Sticky problems in sugar industry

  • 1999-09-23
  • By Paul Beckman
VILNIUS - Denmark's Danisco Sugar has not experienced anything even
close to a hero's welcome since becoming the strategic investor in
Lithuania's sugar industry. Workers at Lithuanian sugar factories and
Danisco have recently clashed over how to modernize the country's
sugar industry.

The biggest grudge match is over the future of the Marijampoles
Cukrus sugar plant, located in southwestern Lithuania. The
financially battered factory is said to have debts totaling
approximately 32 million litas ($8 million).

The government has refused to throw funding into the factory to get
it back on its feet, despite sugar-beet farmers' efforts to sway them
with protests. Still, a glimmer of hope flickered when a local
fertilizer firm called Arvi unveiled a seven year rehabilitation
project intended to keep the floundering factory in the sugar game.

Implementation of the rehabilitation project will end up requiring 13
million litas, ELTA reported. One part of the plan has Arvi providing
sugar-beet farmers with fertilizers, seeds and pesticides in exchange
for sugar beets.

The barter, which would last about two years, is intended to give the
sugar factory an opportunity to crawl out of its hole. To finance the
barter, the rehabilitators are expecting to latch onto a 10 million
litas credit line. The plan has already been approved at a meeting of
Marijampoles Cukrus.

Danisco, however, offered strong criticism of the plan in the
beginning of September. The Danish company tried to shoot holes in
the plan by claiming it was "based on unrealistic assumptions."

"It is unlikely to satisfy claims of creditors and finally, if
implemented, it could seriously put the modernization of the whole
Lithuanian sugar sector at risk," representatives of Danisco said.
"Without modernization, the Lithuanian sugar industry will be
ill-prepared to face the competition when entering the European
Union."

Instead, Dansico calls liquidation an "attractive alternative." The
Danish company claims that through liquidation, first line creditors
will be paid in full while second line creditors, like the state
budget, is expected to receive 66 percent.

"Even though such a high percentage for the state budget might not be
realized under liquidation, if postponement of taxes is granted, the
authorities in reality will be gambling with a relatively secure
payment in return for a highly uncertain payment in three to seven
years," Danisco management stated.

Danisco admitted that the closure of factories "always has a negative
impact in the local community," but added the company will work to
create a 2 million litas social fund, founded and financed by the
"financially healthy" sugar factories in Lithuania, to ease the
situation.

In addition to having to deal with the Marijampoles Cukrus
rehabilitation plan, Danisco got a mouthful from workers of the
liquidated Pavenciu Cukrus sugar processing plant.

The handful of workers displayed their frustration with the Danisco
in mid-September by picketing outside the Danish Embassy in Vilnius.
According to news reports, the protesters claimed Danisco's
restructuring methods of the country's sugar industry were against
Lithuanian labor laws.