The chairman of Associated British Foods (ABF), a major European-sugar producer, says that the industry will have to weather the storm over the coming year before producers can reap the benefits of EU-wide sugar reform.
Martin Adamson told shareholders at the group's annual general meeting on Friday that the changing European market is continuing to hit the company's margins, even though investment and the reforms will eventually bring overall market stability. The comments reflect continuing unease in the food industry over the reforms, as confectioners and manufacturers fear price hikes despite the Commission's attempts to improve and ensure the competitiveness of sugar production. The company said that sugar reform had unfavourably affected its operations during the current financial year. Company earnings from sugar production were down by £30m compared to the previous twelve months, and could continue to drop next year, Adamson claimed. ABF has therefore moved to amend its operations accordingly, and shift towards new markets abroad. Adamson told investors that the proportion of ABF's profits coming from the UK markets was less than half of the company's total income, compared to about three quarters in 2000. Adamson claims that two-thirds of the company's sugar production is now being produced outside of Europe, where consumption rates were also found to be rising. The company is specifically developing its presence in the markets of the Americas, the Asia Pacific, the Middle East, Africa and Europe. For example, ABF purchased a 51 per cent stake in Malian manufacturer Illovo last year, boosting capacity by 200,000 tonnes as part of cooperation with the country's government. Earlier this year, the company also announced plans for investment in Northern China in an attempt to improve agricultural yields of sugar in the country. However, it is not just sugar alone that is compounding food manufacturers declining profitability in the EU, according to Adamson. "I said in my statement in the annual report that reform of the European Union sugar regime will again have a large negative effect on profit in the coming year," he stated. "Although, there is a greater degree of uncertainty than normal about general economic conditions, including volatility in some commodity prices and currencies." With these factors considered though, the company, which also has bakery and retail divisions, said the yearly performance was in line with predictions.
The sugar reforms are part of the bloc's ongoing agricultural reforms (CAP), and were put in place following complaints from several World Trade Organisation (WTO) members that subsidised sugar production in the EU gave member states an unfair advantage. As a result, the EU has agreed to lower sugar production by 4m tons a year.