Tiense Suiker: fostering excellence to enable change
In 2017, the sugar market will undergo drastic changes brought about by the dismantling of the EU quotas for sugar production. How does a major player in the sector, like the Belgian Tiense Suikerraffinaderij, prepare for such an upheaval?
Thomas Hubbuch was no stranger to the sugar market in 2005, the year he became first CFO, then CEO of Tiense Suikerraffinaderij in Belgium. "I spent the previous years working for Südzucker, the German sugar conglomerate that became the majority shareholder of Tiense Suikerraffinaderij at the end of the 1980s," explains the CEO. "But that does not mean the job did not have its challenges."
Welcoming dissent for Thomas Hubbuch, the main challenge was fostering a corporate culture where constructive dissent is not only accepted but even welcomed and rewarded. To him, this is an essential step in creating a world-class player. "Despite the huge investments required to build a plant, we are a people business. Machines are fairly standardised: it is the work of our engineers that makes the difference. Moreover, a CEO is by nature a generalist. So, if I am to make an informed decision, I need to be sure that people who do not agree with the proposals on the table will feel free to speak up. Even better: they should be rewarded for doing so. And not only high up in the hierarchy: such freedom is needed at every level of the company. Picture this: a young engineer is in a meeting where there is a discussion about the new piping scheme. He thinks the chief engineer has overlooked some possibilities that might bring in some productivity gains. Will he speak up, or will he remain quiet because he fears that speaking up would adversely affect his career? I want to make sure he speaks up. And even if his solution is not retained this time, I want him to know that next time it could be. Even better, I want him to move up faster through the company hierarchy. I am deeply convinced that this is where the difference lies between organisational excellence and organisational mediocrity."
‘ING has always stood by our site’ - Thomas Hubbuch, CEO Tiense Suikerraffinaderij
Farewell to the quotas
This culture of excellence will be one we will be relying upon to tackle the coming changes. "In 2017, the EU quotas on sugar production will be entirely gone", explains Thomas Hubbuch. "The old system was challenged in front of the WTO at the turn of the century by producers from outside the EU. The WTO ruled in their favour, which means the EU had to change its system. The first important step in that direction was taken in 2006, and by 2017 the process will be complete: European sugar production will be quota-free. This will inevitably lead to a highly competitive market over here in Europe. Nevertheless, it will also give us the freedom to export sugar to the world markets without limitations."
A symbiotic relationship
This new market reality will have an impact on sugar refiners, and also on beet farmers. "They cannot be the only ones who bear the brunt of diminishing sugar prices. You see, our relationship with beet growers is symbiotic. Beets are 80% water, which makes them extremely expensive to transport. Therefore, we have to build our plants next to their fields. Our refineries in Tienen and Wanze are located in one of the best beet-growing regions in Europe. The weather conditions are excellent, and farmers manage to improve the yields of their fields every year while maintaining the same quality. But if beet growers are not happy with their revenue, it is relatively easy for them to switch to other, more lucrative crops. In other words, we shall have to convince them to keep on growing beets by giving them a competitive price for their crops.
From commodity to specialty
Even so, competing with other producers on the world market will not be easy. "Many of them make sugar out of sugar cane. This makes it possible for them to produce sugar over a longer period in the year, whereas our production runs – we call them 'campaigns' – are shorter. That gives cane sugar producers quite an advantage, as they can build smaller plants, while we need enough capacity to process the yearly beet harvest from September to January.
For many producers in the agro-food business, sugar is a commodity. Price is the deciding factor, so competition will be fierce in this sector. But we still have some cards to play, especially on the European markets, thanks to the fact we are located in such a competitive beet-growing area. Another way of making sure our business will endure and prosper is to accelerate the switch to speciality products for retail and business clients. For example, our engineers are very good at making the speciality sugars used by the agro-food industry for complex products. These 'speciality sugars' are highly technical, and tailor-made to our clients’ needs. In other words, quality, not price, becomes the main decisive factor, and so they are "insulated" from the forthcoming changes. This is why we need to increase their share of our production."
A head start
Nevertheless, Thomas Hubbuch feels confident: "We have quite a few cards up our sleeves to face the new changes: the best beet quality with the best yields, grown very close to our processing plants, an efficient production process, a good relationship with beet producers and with our clients… I think other producers will be hit sooner and harder, as they are less efficient because they operate farther away from the fields, or have beets of lower quality. I am confident that Tiense Suikerraffinaderij and Südzucker will be able not only to weather the coming storm, but also to benefit from it."
Loyal partner, steady relationship
"ING has a deep understanding of our business," says Thomas Hubbuch. "This makes ING a confident and loyal partner, also in times where we are facing increased volatility during the business cycle. For example, in 2006, when the first wave of the sugar markets reform went into effect, ING understood our situation and did not alter its lending conditions. This is something I will never forget."
Another reason Hubbuch favours ING is the nature of the relationship with the bank. "ING people really know our business – and they stay longer in the same place. This means I do not have to re-explain every year what we do to another person. This has created proximity and trust, and this is something I value very much in our relationship. ING is quite unique in this on the Belgian market."