25 November 2005 - Associated British Foods plc ("ABF"), the international food, ingredients and retail group, today notes the agreement reached in Brussels by the Council of Ministers for the reform of the EU sugar regime. This agreement follows revisions to the proposals published by the European Commission on 22 June 2005. The agreement has yet to be ratified by the European Parliament.
The ABF businesses affected by these proposals are the sugar operations of British Sugar in the UK and Poland.
These proposals are welcomed by British Sugar as one of the most efficient producers in the EU. The main elements of the June proposal are retained in this agreement but are phased in over a longer time and additional funds are made available for industry restructuring.
The new regime will run from 2006/7 until 2014/15 with no mid-term review. The restructuring scheme, funded by a levy on the industry, designed to compensate marginal producers who relinquish their quota with incentives for early redemption, has been strengthened with additional funds, and compensation is now also available for growers and national governments. It is anticipated that this scheme will deliver the reduction in EU production sought by the Commission. There are no mandatory quota cuts. In addition British Sugar is given the option of purchasing 83,000 tonnes of quota for its UK beet sugar business and approximately 10,000 tonnes for its Polish business.
The proposals include the restructuring levy, payable over 3 years commencing in 2006/7, and reductions in the reference price for sugar of 17% in 2008/9, rising to 36% from 2009/10 onwards. The UK beet price will be reduced progressively from 2006/7 until 2009/10. The current export producer levy will be removed and a lower "production charge" will be introduced from 2007/8. Exports of non-quota C sugar will be reduced.
Our best estimate of the operating profit impact on our sugar operations, which results from this agreement, is based on the assumptions made by the European Commission for its outcome. The outcome is slightly better at the end of the period of transition than the £40m guidance previously given. Trading in the current year for British Sugar UK and Poland has been difficult and we expect volatility to remain during the period of transition. We continue to work on cost reductions in both the UK and Poland and the exploitation of new revenue opportunities including the manufacture of bioethanol in the UK.