Jelgava sugar mill decides to shut down

  • 2006-03-15
  • Staff and wire reports

RIGA - Shareholders of Jelgavas Cukurfabrika, the larger of Latvia's two sugar mills, have decided to cease operations since the new EU-mandated production cuts would make the business unprofitable. Board member Maris Freifalts told reporters that, according to the company's calculations, even in the best scenario the plant would lose 2.2 million lats (3.1 million euros) this year if it continued operations in line with existing quotas 's which were cut 8.6 percent by a recent EU decision.

With natural gas prices set to increase and pressure on wages, the mill could probably lose even more - up to 5.5 million lats. Once production shuts down, Freifalts said that Jelgavas Cukurfabrika would receive some 22 's 27 million euros in compensation from the EU, while sugar beet farmers would receive up to an additional 23.6 million lats over several years.
The vote to close the plant was nearly unanimous, with 99 percent of shareholders supporting it.
Latvia's other sugar mill, Liepajas Cukurfabrika, was set to have its crucial shareholder meeting on March 14.
Freifalts said a restructuring plan for the mill had to be drawn up and submitted to the Agriculture Ministry by July 31. He said it was unclear whether the plant would be completely or partially mothballed or if some equipment could be used to produce bioethanol.

At present, sugar-beet producers receive about 15 million lats a year from both Latvian sugar mills. If both plants close, compensation paid out to farmers this year would total 6 million lats.
Agriculture Minister Martins Roze was quoted by Telegraf as saying, "There is no way we can influence the decision of the mill's shareholders, but I think that the decision was short-sighted. I am sure that if the mill continued to work, it would save both the industry and jobs, and in the end would have profited."

Jelgavas Cukurfabrika earned 630,400 lats on 14.5 million lats in turnover during the last fiscal year, which ended in August 2005. Freifalts said Jelgavas Cukurfabrika still had about half the sugar made during the last season in its warehouses, meaning the last pack of sugar to roll off production lines would end up on retailers' shelves this fall.
According to the Latvian Business Register database, British company ED&F Man Sugar Ltd. is the largest owner of Jelgavas Cukurfabrika, holding a 35 percent stake in the company. Other owners include several legal entities and individuals. Unofficial reports about changes among company shareholders could not be confirmed.

Sugar is highly subsidized in the European Union, and Brussels has been under pressure from many sugar producing nations such as Brazil to open up its market. After years of debate, the Council of Ministers finally decided to slash subsidized outputs. In Latvia, the production quota was reduced by 8.6 percent, or 5,746 tons, for the 2006-07 season, to 60,759 tons. Further cuts are expected for the following years.

Meanwhile, in Lithuania the output quota is expected to shrink by 6.7 percent to 94,161 tons in 2006. Lithuania's sugar mills produced 124,700 tons of sugar from the 2005 harvest, a decline of 6.1 percent year-on-year. Still, total domestic sales exploded by 31.4 percent to 60,200 tons, while exports rose 8.1 percent to 120,000 tons.

"The sugar market will shrink considerably in the nearest time, although we believe that it will alleviate the marketing of our products," said Rimantas Stulgys, president of Cukrus association. Italy alone mulled the closure of approximately 13 sugar mills, he noted, adding that the cut in Lithuania's quota was far less considerable if compared with market leaders.
Danisco Sugar, a Danish firm, owns two sugar mills, and a third mill, Arvi Cukrus, is located in Marijampole.