"Hungarian sugar refinery Magyar Cukor Zrt. has announced on Tuesday that it would concentrate its local production to its Kaposvár plant, renounce one third of its sugar quota and at the end of the current season - if majority owner Agrana agrees - it will also wind up production at its plant in Petõháza.The reason for the decision was a pledge by the European Union to drastically scale back sugar production capacities, Magyar Cukor said.
The sugar restructuring scheme was a key element of the 2006 sugar reform in the EU, offering producers who would be uncompetitive at the new lower price a financial incentive to leave the sector.
As much less quota was renounced during the first two years of the scheme than anticipated, changes had to be made to make it more attractive.
The main changes announced by Brussels at the end of September were that the percentage of the aid given to growers and machinery contractors should be fixed at 10%, but growers, including sugar beet farmers, who renounce quota will get an additional payment.
See the press release of the European Commission on the subject here.
Magyar Cukor said the changes to the scheme virtually make it impossible for sugar companies to maintain their current production levels.
Magyar Cukor said it must face the fact that it cannot operate both its factories economically therefore production will be moved to the Kaposvár factory where capacities have been increased. The company also plans to renounce one third of its quota and put an end to production at its other plant in Petõháza. The latter move requires a nod by the Austrian owner, Agrana.
“The quota renouncement will make extra funds available for sugar beet producers, which may be extended only when more than 50% of the sugar quota is renounced. The size of the subsidy may be enough for us to maintain economic sugar production in Hungary, and we held old talks with the officials of the Agricultural Ministry on the subject on Monday," said Béla Fischer, Chairman-CEO of Magyar Cukor.
The average crop in the Kaposvár area was 53 tonnes per hectare in the past ten years, while it was only 45 tonnes per hectare at Petõháza.
Sugar beet processing will be shut down at Petõháza, but warehousing and packaging activities will be retained there, allowing some 40 skilled workers to continue their employment there. Total staff is currently 150 people.
Magyar Cukor will need to dismantle unused machinery and complete environmental restoration over a three-year period at Petõháza. The company plans to set up an industrial park on the site in the medium run, which could dampen the negative impact on employment the closure of the plant will cause."
Source: Portfolio Online Financial Journal
21.11.2007