Sugar coating a bitter pill
By : Juliet D. Golden
The sugar sector appears to be on the mend, with higher sugar prices fueling the sector's rebound, according to industry officials.
"The situation is better this year," said Stanslaw Gierszewski, president of the Sugar Chamber of Commerce.
Between January and June, wholesale sugar prices have increased by 33% to zl. 2.56 per kilogram from zl. 1.94, according to the foreign agricultural markets monitoring unit of the Foundation of Assistance Programs for Agriculture (FAMMU/FAPA). While figures for July and August are still unavailable, prices continued to climb over the summer reaching about zl. 2.80, said Zygmunt Smolenski, a researcher at the Agriculture and Food Economics Institute (IERIGZ) in Warsaw.
With the higher prices, the industry can start to turn a profit and chip away at debts that have burdened producers over the past few years. By the end of 1999, the sector had racked up estimated short-term debts of about zl. 2 billion ($460 million).
"For many mills that had losses, the last half a year has brought an improvement in their financial situation," Smolenski said. "This is a situation that stabilizes the market."
The mounting prices resulted from last year's government move last year to cut the production of sugar bound for the domestic market by roughly 400,000 tons, according to Andrzej Budzinski, vice president of the board of Rolimpex, a large Polish agriculture concern. "It was, of course, a one-off artificial mechanism that can't be repeated," Budzynski said.
While stability lends a rare comfort to an industry long in the throes of crisis, many industry leaders argue that Poland's sugar industry, the third largest in Europe, is still far from in the clear. Privatization and restructuring will have to be carried out before the sector will be ready to stand on its own once Poland joins the European Union.
"Those who say that this is the panacea for development are just taking into account today's short-term prognosis, they are not thinking about the future," Budzinski said. Last month, Rolimpex and its Danish partner, Danisco, resigned from Poland's sugar production business when they sold off their local holdings to British Sugar Overseas (BSO) Polska for $20.1 million. "The question is not about today, but what will happen tomorrow and in a few years' time when there will be only one European market," Budzinski said.
For the sector to compete in the long term, it will have to undergo restructuring and modernization to cure over-production, which is the main problem facing the industry, Budzinski said. Roughly one-third, or 800,000 tonnes, of the total production capacity of 2.4 million tonnes of sugar is expendable, he said. At present, the government has set production limits at just under 1.6 million tonnes for all of Poland's 76 mills. The government regulates production in an effort to keep sugar prices stable.
Along with limiting production potential, many of they industry's workers will either have to retire or find work elsewhere, said Andrzej Skarbek, former president of the Ropczyce mill in the southeast. "There is no restructuring without lowering by half the number of people employed in the industry," Skarbek said. "Restructuring also means closing mills." Last year, 22,000 people were employed in the sugar industry, according to the Central Statistical Office (GUS).
But restructuring costs money. Laid-off workers will have to be given social security benefits, and money will have to be found to streamline production facilities. Many in the industry argue that this cost cannot be borne without the input of foreign capital. "It's utopian to say that privatization isn't necessary," IERIGZ's Smolenski said. Polish private capital is too weak and dispersed to bear the burden on its own, he added.
To pull in the capital, the government's privatization program includes selling the country's largest sugar holding, Slaska Spolka Cukrowa, to a single foreign investor. The remaining three holdings would be broken up and sold off in small, regional groups of mills.
But since last year, the effort to privatize the mills has been at a standstill. Beginning last summer, union leaders and some Solidarity Election Action (AWS) deputies have opposed a sale to foreign investors and have instead pushed for the industry to remain in Polish hands through the creation of a national cooperative Polski Cukier. Earlier this year the government scored a blow at Polski Cukier proponents when the Cabinet voted to move forward with the rapid privatization of the sugar sector and limit the creation of a national concern to 16 mills.
With the industry in a rebound, some are concerned that the Polski Cukier idea will gain in strength and that the ministry's plan to sell off the sector to strategic investors will be halted.
"I'm worried that some people will say that because of the good price of sugar, privatization won't be necessary," said Boguslaw Stec, Slaska's vice president. "I think that is really short-sighted and very irresponsible. The price of sugar today is not as essential as the future of the sugar sector."
For many, recent changes in the Treasury Ministry have boosted hopes for an enlarged Polski Cukier concept, according to industry officials. Earlier this month, controversial Treasury Minister Emil Wasacz was replaced by Andrzej Chronowski, a little-known AWS senator.
But mill workers from Slaska are not giving up without a fight. In a letter sent to the ministry two weeks ago, worker trade union officials urged the new minister to see through the sale of Slaska to French sugar giant Saint Louis Sucre (SLS). SLS has been in talks to purchase upward of 51% of the holding since April.
While no clear signals have yet to emerge from the ministry concerning the sector, last week the treasury extended the deadline for SLS to complete negotiations over the purchase of Slaska until Sept. 8, according to Leszek Podstawski, office director of SLS in Poland.
