Two of Europe’s largest sugar companies have warned that proposed reforms to the EU’s sugar regime will lead to a sharp drop in profits.

Danish food ingredients firm Danisco has warned that its sugar division’s profits would be reduced by 25% in a couple of years if the EU’s proposals go ahead, reported the Financial Times.

Germany’s Südzucker warned that the reforms would lead to job losses and said small farmers would suffer a negative financial impact. The company also said it would have to cut costs and may be forced to lower its production.

“Südzucker will have to make maximum use of its competitive advantages arising from its locations and will have to adopt further measures to defend its profitability,” the company was quoted by the FT as saying.

The European Commission has proposed a radical overhaul of the EU sugar regime, promising the new system will be more market, consumer and trade friendly.

The current system has come under fierce criticism for misallocating resources, hampering competition, harming developing countries and giving consumers, taxpayers and the environment a raw deal.

The Commission has proposed to substantially cut back sugar exports and export refunds, abolish intervention, reduce EU production and the internal sugar price and grant a de-coupled payment to sugar beet farmers. The reform process is set to start in July 2005.

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