Presentation to the Joint Oireachtas Committee on Jobs, Enterprise and Innovation

June 18th. 2013

Mr Michael P Kelly Former CEO, CarlowCountyEnterprise Board

Mr Chairman and members of theCommittee,I thank you for your invitation to attend your meeting today and present on your South East Economic Development Strategy Report. I have been directly involved in promoting enterprise in my role as CEO of the Carlow County Enterprise Board. While I retired from that position last year, I continue to support and encourage enterprise in the region.

One of the primary projects with which I have been involved is the Feasibility Study into the establishment of an integrated bio-refinery plant, for the production of sugar and ethanol from sugar beet and grain in Ireland. The Study findings show that the project can generate significant job opportunities and provide an additional source of income for tillage farmers, while eliminating imports of up to €200 million/annum and enhance security of sugar supply for food processors and consumers.

The plant would be located on a new site in the South East of Ireland, at the centre of the sugar beet growing region. It would cost €350 million, of which around €200 million would be sourced from Irish contractors and suppliers.

30% of the required finance would come from equity investment and the balance of 70% from bank loans, borrowed over 15 years. The study group is confident that the profitability of the venture would make it attractive to investors, including potential growers of sugar beet and lenders.

The Feasibility Study was drawn up by the Irish Sugar Beet Bio-Refinery Group. The expert group included former senior executives in Irish Sugar and Greencore, leading scientists in University College Dublin and farmer representatives. The financial figures were verified by international consultancy firm, PwC.

Outline of Business

The bio-refinery plant would have an annual production of 154,000 tonnes of sugar and 50m litres of ethanol. This would be produced from 1.2 million tonnes of sugar beet, of which one million tonnes would be used for sugar and 0.2 million tonnes for ethanol. A further 56,000 tonnes of grain, as well as molasses, a by-product of sugar processing, would be required to produce the annual target of 50 million litres of ethanol.

Based on a yield of 60 tonnes/ha (24 tonnes/acre), there would be a requirement for 20,000 hectares (50,000 acres) of sugar beet. At an average of 10ha per grower, this would involve around 2,000 growers. The grain requirement would come from some 7,000ha of wheat.

Price

The Study indicates that growers would be paid €40/tonne for sugar beet at 16.5% sugar content, delivered to the plant. This is based on an ex-factory sugar price of €570/tonne which, based on current sugar prices of over €770/tonne, is a conservative figure.

If average sugar prices are higher than €570/tonne, it is proposed to pay 40% of the increased profits to growers. If the current high sugar prices were to be maintained, this formula would ensure a sugar beet price in excess of €50/tonne, having regard at all times to the cost of production elsewhere in the EU.

Employment

According to the Study, the plant could be constructed within two years of EU approval being granted for the restoration of sugar production in Ireland. Up to 500 jobs would be created during the construction phase and the plant would directly employ around 200. There would be additional jobs created on farms, in agricultural contracting, haulage and in the service industries.

The study shows that the establishment of a joint sugar/ethanol plant is critical to the financial viability of the project. The proposed annual output of 154,000 tonnes of sugar is equivalent to the annual sugar demand in Ireland.

EU Approval

The EU Sugar Regime underwent a radical reform in 2005 following major EU decisions to restructure the industry.Greencore, the holder of the entire Irish sugar quota, availed of this voluntary scheme, dismantled its facilities and ceased production in 2006. At present there is no mechanism under EU Regulations, which run until 30 September 2015, that would allow for the re-instatement of the sugar quota for the growing of sugar beet in Ireland for the production of sugar.

In 2011 the Study Group met with Minister Coveney to present our feasibility study, into the possibility of rebuilding a new sugar industry in the country. Minister Coveney clearly stated at that time and since, that any venture to develop a combined sugar/bioethanol production facility would have to be a commercial proposition, financed in total by investors and interested parties and make sound economic sense in order to be viable and that it would have to justify the very substantial investment to build a new facility.

We recognize that under the Irish Presidency, negotiations are ongoing to finalise the CAP reform package that will be in place for the future, including provisions for sugar production in the EU post 2015. At the March meeting of the Council of Agriculture Ministers, Minister Coveney as current President of the Council, made a compromise proposal that garnered the support of a large majority of Member States, to extend the current quota regime for a further two years until 30 September 2017, when it would finally cease. This is now the formal negotiating mandate for the Agriculture Council as they enter the final phase of the ongoing CAP Reform negotiations with the European Parliament and the Commission. We understand that a decision on the overall CAP Reform package, including the future of the EU sugar regime, will be sought at the next session of the Agriculture Council in Luxembourg beginning on 24 June, when hopefully it can be brought to a successful conclusion, before the Irish Presidency ends on 30 June.

Competitiveness

Competitiveness will be a key driver of the proposal. While an initial advantage of circa €40/tonne will be secured with local production, beet transport costs and fuel requirements can and must be minimised by locating the plant central to the main production area. The Study Group are confident that with improved technology and a dedicated group of skilled growers, yields well in excess of 60 tonnes/ha can be achieved. This makes Irish sugar beet production competitive. Research by Professor Jimmy Burke of University College Dublin has shown that these yields can be attained in this country.

Bio-Fuel Substitution

The ethanol production component of the project would also make an important contribution to achieving the 10% bio-fuel substitution target by 2020. Early in 2009, the Renewable Energy Directive was adopted by the European Commission, European Parliament and Council of Ministers. The Directive sets a mandatory target for the EU to produce 20% of its final energy needs from renewable sources by 2020; the Irish target has been set at 16%. Independent of that target, 10% of transport energy must also come from renewable sources. Bio-energy will be expected to make a major contribution to the achievement of both targets; the extent of the envisaged contribution is made clear in the Irish 2007 Sustainable Energy White Paper

Ethanol production requires a large scale to be economic, a large capital investment and up to five years to establish. Support measures therefore need to be very long-term if they are to provide the reassurance needed to secure investment in the sector. As with the other transport biofuels, an obligation system sensitive to the needs of Irish biofuel producers is critical.

Conclusion

The Study shows that a viable and profitable industry based on sugar beet as the primary raw material, and sugar and ethanol as the main products can be established in Ireland. The industry would have very significant employment opportunities during both construction and operation and wide reaching benefits for growers, contractors, hauliers and the local and national economy. Some obstacles would have to be overcome before it could become a reality, although these are not considered insurmountable.

Many of the successful sugar beet operations in continental Europe are controlled by growers and grower cooperatives and if a sugar beet project is to proceed and survive long-term in Ireland, it would be desirable if beet growers and the farming community had a substantial financial interest in it.

I amhappy to answer any questions that your committee might have on this matter. Thank you.