RIGA - The dark clouds hanging over Latvia's sugar returned again last week after a state institute issued a fresh report painting a bleak outlook for the country's two sugar mills.
According to the report, compiled by the State Institute of Agrarian Economy, Latvia's two sugar factories should mothball operations as soon as possible, which will allow them to maximize EU-funded compensation.
"From an economic point of view, one must acknowledge that the most rational thing to do is close the industry, since growing sugar beets is becoming ever more unprofitable," Andris Milgravs, head of the institute's economic office, said in a statement.
"In addition, it would be best to cease sugar beet production in 2007 or 2008, since the later the decision is made, the less restructuring funds Latvia will receive," he said, adding that every year the bitter decision is postponed will ultimately cost Latvia some 20 million euros, according to estimates.
The report was not greeted enthusiastically. Vilija Zabe, head of the Liepaja sugar factory, said that not everything contained in the report could be taken as "100 percent" fact. "For example, I don't see any clarity in terms of sugar beet prices," she told The Baltic Times, adding that the report contained no information about how much sugar will cost next year.
The lack of reliable data in the report, Zabe said, made it difficult to come up with a plan for the future. She said she was not sure whether the Liepaja mill would continue operating and that shareholders may make a decision next week.
In February, EU agriculture ministers agreed to cut the minimal guaranteed price for sugar, which in Europe remains one of the most heavily subsidized food items. WTO members such as Brazil have complained for years about the unfair policy as it bars entrance to producers of cheaper cane sugar.
According to the plan, member states agreed to slash the minimum price of sugar by 36 percent, while factories that would be forced to close would receive compensation from a restructuring fund. To accomplish that, the European Commission wants to remove some 6 million tons of quota-based sugar production during a four-year period.
Latvia produced 66,505 tons of sugar in 2005.
The reform program went into effect on July 1 this year, but so far member states have been slow in proposing cuts in sugar output.
Last month Mariann Fischer Boel, the EU's agricultural commissioner, renewed the call for reform and called on agriculture ministers to do everything possible to make the plan succeed.
"Sugar producers who are not competitive should get out now for their own benefit, as well as for the overall balance of the market," said Boel in a statement. "That is the logic of our reform."
Boel warned that if by 2010 the member states failed to make the difficult choices, then the commission would be forced to make "linear cuts" in quotas and that no producer would receive compensation.
Prior to this year's reform the EU's policy on sugar, which in 2005 accounted for almost 2 percent of the EU's agricultural output, had remained largely unchanged for 40 years. But by 2009, the EU will open its market to sugar deliveries from the world's 49 poorest countries.
Latvian Agricultural Minister Martins Roze said that he "would be very happy if arguments were proposed against the decision to cease production," but the data shows that any prolongation of the industry is fraught with risk.