Subsidies to European sugar farmers are to be cut back by 40% under plans unveiled by the European Commission.
Sugar is a key export for many developing countries
Europe's sugar industry faces a "slow and painful death" without reform, EU agriculture chief Mariann Fischer Boel said, as she unveiled the shake-up.
European farmers who stop growing sugar are to get compensation.
The reforms drew criticism from European farmers and sugar refiners, and a lukewarm response from developing nations opposed to EU farm subsidies.
The reforms were necessary after the World Trade Organization last year ruled EU sugar subsidies were illegal following complaints from Brazil - the world's biggest sugar exporter - and Asian producers.
"It's a step in the right direction," said Angelo Bressan Filho, the official in charge of Brazil's sugar policies.
The European Commission hopes that member states will approve its plans - which will see subsidies cut by 39% by 2008 - before the end of the year. Developing countries who export sugar to Europe should also be eligible for compensation.
The Commission's Ms Boel said: "There is no alternative to profound reform.
"I am convinced that EU sugar producers have a competitive future but only if we act now and act decisively to prepare them for the challenges ahead."
The EU has guaranteed minimum prices for nearly 40 years as part of the Common Agricultural Policy (CAP) and the reforms are likely to face fierce opposition in several European countries.
To cushion the impact of the changes, the Commission is offering a number of sweeteners.
It will pay farmers compensation equivalent to 60% of the subsidy cut and extra support for farmers wishing to leave the industry altogether.
The changes could have a devastating effect on Ireland, Greece, Italy and Portugal, with output either being severely reduced or phased out, internal European Commission documents seen by the BBC have revealed.
France and Germany - Europe's two largest producers and among its most efficient - and the United Kingdom are expected to be largely unaffected.
But Europe's big sugar beet refining firms predicted profits would be squeezed, and they would be forced to cut costs which could eventually lead to job losses.
"The price cuts are far too high and are unnecessary," said a spokesman for Suedzucker, the German firm that is Europe's biggest refiner.
The president of French sugar maker Tereos predicted a 25% reduction in profit margins, while UK-based AB Foods said £10m ($18.2m) could be shaved off operating profits in its next financial year, Reuters reported.
Many developing countries say the subsidies have resulted in large surpluses being dumped on their market, making it difficult for their own producers to survive.
The head of Brazil's Unica agricultural workers trade union called the reforms "a good start", but stressed they could take years to have an impact.
"In the short to medium term, there's no gain for Brazil", the Unica secretary general Fernando Moreira Riberio said.
However, the reforms are also opposed by some non-EU producers who sell sugar into Europe under preferential terms.
The EU's promised transitional aid funds must come through immediately to avoid hurting poor farmers, the Jamaican Foreign Trade Minister KD Knight said.
"Any delay would make it impossible for our industries to adapt in time to absorb the impact of price cuts," he said.
The EU has pledged an eight-year programme of assistance for Africa, Caribbean and Pacific (ACP) countries which depend on income from sugar exports, including $40m (£21m) of support next year.