Table Of Contents
2. The Enterprise: Südzucker AG
3. The general current situation of EU agriculture policy
4. The EU sugar policy
In between the worldwide system of agricultural activities, the European Union plays a very important role. As they have both, a huge consumer market and as well as an enormous production capacity, the whole world has a look on what kind of politics they make and how they act. A big change in the subvention funds could have tremendous impacts on the world economy.
The European Union spends an enormous amount of money per year to subsidize its agriculture in order to keep the production of their agricultural products within their own acreages and of course to safeguard employment within the European agricultural branch.
As we see Europe as one country, it would have the fourth largest consumption of sugar and the third biggest sugar production. Germany in this case is number two in Europe in terms of the sugar production and the Südzucker AG is therefore the biggest in Germany. Because the amount of the payments is primarily tied to the size of the enterprise, consequentially, European the German grocery-producer is also the main beneficiary of the European agriculture subsidies funds.
In the following, first of all the enterprise Südzucker will be described briefly. After that, an explanation of the European agricultural policy, including its attitudes concerning subsidies will be given, before it comes to an overview of the EU sugar policy. After all, I will broach the issue of how Südzucker should act in the future in order to save its position considering these overall policies.
2. The Enterprise: Südzucker AG
The Südzucker AG, based in Mannheim, is a global operating German food group with 18,000 employees. Its main segment is sugar. Their turnover per year is EUR 5.9 billion and with their yearly sugar production of 4.2 million tones, they are leader on the European sugar market and one of the largest food companies in Germany. As a stock corporation, Südzucker is of course member of the German MDAX. The dividend was paid out 76 million Euros (0.40 Euros per share). The cash flow amounted to 503.8 million Euros. Because a third surprisingly strong quarter in fiscal year 2008/09 amounts to operating earnings in the first three quarters to 184 million euros, compared to 176 million Euros a year earlier. Group sales in the first three quarters increased by 5% to 4.6 billion Euros. (FAZ, 2009) At the same time the Südzucker AG was, in 2008, with more than 34 million Euros, the biggest German recipients of EU farm subsidies. (Handelsblatt, 2008) These agricultural subsidies are from the European Agricultural Guarantee Fund, financed by taxes, on production from sugar beet farmers and the sugar industry. (Südzucker , 2010)
The Südzucker AG goes back to the “South German sugar- G”, which emerged from a 1926 regional concentration of sugar factories (including sugar factory AG Frankenthal, Baden Society for sugar manufacture, Mannheim, sugar factory Stuttgart AG, Stuttgart-Bad Cannstatt. The official predecessor, the Süddeutsche sugar-AG is the sugar factory Frankenthal AG. The company acquired since 1996, many sugar factories in Eastern Europe, particularly in Poland, and then rose to become by far the largest sugar producers in Europe. In 2005 5.2 million tons of sugar were produced (corresponding to a share of the EU-25 sugar production of 21.8%). On 25 June 2009, the board of Südzucker AG, with the approval of the supervisory board, determined an unsecured convertible bond. The bonds will be issued by Südzucker International Finance BV, a 100% Dutch subsidiary of Südzucker, guaranteed them and is convertible into existing or new shares of them as well. The bonds are offered only to institutional investors outside the U.S. for sale. The proceeds from the sale of convertible bonds will be used for general corporate purposes. (Finanznachrichten, 2009 )
As spokesman for the board acts Wolfgang Heer from Ludwigshafen, chairman of the board is Hans-Joerg Gebhard from Eppingen, who is also chairman of the Association of South German sugar beet farmers eV. The remuneration of the Managing board and the Supervisory board together amounted in 2008-09 to 6.4 million Euros. (Südzucker, 2010)
Südzucker AG is only in three countries of Europe, factories in Germany, Poland and Moldova, established under this name. In Poland and Moldova was established in each subsidiary Südzucker Polska SA and Südzucker Moldova SA.
The company is 55% owned by the Southern German sugar beets exploitation association in Stuttgart, representing in the 30,000 sugar beet farmers in the region. The ZSG Netherlands BV, Amsterdam, Netherlands, with 10% and the Leipnik-Lundenburger Invest Beteiligungs AG, Vienna, owns 2.3%. The rest of the shares are in free float.
3. The general current situation of EU agriculture policy
To understand the consequences for an end-producer like Südzucker, an outlook of the general current situation of the common agricultural policy should be given, also in order to give a clear view on the basic conditions for the producers in the first production step.
The share of agricultural spending in the EU budget is declining, but with 43% (about 56 billion Euros) it is still the largest single budget. In the year 1977, the proportion was 76%. The largest part of expenditure causes the CMOs and their related agricultural subsidies. The EU guaranteed the producers of agricultural products minimum prices. Since these were lowered several times in the past, they receive direct compensation since Agenda 2000, largely independent of the produced quantity. (European Commission, 2009); (Auswärtiges Amt Deutschland (Federal foreign office), 2009)
The objectives of the Common Agricultural Policy were set out in Article 39 of the Treaty of Rome: (European Parliament, 2000)
1. To increase agricultural productivity by promoting technical progress, rationalization of agricultural production and the optimum use of production factors, especially labor
2. The agricultural community, in particular by increasing the per capita income of the agricultural working people, ensure an adequate standard of living
3. To stabilize markets
4. To ensure the supply
5. To ensure that supplies reach consumers at reasonable prices
In Article 34 the creation of a common organization of agricultural markets (CMO), shall be determined, which has, depending on the products, featured on of the following organization: (hri.org)
1. Common rules on competition
2. Compulsory coordination of the various national organizations
3. A European regime
In 1962, the common organization of agricultural markets defined three principles for the common agricultural market. (European Navigator ENA, 2006)
1. Unity of the market: This means the free circulation of agricultural products within the member states, should be applied throughout the EU, the same instruments and mechanisms for the organization of the internal market
2. Community preference: This means that the EU agricultural products have a priority and a price advantage over imported products, which means also the protection of the internal market economy products from third countries and from major fluctuations in the global market
3. Financial solidarity: All expenditure under the CAP will be borne by the community budget.
The Common Agricultural Policy recognizes the structure of peasant agriculture and the structural and natural disparities between the regions and aims at a gradual adjustment of the conditions.
Trade within the EU (intervention prices): Every year, the EU sets a minimum price/intervention prices for certain agricultural commodities. If the market price falls below the minimum price/intervention prices, the EU buys from producers of these products. This is called a support buying. Through this support buying, on the one hand, producer prices are stabilized and taken other surpluses from the market. This will prevent further subsidence of the market price. The purchased products will be centrally stored and, depending on the market, then sold again. This price and purchase guarantee, however, encouraging overproduction. Through the CAP reforms of 1992 and 2003 and the Agenda 2000 intervention prices have been drastically reduced and replaced by income support.
The production costs for almost all agricultural products that are produced in the European Community are far above the level of world prices. Therefore they are not competitive. To prevent flooding the European market with imports from other countries, the EU has adopted the threshold price. A vendor from a non-EU country must pay out the difference between the world price and the trigger price to the EU as a sort of duty. This arrangement is called a levy.
- Arbeit zitieren
- Christian Röse (Autor), 2010, Subsidies in the European Agriculture - Using the Example of the Südzucker AG, München, GRIN Verlag, https://www.grin.com/document/170349