Danisco has welcomed the EC's decision to introduce a temporary sugar quota reduction as a "necessary step to restore the balance on the market".
A decision has been imminent for weeks. EU agriculture minister Mariann Fischer Boel recently said that such a move was necessary to avoid a significant surplus at the end of the season. "It is clear already today that a substantial withdrawal will be necessary to address the serious market imbalance," said the EC in a statement.
"It is important to announce this initiative to sugar producers and beet growers at this early stage so that the industry can plan for the coming growing season and the contracting process, at a time when decisions on sowing are imminent." A temporary quota reduction of approximately 2 million tonnes of sugar for the 2007/08 campaign is equivalent to an average of 12 per cent of the total EU sugar quota, taking into account countries already having sold quotas back to the EU.
The Danish ingredients firm said that it would have preferred a permanent quota reduction, which it believes could have restored the market balance faster, but nonetheless supports the EC's initiative. The reduction is designed to bring down the massive sugar surplus in Europe, which is a result of the voluntary quota renunciation under the EU restructuring fund being far from the expected level.
Danisco said that the announced temporary quota reduction would have a significant impact on earnings in the sugar division in the coming financial year, but would have no influence on the results of the 2006/07 financial year. It added that sugar production restructuring aimed at adjusting activities to the new EU sugar regime is progressing according to plan, with three factory closures completed as planned and the integration of administrative functions in Denmark and Sweden being well underway.
EU agriculture minister Mariann Fischer Boel recently said that the sugar industry should take greater responsibility to ensure the successful restructuring of the EU market, warning that the Commission would not bail out the sector. Danisco sustains its long-term expectations for future sugar revenue of around DKK 5.5 billion and an EBIT margin of minimum 10 per cent, once the market balance has been restored.
The new sugar reforms, which came into affect on 1 July last year, follow the general trend in European agricultural policy to decouple financial support from production. The EU also agreed last year to lower sugar production by 6m tonnes over a four-year transition period.