Furore over 'meddling' in Latvian sugar sector

In an interview with the Latvian news agency LETA, Valija Zabe, director general of the Liepaja Sugar Refinery, claimed that the recent decision by the Latvian government to cut its sugar quota by 6.5 per cent was a purely political measure designed to push the refinery towards bankruptcy.

Liepaja has been in dispute with its own sugar beet suppliers for some time over the price it pays, but Zabe argues that the authorities in Riga have acted illegally by effectively 'punishing' the company through a reduction in it sugar quota. Zabe said that the dispute should be settled in the courts, like any other commercial case.

She highlighted a similar case involving a rival refinery, Jelgava, which she claimed had also refused payment to beet growers because of a disagreement over price, but which had not faced the same sanction from the Ministry of Agriculture.

The reason for this, according to the LETA report, was purely economic. Jelgava is apparently being courted by Danish sugar processor Danisco, and Zabe claimed that the government's move to reduce Liepaja's quota and transfer it to Jelgava was motivateda entirely by the desire to make Jelgava as attractive an investment possibility as possible.

Danisco confirmed its interest to LETA in 2004, but said that it had suspended talks with the Latvian firm pending the reform of the European sugar regime. Danisco has not commented on Zabe's claims. ED& F Man, the British sugar processor, currently holds a 35 per cent stake in Jelgava with food wholesale Lex-U holding the controlling 51 per cent stake. Lex-U became Danisco's Latvian distributor in 2003.

Zabe told the news agency that she was prepared to go to court to stop the Ministry arbitrarily reducing Liepaja's sugar quota, adding that such a move would also harm sugar beet growers forced to renegotiate with Jelgava. It would also delay the processing of their beet, she added, in turn reducing the quality of the sugar processed from it.

For its part, the Ministry claims that the reduction in quota is because Liepaja has failed to fulfil its commitments to its beet suppliers, reports LETA. However, the report also pointed out that both Liepaja and Jelgava had originally been accused of poor treatment by their suppliers, with fines due to be imposed on both as a result - before the government appeared to change its mind.

Latvia's sugar industry has come under serious pressure since the Baltic country joined the EU in May last year. A flood of low cost sugar imports has slashed both processors' output - Liepaja's output dropped from 2,500 tons in May 2003 to just 700 tons, for example. Prior to EU entry, Latvian companies had to buy their sugar from the country's two refiners, with imports limited to just a small quantity.

Other reports in the Latvian press last year claimed that both refineries were involved in a price fixing cartel with a number of intermediary companies - claims denied by the firms involved. According to the reports, sugar users were often obliged to use intermediary companies supplied by both Liepaja and Jelgava to source their sugar, including one company, LC Logistika, in which Zabe has a substantial shareholding.

The reports suggested that these intermediaries often colluded with the sugar refineries to artificially inflate the price of the sugar, sometimes by as much as 10 per cent.