The UK sugar industry is emerging fighting fit from the deadening weight of Europe’s past protectionist policies. But the transition has been, and continues to be, a challenge. Gay Sutton talks to Gino De Jaegher, the man parachuted in to guide and lead the customer-focused revolution
The sugar industry across Europe has been undergoing a dramatic transformation. Like many industries in the old European Union, it had basked in the unnatural light of extensive trade protectionism. The amount of sugar produced and the price at which it was sold were stipulated by the European Commission (EC). “The focus of the industry was to make as much sugar as it could, and sell it to the domestic market,” explained Gino De Jaegher, CEO of British Sugar. “If you couldn’t sell it there, you would sell it on to the EC,” from where it was dumped on the world market at a discounted price. Meanwhile, the EC erected import tariff barriers to prevent other nations selling these products into European markets.
It was a very cosy trading environment enjoyed by many areas of the food industry, the system nurtured the weak and left the entire sector more or less immune to the realities of market forces. But the world has become much more critical of the incredible damage this practice has done to the less developed nations, and indeed of the crippling effect it has had on the health and competitiveness of the sector itself.
“That equilibrium has been broken over the last couple of years with the WTO (World Trade Organisation) intervention,” De Jaegher said, “culminating in the agreement whereby we open up our borders with less developed countries. The agreement is twofold: Europe will export less sugar onto the world market, and will allow less developed countries to export everything but arms into Europe.”
The transition has been painful and challenging for everyone involved, and the process is still under way. “We have agreed a programme of transition whereby the amount of sugar produced in western Europe is gradually reduced, the price of sugar in the European Community is cut by 36 per cent between 2006 and 2009, factories are closed as a consequence, and we open our borders for imports from the least developed countries.”
To incentivise and accelerate this process, Europe has imposed a levy on sugar producers and the resulting pot of money, “is then divvied up to incentivise the least cost-efficient manufacturers in Europe to close and get out of the business,” De Jaegher explained. “The result is that prices have come down, factories have closed across Europe and there is a lot more competition between the markets internally as, for example, the French are trying to export to the UK and we’re trying to export to the French.”
To date, of 180 sugar producing factories across Europe around 74 have closed, and two of these have been in the UK. “Eighteen months ago we had six factories, today we have four,” De Jaegher said.
The transformation began in 2005 and is expected to lead to complete liberalisation of the marketplace by 2013 to 2014. But preparing British Sugar for this change is a monumental task. “And that’s where I come in,” De Jaegher continued. Nine months before I spoke with him, he was parachuted in from Proctor & Gamble, a very customer-focused global player in the fast moving consumer goods (FMCG) sector.
“What I found was a company that was extremely passionate and proud; a company with an enormous expertise in its people, particularly in agricultural, chemical and mechanical engineering. My task is to lead from the front in this next chapter towards complete liberalisation of the marketplace – bringing my knowledge of customer service and marketing and sales to the technical and agricultural expertise that this company has.”
The supreme challenge was to move from what he described as more or less a public company – “ regulated and cosy” – to an organisation that is fighting fit to compete in a highly competitive and liberated marketplace.
The transition is being fought on three main fronts: product innovation to provide the customer with bespoke products; optimisation of the manufacturing plant to reduce costs, increase revenue and transform waste into further product streams; and finally, to increase the efficiency and reliability of the supply to the customer, working to improve all aspects of the supply chain from the agricultural needs of the farmers through to the end customer.
“One of my earliest interventions was around customer service. When you are delivering to someone like Tesco, you have a customer who [quite rightly expects] 99 per cent on time delivery. That is where there is a great opportunity to learn from industries like FMCG. The on-time infull delivery has been improving. It was at the high 80s, but is not yet in the high 90s, which is where we need to be if we want to continue to be the supplier to Boots or Tesco.”
De Jaegher believes he can make a big difference both at the strategic and cultural level. “I’ve brought together a new team predominantly sourced from the second line management. We’ve moved from what was a two sided structure: commercial and operations. Now they all report to me and I’m trying to weld them more closely together, to take the silos out.”
One core area where he believes he can make a difference, “as an outsider coming from a different industry,” is by investing in his staff development and graduate recruitment, and through setting very clear targets and KPIs. “In other words, creating a culture of ambition and achievement. One main item on the agenda is to create a broader game plan and then to ensure the entire business flies within the wings of that game plan, as much as the red arrows are orchestrated and have to work together to deliver that game plan.”
De Jaegher came in to a company that was already making great strides in refocusing on customer service. “We have a food centre in Peterborough where a couple of technologists work with our customers, studying their needs,” and coming up with new products and ingredients streams. British Sugar now has around 200 products of which 30 are bespoke varieties.
The company has also had considerable success at exploiting its core agricultural, chemical and mechanical engineering skills, and this has led to a range of new product/revenue streams and a dramatic reduction of waste and power consumption.
All areas of waste are continually being examined and turned into revenue streams. The soil and stones that arrive at the plant on the sugar beet are cleaned, screened, packaged and sold back to the industry. The residue at the end of the sugar extraction process is dried and pelleted as animal feed. The company has built an extraction plant – aptly called the Phoenix plant – at Wissington which retrieves Betaine from the waste residue. This chemical is found exclusively in sugar beet, and is of great value to the cosmetics and pharmaceutical sectors. But perhaps the most imaginative diversification scheme so far is the construction of a vast greenhouse behind the Wissington plant. Residual heat, waste water and CO2 are piped into the greenhouses, and tomatoes are harvested through a prolonged growing season from February to October. So successful has the project been, that Wissington is the UK’s largest single tomato producer.
In November 2007 the company opened the UK’s first bio ethanol plant, also at its Wissington factory, turning sugar beet into fuel. The current debate on the ethics of using a food commodity – in a climate where there are increasingly severe food shortages – to produce fuel is becoming more and more heated. But at the time construction commenced on the plant in 2005 this issue had not even surfaced. When I challenged De Jaegher about the ethics of using sugar beet for fuel, he was very clear in his reply. “I would distinguish between good bio ethanol and bad bio ethanol. The beet we are using to produce the bio ethanol is the beet that we were previously turning into sugar, but can no longer export onto the world market. So we are using beet that can no longer be sold.”
Beyond beet, the company is currently engaged in a joint venture with BP and Dupont to build a plant six times the size – near Hull – which will produce bio ethanol from wheat.
Meanwhile, the soaring costs of energy are creating a nice revenue from bio ethanol, however, it is also having a big impact on the sugar-making business, which is a gas hungry process. “It will cost us £40 million more to produce our sugar next year than it did 18 months ago,” De Jaegher commented. And this dramatic rise in input costs will inevitably have an effect on the company’s plans to continue reducing output prices as required by the EC as it liberalises the sugar industry.
The danger for British Sugar is that the impact is not uniform across all the European competitor nations. “The German industry, for example, uses lignite – a brown coal – and has a significant fuel price advantage over us at the moment.” For an industry that is opening up to the brutal realities of pure market forces, this could create a significant competitive disadvantage. However, De Jaegher is determined to make even stronger efforts to reduce the use of energy, particularly in the manufacturing process. “We are asking how can we further optimise processes so they are more efficient.”
The company installed a heat exchange process at Wissington as part of an ongoing programme to reduce its carbon footprint, and “this has turned out to be a wise investment. We made the decision when gas was at 30p a therm, so you can see how important it is now.”
Factory manager Melvyn Mallott explained how the heat from one process is recovered and then used again and again, until it is finally ducted into the tomato-growing glass houses, after which it is lost to the atmosphere. “The system has reduced the amount of energy used to make a tonne of sugar by over 20 per cent. Using energy just once was simply not good enough,” he said.
Finally, the knowledge gained from these experiences is willingly shared with customers and suppliers, and is likely to benefit British Sugar as it continues its expansion plans in China, Africa and Poland.
For every tonne of sugar made in the UK, a typical Chinese factory, for example, uses seven times as much energy.
But as Chinese energy prices increase, the knowledge gained in the UK will be of enormous value in helping to keep a lid on costs.
