Proposed changes to the European Union’s sugar subsidy system could hit the profits of some of the region’s main sugar processing firms, according to investment bank Goldman Sachs.
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Goldman Sachs said Danish food and ingredients firm Danisco, UK sugar and sweetener group Tate & Lyle and Associated British Foods (ABF), which owns British Sugar, were among those companies whose profits are likely to be hit by any changes to the sugar pricing and subsidy system.
The investment bank said it was making its downward evaluation on profits after the head of Danisco said this week that a new sugar policy would drive down EU sugar prices by 30% and reduce beet volumes by 10%, reported Reuters.
“Our models suggest that, without mitigating action, the profit decline (on sugar operations) suggested at the Danisco seminar could be understated for both Danisco and ABF,” Goldman Sachs’ analysts said in a report.
“We forecast a decline in sugar profits of closer to 60% for ABF and 40% for Danisco if the scenario of a 10% volume decline and a 30% price cut is realised,” it added.
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By GlobalDataTate & Lyle is not likely to be hit quite as severely because revenues from its sugar operations form a lower proportion of overall profits.
“Tate & Lyle is less exposed to sugar and may indeed see some benefit from its bias towards non-EU produced sugar,” the report said.
Goldman Sachs said new proposals are not expected for a few weeks and a number of options are being considered.
“We believe that there are four key options being studied which include; no change; full liberalisation; reduction in EU production quotas and introduction of import quotas; significant price reduction and cessation of effectively cross-subsidised exports,” Goldman Sachs was quoted by Reuters as saying.
