AB Foods closes two UK sugar plants

By Anita Awbi

- Last updated on GMT

Related tags: Sugar, Sugar beet

Associated British Foods, owner of British Sugar, yesterday
announced the closure of two sugar beet processing factories in
northern England, but insisted it can still increase UK sugar
output through efficiency gains.

British Sugar, which currently produces around half of the UK's sugar requirements, said it will close its York and Allscott beet sugar plants at the end of the year, consolidating processing at the remaining four factories around the country.

Additionally, the firm said it wants to purchase the UK's remaining 83,000 tonnes of sugar quota, confident the factory closures will increase productivity rather than reduce it.

"We intend ultimately to produce more sugar from four UK factories than we currently produce from six,"​ said ABF's chief executive George Watson.But the UK's National Farmers' Union said the closures will "change the boundaries for where sugar is grown for the factories"​, adding the decision was a "kick in the teeth"​ to farmers.

Speaking to the BBC yesterday, a union spokesperson said "the timing is a bolt from the blue.

"Sugar beet is the most profitable of the mainstream arable products and whatever farmers do instead is not going to return as much as sugar."

The NFU intends to seek compensation for farmers disadvantaged by the factory closures.

However, recent ABF plant closures in Poland saw the company consolidate processing while maintaining sugar output.

The firm is sure it can maintain output levels in the UK too, but said poorer crop yields in northern England, and falling sugar beet prices had led to the action.

"These developments follow the consolidation of British Sugar's Polish operations into two factories last year and the application to acquire 11,000 tonnes of additional sugar quota available in Poland. Together these will reinforce British Sugar's position as the lowest cost processor in the EU beet sugar industry",​ the company said in a statement.

Last year ABF warned that the new EU sugar reform, fully implemented in February, could slice £10m (€14.4m) from operating profit in 2006-7, and some £40m per year thereafter.

While the reform will mean cheaper sugar sources for European confectioners, a handful of leading ingredients suppliers, including ABF and Danisco, will feel the pinch on the bottom line.

Through the reform the guaranteed price for white sugar will be cut by 36 percent over four years. Farmers will be compensated for 64.2 percent of the price cut through a decoupled payment.

The EU believes that reform will enhance the competitiveness and market-orientation of the EU sugar sector and guarantee it a viable long-term future.

It will bring a system, which has remained largely unchanged for almost 40 years, into line with the rest of the reformed Common Agricultural Policy (CAP).

ABF, currently the fourth-largest food producer in Britain, said profit before tax and goodwill amortisation was down two per cent to £255m for the 24 weeks ended 4 March 2006. Basic earnings per share was down 16 per cent to 21.0p and profit before tax down 13 per cent to £234m.

However Weston was keen to accentuate the positive. "The resilience of the group's operations has produced good results despite tough trading conditions in some markets and sharply higher energy costs,"​ he said.

Related topics: Market Trends

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