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Minister Coughlan Announces Government Decision on EU Sugar Restructuring Aid Allocation

The Minister for Agriculture and Food, Mary Coughlan TD, today announced the Government's decision concerning the percentage of the EU sugar restructuring aid to be reserved for beet growers and machinery contractors.  The Minister clarified firstly that the aid is part of an overall sugar reform compensation package of €312m, which she negotiated for Ireland as part of the reform of the sugar regime in November 2005.  Of the €312m,  €123m will be paid to beet growers over the next seven years as part of the single farm payment scheme as compensation for the drop in the EU price of sugar beet.  In addition, €44m diversification aid from the restructuring fund has already been earmarked for growers.  Minister Coughlan said that today's decision relates to the remaining element of the restructuring fund, the restructuring aid which will amount to €145m and is funded by a levy on those EU sugar processors remaining in business.

Today's Government decision was based on the report submitted by the independent expert (Indecon International Economic Consultants) following a rigorous consultation process involving all interested parties.  The decision reached on the percentage of the aid to be reserved for growers and contractors is the maximum compensation for losses by this group that could be allowed.  The independent expert proposed a range of losses and the Government decided to accept the higher estimate of losses in line with the recommendation of the independent expert.

The key Government decisions are outlined overleaf.

Government Decisions
  1. The Government has decided to allocate 32.38% (€47.1m) of the EU sugar restructuring aid to growers and contractors.  This is the maximum of the range of between €34.7m-€47.1m estimated by the independent expert to provide full compensation for growers for the loss of income and full compensation for contractors of the loss of value of specialised machinery.  The Government believes that this is needed to provide adequate overall compensation for growers and contractors.  This is the maximum which the Government is in a position to allocate given the requirement of the EU Council regulation to allocate funds on objective and non-discriminatory criteria.
  2. The Government has decided to allocate 27.50% (€40m of the €47.1m) to growers and the balance to machinery contractors.  Growers who were also contractors will be eligible for compensation for the loss of value of specialised machinery.
  3. The Government has also decided that all of the €44m of the diversification fund will be allocated to growers.  The combined allocation of the restructuring fund and the diversification fund will provide compensation to growers and contractors of €91.1m.
  4. In deciding to allocate €47.1m of the restructuring fund for growers and contractors, the Government has rejected Greencore suggestions that the compensation for these two groups should be confined to a maximum of €14.5m, which is the minimum level specified in the EU Council regulation.  While the Government decision on a higher percentage of the fund for the growers and contractors in Ireland is a multiple of the levels awarded to date in other countries, and a multiple of the minimum specified in the Council regulation, it is necessary to provide full compensation for growers and contractors in circumstances where the industry is ceasing and is in line with the recommendations of the independent expert.
  5. The allocation of any balance of the restructuring fund will be strictly conditional on the approval by the Government of a restructuring plan to be submitted by Greencore.  The Government has decided that any plan, which does not provide a sound economic balance will be rejected.
  6. The Government believes that a sound economic balance in any restructuring plan will require the following:
    • full compensation for growers and contractors to the amount of €47.1m as specified above;
    • compensation for redundancy payments in line with the recommendations of the Labour Court;
    • protection for vulnerable pensioners in terms of additional funding to meet the pension requirements;
    • implementation of an appropriate environmental and social plan.
  7. The Government believes that the requirement of ensuring a plan with a sound economic balance, as outlined in paragraph 6, will mean that given the level set for the fund by the European Union there are no monies available to provide any compensation for Greencore for loss of income or for impairment on the value of assets.
  8. On the basis of today's Government decision, Greencore will now have to submit a restructuring plan to the Minister.  This plan will have to take account of the Government's decision on the apportionment of the restructuring aid and on the other areas to which the Government has decided funds be directed.  An illustrative breakdown of the potential allocation of restructuring and diversification aid is presented in the table below.  This will be subject to receipt and approval of the restructuring plan.

 

   Restructuring Aid Diversification Aid   Total  

A. Growers and Contractors1

 
  €47.1m  €44m  €91.1m
 B. Employee Redundancy Payments2  €28.4m  0  €28.4m
 C. Environmental and Demolition3  €20.0m  0  €20.0m
 D. Pension Fund Maturity/Training and Outsourcing4  €12.8m  0  €12.8m
 E. Transfer to Meet Employees Pension Fund Requirement  €37.2m    
1Consistent with Government Decision
2In line with Labour Court recommendations
3Based on plan agreed with Environmental Protection Agency and estimates provided by Greencore
4In line with Greencore estimates

 

Announcing today's Government decision, Minister Coughlan said: "Of course, I would much prefer if sugar production had continued in Ireland.  That had been my primary objective throughout the negotiations on reform of the EU sugar regime when Ireland played an active role in a group of 11 Member States who had common cause in seeking to modify the Commission¿s reform proposals.  The group had remained steadfast in its opposition to the proposals right up to the final Council meeting in November 2005.  It was only when the political solidarity collapsed that my focus switched to maximizing the compensation package for Irish stakeholders.  The success of my negotiating strategy in these difficult negotiations was reflected in the final compensation package worth over €310m, which was way beyond the most optimistic expectations."

The Minister said: "The Government decision was fair and balanced and was consistent with objective and non discriminatory criteria and would provide a plan with a sound economic balance".  She said: "Providing full compensation for growers and contractors as well as for redundant workers was consistent with achieving a sound economic balance". She also said that she was pleased that the proposed priorities would assist in protecting pensioners who were among the most vulnerable interests as well as growers and small contractors.

Minister Coughlan added that the aid had to be allocated in accordance with terms of the governing EU regulations.  "Given the failure of the interested parties to agree amongst themselves on distribution arrangements, and in view of the diametrically opposed positions they adopted, it was never going to be possible to satisfy everybody," the Minister said.  She acknowledged that the allocation for beet growers and machinery contractors was considerably higher than the 10% minimum specified in the regulation but this was needed to compensate growers.

"Following today's decision, the total payments from the restructuring fund to growers and contractors will, when account is taken of the diversification aid, amount to  €91m in addition to the €123m to be paid to growers under the Single Payment Scheme.  Ireland was unique in that it was the only Member State in which sugar production had ceased completely and this would substantially account for the higher allocation for growers and contractors than in certain other Member States."

The Minister concluded by setting out the next steps in the implementation of the restructuring aid: "The arrangements announced today are, of course, contingent on the submission and approval by the Minister of an aid application to be made by Greencore in accordance with the relevant EU regulations.  Under the EU regulations, Greencore must submit the application before the end of this month.  The application must include a detailed restructuring plan for the industry, including a social plan detailing the actions planned in particular with respect to re-training, redeployment and early retirement of the workforce concerned.  It must also include a detailed environmental plan.  On receipt of the application, I will be asking my colleagues the Minister for Enterprise, Trade and Employment and the Minister for the Environment, Heritage and Local Government respectively to examine the social and environmental elements of the plan.  A decision on the granting of the aid must then be made by the Member State by 30 September 2006 at the latest."

12 July 2006

Attachment:  Relevant Executive Summary extract dealing with Loss to Growers and Contractors from Independent Expert Report.

Notes for Editors

Background

1. Under the EU sugar regime, Ireland has a production quota for manufactured sugar of 199,260 tonnes. Over 3,700 farmers grew sugar beet under contract to Irish Sugar Ltd (a member of the Greencore Group), and received about €75m annually for the crop. In March 2005 Irish Sugar Ltd closed its Carlow factory and concentrated its sugar manufacturing operation at its one remaining plant in Mallow.  The plant in Mallow closed in May 2006.

2. The agreement on reform of the EU sugar regime, reached by the Council of Agriculture Ministers in November 2005, was the culmination of protracted and difficult negotiations.  The regime had remained largely unchanged for almost 40 years and reform was inevitable due to international pressures arising mainly from WTO and EBA obligations.  To comply with these obligations, the EU had no option but to curb production substantially.

REFORMED REGIME

3. The new regime, which came into effect on 1 July 2006, involves severe price reductions in the guaranteed prices for sugar and sugar beet with compensation for farmers for the reduction in the price of beet.  This compensation will be paid as part of the Single Farm Payment Scheme and will amount to €123m for Irish farmers over the next seven years.

4. The new regime also involves a voluntary restructuring scheme for the sugar industry designed to reduce production of sugar throughout the EU.  Under the restructuring scheme:

    • aid is provided as an incentive to sugar processors to renounce quota and close factories.  The restructuring aid applies to factories that closed on or after 1 July 2005.  For renunciation of the Irish sugar quota and closure of a factory the total aid to be drawn down under this measure is €145.5m.  The Regulations provide that at least 10% of the aid must be reserved for beet growers and machinery operators and allow Member States the discretion to increase the amount provided that an economically sound balance between the elements of the restructuring plan is ensured.
    • diversification aid to be paid as part of a national restructuring programme is also payable.  The amount available to Ireland is €43.6m.  The intention is that this aid will be paid to beet growers.

5. The restructuring scheme is governed by Council Regulation (EC) No 320/2006 of 20 February 2006 and Commission Regulation (EC) No 968/2006 of 27 June 2006 (available on the EU website http://eur-lex.europa.eu).  These stipulate that the aid is for processors, beet growers and machinery contractors.  The aid is to be drawn down by means of a restructuring aid application to be submitted by Greencore by 31 July 2006.  The application must include a restructuring plan containing among other elements:

    • the amount to be granted to growers and contractors;
    • a business plan detailing the modalities, timetable and costs of factory closure;
    • a social plan detailing actions planned in the redeployment of the workforce;
    • an environmental plan detailing the actions planned to respect environmental obligations;
    • a financial plan detailing all the costs in relation to the restructuring plan.

6. A minimum of 10% of the restructuring must be reserved for beet growers and specialised machinery contractors to compensate for resulting losses. Member States are authorised to fix a higher percentage on certain conditions.  To ensure an equitable allocation of the aid, the Government appointed Indecon International Economic Consultants to act as an independent expert and the Department of Agriculture and Food engaged in a rigorous and comprehensive consultation process with interested parties.

CRITERIA AND REFERENCE PERIOD FOR ALLOCATION TO GROWERS & CONTRACTORS

7. The €47.1m fund for growers and contractors will be allocated on the following basis:

(a)  In the case of growers the distribution to individual growers of the percentage of restructuring aid allocated to growers will be determined on the basis of the quantities of sugar beet contracted by the grower in the relevant reference period.

(b)  In the case of specialised machinery contractors the percentage of restructuring aid allocated will be determined on the basis of the value of specialised sugar beet machinery owned by the contractor taking into account the losses resulting from the restructuring process.  This latter factor will be based on inclusion as eligible all specialised sugar beet machinery of 8 or less years old.  A 12.5% depreciation rate per year will be used to determine the amount of aid provided.  In other words, the value of machines when new will be depreciated by 12.5% for each year of use.  If the percentage of aid provided for contractors is not the same as the level implied by compensation on this basis a pro-rata approach will be taken.

(c) The reference period will be based on 2004 and to include the previous or subsequent year namely 2003 and 2005.

PAYMENT TIMETABLE

8. Under the EU Council Regulation, if the restructuring application is successful, the aid  would be payable in two instalments, the first instalment of 40% in June 2007 and the second instalment of 60% in February 2008.  Depending on the financial resources available, the EU Commission may decide to split the second instalment into two payments.  Further details of payment arrangements will be announced in due course and individuals in the approved categories should not submit claims at this stage.

Attachment:  Relevant Executive Summary extract dealing with Loss to Growers and Contractors from Independent Expert Report.  The summary is available also on the Department's website www.agriculture.gov.ie.  

Date Released: 12 July 2006