The partnership with Gadot anticipates that imports will be restricted following European sugar regime reform and the WTO ruling on exports. Tate & Lyle therefore believes it is putting in place the necessary measures to ensure that its sugar business is not severely affected by the reforms.
The transaction will be completed within 30 days of the contract signing or at a later date agreed upon by the two parties. Gadot said that this would be no later than 30 October 2006.
Estimated set-up costs of the plant will be approximately $18 million.
Tate & Lyle has certainly had time to adjust its operations in preparation of the new reforms. Change has been a long time coming. There has been intense pressure for years on the EU, the world's third-largest sugar producer, to change its heavily criticised regime that artificially which supported internal prices at three times the world level.
This project is also a significant step for Gadot, which has also anticipated changes in the global sugar market due to the new European sugar regime. The company believes that the agreement will give it a competitive edge in a more open global trading environment.
And like Tate & Lyle, the firm said that it intends diversify its operations. Gadot is looking to acquire companies in the health food ingredients industry and in other relevant markets in order to strengthen its position in rapidly growing segments of the market.
The new plant, which will be used for refining raw sugar, will be built at Gadot's premises in Haifa Bay, Israel. This joint enterprise will be operated by a private company to be called Tate & Lyle Gadot Manufacturing (TALGAM( and its shares will be held 35 per cent by Gadot and 65 per cent by Tate & Lyle.
It is too early to assess the true impact of the new EU sugar regime. But in the end, the reforms will increase the performance of the EU sugar industry by forcing out uncompetitive producers. Despite having taken a hit to its profit margins because of the need to restructure, Tate & Lyle is confident that it has put in place measures to guarantee a future in the global sugar industry.