has been given for Carlow. Am I correct in assuming it is in excess of 100 ha in Carlow?
Mr. Patrick Coveney
Yes.
We are talking about 260 ha to 300 ha, which would be around 700 or 800 acres of land. It is adjacent to the outskirts of two growing towns so has significant potential if it could be rezoned for commercial, manufacturing or residential purposes. It would be way more than the €25 million per year profit. I cannot help but think that the motivation of Greencore in this instance was to capitalise on what was a State asset built up by the producers and workers down through the years in many parts of this country. It provided a livelihood for people coming up to Christmas each year. In most cases up to the 1980s these were small holdings.
I cannot help but think that producers have been raped by the greed of Greencore in what has been done. Its acts were further exacerbated by the fact that Liam Carroll bought 22% of shares in 2006. What interest did Liam Carroll have in an agricultural sugar processing factory? For the life of me I cannot understand how an industry like this was closed down practically overnight, as within 12 months of the Carlow facility closing, the Mallow factory went. The understanding for many producers was that if Carlow was to go it would be for cost-cutting purposes but the Mallow facility would be the future vehicle for producers. The factory went just like that.
Within a very short time of the closure there was an application sent to Carlow County Council - and I assume Cork County Council - to rezone the properties. The witness is before us today defending Greencore, which has no interest whatever in producers, as they were small money compared to overall turnover. The interest was in how to maximise potential value of property for the benefit of Greencore shareholders and people who effectively assumed control of what was a national asset.
There are a number of questions that must be asked and Deputy Sherlock touched on many of them. With regard to the decision taken by Greencore and the so-called golden share held by the Government, was there consultation with the Minister of the day? Did the Minister support Greencore in what it was doing? It has been indicated that farmers' representatives were supportive but what was presented to farmers was an ultimatum of condemning the membership to abject poverty if the deal was not taken. There was no effort to keep the facility open and the presentation today has been confined to Mallow, which is significant; beet growers in my county supplied the beet to that facility.
This brought about a loss with regard to rotation, cash crops and the availability of beet pulp and other feeds processed. The sector was invaluable to rural Ireland, the areas we come from and the types of people we represent. I have no doubt the motivation of Greencore was to seek a quick kill or buck in order to get out. It occurred at the height of the property market in 2006 and 2007, with the value of land all over the island inflated way beyond its value for people like Greencore, Liam Carroll and the other vultures looking for a quick kill. They brought us to where we are; they collapsed the system and condemned generations to abject poverty. Young people will have to leave this country because there is no future for them. It has happened because of the political support given to Greencore and others for what was done at that point. Nothing will change my mind in that regard.
I will not personalise the matter and Mr. Coveney is a worker like everybody else. Nevertheless, his and other companies, as well as vultures associated with his and other companies-----
The Deputy should not use those words.
I can think of nothing more polite to say about people who robbed this country. These people were vultures. Some €80 billion has been borrowed from the IMF and the European Central Bank in order to bail out the country. Deputy Edward O'Keeffe is part of the Government responsible.
Deputies should make their comments through the Chair.
I would only help the Deputy.
We need answers to the questions and what we have heard today is merely camouflage, with the facts hiding behind the value of produce amid claims that the subsidies were going. Is it true that subsidies were going because of the intervention in the international market arising from over-production? Did that contribute to the decision? If my recollection is correct, part of the presentation we got was that there were three types of produce, with the type going into the open market not being from Ireland.
I welcome Mr. Coveney. At first I doubted he would come to see us because I thought he would be nervous. He is a courageous man to come in here. The witness did not refer to the World Trade Organisation talks in 2003 where the whole food industry was sold out. That is where the problems started and the witness might have some knowledge and elaborate on it. I agree with much of what the witness said as my Government and his company worked closely to try to save the industry. He referred to the potential of the sugar industry and answered many questions. The profitability of the crop was in question as we were getting €50 per tonne, which was heavily subsidised. The price in the UK was much less than that. Today the UK prices are £24.50 per tonne, with 30 tonnes per acre of washed beet, with 21% or 22% sugar. I was in England on Monday and met people in the commodity area.
I was conscious at the time that there was a problem as I was a beet grower myself with a small quota. My family had been beet growers since the 1930s, when the sector first started producing, and it came along the line. It was a very important crop for the farming community. As Mr. Coveney comes from a farming background he realises the importance of a break crop for growing wheat especially. It is a loss.
Was any work done on new varieties where a higher tonnage could have been achieved? The company did much research on the sugar beet and was most innovative, even before Teagasc, in doing soil tests and developing new crop varieties. Was further work done on new varieties as our growing conditions are worse than the Nordic countries? We get less sunlight and photosynthesis, which works to bring the sugar to the root, was not as effective here.
Mr. Tom Barry has done much work in this debate. He is a politician and I admire somebody travelling to places like Kilkenny on his own expense to try to find a new way for farming. He is involved in tillage in a big way and we must recognise that. I recognise the work of the IFA and I am glad to see its president here. It has done great work in farming and was to the forefront in fighting the cause of the beet grower when the industry was on its knees in 2005. It fought many a hard battle with the then Minister responsible for agriculture, Deputy Mary Coughlan, who is a handful. One would not want to challenge her too hard. She was sad about the events too as there were other losses, such as to those involved in transport and machinery contractors. Many services were utilised, particularly at this time of the year.
I recently spoke to people in the shop where I get tyres for my car and a man told me he still has tyres in stock for loaders from when the beet industry stopped. That is a major loss to local areas. If it had been on a regional basis and if Greencore had not had a monopoly, the industry probably would have survived in Cork and the south east, which has the best growing season. The monopoly arose because of the Government's development of the company in the 1930s.
I wish the witnesses well in challenging Northern Foods, which is one of the biggest companies in the UK food industry and sends many thousands of tonnes of foreign goods to Marks and Spencer and Tesco in Ireland, which we do not like. Greencore might change all that for us. Is there any hope that the witnesses will be able to use their good offices to site a factory in north Cork? The area has a great food tradition from Mitchelstown to Mallow. The expertise is there, the workforce is there and the farmers are there to grow the crops.
We are talking about beet today.
Hold on.
There is an election coming up.
The area has suffered enormous losses. We lost our sugar industry. We lost Erin Foods because the world moves on, and we lost everything that was in Mitchelstown, where the world did not move on but someone else moved out. That is the truth of it. Could the witnesses give me any help in the area of job creation? The projected sales figure is more €2 billion, which is a lot of money. I hope the merger goes through and I hope the company has every success from that. I know the chairman of the company, Ned Sullivan, who I gather was the initiator of this move. Jobs are the priority. The number of employees worldwide is 17,000, which is a lot of people. I am seeking the help of the witnesses. I am quite sure the company will get the support of the Government, whatever it is on the day, and State agencies in bringing something to north Cork, where the expertise is.
Were we not lucky that the Mallow north project did not go ahead? We would have another NAMA.
It was Mallow west.
Yes. I am not good on the compass.
So Deputy Michael Ahern says anyway.
I was supportive of the development. It would have created 500 jobs, which must be recognised. Anyway, it is all well now. I am asking the company to do something for us. I accept all the witnesses' explanations. I accept that there was little future there at the price that was being paid. What farmer today would grow beet at €26 a tonne rather than getting €50? The farmers of the day could not compete in that industry. Farming is a business with tight margins, and we can see that people are moving off the land because they cannot make a living. I thank the witnesses.
Can I ask a question?
No. I am bringing in another group. I agreed that we would have one speaker from each side.
Mr. Patrick Coveney
I will try to pick off as many of those points as I can. If I miss any, the Chairman might remind me. I will answer the questions in logical order rather than in the sequence they were asked. I will start with some of the questions asked by Deputy Sherlock about what happened and who did what.
I read the comments made by the Secretary General of the Department of Agriculture, Fisheries and Food at this committee last week. He said, "[T]he decision to close the Mallow factory and thus to cease sugar production, was made by Greencore and Greencore alone." It is technically true, but that is like giving out to a fellow for turning off a light switch after the power grid goes down, although it is not a perfect analogy. It was simply an administrative matter in the context of what had happened more broadly to the regime.
When one cuts through all the emotion, what happened to the Irish sugar industry? First of all, it was a pity. This was a great industry. It was good for Greencore and, before that, for Irish Sugar, and it was good for growers. However, it ended in November 2005 when the Council of Ministers politically established the reform regime. That is actually what the Secretary General said. I will quote him again, "When it became clear at the final meeting of the Council of Ministers that there was insufficient political support for the Irish position ... our efforts were redirected to achieve the best possible compensation package, which we eventually secured." Right from the start, when the Council of Ministers met in November 2005 and came out with a recommendation the following day, the Department of Agriculture and Food said that its focus was compensation. The observation that Greencore made the final decision is technically true, but the real decision was a political one made as part of an ongoing engagement in a context set by the WTO, that is, a reduction of the level of protection and support for the sugar industry in Europe.
I am trying to be careful here. It is not my job to speak for the IFA and I am not going to. I did say, however, that its behaviour was entirely rational in the context of the political decision made in November 2005 and the economic and logistical circumstances of growers. The outcome of that was an immediate focus on securing compensation, not on securing another crop. Its job is to represent its members and that is the view it formed.
Deputy Sherlock asked a particular question about the 2006 crop. If the political objective had been to secure one more crop, 2006 should have been the reference year for the subsequent payment of compensation, because if farmers did not grow that year, they would not have had access to the compensation. The fact that the compensation was connected to earlier years crystallised the decision of farmers not to grow.
I will deal with the Deputy's question about what we did or did not know in March. In February 2006 we sent out a survey to every beet grower in which we asked them to state whether they wanted to grow that year and the tonnages they intended to grow. We sat there at the beginning of March, which is at least a month later than the start of the normal planting season, with no responses. That was the context in which we made the decision.
To what does Mr. Coveney attribute that, if I may ask?
Mr. Patrick Coveney
To a rational conclusion based on the regime reform announced in November 2005 and the advice everyone was receiving that the focus should be on compensation. I do not think my testimony today is factually at odds with what the Secretary General said. That is why I quoted his statement.
On the question of compensation for workers, I referred to the amount we received. The truth is that one can never compensate someone enough for making him or her redundant. Most people would prefer to work than not to work. I am not trying to suggest that the redundancy package fully compensated people in every sense for the fact that they were no longer working. Nor can one fully compensate people for having to stop growing. No one liked what happened, but it was in the context of what was going on in Ireland at the time. For everyone under 55 we paid seven weeks per year of service, with no cap, and a closure bonus on top of that. That was the basic redundancy package.
Deputy Sherlock mentioned that there were a small number of people who did not get all their money upfront. That was because we had an ongoing dispute with a set of the craft workers - no more than 40 out of 300 in total - and the solution was that they got a chunk of their money upfront and then we resolved the dispute over time. It is completely resolved by now.
In its report, the European Court of Auditors referred to Ireland's social package in total relative to what took place in the rest of Europe. I draw the committee's attention to Annexe IV on page 52 of the report. The court found that Ireland paid the highest redundancy pension and redeployment figure on a per plant basis and on a per quota basis. No one is pleased to have to do that and I am not pretending we were. However, our assessment was that it was generous in the circumstances.
I refer to the points made by Deputy Ferris although I realise he is not here. I wish to confront the point to the effect that we were in this for the property.
You may wish to hold back on that issue until the Deputy returns. It would be only appropriate.
Mr. Patrick Coveney
Okay. I will hang on for him to return but I am perfectly pleased to address his points. I will make some final observations on the other questions.
Deputy Doyle asked a question about sugar for ethanol. There are people observing these hearings who consider they know a good deal more about ethanol than I do. I am not an expert in that space. However, I refer to the fundamental point on sugar beet competitiveness that I have stressed several times, that is, the price was in or around €26 per tonne while it costs €30 per tonne at present. Teagasc carried out a report which suggests there has been a 40% increase in the cost of beet production since that 2006 figure which only makes it less competitive. It would be really difficult. While one could suggest that we use wheat, which is a more competitive substrate than sugar beet, Ireland is a large net importer of wheat. It is a complicated jigsaw and it strikes me as being rather difficult.
I refer specifically to the property in Mallow west, as opposed to Deputy Ferris's points in this area. Everyone recognises that in the context of property development, circumstances in Ireland appear rather different from the way they appeared in 2006, 2007 or 2008. This is unfortunate and we all see the consequences of it. We have continued to do what we said we would do with regard to Mallow west. First, we carried out a big environmental clean-up. I am not in the business of messing the committee around. It is unlikely that the development of Mallow west will take place as per the original plan. Circumstances are entirely different. The specific question was whether we would be willing to consider alternative uses on the land. The simple answer is "Yes". However, I wish to be clear about it and I trust my statement was clear. We are not going to take the lead. We do not have the competence or the mandate to do so. Are we in the business of trying to find the best usage for Mallow? Of course we are. We are open to someone engaging with us in this regard.
I seek clarification because it is important for the people of north Cork. If we can reach a stage where Greencore is meaningfully engaging with the Mallow Development Partnership or stakeholders such as the Irish Biofuels Initiative, then we have a starting point. If such a guarantee could be garnered today with regard to the Mallow site or other potential uses for the site from a commercial or industrial point of view through the Mallow Development Partnership and the Irish Biofuels Initiative, it would represent a positive that we could take from today.
Mr. Patrick Coveney
We would be mad not to try to engage in how best to use the site. Mr. Philip Odlum is present and that is a large part of his job. However, I stress that it must work commercially for us as well. I am unsure whether we can get much further on the details at this stage.
I thank Deputy Ned O'Keeffe for his positive endorsement of the Essenta Foods proposal. I hope it will happen but it is not entirely in our hands, as we discussed before. Until Essenta exists, I cannot speculate about what it can or cannot do. The Deputy will be aware that, as of today, Northern Foods is a much larger employer in Ireland than Greencore. We run a head office and a relatively small ingredients business whereas it has six factories in Ireland. I am rather restricted in terms of my understanding of the situation until we establish what will happen and unfold one way or the other over the next few months. I hope I have touched on most of the questions but if I missed any, it was by accident rather than design.
I made a point about the production model. It may appear to be uncompetitive. However, if we go back, this originated from a WTO lobby. This is one of the problems, although I have no wish to get into the Climate Change Response Bill. Let us consider the next phase of food production over the coming 20 to 30 years given the level of global demand. We must factor in where sugar is being produced at the moment. What would the environmental impact be vis-à-vis a sugar industry in this country which can produce sugar in conjunction with bio-fuel after 2015? In that case the competitiveness would be based on a completely new model. That was the point I made.
Mr. Patrick Coveney
The Deputy may be right.
I may or may not be right.
Mr. Patrick Coveney
I have not fully factored in the transport, shipping and production costs of sugar from Brazil or Asia to the rest of the world. This is not only my view but that of Teagasc and the IFA. If one examines the yield in terms of tonnes per acre of sugar beet versus that of the UK, that is to say 20 tonnes per acre versus 28 tonnes per acre, and one layers on top of that the greater sugar content that can be attained in different climates, it is difficult. However, as these externalities get priced in, it might change the dynamics somewhat.
I had indicated that I wish to speak. How is the Chairman dealing with the situation?
Deputy Coonan was to be next and Deputy Aylward had indicated he wished to speak before he went out to the vote. The Deputy may contribute after that.
In that case I will have to leave.
I am sorry about that.
Usually, we all contribute and then they come back. Why is the Chairman changing it this time?
I thought there was-----
They asked all the same questions.
We will finish off now. I call Deputy Coonan.
I thank Mr. Coveney for coming in today and for giving such a precise presentation to the committee. Some would say it amounts to putting the boot in on a number of people. It amazes me that Mr. Coveney spoke about delivering information or undertones at the beginning. What did he mean by that? One of the major allegations made was that Greencore and the Government in combination supplied out-of-date data to the Commission. This was a finding of the European Court of Justice, not me. Why was Greencore complicit in this? Why did Greencore allow this to happen if it is such an efficient company? Does this indicate that Greencore had other plans in mind?
Deputy Ferris referred to property. Previously I put this point to the Secretary General of the Department and now I put it to Mr. Coveney as well. During the mid-1970s greed had taken over many people and it certainly took over Greencore because instead of discussing the production of sugar in terms of millions of pounds, one envisaged billions in property in Mallow and Carlow. As Mr. Coveney is aware, this is not only about Mallow, it is about the farming community throughout Ireland.
One example of what took place was when the Irish Sugar Company closed the sugar factory in home town of Thurles. The town has never recovered from that point. That happened as a result of the Minister for Agriculture at the time appointing a director to the board who voted for the closure of the sugar factory. Perhaps that was the first mistake. Another famous man from Cork, Michael Collins, once said that we should not waste our energies nattering over what more we might have gotten and instead we should see what it is that we have and move on from there. I am especially concerned about these two issues because Mr. Coveney stated that Greencore was Europe's "most efficient producer". According to the Court of Auditors, closing an efficient processor was at odds with the object of the reform of the sugar policy at the time. They do not go hand in hand. I am interested in the delegation's comments on those matters.
What happened to the site in Mallow? Who owns it? The town plan was changed to allow for development on it. Would the delegation acknowledge it was a mistake on the part of Greencore? Did it have inside information when it decided to rationalise and close the plant in Carlow? In hindsight, it would appear it was a bad decision for Greencore to make.
I do not know if the delegation was referring to some of the unfavourable comments made at another committee meeting. If the plant in Carlow had remained open would we now have a sugar industry in Ireland? If Greencore had not been greedy and seen potential in property development, leading to the closure of the plant in Carlow, Mallow could now be functioning as a sugar factory.
Other issues have been raised with me which other members have mentioned. I do not want to repeat them, apart from welcoming that the delegation stated categorically that Greencore will take part in a feasibility study. We asked the Secretary General of the Department about that. He said it would participate with other people. I disagree with my colleague when he said if the industry is to be reformed it would have to take place in a port. It should take place in the centre of Ireland where there is access to growers and facilities.
There is a Canadian company in Lisheen which is willing to get involved in the process and would be willing to speak to Greencore. It has the facilities, including water - steam is a very important part of the process - electricity, a substation and a site. It has access to two motorways and a semi-motorway to Lisheen mines in Tipperary which is anxious to develop its site when it closes. Would the delegation be in favour of dealing with the company?
There was sugar production in this country for 80 years. The IFA was forced into a situation whereby it had to agree that when the doors are closed in one's face the only way out is compensation. Did that arise from the out of date data? The Government found itself abandoned by those who supported it in Europe. What else could the IFA have done? The Beet Growers Association, BGA, represented the producers at the time.
The delegation referred to the economics of the situation. What economic value did it put on the rotation of a crop and the part time employment it created for many people during a beet campaign in Thurles, Tuam, Carlow and Mallow? It no longer happens anywhere. Did the delegation factor in social costs? Does it accept that Mr. Dilger took the right decisions at the time? In hindsight, is the delegation happy with what its former company did?
I welcome Mr. Coveney and the clarification on the Greencore view of what happened in 2005-06. It is at variance with what the Secretary General said last week. There is no use having a blame game now. We have to look forward and that is why we are here and different groups are coming before the committee. There is a belief that it may be possible to grow sugar beet for ethanol or sugar.
I would like to get the view of the delegation on the golden share held by the Government. We heard the Government's view. Like a previous speaker I am from Carlow-Kilkenny and was very disappointed when the Carlow plant was closed. The production was moved to Mallow and all the roads were closed while bins were moved.
Within a year or two the entire industry was gone. If Carlow had been left open during the negotiations would it have strengthened our hand to have two factories instead of one? One could have been closed as compensation for keeping our quota. Perhaps we could have fought against the EU system and the regime which has been pushed onto us.
There are many stakeholders and there is a lot of sentiment about the issue. Jobs have been lost amongst growers and farmers and contractors are involved. The sugar industry would probably never have survived without subsidies over the years, first through the State and then through the EU sugar regime which was in place from the 1960s. When Greencore was privatised it got the quota for sugar. If there had been another player on the field would that have made a difference? Was the fact that only one company held the quota the reason it was so easily lost?
We can talk all we like about who to blame but that is no good now. There is a belief that we can revitalise the expertise we have. Would Greencore still have expertise? The plant was closed only five years ago. Would it be willing to provide the expertise on growing beet again for the production of ethanol? We currently have no quota and the review will report in 2015. There have been indications that something may be done about the allocation of sugar beet quotas under CAP. I do not know if this can be done; it is an EU issue.
If we recommence sugar production we cannot sell it outside the EU because of the WTO agreement. No sugar can be produced until we return to the EU and try to get a quota. Mr. Tom Moran said at the last meeting that Greencore was asked in March if it was interested in ethanol production at Mallow. In its reply in April Greencore stated it "cannot justify commercial investment in ethanol production in Ireland for sugar beet". I do not know what sort of feasibility study it could have done in one month. The plant in Mallow could have been considered for the production of ethanol.
Would Greencore be willing to take part in the feasibility study we hope will take place on the future of sugar beet in Ireland? Mr. Tom Moran has agreed to it.
I welcome Mr. Patrick Coveney. Most of the questions have been asked and I do not want to delay the meeting. I would like to take up where Deputy Aylward left off in his comments on the golden share. I recall at the time of the privatisation debate in the Oireachtas in 1991 the golden share was at the core of allowing the privatisation to proceed. What was the impact on the delegation's discussions and options in 2005-06?
We seem to have varying interpretations of what the golden share provided for and what it did and did not allow. Did it prove a stumbling block to the decision of Greencore to remove itself from sugar production? Did it explicitly need Government permission under the golden share agreement to remove itself from sugar production?
On the negotiations which led to the withdrawal of Greencore from sugar production I wish to refer to an answer given by former Commissioner Mariann Fischer Boel in, I presume, the European Parliament to a written question on 16 January on the sugar quota. She stated:
The quota may only be renounced after consultations conducted in the framework of the relevant agreement within the trade. The Commission has been informed by the competent authorities in Ireland that Greencore has carried out the required consultation.
I presume "competent authorities" refers to the Government. What was the relevant agreement within the trade?
It is interesting to reflect upon November 2005. It is too late for the blame game but is Mr. Coveney saying that in that period as the negotiations were under way, it was in the interests of Greencore to stay in the sugar production business? The script states that Greencore lobbied hard at EU and Government level for Ireland to retain a reduced but significant quota. Was it the Greencore position in November 2005 to remain in business? Was it then a Council of Ministers' decision to change the rules of the game so there was no choice but to move out?
I appreciate the decision in Mallow to invest €25 million, it made it look safe at the time and demonstrated Greencore's 2004-5 commitment to Mallow following the decommissioning of Carlow. There was a win for Greencore, however, in the decommissioning of Carlow with the site there being freed up. What has happened to that site? The Mallow site is now at a standstill but what happened in Carlow?
I am interested in the comments about wheat. Greencore is not a bioenergy company but we hope it will commit itself to assisting companies that are interested. I would like to hear about the golden share and the framework of the relevant agreement within the trade. What was the agreement? What consultation took place?
South Tipperary was a rich beet growing area. I hope there will be meaningful negotiations that would seriously examine the idea of returning to sugar beet. Beet is still grown on my family farm for feed. The industry, however, was plundered and I lay the blame at the door of Greencore. Greed was involved. Carlow was closed and there was disruption in moving equipment to Mallow. I tried to save a town in my area from a two day close down. I met the haulier at the end and he apologised, saying that if only we knew what was happening. That plan was there the whole time. It was sneaky and underhand. A wonderful industry was plundered. People have no idea how many spin off industries were involved in the beet industry - harvesting and planting, lime, hauliers, temporary labourers. It was a huge industry. I was disappointed with the IFA and the beet growers association. Huge public meetings were held to save the industry but greed got in the way. The site in Carlow was seen to be very valuable and like the PLCs did with the old cooperatives, we now have wastelands in every village in the country. These were fine industries that involved huge social capital. There was greed on the part of Greencore that was allowed by the then Government.
Deputy McGrath's party was in government.
My own so-called party took its eye off the ball and that was the start of it. We lost valuable industries like them and we will never see the like of them again. The idea of a study is only spin and we are sick of that. We want to go back to basics and make a meaningful effort to put the industry back on its feet.
I welcome Mr. Coveney and congratulate him on the success of his company to date. These are exciting developments and it is to be commended that the company is doing so well in these recessionary times.
Mr. Moran was mentioned last week. He said the Minister exhorted the company to consider continuing production for at least the following two years, during which the level of restructuring aid would remain constant. Instead, the company opted to renounce the quota immediately and dismantle the last remaining sugar factory in Mallow in compliance with the conditions of the scheme. Would Mr. Coveney comment on that? It seems interesting to say the least.
He also admitted that if the Carlow plant had been open when the negotiations were taking place, it might have led to more flexibility. What did that mean? Would we have retained an industry? How come this is one of the countries that lost while many other countries with a similar climate managed to retain their industry?
Bioverda made approaches to explore the possibility of producing ethanol from sugar in conjunction with Greencore at the time. Why was that rejected?
Four options were put forward by Brussels: payment of a levy equivalent to four years' profits; a 50:50 ethanol-sugar production ratio; total conversion to ethanol production; or the total cessation of beet growing. The final option was taken up but what consideration was given to the other three options, particularly the 50:50 sugar-ethanol ratio? Energy requirements have changed, with the introduction of carbon levies leading to rising costs for families and businesses. It could become commercially viable to produce energy from sugar beet if prices keep rising and carbon levies are imposed.
I would like to know about the situation with the special share. At the time, what interaction was there between the Department, the Minister and the company around this special share? Its meaning is unclear so perhaps it could be clearly explained.
Much of this discussion was sparked by the Court of Auditors report that implied the Commission used out of date information in its impact assessment, which placed Ireland in a very low profitability band. Is that correct? Was out of date information used or would it have made no difference, as Mr. Moran suggested last week?
I will take a brief supplementary from Deputy Sherlock.
I refer to the special share. I thank the Chairman for allowing me back in. On Thursday, 11 November 2010, there were statements in the Dáil on the EU sugar regime. On that occasion the Minister said:
...the special share in Greencore did not allow the Minister, acting on behalf of the State, to contribute to the decision made by Greencore on the renunciation of the quota. The proposed actions by Greencore that required the Minister's consent under the terms associated with the special share were related to any changes to certain specified articles of the articles of association; the voluntary winding up of Greencore; the sale of more than 49% of Irish Sugar plc, a subsidiary of Greencore; and the creation of a new class of shares in Greencore. Legal advice obtained at the time was that they did not include provision for the Minister to direct Greencore in relation to the sugar quota. Greencore was the holder of the entire Irish sugar quota.
My interpretation of that statement is that the renunciation of the share, according to the Minister, rests firmly and squarely at the door of Greencore, by virtue of the legislation, and, therefore, the Minister is arguably washing his hands of any decision, saying it was a corporate decision as opposed to a political decision. Where do we go from here? What is the future? I would like to hear Mr. Coveney's opinion on this particular tract of the speech? What is the future? Greencore has clearly stated here that it has no intention of getting involved in sugar or ethanol production. That is clear and we can put that issue to bed. I would like to get a further sense of how Greencore will engage with the stakeholders. I am aware that he said earlier he would not go into the detail of that but if he can reaffirm that commitment we will take something positive from this meeting.
I welcome the fact that some of the statements made in regard to sugar production in Ireland by Mr. Coveney may be rebutted at a future meeting of committee by the Irish Biofuels Initiative and possibly by Mr. McCarthy and company. I am glad from my party's point of view that we have had this consultation because it has clarified certain matters for which I thank Mr. Coveney.
Mr. Patrick Coveney
It is not an easy task for people who appear before committees such as this to figure out how to navigate through all these questions but I will try. As I did not respond to Deputy Ferris's questions when he was not present, I will try to do so now as part of this group of questions. If I leave any big issues behind it will be by accident rather than by design, so I ask the Chairman to remind me. I will begin with the question on out-of-date data because it lends itself to a straightforward response. There was no element of the decision from Greencore's perspective, the grower's perspective or from the Government's perspective in late 2005 and early 2006 being based on anything other than the most up-to-date information at the time. The Department would have got masses of data from Greencore through several processes that related to the whole compensation approach that would have been bang up to date in terms of its applicability.
Unfortunately, I will not be particularly helpful to Deputy Coonan when I say I do not know why the EU Court of Auditors did not use the most up-to-date information that was provided. No element of the decision made in the lead up to November 2005 through to the decision in 2006 - and nowhere between 2006 and 2008 when all the compensation matters were resolved - was based on anything other than the most up-to-date information. I am at a loss to understand how a proper internal audit process, which is what the EU Court of Auditors is designed to do, would not have had access to that information. To be honest, I do not think it would have mattered to the overall conclusions but it looks a little untidy and I cannot give a better explanation than that.
On a point of order, the EU Court of Auditors found that the Commission did not have the up-to-date information. If it was not the EU Court of Auditors, I stand to be corrected, but that is my interpretation.
Mr. Patrick Coveney
I cannot say why that would be the case given the information that-----
It was the Commission as opposed to the EU Court of Auditors.
Mr. Patrick Coveney
My apologies. I thank the Deputy for correcting me.
Is it acceptable then that a decision could have been made on out-of-date data?
Mr. Patrick Coveney
The key parties to the decision - I know this is like beating an old record - were the Government, in terms of its input into the political decision about the shape of the reform, the growers and their representatives - in terms of determining whether they would grow sugar beet at €26 per tonne when they previously got between €44 and €50 per tonne - and the company which had to form a view on whether it would have a crop and what it could do in that price regime. All three stakeholders had the most up-to-date information at the time at which those decisions were made.
Mr. Coveney said the decision was forced by a political decision.
Mr. Patrick Coveney
Yes, the decision to reduce the price. Hopefully, I have been consistent on this issue. I used a slightly crude analogy earlier when I asked what it was like to turn off the lights when the power grid has gone down. The issue here was that the decision made by the EU Council of Ministers reduced the price of sugar beet by 40% and not enough growers in Ireland could justify growing sugar beet at those prices. As a result it did not matter whether Greencore wanted to stay in the business or not, it could not source a crop. The data and the facts of what happened between November and March, which are entirely consistent with the answer I gave to Deputy Sherlock earlier, were sitting there at the beginning of March, a month later than growers would normally make a decision on planting, and we had no confirmed contracts with growers. That was the context in which the decision was made. I have tried to avoid specifically placing blame one way or the other. If the Deputy is asking me what happened - this stemmed from the political decision about what the shape of the new EU sugar regime would be which, to be clear, if one read what the Commission said at the time, was deliberately targeted to end production in Ireland. It did not make apologies for it and did not hide it. That is what was done. If it would be of interest to the committee I can try to get a more detailed response on the narrow point of the out-of-date data but I cannot say any more about it now.
The second point, which I did not answer properly when first raised by Deputy Ned O'Keeffe and again by Deputy Aylward, was the "what if" concerning monopolies. I will deal with two scenarios here, first, if there had been two sugar producers in Ireland and, second, what if Greencore had two factories in the winter of 2006. I will answer it in the same way. The key issue was the international price for sugar beet. I tried to make the point earlier that 85% of the cost of manufactured sugar is the cost of the sugar beet. If one cannot source sugar beet, it would not matter whether one had one, two or five sugar processors or sugar factories. For an industry, by which I mean the sugar beet growing industry that had been getting between €44 and €50 per tonne of sugar for a long period, to be asked to suddenly adjust to getting €26 per tonne it could not do it. The issue was not one of processing efficiency but the ability to grow with those types of price levels. I did not state earlier that the EU Court of Auditors report stated that Ireland had Europe's most efficient producer - it had one of Europe's most efficient producers; that is a small point of difference that I just want to clarify.
I will move to the question of the special share. I beg the committee's forgiveness by pointing out that I am not a lawyer. I will speak in layman's language rather than technical language in terms of what the share did and did not do as we saw it. Broadly speaking, the special share gives the Minister for Agriculture, Fisheries and Food input over two issues. The first is the disposal of sugar producing assets. In other words, if Greencore had chosen at any point from 1991 to sell its sugar business, in the interests of keeping it in Ireland it would have needed to have got the permission of the Minister for agriculture, and the Minister for agriculture could have prevented that happening. Interestingly, the sugar quota was not deemed to be a sugar producing asset, although there is a sort of circular logic in that regard because there are no sugar producing assets without a quota.
The second aspect, which in recent times has become a much more live issue, is that under our articles no single shareholder is allowed own more than 30% of Greencore stock. That is designed to achieve the same objective, which is to prevent someone getting access to Greencore's sugar producing assets by way of buying the whole company.
To reply to Senator Bradford, I cannot be as precise as I would like to be around that Mariann Fischer Boel response but my recollection, and if it is incorrect I apologise although I do not believe I am, is that the process she referred to required us to inform. The consultation was an informing exercise as opposed to a material debate in regard to that. That was an unfortunate part of what needed to happen in March 2006.
To move on from the golden share to the topic of property, which was raised by Deputy Ferris also, I will deal with that in a number of ways. The first is the decision to close the Carlow factory in the context of the Mallow factory. Whatever chance the industry had of surviving when production was consolidated into one facility, it would have had no chance of surviving if there had been two. To put a number on that, about half of the profits being earned by Greencore from sugar was the business benefit of moving from two factories to one. That was the scale of the efficiency improvement achieved or, as we described it at the time, the pay-back for Greencore on spending €25 million in Mallow to locate the full quota there was two years. Approximately half of it was the business benefit. That is the reason we ended up with one of Europe's most efficient producers.
It is difficult to respond to the question of being happy with what has happened. The short answer is that I am not happy with what has happened. No one is happy with what happened in sugar, certainly not Greencore, growers or, I suspect, the Government but based on the information available in winter 2004-05 about the likely shape of the reform regime, which would be painful in one form or another in terms of the ability of a processor to make any money, the decision to close the Carlow factory and concentrate all the production in Mallow made sense. To put it differently, if we had known the industry would end 12 months later then that was not the best investment but if the committee wants the most conclusive evidence and not wooly words or parsing about who is responsible for what, that the intent of Greencore was to stay in sugar processing, the most conclusive evidence I can give it is that we spent €25 million upgrading the Mallow factory to make it more efficient to process the national quota at least for the lifetime of the next sugar regime programme through to 2015.
On the more general topic of property, and I will not mess about with Members, a decent case can be made for the fact that either at the time or since the alternative use value of the Carlow factory is quite high, and we have been working to try to do that. It is not subject to any of the European Union restructuring plan obligations but we have had to remediate the land in Carlow as well. The former head office in Carlow has been changed to an enterprise centre and there is a great deal of employment there. My hope is that over time, although it will require a recovering property market and God knows when that will happen, there will be further benefit for the town of Carlow. There is already some benefit for the town.
On the general theme that we were all about property, all I can say is that is not true. I will refer to the Liam Carroll point. Anyone can buy shares in a public company. If Liam Carroll or anybody else wants to buy them they are perfectly entitled to do that. He bought them in the public markets at what was, with the benefit of hindsight, an astronomically high price versus the underlying trading performance of the business but he bought them in two chunks - in June 2006 and June 2007 - after the decision to exit sugar had been made, not before. I cannot speak for his intent but what I can speak to is the timing and what clearly did not happen was that he came in as an investor and in some way influenced policy within the company towards Greencore being more of a property business. He came in afterwards.
On Deputy Stanton's point about one to two more years, the critical issue was whether beet could be sourced and the view we took was that it could not. The policy environment contributed to the fact that there was no prospect of being able to source beet or, more particularly, no certainty in regard to sourcing beet. I do not want to get into this in any great detail but there remains a heated debate within the growing community with itself about what was the right response to the regime reform. Letters were sent as recently as December to the Sugar Journal that highlighted things that might or might not have been done differently but the fundamental point is that at that price point, in other words, the final price point after the scale down, a full crop could not have been sourced sufficient to be able to deliver the national quota and one would be going from season to season without a clue as to how much one would get, and that is not a basis on which we would be able to run a business.
If the narrow objective had been to squeeze one more year's crop one trigger that could have achieved that would have been to say 2006 was the base volume year for subsequent payment of compensation because, frankly, if we had not grown we could not have got the compensation and we could have been certain that we would have got a crop. That did not happen.
I want to touch on the topic of Bioverda approaches and the future of ethanol. I will make two points. The Member is right that the committee will get other inputs in this regard. I might leave here and the committee might accuse me of a failure of imagination, and it might well be right, but I come back to the fundamental point which was reinforced by the study I cited in my opening remarks by Cooley Clearpower Research for Cork County Council. The problem of €26 per tonne of beet remained. It is difficult to get the grower economics to work and feed through to processing. Someone other than me may find a better way in regard to that.
I will concede that it was not that we did not get the odd call - I will not be specific on who it came from - in regard to ethanol but the view the company formed was that we never received a serious approach. It was not that we did not get the odd call - I will not be specific about from whom we got it - about ethanol production but the view the company formed was that we never received a serious approach. We had to make a decision in the absence of a serious approach. Deputy Stanton is correct that there were a series of different scenarios or formulae by which compensation may or may not have been payable. Much of this would have preceded my involvement and the company would have examined over time the economics of energy production versus food production from sugar beet and so forth. We kept coming back to the same issue, namely, the economics for growers of those kinds of price points. By the time one would move on to having a blend with wheat, one would suddenly be stuck in our view with having a factory in the wrong place. Ireland is a big net importer of wheat. One would prefer to be close to a port and there is the dilemma as to whether one would move close to where the sugar comes from or to where one would import the wheat.
On a point of information, one cannot engage in continuous wheat growing. This is where a break crop comes in. The IFA always makes that case and, with respect to it, it is a good case. That would be my problem with it.
Mr. Patrick Coveney
That is the Deputy's problem with what? With ethanol production?
The problem is that there must be a break crop.
I ask the Deputy to speak through the Chair.
I am speaking through the Chair.
The Deputy did not do that at the start.
I asked Mr. Coveney about new varieties of sugar beet.
Mr. Patrick Coveney
I would beg the committee's forgiveness in pointing out that I am not an expert on this. It would have been in our interests to have yields rise but the evidence, as cited whether by Teagasc or the IFA, around beet growing economics even now does not ascribe huge benefits to it. I know that Deputy O'Keeffe would not consider me be the ultimate authority on these matters because I am certainly far from that. Hopefully, I have covered all the questions and if I have missed one I have done so by accident.
On behalf of the committee I thank Mr. Coveney for his presentation and for discussing this matter. It has been a very informative meeting.