Sugar remians in doldrums despite German deal
Germany's Nordzucker has bought majority shares in three state-owned mills in the Torun region in north central Poland, breaking the recent lull in the government's sugar privatization program.
As a part of the deal signed two weeks ago, Nordzucker took 51% of the shares in the Chelmza, Melno and Krasiniec sugar factories. The deal will not only give Nordzucker a 9% market share, it also makes the company the second largest foreign player on Poland's sugar production scene. British Sugar Overseas (BSO) became the largest this summer when it bought three mills from Denmark's Danisco and Poland's Rolimpex for $20.1 million. That transaction gave BSO about an 11% share of the market.
Adam Koziolek, the Nordzucker proxy in Poland, would not comment on the specifics of the privatization deal.
While sealing the deal represents a shot in the arm for the government's privatization program, it couldn't have happened at a less fortuitous moment for Nordzucker. The acquisition, which comes in the middle of this year's sugar campaign, means that any restructuring and modernization of the factories planned by the new investor will have to be postponed until next year.
"For us it was a very uncomfortable moment for privatization," Koziolek said. "We can't do anything during the campaign, we can only start with the investments next year."
But in some respects, it's lucky the deal is moving forward at all. Since last year, the effort to privatize the mills has been at a standstill. Union leaders and some Solidarity Election Action (AWS) deputies have been trying to halt the sale of sugar mills to foreign investors and have instead pushed for the industry to remain in Polish hands through the creation of a national cooperative, Polski Cukier.
Another foreign investor, the French Saint Louis Sucre (SLS), has been in negotiations with the government since last winter to finalize the deal over the purchase of the 16 mills that make up the Slaska sugar holding in southern Poland. While the contract was due to be signed earlier this month, according to Leszek Podstawski, director of the SLS office in Poland, it will probably be mid-November before the actual privatization takes place. Podstawski would not give any details about the holdups in the deal.
For its part, Nordzucker is also waiting for the ministry to sign off on another deal in which the company would acquire mills in the Szczecin and Gdansk regions. "We are waiting for a decision from the Treasury Ministry," Koziolek said.
Under the original government privatization plan, the Slaska holding would be sold off entirely to foreign investors. The remaining three holdings would be broken up and sold off to foreign or Polish investors in small, regional groups of mills.
Part of the delay may be due to the ongoing debate over the Polski Cukier initiative. Earlier this year, the government weakened the Polski Cukier plans when the Cabinet voted to move forward with rapid privatization and limit the creation of a national concern to 16 mills. But for some, the lack of progress means that the fate of the government's privatization program and the national concern are far from sealed.
"We thought that after the elections the situation would become clearer," said Stanislaw Gierszewski, president of Poland's Sugar Chamber of Commerce.
Some clarity may come this week when the Sejm is slated to receive a sugar sector update. According to Jan Wyrowinski, a Freedom Union (UW) deputy from Torun, that meeting should give a clearer picture about the fate of the remaining state-owned mills and the Polski Cukier initiative.
With privatization at a standstill and this year's campaign reaching its peak, the economic outlook for the sector is again turning grim, industry leaders said last week. Two months ago, before the launch of this year's harvest, many in the industry were hopeful that high sugar prices could mend the beleaguered industry. But a month into the campaign, a drop in prices has many worried that this campaign could suddenly go from sweet to bitter.
From the beginning of January to August sugar prices in Poland jumped from zl. 1.94 per kilo to zl. 2.96, according to the Foreign Agricultural Markets Monitoring Unit in the Foundation of Assistance Programs for Agriculture (FAMMU/FAPA).
For many in the industry, the higher price for sugar meant the industry might start to produce at a profit and could have a chance to chip away at debts that have burdened producers during the past couple of years. By the end of last year, the sector had racked up total debts estimated at zl. 2 billion ($440 million).
But these expectations have been dashed during recent weeks as the sale price of sugar has gone into free fall and landed at just below the zl. 2 level.
"The (fluctuations) in price are a very bad thing for the industry," Koziolek said. "In this situation it's very hard to plan."
While the price of sugar on the international market has also started to fall in recent weeks, the sudden collapse in prices is caused by the poor liquidity of a handful of mills, industry leaders said. According to Gierszewski of the Sugar Chamber of Commerce, about 12-15 mills have been unable to qualify for bank loans that would allow them to buy beets from farmers. In an effort to bring in the cash to fund the production of sugar, these mills are selling at zl. 1.94 per kilo, the minimum price allowed by the government.
"We should be selling at zl. 2.40 (per kilo)," Gierszewski said. "For production to continue, these mills have to have money and the only way they can get money is through the sale of sugar."
To stop prices falling, Gierszewski has called on the government to step in and guarantee bank loans for struggling mills.
"We are waiting for the Cabinet to make a decision," he said. "Without these guarantees we won't be able to take steps to regulate the price on the market."
