Sugar firms sour on subsidy cut

Many sugar beet plantations may lie empty in future

Europe's largest sugar businesses have warned that profits will fall if subsidies are cut.

Firms in Germany, France, Denmark and the UK said a 40% cut in the guaranteed minimum price for white sugar would hit profits and may lead to job losses.

Shares in UK sugar refiner Tate & Lyle fell 2% after it said that subsidy cuts would hit profits by £165m in 2007-09.

The European Commission's proposals - unveiled on Wednesday - still have to be approved by member states.

It is a stern proposal which will certainly hit our profits hard Mogens Granborg, Danisco Q&A: Sugar subsidies

The Commission - which has been under pressure since the World Trade Organization ruled the subsidies were illegal last year - says that reform is necessary if the industry is to thrive.

But it is feared that the subsidy cuts could all but eliminate production in Italy, Portugal, Greece and Ireland while reducing output in some other countries.

Tate woes

The proposed changes would dent Tate & Lyle's income from sugar refining and reduce overall operating profits in 2007-09 by a total of £165m, it said.

We are deeply concerned about the inequitable nature of the proposals Iain Ferguson, Tate & Lyle chief executive Check Tate & Lyle's share price

It hopes to recoup this by increasing sales of value-added products such as its popular zero-calorie sweetener Sucralose.

However, it warned that depending on the final nature of the reforms, it would have to review staffing at the firm, which employs 2,400 people.

"We are deeply concerned about the inequitable nature of the proposals and, in particular, the disproportionate and discriminatory reduction in cane refining margins," said chief executive Iain Ferguson.

Tate & Lyle said it would lobby EU member states to ensure a "fairer outcome".

Beet complaints

Associated British Foods, the UK's only sugar beet processor, said the changes would reduce annual operating profits by about £10m in 2006-07 and £40m on an annual basis thereafter.

The firm, which made a pre-tax profit of £525m last year, said it hoped to offset the losses by cutting costs and using cane sugar to produce bio-ethanol fuel.

Shares in Danish firm Danisco, which processes sugar beet across Europe, fell more than 2%.

"It is a stern proposal which will certainly hit our profits hard," said Mogens Granborg, head of Danisco's sugar division.

Even Europe's largest and most efficient producers - many of which are based in France, Germany and the UK - say the subsidy cuts will hit them hard.

French producer Tereos said job losses were likely at its factories at home and in the Czech Republic.

"Our margins are going to drop 25% so we will have to re-examine our cost prices to harmonise them with our selling prices," Philippe Duval, the company's president, told Reuters.

German business Suedzucker described the proposed cuts in subsidies as "far too high and unnecessary".